IN RE: BOGGS' ESTATE. (1941)

This is an appeal by the executors of the last will and testament of Sarah Louise Clark, who during her lifetime was a creditor of Paul N. Boggs, from an order of the Superior Court sitting in probate settling the current account of the executrix of the estate of Paul N. Boggs, deceased.

The material facts are:

August 21, 1928, Paul N. Boggs purchased 254 shares of National Supply Company preferred stock, borrowing the purchase price from the Farmers and Merchants National Bank of Los Angeles. Pursuant to Mr. Boggs' request the certificates were issued in the name of Elizabeth B. Boggs, his daughter, and she signed a collateral agreement pledging the stock with the bank as security for the loan to her father. March 7, 1929, the same bank purchased 500 shares of Union Oil Associates stock for Mr. Boggs' account, he giving the bank his note for $24,362.50. March 31, 1929, 200 shares of the National Supply Company preferred stock held by the bank and issued in the name of Elizabeth B. Boggs was called and Mr. Boggs requested the bank to apply the proceeds against the purchase of the 500 shares of the Union Oil Associates and to have the certificates for the latter stock issued in the name of his daughter. About February 15, 1933, Mr. Boggs resigned as vice president of the Union Oil Company of California. February 17, 1933, he transferred to his daughter $7,283.24 and thereafter he transferred to her 460 shares of stock of the Union Oil Company of California and an additional $3,700 in cash. Later he transferred to her his equity in a piece of real property located at 1010 Selby avenue, Los Angeles, California, and he permitted her to receive and retain as her own, rents from a piece of property located at 674 South New Hampshire street, Los Angeles, and also from premises at 1015 North Roxbury drive, Beverly Hills. The latter piece of property was leased October 1, 1936, at a rental of $320 per month and the lease was assigned to the Farmers and Merchants National Bank as security for Mr. Boggs' loans. The bank also held a trust deed on this property. August 3, 1938, the bank permitted respondent to collect the rents from the tenant on the aforementioned lease and make the payments due to the bank.

During the period covered by the transfers made subsequent to February 15, 1933, Mr. Boggs was insolvent, his liabilities exceeding the fair market value of his assets. Among his creditors was Sarah Louise Clark, appellants' testatrix, to whom Mr. Boggs owed $35,000 on a note secured by a mortgage on the property located at 674 South New Hampshire street and also $8,500 on an unsecured promissory note.

In 1934 Mrs. Clark accepted a deed to the property at 674 South New Hampshire street, Los Angeles, in payment of the $35,000 note, but Mr. Boggs still owed her $8,500 plus interest from August 5, 1933, on the unsecured promissory note. September 8, 1934, Mrs. Clark died. Her executors obtained a judgment against Mr. Boggs on June 18, 1936, for $10,180.25 and interest. Mr. Boggs having died October 20, 1936, and his daughter having qualified as executrix of his will, she filed her first account current, to which appellants filed objections.

The probate judge approved the account and found that there was an agreement between Elizabeth B. Boggs and her father to the effect that he should transfer to her such property as might come into his hands in consideration of her signing the collateral agreements with the Farmers and Merchants National Bank, pledging the above–mentioned shares of the National Supply Company preferred stock and the Union Oil Associates stock as security for his loans with the bank, and that the transfers of property to her by him subsequent to February 15, 1933, were made on account of said agreement.

Appellants urge as objections to the settlement of the account the following:

First: Respondent failed to list as assets of the estate of her father the property transferred to her by him subsequent to February 15, 1933.

Second: In collecting rent from property located at 1015 North Roxbury drive in the sum of $320 per month, according to the terms of the lease on such property, respondent improperly retained $195 per month as rental for the furniture which she claimed to own and which was located in the dwelling.

Third: Respondent should not have been permitted to include in her account as an asset of the estate real property which was subject to a deed of trust in favor of the Farmers and Merchants National Bank of Los Angeles.

Appellants' first objection is well taken and is governed by the following pertinent principles of law:

(1) A gift of personal property is consummated only by an unconditional delivery of the property. A gift of personal property which is encumbered, no matter how clear the intention of the donor to pay the encumbrance, does not accomplish a gift of the property until the donor has in fact actually paid the encumbrance. (Fischer v. Union Trust Co., 138 Mich. 612, 101 N.W. 852, 855, 68 L.R.A. 987, 110 Am.St.Rep. 329; Wisler v. Tomb, 169 Cal. 382, 386, 146 P. 876.) Of course, he may make a gift of his equity in the property.

(2) At the time of the transfers here in question the law provided that a transfer or encumbrance of property made or given voluntarily or without a valuable consideration while the donor was insolvent was fraudulent and void as to existing creditors. (Sec. 3442, Civ.Code.)

Applying the first rule of law above stated to the facts of the instant case, it appears that there was no consideration for the agreement which the court found to exist between Elizabeth B. Boggs and her father to the effect that he would transfer to her property coming into his hands in consideration of her signing collateral agreements with the Farmers and Merchants National Bank pledging shares of the National Supply Company preferred stock and shares of Union Oil Associates stock as security for his loans from the bank. Such stock was never in fact the property of Elizabeth B. Boggs, since her father had never owned it nor did he at any time pay the encumbrances against it. Therefore, he never at any time consummated the attempted gift of the stock to his daughter. This fact being established, all of the transfers made subsequent to February 15, 1933, were without consideration and, since the evidence disclosed that Mr. Boggs' liability at the time of such transfers exceeded the fair market value of his assets, he was insolvent when the transfers were made, and, applying the second rule of law above stated, such transfers were void as to existing creditors of whom appellants' decedent was one. Such property should be accounted for as assets of decedent Boggs' estate.

Appellants' second objection is likewise tenable. The law is established in California that an executrix may not in her representative capacity deal with herself as an individual. (Sec. 2230, Civ.Code; Pacific Vinegar, etc., Works v. Smith, 145 Cal. 352, 365, 78 P. 550, 104 Am.St.Rep. 42; see, also, In re Estate of Parker, 200 Cal. 132, 135, 251 P. 907, 49 A.L.R. 1025.) Thus the probate judge erroneously permitted the respondent executrix to credit herself with $195 per month as rent for the furniture located in the property known as 1015 North Roxbury drive, Beverly Hills.

Appellants' final objection is untenable. The fact that the property located at 1015 North Roxbury drive, Beverly Hills, and two parcels of land are subject to a deed of trust placed thereon by decedent Boggs in favor of the Farmers and Merchants National Bank as security for loans from said bank and for which loans the bank has filed claims in the estate, which have been approved, does not prevent the properties from being assets of the estate. It is merely a question as to the value of such assets. Assuming the claims of the bank are paid, the properties would be assets of the estate to the extent of their reasonable market value. If, on the other hand, the bank sells the properties under the power of sale in the trust deed and receives a sum less than the amount of the loans which are secured by the trust deed, these assets are valueless. In either event, however, the executrix is under a duty to take the properties into her possession and account for them as assets of the estate regardless of its value. There is nothing in our decision in the former appeal (In re Estate of Boggs, 33 Cal.App.2d 30, 90 P.2d 814) in conflict with this view.

In the appeal just mentioned it was held that respondent executrix had not at that time taken the properties into her possession. Since the record discloses that she now is collecting rents from the leased premises and has in fact taken the properties subject to any encumbrances against them into her possession, such properties are assets of the estate.

For the foregoing reasons the order settling the account current is reversed with directions to the lower court to settle the account in accordance with the views herein expressed.

I concur in the judgment. I do not concur in the statement in the majority opinion that Paul N. Boggs “had never owned” the shares in the two corporations. In my opinion a gift of encumbered personal property may be made without payment of the encumbrance by the donor. (Lipson v. Evans, 133 Md. 370, 105 A. 312; Fischer v. Union Trust Co., 138 Mich. 612, 101 N.W. 852, 68 L.R.A. 987, 110 Am.St.Rep. 329.) In such case the donor gives to the donee whatever rights he may have in the property.

McCOMB, Justice.

I concur: MOORE, P. J.