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Marriage of Balcof

Court of Appeals of California, Fourth Appellate District, Division Three.
Nov 21, 2003
No. G030572 (Cal. Ct. App. Nov. 21, 2003)

Opinion

G030572.

11-21-2003

In re Marriage of RALPH and KATHLEEN BALCOF. RALPH BALCOF, Respondent, v. KATHLEEN BALCOF, Appellant.

Family Law Appellate Associates and Jeffrey W. Doeringer for Appellant. Law Offices of Marjorie G. Fuller, Marjorie G. Fuller; Millard, Castle and Monarch and Michael J. Monarch for Respondent.


Kathleen Balcof appeals from a judgment holding that a writing she and her husband, Ralph Balcof, signed during marriage did not constitute a transmutation of certain of his property interests to those of hers. We agree with Kathleen that the writing contained an express declaration of a change in ownership with respect to certain real property and stock holdings, and that it was a valid transmutation as to those items. However, the writing did not constitute a present transmutation of penalties in the amount of $1,000 per day, which would accrue, if at all, only on the happening of a future event. In addition, we observe that Ralph was precluded from presenting evidence to the effect that he was under duress when he signed the writing, so the matter must be remanded to give him an opportunity to present his evidence and to make his arguments concerning the enforceability of the otherwise valid transmutation. We reverse and remand.

Hereafter, we refer to the parties by their first names, as a convenience to the reader. We do not intend this informality to reflect a lack of respect. (In re Marriage of Smith (1990) 225 Cal.App.3d 469, 475-476, fn. 1.)

I

FACTS

Ralph and Kathleen were married in 1988. They had two children, in 1990 and 1992, respectively. In October 1999, they both signed a writing concerning their marital residence and a percentage of the stock in Ralphs separate property corporation. They separated three or four months later. Ralph filed a petition for dissolution in January 2000. Their marriage was dissolved as to status only on December 5, 2000.

During the marital dissolution proceedings, Kathleen asserted that the October 1999 writing constituted either a gift or a deed, by which Ralph gave his community property interest in the marital residence, and 20 percent of his separate property stock in his corporation, to Kathleen as her separate property. Ralph argued that the writing constituted, at best, an unenforceable promise to make a future gift and that it did not satisfy the requirements of a transmutation, as set forth in Family Code section 852, subdivision (a).

At trial, the judge stated his conclusion that the writing failed as a conveyance of the real property because Kathleens name did not appear on the writing at the time she received it. He further explained that, with respect to the stock, the writing constituted an unenforceable promise to deliver something in the future. The court entered a judgment on reserved issues, holding that the writing was ineffective to transmute property from that of Ralph to that of Kathleen. Kathleen appeals.

The judgment on reserved issues addressing the purported transmutation was filed on September 21, 2001. Kathleen sought certification of the judgment on reserved issues, for immediate appeal. Her motion was denied. A second judgment on reserved issues was filed on March 12, 2002. A third judgment on reserved issues was filed on April 17, 2002. It stated that the September 21, 2001 judgment on reserved issues was in reality a "Judgment on Bifurcated Issues" and was incorporated into the April 17, 2002 judgment. Kathleen appeals from the April 17, 2002 judgment on reserved issues.

II

DISCUSSION

A. Standard of Review

The determination of whether a written document constitutes a transmutation is subject to de novo review. (In re Marriage of Barneson (1999) 69 Cal.App.4th 583, 588.)

B. Background

(1) Prenuptial agreement

Shortly before their marriage, the parties signed a prenuptial agreement, the validity of which is not an issue in this matter. As disclosed in the exhibits to the agreement, Ralph then owned property worth several million dollars, including more than $2 million in Bolcof Plastic Materials, Inc. stock. Kathleens assets were minimal.

In his respondents brief, Ralph explains that the parties correct surname is "Balcof" but that the company name is "Bolcof."

Under the prenuptial agreement, the parties agreed that Ralph would transfer the bulk of his property into a separate property trust and that Kathleen would not acquire any interest in that property or in the trust during the course of the marriage. In short, she would never acquire any interest in Bolcof Plastic Materials, Inc., even to the extent the value of the corporation might increase due to the efforts of Ralph during the marriage. However, Ralph agreed to transfer two $15,000 life insurance policies he owned to himself and Kathleen as community property. Also, Ralph and Kathleen agreed that if they were still living together as man and wife upon Ralphs death, Kathleen would receive the marital dwelling, free and clear of debt, plus $ 250,000.

At the time the prenuptial agreement was signed, the parties had not yet acquired the property located on Pelican Drive, which was purchased after marriage and was not placed in the trust.

(2) Transmutation document

The parties have stipulated that in October 1999, while they were in a room together at an inn, Ralph penned a writing which is the subject matter of this dispute. That writing provides as follows: "I, Ralph Balcof Deed over all Interest in our house at 770 Pelican Dr. — Laguna Beach — also 20% interest (stock) in Bolcof Plastic Materials[.] This will be legal by Dec 1 1999[.]" Then appear the signatures of each of Kathleen and Ralph. Immediately thereafter is written: "P.S. I will pay $1000 a day Penlty [sic] iF [sic] this is not done by Dec 1[.]"

The parties have further stipulated that, after Ralph wrote the document, he signed it. At trial, the parties could not stipulate as to when Kathleen took possession of the document or when she signed it, so the court took testimony on that matter. Ralph testified that after he finished with the document, he placed it on a suitcase in the room and walked away. He did not see Kathleen sign it and he stated he did not know when she took possession of it. Kathleen testified that Ralph handed the document to her. Although her testimony was somewhat vague on the point, she stated that she "believed" she signed it there in the room after he handed it to her. In any event, Kathleen knew that she signed the document sometime after Ralph did and that she put it in her daytimer, which was then placed in the room safe.

(3) Stipulated judgment

In the March 12, 2002 judgment on reserved issues, the court divided certain the assets between the parties and ordered the payment of spousal and child support, pursuant to their stipulated judgment.

Ralph stipulated to pay Kathleen the sum of $8,000 per month in spousal support while she was living in the marital dwelling. After she vacated the dwelling, Ralph was required to pay her $12,000 per month, until the first to occur of the death of either party, Kathleens remarriage, or June 15, 2012. The judgment contains a provision for the payment of an additional $ 33,000 in spousal support for a time period that cannot be ascertained due to the fact a portion of the copy of the judgment as contained in the record is illegible. In addition, the judgment addressed the provision of COBRA medical insurance coverage for Kathleen.

Ralph also stipulated to pay child support in the amount of $ 2,488 per month for his daughter, Kelsey, and $4,172 per month for his son, Andrew. He further committed to provide health insurance for the children.

In addition, Ralph stipulated to maintain an initial sum of $ 500,000 in life insurance, decreasing by $50,000 each year, with respect to spousal support. He also agreed to maintain $ 75,000 in life insurance with respect to child support.

The court awarded Ralph the marital dwelling, with an assigned value of $2 million, as his sole and separate property. In addition, it awarded Ralph half of the miscellaneous personal property, furniture and furnishings the parties acquired during marriage, half of the parties three Wells Fargo checking accounts, and half of the $403,177.56 community interest in the Bolcof Plastic Materials, Inc. Profit-Sharing Plan and Trust.

Kathleen was awarded, as her sole and separate property, the following:

(1) $123,026 in a joint Wells Fargo account; (2) $154,745 in the parties Paine Webber account; (3) $141,000 in pre-distributions of community funds; (4) a 1996 GMC Suburban automobile; (5) half of the miscellaneous personal property, furniture and furnishings the parties acquired during marriage; (6) half of the parties three Wells Fargo checking accounts; (7) half of the $403,177.56 community interest in the Bolcof Plastic Materials, Inc. Profit-Sharing Plan and Trust; (8) the Mammoth condominium, valued at $403,000; and (9) an equalization payment of $589,114.50. Also, Ralph was ordered to pay $100,000 of Kathleens attorney fees.

In addition to the foregoing, the judgment recited that Kathleen had indicated that she might file an appeal with respect to the characterization of the marital dwelling and the Bolcof Plastic Materials, Inc. business. The parties reserved the right to assert different values for those assets and to argue that the amount of the equalization payment was incorrect, depending on the outcome of any appeal.

In the April 17, 2002 judgment on reserved issues, Ralph was awarded the following items as his sole and separate property: (1) any and all shares of Bolcof Plastic Materials, Inc. common stock; (2) any and all shares of e-resin.com common stock;

(3) any and all shares of Bolcof Plastic Materials (Southeast), Inc. common stock; (4) any and all interest in Azusa Packaging, a California general partnership; (5) certain real property located in Azusa; and (6) certain real property located in Fontana.

C. Transmutation

(1) Requirements of Family Code section 852, subdivision (a)

The question on appeal is whether the handwritten document constitutes a valid transmutation of certain community and separate property interests of Ralph to separate property interests of Kathleen. The answer to this question depends upon the interpretation of Family Code section 852. Subdivision (a) thereof provides: "A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected."

Kathleen no longer argues that the October 1999 writing constitutes a completed gift.

The California Supreme Court in Estate of MacDonald (1990) 51 Cal.3d 262 addressed this language, as it then appeared in former Civil Code section 5110.730. It first observed: "It is not immediately evident from a reading of section 5110.730(a) what is meant by the phrase `an express declaration. . . . The statute does not state what words such an `express declaration must include, what information it must convey, or even what topics it should discuss." (Id. at p. 268.) The court further stated: "Since the words of section 5110.730(a) themselves, including the phrase `an express declaration, are unclear and ambiguous, it is necessary to resort to other indicia of the intent of the Legislature to determine what meaning the statute should be given. [Citations.]" (Ibid.)

Former Civil Code section 5110.730 was continued in Family Code section 852 without change. (Cal. Law Revision Com. com., 29C Wests Ann. Fam. Code (1994 ed.) foll. § 852, p. 317.)

As the court observed, before the statute was adopted in 1984, case law permitted oral transmutations. But "`the rule of easy transmutation" gave rise to extensive litigation. (Estate of MacDonald, supra, 51 Cal.3d at pp. 268-269.) The purpose of section 5110.730(a) was to impose "`formalities on interspousal transmutations for the purpose of increasing certainty in the determination whether a transmutation has in fact occurred. [Citation.]" (Id. at p. 268.) "[T]he Legislature decided that proof of transmutation should henceforth be in writing . . . ." (Id. at p. 269.) After reviewing this history, the court stated that "the Legislature cannot have intended that any signed writing whatsoever by the adversely affected spouse would suffice . . . ." (Ibid.) The court "conclude[d] that a writing signed by the adversely affected spouse is not an `express declaration for the purposes of section 5110.730(a) unless it contains language which expressly states that the characterization or ownership of the property is being changed." (Id. at p. 272.)

(2) Express declaration of change of ownership

In the case before us, Ralph, the adversely affected spouse, signed a writing. That writing can be construed as stating that the ownership of the marital residence and 20 percent of the stock is being changed. In that writing, Ralph says, "I . . . Deed over" certain property. The words, "Deed over," as Kathleen argues, are indicative of a present transfer of ownership of property.

If we look no further, this is a reasonable interpretation of the writing. Yet the writing contains other language somewhat at odds with this interpretation. The writing also states, "This will be legal by Dec 1 1999" and "I will pay $1000 a day Penlty [sic] iF [sic] this is not done by Dec l[.]" In other words, the language "I . . . Deed over" is expressed in the present tense, indicating something is being transferred immediately. Yet, the language regarding December 1, 1999 is in the future tense, demonstrating an intention to effectuate the transfer in the future. Ralph emphasizes the language in the future tense. He says the language shows, at best, that the document reflects an intention to make a gift only in the future, and a promise to make a gift is unenforceable. (Berl v. Rosenberg (1959) 169 Cal.App.2d 125, 129; Rolinson v. Rolinson (1955) 132 Cal.App.2d 387, 389-390 [unenforceable promise to make future gift when husband shows wife stock certificates and says, "I want you to have these. These are yours"].)

Another possible explanation, as Kathleen suggests, is that Ralph intended for the change in ownership to be effective immediately, but that he was aware that formal documentation would be required in order to make the change in ownership appear of public record. That is to say, he knew that a deed would need to be prepared and recorded in order for the change in ownership of the marital residence to be effective vis-à-vis third parties without notice and that stock certificates would need to be issued in Kathleens name in order for her to exercise certain incidents of ownership. Kathleens interpretation makes sense, because it harmonizes the language appearing in the present tense with the language appearing in the future tense. Ralphs suggestion, that the writing is merely evidence of an intention to make a future gift, is inconsistent with the fact that some of the language is in the present tense.

Family Code section 852, subdivision (b) provides: "A transmutation of real property is not effective as to third parties without notice thereof unless recorded." This implies a transmutation of real property is effective as between husband and wife without recording. This interpretation is consistent with Civil Code section 1217, which provides: "An unrecorded instrument is valid as between the parties thereto and those who have notice thereof."

(3) Statutory formalities

However, even when we interpret the writing as expressing an intention to make a present change in ownership of the property, with formal transfer documentation to be prepared subsequently, this is not the end of our inquiry. This construction only resolves the temporal issue. Aside from that, Ralph argues that the writing does not satisfy the requisite formalities for transmutation. He cites Estate of Bibb (2001) 87 Cal.App.4th 461, 468, which states that "the requirements for a valid transmutation under Family Code section 852, subdivision (a), can be divided into two basic components: (1) a writing that satisfies the statute of frauds; and (2) an expression of intent to transfer a property interest." We have already addressed the second requirement, so we turn our attention to the first.

The statute of frauds is contained in Civil Code section 1624. Subdivision (a) thereof provides that certain "contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged . . . ." Applying that law in the transmutation context, a transmutation must be "in writing and subscribed by the party to be charged" in order to be valid. Here, we clearly have a writing and it is undisputedly signed by Ralph, the party to be charged. On the surface, it would appear that the requirements of the statute of frauds have been met.

Ralph disagrees, asserting that deed formalities must be met. More precisely, he cites various cases to the effect that a deed lacking the name of a grantee is void under the statute of frauds. (See Trout v. Taylor (1934) 220 Cal. 652, 655 [deed executed without name of grantee is void under statute of frauds and name cannot be added later]; Jones v. Coulter (1925) 75 Cal.App. 540, 547 [deed lacking the name of a grantee is void under the statute of frauds].) However, a transmutation is not a deed and cases regarding deed requirements are inapposite.

Moreover, the writing is sufficient. Ralph stated therein that he did "Deed over all Interest in our house . . . ." The parties agree that they shared the ownership of the house, so the identities of the two individuals referenced by the term "our" was not in doubt; "our house" meant the house belonging to Ralph and Kathleen. In the writing Ralph expressed his intention to deed over the interest in the house belonging to himself and Kathleen, and Kathleens signature appears soon thereafter on the document. The document thus shows with reasonable certainty the identity of the intended transferee — Kathleen. (See Rivers v. Beadle (1960) 183 Cal.App.2d 691, 696 [a document satisfies the statute of frauds if it identifies the parties to the contract with reasonable certainty].) No other construction of the document makes sense.

Ralph disagrees on this point, and argues that there are additional formalities that must be met as well. The California Law Revision Commission has stated: "Section 852 makes clear that the ordinary rules and formalities applicable to real property transfers apply also to transmutations of real property between the spouses. See Civ. Code §§ 1091, 1624 (statute of frauds), 1213-1217 (effect of recording)." (Cal. Law Revision Com. com., 29C Wests Ann. Fam. Code (1994 ed.) foll. § 852, p. 317.) Ralph thus argues that the writing fails because it does not comply with the formalities applicable to transfers of real property. He asserts that the formalities of both Civil Code section 1091 and Civil Code section 1092 must be met.

Civil Code section 1091 provides: "An estate in real property . . . can be transferred only by operation of law, or by an instrument in writing, subscribed by the party disposing of the same, or by his agent thereunto authorized by writing." Of course, here, the instrument is in writing, and it is subscribed by Ralph, the party who purportedly disposed of his property as described therein.

According to Ralph, this is not enough, because the deed requirements of Civil Code section 1092 were not satisfied. Section 1092 provides: "A grant of an estate in real property may be made in substance as follows: [¶] `I, A B, grant to C D all that real property situated in (insert name of county) County, State of California, bounded (or described) as follows: (here insert property description, or if the land sought to be conveyed has a descriptive name, it may be described by the name, as for instance, "The Norris Ranch.") [¶] Witness my hand this (insert day) day of (insert month), 20__."

Were we to hold that a transmutation of real property had to be in the form set forth in Civil Code section 1092, the writing at issue would be defective in a number of respects. The state and county are not identified, the document is not dated, and, most importantly, the identity of the grantee is not disclosed. However, the California Law Revision Commission comment did not specifically identify Civil Code section 1092 as one of the statutes with which real property transmutations must comply. It mentioned Civil Code section 1091, and, as stated above, the requirements of that statute are satisfied. Even more to the point, the document very simply is not a deed, so section 1092 does not apply.

(4) Penalty provision

Kathleen states unequivocally that the "writing is a transmutation." She contends that the failure to enforce the transmutation triggered the penalty provision. She seeks at least $567,000, for the period of December 1, 1999 through June 22, 2001, plus an additional $1,000 per day from June 22, 2001. She argues that the penalty provision is not unconscionable and therefore is enforceable as a liquidated damages provision, under Civil Code section 1671.

While Kathleen has persuaded us that the writing constitutes a valid transmutation of Ralphs interest in the house and his interest in 20 percent of the stock, she has not convinced us that the writing constitutes a valid transmutation of $567,000 or more in cash. The Supreme Court in Estate of MacDonald, supra, 51 Cal.3d at page 272 concluded that a valid transmutation must contain "language which expressly states that the characterization or ownership of the property is being changed."

As we see it, there was no express declaration that the ownership of certain cash amounts was being changed at the time. While Ralph stated he would pay a penalty in the future under certain circumstances, there was no expression of an intention to make a current change in ownership with respect to cash or other property with an equivalent cash value. He could not, on the date he signed the writing, have intended to transmute what would have been, at best, an indefinite sum of money capable of determination only in the future.

Kathleen makes no argument that the writing is a contract. Moreover, it is not apparent what consideration there could have been to support any contract. Kathleens arguments are based only on transmutation law. However, she has cited no authority to the effect that a promise to pay certain sums of money in the event specified contingencies should occur in the future is a valid transmutation. She only argues that the transmutation statutes do not prohibit penalties. While this may be, the penalty provision in this case fails to comply with the requirements of a transmutation as explained in Estate of MacDonald, supra, 51 Cal.3d 262.

(5) Conclusion

The October 1999 writing satisfies the requirements of a transmutation, with respect to the real property and stock interests. It does not satisfy the requirements of a transmutation with respect to the monies Kathleen seeks in penalties.

Ralph argued at the trial level that he had signed the writing under duress and that it was therefore unenforceable. It was a point raised in his trial brief and at trial. The reporters transcript indicates that Ralph was not, however, given an opportunity to present evidence with respect to this argument. The court limited the presentation of evidence to that having to do with when and where the document was created, who signed it, and when. At oral argument on appeal, Ralph requested that, should this court be inclined to rule that the writing constituted a valid transmutation, the matter be remanded to give him an opportunity to present his evidence and make his arguments pertaining to duress. We so remand.

(6) Attorney fees

Kathleen seeks attorney fees pursuant to Family Code sections 271 and 2030 through 2032. Her request for fees pursuant to Family Code section 271 is denied. Ralph had legitimate arguments in favor of his position and he was entitled to assert them. The matter is remanded to the trial court for a determination, in its discretion, of whether to award or not to award attorney fees under Family Code sections 2030 through 2032.

III

DISPOSITION

The judgment is reversed. The matter is remanded for further proceedings consistent with the views expressed herein. Kathleen shall recover her costs on appeal.

WE CONCUR: SILLS, P.J., FYBEL, J.


Summaries of

Marriage of Balcof

Court of Appeals of California, Fourth Appellate District, Division Three.
Nov 21, 2003
No. G030572 (Cal. Ct. App. Nov. 21, 2003)
Case details for

Marriage of Balcof

Case Details

Full title:In re Marriage of RALPH and KATHLEEN BALCOF. RALPH BALCOF, Respondent, v…

Court:Court of Appeals of California, Fourth Appellate District, Division Three.

Date published: Nov 21, 2003

Citations

No. G030572 (Cal. Ct. App. Nov. 21, 2003)

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