Opinion
As Corrected on Denial of Rehearing Feb. 23, 1960.
Hearing Granted March 23, 1960.
Opinion vacated 5 Cal.Rptr. 857.
Karl D. Lyon, San Francisco, of counsel.
Morris Lowenthal, Juliet Lowenthal, San Francisco, for appellant.
Lounibos & Lounibos, Petaluma, for respondents.
TOBRINER, Justice.
Plaintiff appeals from a defendants' judgment in an action which sought a declaration that certain real property was held in trust. Substantial evidence supports the findings and conclusion of the trial court that (1) an express trust did not result from plaintiff's transfer of the property; (2) plaintiff's execution of a quit claim deed and a general release in 1938 bars his claim; (3) the statute of limitations, beginning to run in 1938, and laches, likewise operate as a bar to the action. We discuss each of these issues under separate topical headings infra.
In an able and exhaustive brief plaintiff has built an elaborate argument to structure a trust, a defense against a release, an answer to the statute of limitations and laches. As an original interpretation of the evidence it is persuasive; but conflicts in the evidence cannot be resolved by this court; we determine only whether the findings and judgment rest upon substantial evidence. Plaintiff here is met at This litigation involves a one half interest in a family ranch (hereinafter referred to as 'the ranch') which two brothers acquired in 1894. One brother, Vittore Berri, died in 1916, and left his undivided one half interest in the ranch to his two sons, Arnold and Lindo, in equal shares, subject to a $60 monthly annuity secured by a lien on the real estate, payable to Vittore's widow, stepmother to Arnold and Lindo. The elder brother, Bartolemeo Berri, devised his one half interest, likewise, to Arnold and Lindo, subject to a life estate in Bartolemeo's wife and to the payment of certain legacies. In this action Arnold is plaintiff; Lindo is defendants' predecessor.
As to the dairy business conducted on the ranch, Arnold and Lindo, initially, and Arnold, thereafter, owned a one half interest. Their uncle, Bartolemeo, left his half interest in the business to his widow, Catterina, who first leased her interest to Arnold, and then sold it to one Dante Conte. Conte and Arnold subsequently became partners in the dairy business.
In January 1930, a series of events congealed into the perils for Arnold which ultimately produced this litigation. Arnold's creditors commenced foreclosure proceedings against his interest in the ranch; other creditors pressed for payment of their judgments; his wife sued him for divorce; the Federal Government indicted him on the charge of violation of the Prohibition Amendment, U.S.Const. Amend. 18. Confronted with the woes of a modern job, Arnold solicited financial help from an old friend, George P. McNear, a Petaluma merchant. McNear offered a loan of $17,500 conditioned upon Arnold transferring his interest in the ranch to Lindo. The entire property, thus, was to be put up as security for the loan.
Accordingly on March 19, 1930, Arnold executed a quit claim deed to Lindo, and Lindo placed a deed of trust against the property in the amount of $17,500 in favor of McNear. The proceeds of the loan were wholly applied to the payment of Arnold's creditors. The findings state that Arnold 'understood' that 'his interest in the said real property would be reconveyed to him by Lindo Berri upon the conclusion of the pending litigation initiated by his wife and upon the disposition of the Federal indictment.' However, Lindo, who died in 1947, had 'at all times since April of 1929 [apparently a clerical error, since the documents transferring the ranch were recorded March 31, 1930], claimed a full and complete ownership in the said real property to the entire exclusion of any claim of the plaintiff.'
Subsequent events led to Arnold's executing on April 9, 1938, a quit claim deed to the ranch in favor of Lindo and a release of all claims to him. From 1929 to that day Arnold lived on the ranch in a dwelling house he had constructed. Many years before, on December 3, 1917, Arnold, Lindo and their uncle, Bartolemeo Berri, had agreed that Arnold would remain the sole owner of the house until Lindo paid Arnold three fourths of its original cost. On this day, however, Arnold left the ranch. The court found that on the same day and in consideration of the sum of $1,000 Arnold, knowing the effect and 'contents of said deed at the time of its execution,' 'voluntarily' executed a quit claim deed to the ranch in favor of Lindo.
Between 1929 and April 1938, Arnold made no claim or demand upon Lindo; he did not assert any right, title or interest in the real or personal property of the ranch; he did not ask for an accounting; he did not inquire as to the status of the loan or loans on the real property; he did not report for tax purposes or financial statements any claimed ownership in the real property or in the proceeds derived from the operation of the real property; he did not pay taxes on the property or pay any of the insurance upon the property; he did not pay any part of the indebtedness The litigation involving the divorce, the creditors' claims, and the federal indictment terminated prior to or during the month of September 1932. According to the findings, at no time during Lindo's lifetime did Arnold 'make any demand' upon Lindo 'for the return to him of any interest' in the ranch 'or for any accounting in the matter of debts against the said real property.' At all times, up to Lindo's death, Arnold 'knew' Lindo was the sole owner and that Arnold had no record title of any kind to the property. Yet Arnold 'was a man of more than average intelligence who had business experience, who had been a secretary of a school district, who had been a co-executor of an estate, who kept a set of books and who carried on banking operations over a period of many years.' On the other hand Lindo 'had very little education and very little practical business experience.' Lindo, 'superior to Arnold * * * in his knowledge of agriculture and the operation of the dairy business,' was 'in general business matters' 'inferior in talent, skill and aptitude' to plaintiff.
Lindo died in 1947. On April 29, 1949, the recorded decree distributed the ranch to Lindo's wife and four daughters, defendants in this action. Though familiar with the manner of probate of an estate, having served as the coexecutor of an estate, Arnold, who knew of Lindo's death, did not file any claim, demand or suit against the estate or make any inquiry of any kind concerning the distribution of the real property and did not evidence any interest of any kind in the manner of the disposition of ownership by Lindo in the property, until after the time of the entry of the decree.
During his lifetime and after 1930, Lindo paid the interest on the indebtedness against the ranch and a portion of the principal. The deed of trust had been renewed on several occasions; at the time of Lindo's death the indebtedness had not been paid in full. From 1930 until his death, Lindo operated a dairy on the ranch and improved the property by the erection and repair of buildings, the fixing of fences, the cultivation of lands and improvements of the dairy herd. In 1938, the property was offered for sale for $25 an acre, but it was not sold.
Arnold made his first claim upon the property in filing this action on December 31, 1949. The trial court concluded that Arnold's first cause of action, which it determined to be for rescission because of mistake, was barred by Code of Civil Procedure, § 338, subd. 4; that his second cause of action to quiet title was barred by Code of Civil Procedure, § 339, subd. 1; that the two causes of action were barred (a) by laches and unreasonable delay in the bringing of the action, (b) by the execution and delivery of the quit claim deed of April 9, 1938, (c) by the execution of the general release of April 9, 1938. The court finally found that Arnold was esstopped from claiming any interest in the property both by his failure to take any course of action to establish his rights to the property, and by his permitting defendants and their predecessor Lindo to expend money, improve the property and operate the property without raising any claim to any ownership.
We turn to the three major points of the appeal.
1. Did the evidence and the findings establish the creation of an express trust in 1930?
Plaintiff's entire argument depends upon the proposition that a parol trust arose in 1930 when Lindo took the property 'under an oral promise to hold the property' for Arnold and 'reconvey to him'; that, upon 'repudiation' of Lindo's oral promise, the court must 'impose a constructive trust' upon Lindo and those claiming under him. Yet the trial court's findings do not affirm the parol trust.
The findings do not set out the essential component of Lindo's acceptance Although the court found that in 1930 it was 'understood by Arnold Berri that his interest in the said real property would be reconveyed to him by Lindo Berri upon the conclusion of pending litigation initiated by his wife and upon the disposition of the Federal indictment,' such an 'understanding' upon the part of the grantor-beneficiary alone would not be sufficient to create a trust. At most, it would afford Arnold grounds for rescission and restitution. But in 1938 Arnold did not rescind; he executed a quit claim deed and release.
We cannot disagree with the trial court's apparent conclusion that the inherent situation discloses the reasons why Lindo did not accept the property in trust and Arnold's 'understanding' did not alone impose the trust. The terms of the purported trust, as testified to by Arnold, would require that Lindo hold the land for Arnold's benefit; that Lindo's share of the profits of the dairy business, less $45 monthly drawing account, be used to discharge the McNear loan, a debt of Arnold, not Lindo. Yet Lindo's unilateral undertakings find no counterbalancing obligations or risks accepted by Arnold. An appraiser testified the rental value of one half the ranch in 1930 to be $1,000; thus, in the early 1930's, Arnold's quarter interest (one half of the half not encumbered by the life estate), would have been insufficient even to discharge the 6% interest of about $1,050 due each year on the loan. Such an arrangement would have contemplated that Lindo risk his share of the land at a time of declining real estate values for the sole purpose of paying Arnold's debts. It is not difficult to see why Arnold's conception of the transaction did not accord with Lindo's; why Lindo understood that he had bought Arnold's share in the ranch.
Because of the importance Arnold attaches to the parol trust we review briefly the major arguments upon which he relies to support it.
First, the favorable remarks of the trial court. Inasmuch as the court found that 'plaintiff has not, since April of 1929, been the owner of any interest in the said real property hereinabove described' and that 'the defendants, and their predecessor in title, Lindo Berri, have at all times since April of 1929, claimed a full and complete ownership in the said real property to the entire exclusion of any claim of the plaintiff,' the court obviously rejected its prior tentative opinion expressed in this regard. Although an opinion of the trial court may be considered for the purpose of discerning its reasoning, or 'when the opinion furnishes the basis of the court's action in its decision of the case' (Union Sugar Co. v. Hollister Estate Co., 1935, 3 Cal.2d 740, 750, 47 P.2d 273, 278), we cannot invoke it to impeach, or replace, findings (Goldner v. Spencer, 1912, 163 Cal. 317, 320-321, 125 Second. The findings allegedly establishing the trust. In this respect Arnold relies on the absence of a finding 'of any sale or of any agreement to sell' and 'of any consideration having been given by Lindo for any sale of the property.' The court found that Arnold 'understood' that the property 'would be reconveyed to him.' Such was not, however, Lindo's understanding. Naturally, there could be no finding of a 'sale,' which, like all contracts, requires a mutual understanding. There was, however, ample consideration for the transfer in Lindo's assumption of the $17,500 debt.
Again, this would appear to be a clerical error and should have been 1930, not 1929.
Third. The 'disproportionate value of the interest transferred, compared with the McNear obligation assumed by Lindo.' Arnold argues this 'is alone sufficient to establish that the transfer was in trust.' A Mr. Roberts put the fair market value of the ranch in December, 1929, at $75,000. He testified, however, that he did not consult assessor's records, the Bank of America appraisals on the property, real estate brokers or make any investigation of the sales in the area. W. Robert Miller testified the 1930 value of the property was $77,841, or $66,881 with allowance for the life estates. Miller did not take into account the annuities payable at the termination of one of the life estates; he used sales in the open market, not distress sales, and upon inquiry could not, taking into consideration the 'pending foreclosure and the lien against the property by one life estate and charges,' fix a 1930 evaluation of Arnold's interest. The fact, however, that Arnold could not even raise a $17,500 loan against his share, without Lindo hypothecating his interest as security, beclouds the appraisers' figures.
Fourth. Lindo's relationship with Arnold. Arnold urges that Lindo, on friendly terms with Arnold, entertained no 'thought of taking advantage of Arnold's troubles to appropriate his interest for a totally inadequate consideration.' But does the evidence show that the consideration was 'totally inadequate'? Was Lindo's risk of his interest to pay Arnold's debts wholly gratuitous? The trial court concluded to the contrary; the evidence gives no indication of so close a family relationship as to indicate gratuitous bounties; normal business relationships prevailed; Catterina received rent for her interest; prior to 1930 Lindo obtained rent for his share.
Fifth. The nature of the transfer 'as a step in accomplishing the refinancing of Arnold's debts and to safeguard his interest in the ranch' and discussions regarding it. The first reason is undisputed; the second composes Arnold's theory, which the trial court rejected. While, as Arnold contends, the 'discussions between Lindo, Arnold, Bolla and McNear regarding the actual transaction' may have 'clearly established the trust nature of the transaction,' this evidence was Arnold's. The participants were Bolla, who had cause for bias against defendants, and who thought their suit on a note which Bolla had given Lindo 'very unfair'; Arnold himself; the deceased Lindo; and the deceased McNear. Arnold apparently failed to carry an encumbered burden of persuasion on this issue. While plaintiff cites Airola v. Gorham, 1942, 56 Cal.App.2d 42, 44-45, 133 P.2d 78; Swallers v. Swallers, 1948, 89 Cal.App.2d 458, 459-460, 201 P.2d 23; Adams v. Talbott, 1943, 61 Cal.App.2d 315, 318, 142 P.2d 775; and Katz v. Enos, 1945, 68 Cal.App.2d 266, 273, 156 P.2d 461, as illustrations of court declared trusts, the trial courts in those cases accepted, rather than rejected, the purported beneficiary's thesis as to the nature of the transaction.
Sixth. The 'purpose of the entire transaction' in the absence of 'creditable evidence of any 'sale." The court made no finding of a sale; evidence in regard to it would therefore have no bearing upon the establishment of a trust. We see no point in discussing the issue of 'sale.'
Seventh. Arnold's residence at the main ranch house for a number of years after Eighth. McNear's letter to Arnold. The letter states, '* * * Lindo paid * * * [Arnold's] creditors and advanced * * * [Arnold] money, and * * * took [the] deed for * * * [Arnold's] interest in the ranch as security.' The letter, however, which merely expresses McNear's understanding of the transaction, confirms a sale with an option to repurchase or a mortgage rather than a trust.
Ninth. The events subsequent to 1930. Arnold refers to Bolla's and his own testimony that Arnold sought reconveyance, and was asked by Lindo to wait because Lindo was then heavily in debt. More significant in this regard is the lack of testimony that plaintiff, for whose sole benefit $17,500 of the McNear debt was contracted, ever offered to pay this amount, or reassume this part of the debt.
The record supports the court's findings: plaintiff harbored one understanding of the transaction, Lindo another. The burden of proof as to the creation of a trust, however, rested upon plaintiff. Olson v. Olson, 1935, 4 Cal.2d 434, 437-438, 49 P.2d 827. The evidence of such a trust must be clear, satisfactory and convincing (Turman v. Ellison, 1918, 37 Cal.App. 204, 209-210, 174 P. 396; Leitch v. Gay, 1944, 64 Cal.App.2d 16, 21, 147 P.2d 631; In re Estate of Alberts, 1940, 38 Cal.App.2d 42, 46, 100 P.2d 538; Miller v. Miller, 1942, 55 Cal.App.2d 199, 205, 130 P.2d 438; Harris v. Harris, 1902, 136 Cal. 379, 384, 69 P. 23; Sheehan v. Sullivan, 1899, 126 Cal. 189, 193, 58 P. 543.) The trial court apparently found that the evidence did not meet this standard; we cannot reject this conclusion.
2. Did execution of the quit claim deed and release in 1938 bar the plaintiff's claim?
Arnold attempts to avoid the effect of the 1938 release and quit claim deed by invoking the presumption that transactions between a trustee and beneficiary, by which the trustee obtains an advantage, 'are * * * entered into * * * without sufficient consideration, and under undue influence.' Civ.Code, § 2235. He argues that this presumption must prevail in the absence of findings (1) that the consideration for the deed and release was adequate, (2) that the transaction was fair and reasonable, and (3) that the transaction caused no undue advantage to Lindo or disadvantage to plaintiff.
While this argument assumes the existence of an express trust, a constructive trust, at most, arose here, and while the presumption may apply to a constructive trust resulting from fraud (see Allen v. Meyers, 1936, 5 Cal.2d 311, 54 P.2d 450), the presumption has not to our knowledge been applied to a case in which title has been obtained by mistake. Although such a party may be required to reconvey, he should not necessarily be encumbered with the incidents of a normal trusteeship, or even a fraudulently acquired trusteeship.
But assuming the presumption applicable to the instant case, plaintiff has not established the conditions which attend it. Dimond v. Sanderson, 1894, 103 Cal. 97, 101, 37 P. 189, 191, a suit upon a promissory note given in a transaction between a husband and wife, sets out these conditions: '[I]t must appear upon the face of the transaction, or by proof, that there was no consideration, or that the marital confidence was used to take an unfair advantage, * * * before the burden is cast upon the plaintiff of sustaining the fairness and the consideration of the transaction against the presumption invoked by appellant. [Civ.Code, § 2235].' Similarly, In re Estate of Roberts, 1942, 49 Cal.App.2d 71, 80 120 P.2d 933, and Donovan v. Security-First Nat. Bank, 1945, 67 Cal.App.2d In the instant case Arnold did not prove that Lindo derived an unfair advantage from the transaction. On the contrary, the evidence suggests that Arnold received approximately that which he would have received had he rescinded the 1930 transaction in 1938.
The only testimony as to the value of the ranch in 1938 is that during the period from 1928 to 1940 comparable ranches sold for $25 an acre. On that basis the 2292 acres here involved would total $57,300. Arnold's half, unencumbered by the charge to Vittore's widow, would be worth as much as $28,650, less $1,650, his share of the legacies due upon the termination of Catterina's life estate. This would leave a net of $27,000. Upon rescission, Arnold would be required to restore the benefits garnered from the 1930 transaction: either payment or assumption of the McNear debt in the amount of $17,500 and the accrued interest in the amount of approximately $8,400, or a total of $25,900. Arnold would be entitled to credit for the rental value of his quarter interest for the eight years, or $4,000. In turn, he would be chargeable with moneys expended for his benefit on the land, such as taxes. A payment of $1,000 for whatever interest Arnold had left in the land in 1938 does not seem grossly disproportionate to the value of that interest. In the absence of more precise testimony as to the value of the ranch in 1938, we cannot engage in speculation as to Lindo's alleged realization of an unfair advantage from this transaction. Since plaintiff, who bore the burden, failed to introduce evidence as to this condition to the presumption, he cannot now rely upon the presumption.
Catterina died in July 1937, and the rents due plaintiff would be somewhat larger because of the termination of her life estate.
Moreover, the court found that the 1938 instruments were executed voluntarily and with knowledge of their effect and content, negating any 'undue influence' of Lindo. This finding rests in part upon the testimony of Florinda, Lindo's daughter. She stated that before Arnold moved out of the house in 1938 he told Lindo he was going out to sign the releases, deliver the keys to McNear, and get the $1,000. As he was leaving the house, Arnold said, "I am glad it is you, and not me, that is staying here with all these debts." The trial court, in the face of this testimony, apparently concluded the reference to the debts destroyed Arnold's present contention that he believed the documents referred only to a surrender of his interest in the ranch house, and not the ranch.
Finally, the court's findings on this matter do not founder on the rock of '[d]efendants' deliberate failure to produce John Lounibos.' Lounibos, indeed, served as the attorney who prepared the 1938 documents. While Code of Civil Procedure, § 1963, subd. 5 postulates the presumption that 'evidence wilfully suppressed would be adverse if produced,' no presumption arises when a witness is equally available to both parties. Davis v. Franson, 1956, 141 Cal.App.2d 263, 270, 296 P.2d 600, 605; Ericson v. Petersen, 1953, 116 Cal.App.2d 106, 111-112, 253 P.2d 99. Plaintiff knew both Lounibos' whereabouts and the subject upon which he could testify. Finally, if Lounibos' nonproduction were sufficient to raise an adverse inference, nothing signifies that the trial court did not take this factor into consideration in weighing the evidence.
The force of this factor might, in any event, be tempered by the fact that the involved transaction took place thirteen years prior to the trial; that the witness' retention of an independent recollection of the transaction would be unlikely and that Dierman v. Providence Hospital,
Talbert v. Ostergaard, Bone v. Hayes, People v. Adamson, Osburn v. Wright, Shapiro v. Equitable Life Assur. Society,Since the evidence does not disclose that Lindo received an unfair advantage by paying Arnold $1,000 for the quit claim deed and release, and since the findings, supported by sufficient evidence, conflict with the supposition that Lindo procured the deed and release through supposed undue influence, the presumption of Civil Code, § 2235 does not arise. The deed and release therefore serve as an effective bar to Arnold's cause of action.
3. Is the action barred by the statute of limitations and laches?
Arnold's argument regarding laches and the statute of limitations rests upon the twofold grounds of the presence of an express trust and the absence of Arnold's knowledge of the purport of the 1938 quit claim deed and release. The court found against Arnold on both issues; the findings, as we have pointed out supra, were sufficiently supported by the evidence.
Arnold strenuously argues that the alleged trust was not repudiated until after Lindo's death and that only from this date can laches or the statute of limitations be projected. But the court found that on April 9, 1938, Arnold signed a quit claim deed to the ranch and a release, and that the documents made clear to Arnold that Lindo repudiated the 'trust agreement if any existed.' The period of limitation would then begin as of April 9, 1938.
The trial court found that plaintiff's cause of action was one of rescission because of mistake. The three year statute (Code Civ.Proc. § 338, subd. 4) applies to suits to impose a constructive trust upon property conveyed through fraud or mistake. Neet v. Holmes, 1944, 25 Cal.2d 447, 466-467, 154 P.2d 854; Douglas v. Douglas, 1951, 103 Cal.App.2d 29, 32, 228 P.2d 603. Defendants pleaded the section as a defense.
The pleadings, however, seek to establish different causes of action: the first alleges the trust and seeks its enforcement; the second incorporates the allegations of the first, and contains allegations that resemble those in the quiet title action, but the allegations negate the existence of the requirement of Code of Civil Procedure, § 318 that 'it appear that the plaintiff * * * was seized or possessed of the property * * * within five years before the commencement of the action.' The two causes of action in substance are one and the same, seeking to enforce an express trust. the cause of action as found by the trial court, however, governs in determining the applicable statute of limitations; it is neither the form of action nor the relief demanded, but the nature of the right alleged, that fixes the pertinent statute of limitations. People v. Union Oil Co., 1957, 48 Cal.2d 476, 482, 310 P.2d 409.
Although the court concluded that the two year limitation of Code of Civil Procedure, § 339, subd. 1, pertaining to oral contracts, barred Arnold's second cause Dwyer v. Lanan & Snow Lumber Co.,
The defense of laches applies in a case of delay and 'a showing of facts amounting to acquiescence in the acts complained of, or other circumstances which, coupled with the delay, render the granting of relief inequitable.' Neet v. Holmes, 1944, 25 Cal.2d 447, 460, 154 P.2d 854, 861. Arnold here stood aside, allowing Lindo to deal with the property as his own, to expend time and effort in establishing a business on the land, to encumber himself with debts, and to run the risk of a depreciation in the value of the land. When ultimately the value of the land exceeded the debts by a substantial amount and after Lindo's death, which foreclosed the possibility that Lindo might contradict him, plaintiff asserts his claim to the property and the fruits of Lindo's labors.
We conclude with the observation we made at the outset. Arnold's massive re-evaluation of the facts might be convincing as a de novo presentation to a court of first investigation. But, as in so many instances of this nature, we cannot retry a case. This court is bound by the findings of the trial court, and we are neither equipped nor enjoined by the precedents to set them aside, except under limited and definite conditions. These conditions have not been met here.
We affirm the judgment.
BRAY, P.J., and FOLEY, J. pro tem., concur.