BECKER v. LINDSAY (1975)

Plaintiff-creditor appeals from an order dated October 17, 1973, quashing a previously issued writ of execution and ordering the levy upon real property made pursuant thereto quashed, vacated and set aside. Said order was sought by defendant-debtor on the grounds that (1) the property was homesteaded prior to judgment; and since the purported attachment lien was not within the exceptions of Civil Code section 1241,¹ the property was exempt from execution under section 1240; and (2) the judgment was discharged in bankruptcy.

Plaintiff contends on appeal that: (1) an attachment lien is an encumbrance on real property within the meaning of Civil Code section 1241, subdivision 4, thus rendering the attachment valid; (2) Randone v. Appellate Department (1971) 5 Cal.3d 536, 96 Cal.Rptr. 709, 488 P.2d 13, does not operate retrospectively so as to destroy the priority of judgments obtained before it; and (3) defendant's discharge in bankruptcy had no effect upon plaintiff's attachment lien and judgment.

On March 2, 1971, plaintiff filed an action against defendant in the Superior Court of Lassen County to recover monies owned her on an unsecured promissory note dated February 9, 1967. On March 5, 1971, pursuant to a writ of attachment, certain real property in Colusa County belonging to the defendant was attached by the sheriff of that county. Defendant failed to appear in the action; his default was entered and, on April 27, 1971, a money judgment by default was entered. On March 12, 1971, prior to entry of the default but after attachment, the wife of defendant Betty J. Lindsay, recorded a declaration of homestead on the attached property in the Office of the Colusa County Recorder. A writ of execution was issued on April 27, 1971, and thereafter a levy was made pursuant thereto.

On May 11, 1971, defendant filed a petition in bankruptcy in the District Court of the United States, Eastern District of California, and was thereupon adjudicated a bankrupt. Plaintiff was listed as an unsecured creditor in said bankruptcy for the principal amount of the judgment. The homesteaded property was included in the trustee's report of exempt property, with a stated estimated value of $11,000. On May 19, 1971, the federal district court issued an ex parte stay order restraining plaintiff from proceeding with execution proceedings in her action. On June 29, 1971, the federal court approved the trustee's report of exempt property and on September 14, 1971, filed its order of discharge of the defendant.

On October 29, 1971, defendant applied to the federal court for a permanent stay order against plaintiff's Lassen County action. The matter was argued in federal court on November 3, 1971. The court's order of denial dated November 9, 1971 (after noting that the previously issued restraining order expired upon the granting of the discharge in bankruptcy), held that a permanent stay order was unnecessary, since the earlier order of discharge expressly provided that all creditors whose debts are discharged are enjoined from thereafter instituting or continuing any action or employing any process to collect such debts. The order further noted that ‘[T]he method of clearing a lien from property could not be accomplished by a contempt proceeding, if the contemner were unwilling to comply, but instead requires a proceeding, either in the bankruptcy court, under section 67a of the Bankruptcy Act, 11 U.S.C. sec. 107(a) [citation], or by an appropriate state court proceeding. State Courts and the bankruptcy courts have concurrent jurisdiction to avoid a voidable lien. [Citation.]’

On November 10, 1971, counsel for plaintiff wrote to the Office of the Colusa County Sheriff, notifying him that he was no longer restrained by the federal district court from proceeding with execution upon the subject property because the bankruptcy proceedings had terminated. Counsel requested that the sheriff proceed with execution. The sheriff indicated a reluctance to act without further authorization, so on December 14, 1971, plaintiff obtained an order to show cause from the Lassen County Superior Court, directing the Sheriff of Colusa County to either proceed with the sale of the subject property or to show cause on January 3, 1972, why he had failed to do so. Issuance of that order was supported by a declaration of plaintiff's counsel which alleged generally the facts set forth above.

In an effort to halt further proceedings, defendant on December 20, 1971, filed an action against plaintiff and the Colusa County Sheriff in the Superior Court of Colusa County, seeking to quiet title to the real property and for injunctive relief. The Colusa court issued a temporary restraining order preventing any execution sale pending a January 3, 1972 hearing for preliminary injunction. The hearing was thereafter continued to January 10, 1972. On January 5, 1972, plaintiff obtained in the Lassen court an order requiring defendant to appear and show cause why he should not be permanently restrained from interfering with the court's process and from proceeding with the Colusa action. The order also enjoined such conduct pending hearing.

At the January 10th hearing in the Colusa court the only issue argued by the parties was the property of any action by that court prior to a determination of the Lassen court. On this basis, the Colusa court denied the preliminary injunction and dissolved the temporary restraining order. Defendant shortly thereafter filed in the Lassen court his notice of motion of quash the writ and vacate the levy of execution, which was granted, resulting in this appeal.

I

CIVIL CODE SECTION 1241

‘The homestead is exempt from execution or forced sale, except as in this title provided.’ (§ 1240; emphasis added.) Certain exceptions are provided in section 1241, one of which (§ 1241, subd. 4), and the one with which we are here concerned, is as follows: ‘The homestead is subject to execution or forced sale in satisfaction of judgments obtained . . . on debts secured by encumbrances on the premises, executed and recorded before the declaration of homestead was filed for record.’

As above noted, the writ of attachment was levied before recordation of the declaration of homestead. If the attachment brought about an ‘encumbrance’ on the real property, the exception applies; otherwise it does not. The question therefore is whether a levy of attachment on real property is an encumbrance within the meaning of section 1241, subdivision 4.

Prior to the year 1951, the word ‘mortgages' was to be found in section 1241, subdivision 4, in place of the word ‘encumbrances.’ The word had been construed to include a deed absolute intended as a mortgage (First National Bank v. Merrill (1914) 167 Cal. 392 P. 1066) and a deed of trust (Carpenter v. Hamilton (1944) 24 Cal.2d 95, 147 P.2d 563). And Yager v. Yager, 7 Cal.2d 213, 60 P.2d 422, decided in 1936, held (at p. 217, 60 P.2d at p. 424): ‘A declaration of homestead may be filed during the pendency of litigation, at any time before the judgment has become a lien upon the property. [Citations.] It will defeat an existing attachment lien.’ (Emphasis added; see also Johnson v. Brauner (1955) 131 Cal.App.2d 713, 281 P.2d 50.)²

In 1951, the Legislature amended section 1241, subdivision 4, to substitute the word ‘encumbrances.’ By doing so, did the Legislature intend merely to codity the judicial interpretation of the statute applying it to deeds of trust and deeds absolute intended as mortgages, or did it intent to enlarge the scope of the exception so as to include a levy of attachment? After careful consideration of the subject matter, giving due weight and consideration to the public policy favoring a liberal construction of the homestead exemption,³ we have concluded that the Legislature intended an enlargement.

Section 1114 defines ‘encumbrances' as follows: ‘The term ‘incumbrances' includes taxes, assessments, and all liens upon real property.’ (Emphasis added; see also, Evans v. Faught (1965) 231 Cal.App.2d 698, 706–707, 42 Cal.Rptr. 133; Fraser v. Bentel (1911) 161 Cal. 390, 394, 119 P. 509; Johnson v. Bridge (1923) 60 Cal.App. 629, 632, 213 P. 512.) Section 542a of the Code of Civil Procedure provides in part: ‘The attachment . . .shall be a lien upon all real property attached . . .. (Emphasis added.) Since a levy of attachment is a lien, and since a line is an encumbrance, it follows under section 1241, subdivision 4, that an attachment lien is excepted from the homestead exemption. This logic is inescapable, despite the obvious hardship it causes defendant.

It is argued that Putnam Sand & Gravel Co. v. Albers (1971) 14 Cal.App.3d 722, 92 Cal.Rptr. 636 is persuasive in favor of defendant's position. There a lis pendens was recorded prior to recordation of the declaration of homestead, and the court held that the homestead defeated the lis pendens. The distinction however is obvious. No authority suggests that a lis pendens constitutes a lien upon real property. By definition it is nothing more than a written notice of pending litigation which fives constructive notice thereof to all persons. (Code Civ.Proc., § 409.) It is not a lien, and consequently not an encumbrance.

It is argued that the 1951 change of wording was only intended to clarify existing law. While this conceivably could have been the intention of the Legislature, we must follow the principle that where the language of the statute is changed, it is presumed that the Legislature intended an actual change in the law. (Estate of Todd (1941) 17 Cal.2d 270, 109 P.2d 913; Loew's Inc. v. Byram (1938) 11 Cal.2d 746, 82 P.2d 1.) There was no confusion regarding the meaning of the word ‘mortgages' as a result of decisions prior to 1951; those decisions had very clearly provided that the word ‘mortgages' included deeds of trust and deeds absolute intended as security instruments, and no clarification was needed. It is more reasonable to conclude that the Legislature intended a substantive change.⁴

Defendant also argues that the phrase ‘executed and recorded’ in section 1241, subdivision 4, compels a conclusion that encumbrances cannot include attachment liens, because the latter not ‘executed.’ It is true that the writ of attachment was not executed by the property owner, but it was executed by the county clerk who issued it. (Former Code Civ.Proc., § 538.) There in basis for giving to the word a more restricted meaning than it would normally carry.

II

THE RANDONE DECISION

Whatever be the interpretation placed upon section 1241, subdivision 4, defendant maintains that the case of Randone v. Appellate Department, supra, 5 Cal.3d 536, 96 Cal.Rptr. 709, 488 P.2d 13, which declared the prejudgment attachment procedures (commencing with Code Civ.Proc., § 537) unconstitutional, should be given retroactive effect so as to invalidate the attachment. In support of his contention, defendant cites Modern Management Method v. Superior Court (1971) 20 Cal.App.3d 496, 97 Cal.Rptr. 791, and Gentlemen's Resale West v. Superior Court (1972) 23 Cal.App.3d 518, 100 Cal.Rptr. 370. These cases are not authority for retroactivity of the Randone decision.

The Modern Management Method case involved a pre-Randone attachment, but no judgment, at the time a motion to dissolve the attachment was made and granted by the trial court. The appellate court affirmed, holding that the intervening Randone decision had the effect of invalidating the attachment procedure so that the existing attachment was without statutory or other legal basis. It followed that the motion to dissolve was proper.

The Gentlemen's Resale West case involved a motion to dissolve a pre-Randone attachment and also a motion for an order directing the sheriff to return a cash bond previously deposited with him for the purpose of releasing the attachment. (Code Civ.Proc., § 540.) There was no judgment, but the Randone decision had been rendered. The trial court dissolved the attachment but refused to order the sheriff to release the cash bond. The appellate court held that it was an abuse of discretion not to release the cash deposit; since it had been given to the sheriff involuntarily and as a result of invalid statutory attachment procedures, it should be returned.

It is apparent that neither of these cases supports defendant's contention that Randone has retroactive effect. Randone held that the attachment procedures are invalid; the consequence of such a holding is that all pending attachment under such aborted statutory authority are also invalid. Once however the attachment has been superseded by a judgment lien, it is outside the purview of the Modern Management Method and Gentlemen's Resale West rule.

If Randone were held retroactive as claimed by defendant, it would mean that in all pre-Randone cases where attachment procedures resulted in judgments, and collections thereof out of the previously attached properties, all such judgments and collections could be set aside. Thus a person who in 1970 filed suit on an unsecured contractual obligation, attached a bank account, obtained judgment, levied execution upon the bank account and got his judgment paid, all in accordance with existing law, would now be faced with a suit to disgorge the money earlier collected. Such a result would be unfair to the thousands of persons who relied upon the validity of the statutory scheme and would result in untold and in our view improper supplemental litigation. (See Neel v. Magana, et al. (1971) 6 Cal.3d 176, 98 Cal.Rptr. 837, 491 P.2d 421.)

The non-retroactivity of Randone was recognized in Urich Oil Co. v. Crown Discount Dept. Stores (1973) 34 Cal.App.3d 743, 110 Cal.Rptr. 316. At page 747, 110 Cal.Rptr. at page 318, the court states: ‘Under Randone, the original attachment . . . as applied to the facts at bench is unconstitutional. Had respondent made its motions [to discharge and release levy of attachment and exonerate undertaking] prior to judgment the order to dissolve the attachment and exonerate the bond would be proper and valid.’ (Emphasis added.) The court reversed the trial court's ruling granting the motions.

Most persuasive is a case of the California Supreme Court. In Pasadena Medi-Center Associates v. Superior Court (1973) 9 Cal.3d 773, 108 Cal.Rptr. 828, 511 P.2d 1180 suit was filed on two unsecured promissory notes against a corporation and a partnership. Real property of the corporation was attached. Summons was then served upon an ostensible officer of the corporation, after which judgment was obtained, followed by a levy of execution on the attached real property. In the meantime, the property had been sold by the corporation to a third person, who took title with actual knowledge of the attachment lien. When it was later discovered that the person served was not in fact an officer, a motion was made to vacate the judgment on the ground of lack of proper service of process. In explaining the posture of the case the Supreme Court stated (at p. 777, 108 Cal.Rptr. at p. 831, 511 P.2d at p. 1184): ‘Although this error [service of the wrong person] might have served to vacate the judgment and the subsequent levy of execution, defendant still faced the encumbrance of the prejudgment attachment. With our decision in Randone v. Appellate Department (1971) 5 Cal.3d 536, 96 Cal.Rptr. 709, 488 P.2d 13, the prejudgment attachment was also subject to attack. The vacating of the judgment and liens, then, would have cleared the title; Jefferies would have been freed of the indemnity, and plaintiff would have had only a cause of action against a judgment-proof corporation.’ The court then proceeded to analyze the precise issue before it, which involved the validity of the service of summons, and held that such service was valid by virtue of ostensible authority; it allowed the judgment, along with the attachment and execution liens, to stand.

We read the Pasadena Medi-Center Associates case as holding that the Randone case is not to be applied retroactively so as to nullify prior attachment procedures which have culminated in judgment liens. Had the Supreme Court felt otherwise, while refusing to set aside the judgment for improper service, it could and would have set aside the attachment and judgment liens, both of which (as with the case at bench) preceded the Randone decision. Instead, the court expressly recognized that before the attachment could be held invalid under Randone, it was essential that the judgment be vacated.

III

CONCLUSION

Both parties agree that the bankruptcy had no effect upon the issue before us. Therefore, since we have ruled that the homestead declaration was subordinate to the attachment lien, and that Randone is not retroactive, it follows that the trial court erred in granting defendant's motion to quash the writ and vacate the levy of execution. The order is reversed with directions to the trial court to deny both motions.

FOOTNOTES

1.  Unless otherwise indicated, all section references are to the Civil Code.

2.  Although Johnson v. Brauner, supra, 131 Cal.App.2d 713, 281 P.2d 50 was decided after the amendment, the attachment, homestead, and judgment, all predated the amendment. Thus the case did not interpret the statute in its post-1951 state. Nor has any other decision made such an interpretation.

3.  ‘The policy underlying all homestead legislation, whether providing for the selection of a homestead by a person during his lifetime or by the court for his family after his death, as stated in the Estate of Fath, 132 Cal. 609, 613, 64 P. 995, 997, ‘to provide a place for the family and its surviving members, where they may reside and enjoy the comforts of a home, freed from any anxiety that it may be taken from them against their will, either by reason of their own necessity or improvidence, or from the importunity of their creditors,; and to this end a liberal construction of the law and facts will be adopted by the courts.’' (Johnson v. Brauner, supra, 131 Cal.App.2d at p. 719, 281 P.2d at p. 54.)

4.  One motivation could well have been to belatedly remedy the arguably inequitable result of Jacobson v. Pope & Talbot (1932) 214 Cal. 758, 7 P.2d 1017.

PARAS, Associate Justice.

JANES, Acting P. J., and EVANS, J., concur.