BERNIKER v. BERNIKER

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District Court of Appeal, Second District, Division 2, California.

BERNIKER v. BERNIKER et al.

Civ. 15493.

Decided: November 22, 1946

Samuel Schekman, Walker, Meyers, Ingram & Moser, and Hubert O. Butler, Jr., all of Los Angeles, for appellants. Wm. Christensen, of Los Angeles, and Barry B. Stepsay, of Studio City, for respondent.

Respondent brought this action against her husband, who will be referred to as Barnett, for separate maintenance, naming his father, appellant, as a defendant upon allegations that he held community property in his name which Barnett had placed therein in order to defeat the claims of judgment creditors, and which she contended should be divided between plaintiff and her husband. Defendants filed a joint answer denying the allegations of the complaint. After the trial respondent filed an amended complaint praying for a divorce, making the same allegations as to the community property as were contained in the original complaint except that it was not alleged that the purpose of the transfer to appellant was to avoid creditors. The court found that a mercantile establishment in Santa Monica and a bank account, both of which were in the name of appellant, together with a lease in the names of both defendants on the premises wherein said establishment was located, were community property of plaintiff and her husband, and that appellant had no interest therein except the naked legal title as trustee of respondent and Barnett.

An interlocutory decree of divorce was granted to respondent awarding one half of the community property to her and directing appellant to transfer and assign to her an undivided one-half interest in the mercantile establishment, lease and bank account.

Barnett has not appealed. Nathan Berniker has appealed from the entire judgment except that portion granting a divorce to respondent. As grounds for reversal appellant contends that there is no credible evidence that community funds were used to purchase the business in Santa Monica, that the trial court erred in establishing a trust in favor of respondent, and that her claim, if any she had, is barred by the statute of limitations and by laches.

1. The sufficiency of the evidence to sustain the findings and judgment. Respondent and Barnett were married in 1927. For some years after the marriage he was employed as a manufacturer's representative and later in several retail dress stores in Los Angeles and Hollywood. In 1932 he opened a retail dress store in Hollywood. About six months later the business was incorporated and the capital stock was issued to various members of the respective families of respondent and Barnett. Three years later the corporation established a store in Santa Monica. In 1937 the Hollywood store was sold. The Santa Monica business was not a financial success, and an assignment of the corporation's assets was made for the benefit of creditors. In 1938 appellant purchased the Santa Monica store. There is a conflict in the evidence as to whether he purchased it with his own funds or with the money furnished by Barnett. He is a retired building contractor without knowledge of or experience in retail merchandising of wearing apparel. Respondent testified that her husband furnished the purchase money and that it was a part of the proceeds of the sale of the Hollywood store. Appellant and Barnett testified that the business was purchased with appellant's personal funds. According to some of the evidence Barnett was in charge of the store after the purchase as manager for appellant. Respondent testified that he conducted it as his own personal business. The attorney who acted as escrow holder when the sale was made testified that his dealings were with Barnett and that the latter stated that ‘he was starting this business and he was going to put it in his father's name.’ The finances of the business were handled through the bank account which is in controversy here. Appellant testified that the profit from the business in 1944 amounted to $7,000 which he gave to Barnett. Appellant knew nothing about the operation of the store; he did not know the amount of the sales made for cash and the amount on credit; he never paid social security tax, unemployment insurance or compensation insurance. Barnett hired and discharged the employees and paid bills for gas, electricity and other expenses of the business. Further evidence that appellant held merely the legal title to the property and was not the real owner is set forth in a subsequent subdivision of this opinion.

Appellant maintains that by reason of the contradictions found in respondent's testimony and by reason of the evidence given by other witnesses respondent is unworthy of belief and that there is no credible evidence sustaining the finding that community funds were used to purchase the business which stands in appellant's name.

It is not our purpose to analyze the conflict in the evidence. The trial court had the opportunity of observing the witnesses, a privilege that is denied to us, and determined the facts from the evidence. At the close of the trial, in announcing the terms of the judgment, the court said: ‘There is not any question but what there has been a lot of perjury in this case.’ The record supports this declaration and the findings establish the source of the perjury as viewed by the trial judge. Following the quoted statement the court announced its conclusion that the property involved is the community property of plaintiff and Barnett. It is not within our province to weight the evidence but we must view it most favorably to respondent. The general rule is that the findings of the trial court will not be disturbed on appeal if the record discloses substantial evidence to support them, and all intendments are in favor of the judgment. California Employment Comm. v. Betthesda Foundation, 54 Cal.App.2d 348, 350, 128 P.2d 874; Morrison v. Willhoit, 62 Cal.Apop.2d 830, 836, 145 P.2d 7079 Since the finding that appellant holds title to the community property in trust for respondent and her husband is sustained by substantial evidence, any conflicting evidence will be disregarded. Buckhantz v. R. G. Hamilton & Co., 71 Cal.App.2d 777, 779, 163 P.2d 756 and cases cited: ‘Berger v. Steiner, 72 Cal.App.2d 208, 213, 164 P.2d 559; Estate of Isenberg, 63 Cal.App.2d 214, 216, 146 P.2d 424; Estate of Bristol, 23 Cal.2d 221, 223, 143 P.2d 689. There is substantial evidence, though contradicted, sustaining the finding that the business, the lease, and the bank account are community property, and that appellant holds the same In his name as trustee for respondent and her husband.

2. Should the court have established a trust in favor of respondent? The allegation in the original complaint for separate maintenance is that Barnett had placed all the community property in the name of his father in order to defeat the claims of judgment creditors. In the amended complaint for divorce, filed after the trial had been completed, it is merely alleged that the community property stands in the name of appellant but that he has no right, title or interest therein other than the naked legal title as trustee for plaintiff and her husband, no reference being made to the reason or purpose for his so holding it. The finding of the court is in accord with the allegations in the amended complaint. There is no finding that the property was placed in appellant's name for the purpose of avoiding the claims of creditors and there is no evidence that would have sustained a finding to that effect.

Respondent testified that when her husband gave the money to his father with which to purchase the Santa Monica store he, Barnett, stated to her that he could not have the business in his name on account of the bankruptcy and on account of his creditors. The record is devoid of evidence that Barnett had any creditors. If any claims on account of the Hollywood store remained unpaid they were against the corporation that had owned and operated it and not against him. In view of this circumstance the allegation in the original complaint to the effect that Barnett had placed the community property in his father's name to defeat the claims of judgment creditors was not a correct statement, although based on Barnett's assertion to that effect. The fact that no evidence was introduced that Barnett had any creditors furnishes the reason for omitting from the amended complaint any reference to creditors and for the failure of the court to find that Barnett's attempt to escape creditors' claims motivated appellant's trusteeship.

In order that a transferor of property be prevented from recovering it from the person to whom it had been transferred in trust not only must there be an intent to avoid claims of creditors but there must be enforceable claims. A mere intent without the presence of something on which the intent may operate is not sufficient. The intent to avoid creditors' claims and the actuality of the claims must coexist. Before the court will deny relief on the ground that a trust was created for the purpose of defrauding creditors there must be proof of a claim which was intended to be defeated. Alaniz v. Casenave, 91 Cal. 41, 47, 27 P. 521. In 1 Restatement of the Law of Trusts, the rule is stated in section 63 to be that an intended trust in invalid if the purpose of the settlor in creating it is to defraud his creditors or other persons. In the comment following that section it is said (p. 200) that if a transfer of property is made for the purpose of preventing the enforcement of a claim against the property and the claim could not have been enforced, although the transferor believed that it could be enforced, the transferor can compel the transferee to perform the trust; and if a person, believing that he is liable on a claim, transfers his property to another who agrees to hold it in trust for him, and the purpose of the transfer was to prevent a third person from attaching the property, the transferor can compel the transferee to reconvey the property if, in fact, he was not liable to the third person although he believed he was liable.

An analogous illustration of the necessity for the concurrence of intent and an object on which the intent may operate is where a person, with the intent to avoid creditors' claims, transfers property that is exempt from the payment of debts and therefore could not be levied upon to satisfy the indebtedness, the transfer is not fraudulent since creditors have no interest in such property and are not hindered or delayed by the conveyance. Rossow v. Peters, 277 Ill. 436, 115 N.W. 524, 525; Bogan v. Cleveland, 52 Ark. 101, 12 S.W. 459, 20 Am.St.Rep. 158; Washburn v. Goodheart, 88 Ill. 229, 232; Moore v. Flynn, 135 Ill. 74, 25 N.E. 844, 846; 1 Restatement, Trusts, 200.

Since there is no evidence that Barnett had any creditors, although he may have believed that there were claims against him, the trust was not invalid, and since for that reason that placing of the title to the community property in appellant was not prejudicial to the rights of others and was not an indicium or badge of fraud, the trust is enforceable by respondent as to her community share or interest in the property.

3. The defense of the statute of limitations and laches. The Santa Monica store was purchased in the name of appellant in July, 1938. This action was commenced in January, 1945. Appellant pleaded in his answer and now contends that respondent's claim to the community property is barred by the provisions of subdivisions 3 and 4 of section 338 of the Code of Civil Procedure. A resulting trust originates under circumstances different from those that give rise to a constructive trust (3 Scott on Trusts, sec. 404.2) though the terms are loosely used without proper consideration for the facts from which the respective trusts derive. (Id., sec. 440.1.) Whatever may be the character of the trust here under consideration, respondent's claim is not barred by the statute. Until a trust is repudiated by the trustee the statute of limitations does not begin to run against at voluntary resulting trust (Cohn v. Cohn, 7 Cal.2d 1, 8, 59 P.2d 969; Leviston v. Tonningsen, 212 Cal. 656, 665, 299 P. 724; England v. Winslow, 196 Cal. 260, 2718 237 P. 542; Lamb b. Lamb, 171 Cal. 577, 581, 153 P. 913), or against a constructive trust (Forman v. Goldberg, 42 Cal.App.2d 308, 316, 108 P.2d 983; Cooney v. Glynn, 157 Cal. 583, 5898 108 P. 506; Cohn v. Goodday, 191 Cal. 615, 627, 217 P. 756), or an express trust. Title Ins. & Tr. Co. v. Ingersoll, 158 Cal. 474, 486, 111 P. 390; McClure v. Colyear, 80 Cal. 378, 380, 22 P. 175; MacMullan v. Kelly, 19 Cal.App. 700, 706, 127 P. 819. The statute does not begin to run against a continuing trust until there has been a demand and a refusal to act. Dillon v. Cross, 5 Cal.App. 766, 769, 91 P. 439.

There never had been a demand on appellant prior to the commencement of this action to account for or to convey the property to the rightful owners and he had never repudiated the trust until he filed his answer in the instant case. On the contrary, upon several occasions he acknowledged that the property belonged to his son. He said at one time to Barnett: ‘You will come to be good. A man in business cannot gamble. Why don't you take the business from my name? I don't want the business in my name. You will cause me headaches and trouble all the time.’ To a witness on another occasion: ‘The business does not belong to me and I wish he would put everything in his name and I would not have any headache.’ At another time he said in the presence of respondent that he did not want the business in his name and that ‘it was Barney's business,’ to which the latter replied: ‘Well, when the war is over I will make a corporation out of it, or I will take it off of your name.’ Again appellant said: ‘I wish he would take off from my head these headaches. This business is his; it does not belong ot me.’

Appellant never was in possession of the store. Barnett was in possession and conducted the business in the same manner as if he had always owned it. No one else ever had charge of it. The statute of limitations never runs in favor of a trustee as against the beneficiary while the latter is in possession of the property. Gilbert v. Sleeper, 71 Cal. 290, 294, 12 P. 172; McClure v. Colyear, supra, 80 Cal. at page 381, 22 P. 175; Wormouth v. Johnson, 58 Cal. 621, 624; Peixouto v. Peixouto, 40 Cal.App. 782, 786, 181 P. 830.

Inasmuch as Barnett was in possession and had sole charge of the business there appears to have been no reason for a demand by respondent that appellant transfer the legal title of the property to her and her husband. The occasion for such demand did not arise until conditions caused respondent to file this action and to advance her claim for a share of the community property.

Since no legal prejudice was cause to appellant by reason of the delay in making a demand, or by reason of the nonenforcement of the trust, the defense of laches is not available. Title Ins. & Trust Co. v. Ingersoll, supra. There are other sufficient reasons for the rejection of the doctrine of laches. It is not applied strictly between near relatives (Butler v. Hyland, 89 Cal. 575, 582, 26 P. 1108); it i whether significance in the case of a resulting trust (Moultrie v. Wright, 154 Cal. 5208 526, 98 P. 257); it is not designed to punish a plaintiff and can be invoked only where the allowance of the claim would, because of the claimant's acts, result in an unwarranted injustice. ‘* * * it is never permitted to be invoked merely to aid a faithless trustee in consummating his wrong.’ Hovey v. Bradbury, 112 Cal. 620, 625, 44 P. 1077, 1078.

4. Should appellant be allowed credit for money expended by him in the operation of the business? Appellant claims to have advanced several thousand dollars of his personal funds for improvements in the store and for merchandise purchased for which he is entitled to credit before a division of the property is made between respondent and Barnett. This point was raised in the appellant's opening brief and not answered by respondent. The mere fact that the question was not discussed in respondent's brief is not, as claimed by appellant, a reason for allowing his demand. The cases referred to in his closing brief do not support his contention that respondent, by failing to reply, has confessed the point. The cited case of Campbell v. Ingram, 37 Cal.App. 728, 731, 174 P. 366, states the familiar rule that a finding is not required upon facts that are admitted in the pleadings. Atwood v. Hammond, 4 Cal.2d 31, 46, 48 P.2d 20, also relied on by appellant, refers to a statement of fact contained in the brief of one party and not controverted by the other, and the court accepted such statement as true. The decision does not hold that a point of law contended for by one litigant and not answered by the other must be adopted by the court as correct.

Appellant did not plead in his original answer that he had made any advancements on account of the business but contented himself with a denial of the allegations contained in the complaint. At the conclusion of the trial, by leave of court, he filed an amended answer to conform to the proof, and again failed to plead his claim for expenditures. Since he rested his case upon the defense that there was no trust and that he was the sole owner of the business, and since we have found his defense to be without merit, he cannot claim reimbursement from respondent for any portion of his personal outlay. The case of Wright v. Chilcott, 61 Or. 561, 122 P. 765, cited by appellant, so holds, although in that case upon special petition therefor by the trustee of a resulting trust the case was, with apparent reluctance on the part of the Supreme Court, Remanded to the trial court with directions to permit him to file a supplemental answer showing the value of the permanent improvements that he had placed on the property. In the instant case the evidence of appellant's expenditures in connection with the business was admissible in furtherance of his claim to ownership and in opposition to respondent's demand for her community interest. From the state of the pleadings the evidence may be considered to have been received for that purpose since the court did not make a finding as to the validity of the claim now asserted. The other cases on which appellant relies do not sustain his demand for reimbursement in the absence of a pleading that would have afforded an opportunity to respondent to controvert his claim. In Woodard v. Wright, 82 Cal. 202, 22 P. 1118, the defendant, who was held to be the agent and trustee for the plaintiff, pleaded in his answer the amount he had expended on the property while under his control. In Stromerson v. Averill, 22 Cal.id 808, at page 816, 141 P.2d 732, the opinion refers to the conflicting claims of the parties, the assumption by the trustee of personal liability on a contract of purchase and outstanding obligations and expenditures that may have been made by one party for the benefit of the other in relation to their joint farming obligations, upon which an accounting was required in order to do complete equity, but the opinion does not disclose whether or not those matters were pleaded.

Since appellant failed, both in his original answer and in his amended answer to conform to the proof, filed after the evidence of his expenditures had been introduced, to make any allegation upon which the court could base a finding that he was entitled to credit, his claim therefor cannot be allowed on appeal.

The judgment disposed of all conflicting claims presented by the pleadings and it is affirmed.

WILSON, Justice.

MOORE, P. J., and McCOMB, J., concur.