IN RE: the MARRIAGE of Esther and Richard MIX.

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Court of Appeal, Fifth District, California.

IN RE: the MARRIAGE of Esther and Richard MIX. Esther MIX, Petitioner and Respondent, v. Richard MIX, Defendant and Appellant.

Civ. 2068.

Decided: March 08, 1974

Gualco, Hummel & Quirk, Elizabeth Inglis Hummel, Sacramento, for respondent and appellant. Brian D. Flynn, Sacramento, for petitioner and respondent.

OPINION

Appellant Richard Mix, appeals from a judgment dissolving his marriage with respondent, Esther Mix, awarding custody of the couple's minor child to respondent and dividing the community property of the parties. His sole attack is against that part of the judgment relating to the distribution of the property; he claims that the court erred in declaring that all property, both real and personal, standing in the name of the wife or in her possession at the time of the separation was her separate property.

Appellant and respondent were married on September 4, 1958; they separated 10 years later on December 14, 1968. There is one child of the marriage, a son, born in February 1960.

At the time of the marriage respondent, an attorney admitted to the practice of law in this state, was participating in several joint ventures involving the acquisition, improvement and sale of real property. She also was employed in the law firm of Philip Wilkins at a salary of approximately $400 a month; she became a 20 per cent partner in the firm in January 1959, and a 40 per cent partner in 1963. Appellant was a musician and part-time teacher with an annual income between $1,000 and $3,000.

Prior to the marriage appellant had a checking account at the Bank of America, Alhambra Branch, and a savings account with a reputed balance of $1,578 at the Crocker Citizens Bank in West's Sacramento. Respondent owned, among other incomeproducing properties, an apartment on 19th Street in Sacramento, an interest in a limited partnership known as Hillview Farms, an interest in property in Q Street, a home located on Balboa Circle, an Equitable Life Insurance policy and bank accounts in indeterminate amounts, including an account in the Wells Fargo Broadway Branch in Sacramento. She also was receiving support payments for the support of a daughter born of a former marriage.

After the Mix marriage appellant's savings account at the Crocker Citizens Bank was closed, and his checking account became the joint checking account of the parties; respondent and appellant deposited all of their earnings, including money received by respondent from her separate property investments, in the joint account until 1963.

In June 1963 respondent opened a separate bank account in her own name at the California Bank in Sacramento. She testified that she opened the separate account to have one she could reconcile because her husband could not reconcile the joint account. Thereafter, most of respondent's earnings from her law practice, as well as income received from various investments were deposited in this account.

On December 20, 1968, respondent instituted this action for a divorce. In 1969 the divorce laws of this state were repealed and the cause proceeded to trial for a dissolution of the marriage pursuant to the 1969 amendments. (Ch. 1, Tit. 3, Pt. 5, Div. 4, Civ.Code, commencing with § 4500.)

At the conclusion of the court trial the trial judge determined that the community property of the parties was composed of an equity in a home in Sacramento, an Oldsmobile automobile, a Volkswagen automobile, an interest in the law practice, a 1/6 interest in 10 acres of real property, two sail boats, household furniture and appliances, and a Sutter Lawn tennis membership; the judge awarded the equity in the home, the Oldsmobile automobile, the interest in the law practice, the undivided 1/6 interest in the 10 acres of real property, the household furniture and appliances, and the Sutter Lawn tennis membership to respondent; appellant was awarded the two sail boats, the Volkswagen and the sum of $6,137 in lieu of his interest in the other community property. The court determined that all other property, both real and personal, standing in the name of respondent or in her possession, was respondent's separate property. It is this latter determination which forms the core of appellant's appeal.

Appellant does not deny that property owned by the wife at the time of marriage is her separate property (Civ.Code, § 5107). Nor does he deny that as a general rule income from separate property investments and proceeds from the sale of separate property remain separate property. (Civ.Code, § 5107; Huber v. Huber, 27 Cal.2d 784, 791, 167 P.2d 708; Lenninger v. Lenninger, 167 Cal. 297, 306, 139 P. 679; Estate of Granniss, 142 Cal. 1, 5, 75 P. 324.) He argues that respondent's earnings from her law practice during marriage were community property, and because she commingled those earnings with money she received form her separate property investments and with appellant's earnings and then used the commingled assets as well as the community credit to improve her own separate property, respondent could not overcome the strong presumption that all property acquired during marriage is community property. With a few exceptions, appellant insists that he had a community property interest in the property standing in respondent's name or in her possession at the time of trial.1

The court found that all of the property in question was purchased with respondent's separate funds which were identified and traced and that all borrowed funds used by respondent to improve her separate property ‘were the proceeds of loans obtained upon the hypothecation of such property, and in making such loans the lender did not rely on the credit of the community.’ The court further found in essence that appellant knew respondent was commingling separate property with community property money in the joint checking account and later in her separate account, that appellant knew that respondent was using some of the commingled money to improve her separate property and to purchase other property that appellant agreed that the improvements made by respondent to her separate property and all property acquired by her with commingled funds was to be her separate property, and that there was at all times a sufficient balance of separate property moneys deposited in the checking accounts to cover all amounts withdrawn by respondent for her separate property purposes.

Before directing our attention to the respective arguments, we shall recite the pertinent facts surrounding each item of property in which appellant claims a community property interest.

FUNDS ON DEPOSIT WITH CAPITAL FEDERAL SAVINGS AND LOAN ASSOCIATION

After the marriage respondent and appellant took up residence in respondent's home at Balboa Circle in Sacramento; they lived in the home, apparently rent free to the community, until 1966 when the family moved to a new residence on 40th Street.

At the time of the marriage there was a mortgage against the Balboa Circle property with a loan balance of about $15,000. After the marriage respondent made the loan payments and property tax payments by checks drawn on the commingled bank accounts. In May 1959 a swimming pool and concrete deck were added to the property at a cost of $2,750; this amount was paid by respondent from funds deposited in the joint bank account.

Respondent sold the Balboa Circle residence subsequent to the filing of the divorce complaint, after expending $2,054.36 in getting it ready for sale and $964 on property taxes and upkeep expenses. She deposited the net proceeds of the sale, acmounting to $22,312.48, with the Capital Federal Savings and Loan Association in Sacramento.

THE EQUITABLE LIFE INSURANCE POLICY ON RESPONDENT'S LIFE

At the time of trial respondent had a life insurance policy with Equitable Life Insurance Company on her life; she acquired the policy prior to marriage as a condition of the loan she obtained on the Balboa Circle residence; the premiums were included in the loan payments and after the marriage were paid from the commingled bank accounts.

THE WILKINS-MIX JOINT VENTURE

At the time of marriage respondent and her employer, Philip Wilkins, owned undivided one-half interests in a house and lot on 18th Street in Sacramento. In 1965 the house burned down and the joint venturers collected $12,000 in insurance. They then borrowed an additional $29,000 from a bank and constructed a four-plex on the property; the loan was secured by a mortgage against the land and the improvements.

In October 1958 respondent and Mr. Wilkins purchased a parcel of real property on 20th Street. Each party acquired an undivided one-half interest, and respondent testified that the money to pay for her interest came from the separate funds she had on deposit with the Wells Fargo Bank at the time of marriage. The joint venturers borrowed $54,600 and constructed an office building on the property; the loan was secured by a mortgage against the land and improvements. Later, respondent contributed over $9,000 toward the project; approximately $4,000 came from the commingled bank account, while the remaining $5,000 was part of an unsecured loan taken out by respondent and Wilkins. Subsequently, respondent repaid the $5,000 with the proceeds from the sale of her separate property interest in the Q Street realty.

THE WILKINS, MIX, FUTTERER AND LUND JOINT VENTURE

In January 1959 respondent, Philip Wilkins, Don Futterer and John Lund acquired undivided one-quarter interests in unimproved land on Newman Court in Sacramento; respondent testified that she paid $6,466.64 for her one-quarter interest and that the money came from the account she had with the Wells Fargo Bank at the time of her marriage. During the year the group borrowed $124,000 and constructed an apartment house on the property; the loan was secured by a mortgage against the land and improvements and was made on the application of all of the joint venturers and their respective spouses, with the exception of appellant. Respondent also contributed $4,121.91 to this joint venture; the money came from the joint checking account.

In February 1963 the joint venturers acquired a second parcel of land on Newman Court. They borrowed $324,000 from a bank and constructed an apartment building on the property. This loan, like the first one, was secured by a mortgage against the land and improvements and was made on the application of the joint venturers and their respective spouses, with the exception of appellant. Respondent contributed $5,100.92 for the acquisition of this property, and apparently this money came from the joint account.

CASH ON HAND—SHANKS NOTE

On the date of separation there was approximately $11,000 on deposit in respondent's separate bank account. After the separation respondent expended $5,408.43 from her account for the payment of community obligations and income taxes; at time of trial the balance in the account was $3,392.15. Respondent, at trial, pointed out that over $7,200 of the original $11,000 can be traced directly to the proceeds from the sale of the Teichert house and the Moddison Avenue duplex.

Appellant also claims a community interest in the $1,000 balance due on a loan made by respondent to a man named Shanks.

DISCUSSION

Preliminarily, we decline to accept any suggestion that the case of Pacific Mut. Life Ins. Co. v. Cleverdon, 16 Cal.2d 788, 108 P.2d 405, compels us to hold that appellant impliedly agreed to a transmutation of respondent's earnings from her law practice from community property to her separate property merely because he knew that she was commingling those earnings with money derived from her separate property investments and that she may have been using the commingled earnings to improve her separate property and to make new investments. The Cleverdon case was decided before 1951, at a time when the husband had full right of management and control over all of the community property, and when it was felt that he could relinquish to the wife the right to her earnings during marriage without any consideration other than their mutual consent; the California Supreme Court upheld a finding of an implied transmutation agreement on evidence which showed, among other things, that the husband did not exercise his legal right to control and manage the salary earnings of his wife and allowed her to use and invest such earnings at her pleasure. No court has held the implied transmutation principle applies to a husband, for it is obvious that such a holding would contravene the statutory mandate which, since 1891, has prohibited the husband from making a gift of the community property to himself or anyone else without the written consent of the wife. (Civ.Code, § 5125.)2

In 1951 the California Legislature gave the wife the ‘management, control and disposition . . . of community property money earned by her . . ..’ (Civ.Code, § 171c.)3 But the legislative body also decreed that the wife ‘may not make a gift thereof, or dispose of the same without a valuable consideration, without the written consent of the husband.’ Because now the husband has no legal right to interfere with the wife's management and control of her own earnings and because, like the husband, she may not make a gift of such earnings without his written consent, it would be illogical and discriminatory to hold that the principles articulated in the pre-1951 court decisions are still viable. The 1951 amendment has made unreasonable the inference enunciated in Pacific Mut. Life Ins. Co. v. Cleverdon, supra, 16 Cal.2d 788, 108 P.2d 405, and its progeny, and we are no longer bound by that decision.4

We also reject any suggestion that a married woman who elects to manage and control her own earnings and who uses those earnings to acquire title to property through an instrument in writing is insulated by the general presumption that property acquired by a married woman in her own name by an instrument in writing is her separate property (Civ.Code, § 5110); ordinarily, to rebut the presumption the husband must show not only that the property was acquired with community funds but a gift to the wife was not intended. (Pabst v. Shearer, 172 Cal. 239, 244, 156 P. 466; Lyon v. Lyon, 70 Cal.App. 607, 611, 233 P. 988.) To apply the presumption under the above circumstances would enable the wife to build a fortress in which to hide in order to defeat the legitimate claims of the husband. Evidence that the property was acquired during marriage with the wife's earnings over which the husband exercised no right of management or control should be sufficient to rebut the presumption.

We agree with respondent's position that the mere commingling of separate funds with community funds in a bank account does not destroy the character of the former if they can be traced or ascertained. (Huber v. Huber, supra, 27 Cal.2d 784, 791, 167 P.2d 708; Hicks v. Hicks, 211 Cal.App.2d 144, 154, 27 Cal.Rptr. 307.) Thus, it has been held that property acquired after marriage with funds on deposit in a commingled bank account is traced to separate property if the spouse making the expenditure is able to prove that at the time of the acquisition there were sufficient separate funds in the commingled bank account to make the purchase and that the withdrawal of separate funds was intended. As the court said in Hicks v. Hicks, supra, 211 Cal.App.2d 144, 157, 27 Cal.Rptr. 307, 315:

‘. . . separate funds do not lose their character as such when commingled with community funds in a bank account so long as the amount thereof can be ascertained. Whether separate funds so deposited continue to be on deposit when a withdrawal is made from such a bank account for the purpose of purchasing specific property, and whether the intention of the drawer is to withdraw such funds therefrom, are questions of fact for determination by the trial court. A determination of these issues is part of the process of tracing the source of funds used in making the purchase under review. If the source of such funds is traced to separate property, even though the process of tracing involves a withdrawal from a bank account consisting of commingled separate and community funds, the property acquired is separate property.’

Another method which may be used to trace separate property acquired from funds on deposit in a commingled bank account is delineated in the leading case of See v. See, 64 Cal.2d 778, 51 Cal.Rptr. 888, 415 P.2d 776. In that case the court said that property acquired by a spouse during marriage and paid for with money kept in a commingled bank account is deemed separate property if the spouse produces records to show that at the time of acquisition all community income was exhausted by family expenses. The court stated at page 783, 51 Cal.Rptr. at page 891, 415 P.2d at page 779:

‘Property acquired by purchase during a marriage is presumed to be community property, and the burden is on the spouse asserting its separate character to overcome the presumption. [Citations.] The presumption applies when a husband purchases property during the marriage with funds from an undisclosed or disputed source, such as an account or fund in which he has commingled his separate funds with community funds. [Citation.] He may trace the source of the property to his separate funds and overcome the presumption with evidence that community expenses exceeded community income at the time of acquisition. If he proves that at that time all community income was exhausted by family expenses, he establishes that the property was purchased with separate funds. [Citations.] Only when, through no fault of the husband, it is not possible to ascertain the balance of income and expenditures at the time property was acquired, can recapitulation of the total community expenses and income throughout the marriage be used to establish the character of the property.’

With these principles in mind, we review the court's finding that each item of property in which appellant claims a community property interest was purchased or acquired by respondent with funds identified and traced to her separate property.

Respondent's records show that the Balboa Circle residence and, with one exception, all of the properties involved in the joint ventures, were acquired initially by respondent before marriage, after marriage with funds she had at the time of marriage or after marriage with proceeds from the sale of separate property. When respondent's periodic deposits of separate property moneys into the commingled bank accounts are compared with her periodic withdrawals for separate property purposes, it is very clear that she intended to use only separate property money for separate property expenditures. For example, for the period from September 1958 to December 1958, respondent deposited $822 attibutable to her separate property in the joint checking account. During the same period $765.88 was expended on mortgage payments and property taxes on the Balboa Circle residence. For a second example, on May 15, 1959, respondent deposited in the joint checking account $3,000 which she received from her interest in the Hillview Farms partnership, a separate property asset. In the same month respondent expended $2,750 for the construction of a swimming pool and deck on the Balboa Circle property.5

Respondent's records also reveal, with one possible exception, that during each calendar year of the marriage respondent deposited more money attributable to her separate property into the commingled bank accounts than she withdrew from those accounts for separate property purposes;6 the records support respondent's testimony that during the period of the marriage she deposited more than $95,000 attributable to her separate investments into the commingled checking accounts and that she withdrew less than $42,000 from those accounts for separate property purposes.7

However, respondent's records fail to show that on each occasion when she made an expenditure from the commingled accounts for a separate property purpose there was, as the trial court said, ‘at all times a sufficient balance of separate property deposited to such accounts to cover all of such amounts withdrawn.’ The records also fail to show with complete accuracy that when a separate property expenditure was made from a commingled account all community income previously deposited into the account had been exhausted by family expenses. It follows that respondent's records do not meet the stringent tracing requirements of See v. See, supra 64 Cal.2d 778, 783–784, 51 Cal.Rptr. 888, 415 P.2d 776.

The deficiencies we have mentioned do not compel a reversal. First, in the See case the husband's earnings during the more than 20 years of marriage exceeded $1,000,000, and he asserted that no community property had been accumulated during this period. The Supreme Court understandably struck down his theory that a proven excess of community expenses over community income during the marriage supported his claim that there had been no acquisition of property with community funds. In this case the evidence we have reviewed reveals that while respondent may have commingled her separate property with the community income in the checking accounts, she deposited far more separate property money in the accounts than she ever withdrew for separate property purposes. It reveals further that respondent's periodic withdrawals from the commingled accounts for separate property purposes were related closely to her periodic deposits of separate property income. If respondent used any community property income for separate property purposes, it was in the technical sense only.

Second, in See the wife was the innocent party; all of the commingled accounts were under the exclusive management and control of the husband, and she was not aware of nor did she have any control over his accounting practices. In this case the evidence shows that appellant knew that respondent was making periodic deposits of separate property moneys in the joint checking account and later in her own separate checking account, that she was making periodic withdrawals from those accounts to pay for improvements made on her separate property in connection with her joint ventures and that she considered the improvements and the investments as her own separate property. For instance, respondent's separate property earnings were deposited in the joint checking account until 1963, and during this period appellant was in charge of the account and was equally responsible for the accounting procedure followed (See v. See, supra, 64 Cal.2d 778, 783[10], 51 Cal.Rptr. 888, 415 P.2d 776); on one occasion appellant even signed a check in the amount of $10,000 in connection with one of respondent's separate property ventures.

Third, in the See case there was no evidence to show that the wife had profited by the commingling of the separate property income with the community income. In this case there is evidence to prove that appellant knew or must have known that respondent used part of her separate property earnings for family purposes, and he silently reaped the benefits of loose accounting practices he now seeks to repudiate; appellant worked intermittently and had difficulty supporting himself, let alone the family; the family lived in respondent's home, apparently rent free, for almost eight years of the marriage; after changing the ownership of a separate property lot to a joint tenancy ownership with her husband, respondent used her credit to finance the construction of a home on the lot for the use of appellant's parents at a nominal rental; respondent made substantial loans and gifts to appellant's relatives; during the marriage appellant purchased numerous items of property for his own use and enjoyment at a total cost of $6,607.12.8

Clearly, the evidence in the instant case supports the judgment on the theory of consent and equitable estoppel. Because the trial court's findings (see, ante p. 720) necessarily embody this theory, we affirm the judgment.9

The doctrine of equitable estoppel under the nomenclature of ‘quasi estoppel’ originally was used in community property disputes to foreclose parties who procured or aided in the procurement of invalid divorce decrees from attacking a subsequent good faith marriage and from claiming community property rights in property acquired by either marital partner after the invalid divorce was procured. (Spellens v. Spellens, 49 Cal.2d 210, 317 P.2d 613; Harlan v. Harlan, 70 Cal.App.2d 657, 161 P.2d 490; Estate of Davis, 38 Cal.App.2d 579, 101 P.2d 761, 102 P.2d 545.) A few years later the doctrine was used against a husband who did not assist his wife in the procurement of a Mexican decree but who knew that she had acquired the divorce in Mexico and did nothing to ascertain its validity. (Estate of Shank, 154 Cal.App.2d 808, 316 P.2d 710.) We now use it to prevent a husband from demanding the precise and totally accurate accounting referred to in the See opinion and from claiming a community property interest in properties which in equity and good conscience belong to the wife. As this court said in Brown v. Brown, 274 Cal.App.2d 178, 188, 82 Cal.Rptr. 238, 244:

‘The doctrine of equitable estoppel is ‘pre-eminently’ the creature of equity and ‘[i]ts foundation is justice and good conscience.’ (3 Pomeroy, Equity Jurisprudence, § 802, p. 180.) It has been defined by Professor Pomeroy as ‘. . . the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed, either of property, of contract, or of remedy, as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worse, and who on his part acquires some corresponding right, either of property, or contract, or of remedy.’ (3 Pomeroy, Equity Jurisprudence, § 804, p. 189.) In short, it is the object of equitable estoppel to prevent a person from asserting a right which has come into existence by contract, statute or other rule of law where, because of his conduct, silence or omission. It would be unconscionable to allow him to do so.'

We quickly dispose of appellant's remaining arguments. Appellant insists that he should have been given a community property interest in the joint venture properties because a substantial part of respondent's share of the cost of the improvements came from community credit. There was evidence to prove that the loans in question were made primarily on the security given and, secondarily, on the basis of the financial statements of the joint venturers, including respondent's financial statement which embodied her numerous separate property interests; it is the rule that the proceeds of a loan obtained on the credit of separate property, whether because of its hypothecation as security for repayment or in reliance upon its ownership by the lender, are separate funds. (Gudelj v. Gudelj, 41 Cal.2d 202, 210, 259 P.2d 656; Somps v. Somps, 250 Cal.App.2d 328, 337, 58 Cal.Rptr. 304; Hicks v. Hicks, supra, 211 Cal.App.2d 144, 153, 27 Cal.Rptr. 307.)

Appellant suggests that respondent's schedule of deposits into and expenditures out of the commingled checking accounts was contrived for trial and that he was victimized by a wife with superior knowledge in legal and business affairs. Respondent testified that she compiled the schedule of deposits and withdrawals from records she maintained over the years and from her own recollection of the events; the trial judge believed her testimony, and his determination is binding on appeal. The record shows that appellant's wife had superior knowledge in legal and business affairs but does not show that appellant was victimized by respondent.

Appellant maintains that the judgment should be reversed because the court failed to accede to his request for specific findings of fact as required by section 634 of the Code of Civil Procedure. He complains because the trial judge did not identify the specific items of property which were determined to be respondent's separate property or ‘define in some specific way what items of property could be identified and traced from separate funds.’

The court's findings are sufficiently specific for a comprehensive appellate review on all points raised by appellant. Because the main purpose of section 634 is to make such a review possible, we see no reason for reversing the judgment.

Appellant objects that the trial judge refused to state how he arrived at the $5,000 value of respondent's 40 per cent interest in the good will of the law partnership. He implies that there was no evidence to support the court's low value of this intangible asset.

In fixing the value of respondent's 40 per cent interest in the good will of the law partnership at $5,000, the court determined that the total value of the good will was in an amount in excess of $12,000. The only evidence presented on this issue was that the law firm had an average gross income of some $95,000 per year, but it is elementary that by itself the gross income of a business does not determine the market value or the value of the good will of the business. Because there is no substantial evidence to even support a finding that respondent's interest in the good will of the partnership had any value, the court's failure to state how it arrived at the value it did fix is not prejudicial to appellant. If anything, the failure was prejudicial to respondent who has not appealed.

The judgment is affirmed.

APPENDIX

Item 1

The following is a table of respondent's sources of separate property moneys deposited in the commingled checking accounts and her periodic withdrawals for separate property purposes.

Item 2

The following is a table of respondent's annual total deposits of separate property moneys in the commingled checking accounts and annual total withdrawals for separate property purposes:

Item 3

The following is a table of property appellant purchased during the marriage for his own use and enjoyment:

FOOTNOTES

1.  Appellant does not challenge the characterization of the Hillview Farms partnership interest, the 19th Street apartments, the Moddison Avenue duplex, the Q Street property and the Teichert house as respondent's separate property.

2.  This section was formerly section 172 of the Civil Code. (Stat.1969, ch. 1608, p. 3313.)

3.  This section is presently section 5124 of the Civil Code. (Stat.1969, ch. 1608, p. 3341.)

4.  We note that the Community Property Law has again been amended, and effective January 1, 1975, both spouses shall have joint and equal control over all of the community property. We note also that under the new amendment neither spouse is permitted to make a gift of the community property without the written consent of the other.

5.  See Appendix, Item 1, for further examples.

6.  In 1961 there was a slight deficit, but it did not deplete the balance of separate property carried forward from prior years.

7.  See Appendix, Item 2.

8.  Respondent relinquished any claim to this property even though the items were paid for with money on deposit in the commingled bank accounts. (See Appendix, Item 3.)

9.  On appeal a judgment may be sustained on any theory supported by the trial court's findings and the evidence. (Davey v. Southern Pac. Co., 116 Cal. 325, 329, 48 P. 117; Snider v. Snider, 200 Cal.App.2d 741, 756, 19 Cal.Rptr. 709.)

GARGANO, Associate Justice.

GEO. A. BROWN, P. J., and FRANSON, J., concur.