IN RE: the MARRIAGE OF Virginia and Richard SCHOETTGEN. (1985)

OPINION

The appeal is taken from an interlocutory judgment of dissolution of a 25-year marriage.   We are asked to review only the part of the judgment finding a particular piece of improved real property to be community property by transmutation, rather than the separate property of the husband.   The property is situated in Columbia, California.

Following good trial practice, the court first heard the “transmutation” issue which concerned one of the two major property interests of the parties.   The court applied the existing law to its finding of community property, resulting in no reimbursement to the husband, whose parents had owned the property during most of the time involved.   Since the trial, however, the Legislature has modified the law in certain respects.   Because the new statute applies retroactively in this case, unresolved issues are present which require reversal of the judgment.

THE FACTS

Appellant (Husband) and respondent (Wife) were married in March of 1956.   They moved a mobilehome onto the Columbia property and lived in it.   At that time, legal title to the Columbia property was held in the name of Husband's parents (Mother and Father).   Their move onto the property was with the parents' consent.

Husband and Wife intended to build a house on the Columbia property.   They went as far as consulting an architect, making some plans, and staking the foundation before abandoning the project.   Later they purchased a larger mobilehome and continued to live on the property.   After residing there over 15 years, they moved to a house located elsewhere which they purchased together.

In 1977, Mother died.   Father had predeceased her.   Husband and Wife then did substantial repairs to the parents' residence.   The repairs were made through community effort and with community funds.   The house was rented and the rental income was used for upkeep and repair of the house, with any balance being commingled with community funds.

On the title question, the testimony of Husband and Wife was severely conflicting.   According to Wife, Mother and Father gave part of the Columbia property to Husband and Wife.   Husband and Wife were given one-half of the property pursuant to a verbal agreement with Father's attorney.   The gift idea had been discussed between Mother and Father.   At times Husband and Wife paid taxes on the entire property, including Mother's one-half prior to her death.   The portion of the property actually used by Husband and Wife was approximately one-half of the total property.   Mother and Father used the other half.   The property was referred to as “our” property by all concerned.   No rent was ever paid for use of this property.   Husband even referred to the property as “our property” after Mother died.   After Mother's death, Husband, Wife, and Husband's aunt went to the recorder's office with the intention of changing the property into the names of Husband and Wife.   They were unable to do so because they did not bring enough money.

According to Husband, Mother and Father told Husband and Wife they could move a mobilehome onto the property, or even build on it, but the idea of it being a gift was never discussed.   Likewise, Husband never intended to give it to Wife.   Throughout her lifetime, Mother paid all taxes on all of the property.   The only exception might have been while the Mother was ill, just prior to her death.   Only Wife referred to the property as “ours.”   Husband never corrected her, and saw the phrase as merely a figure of speech.   Although he, Wife, and aunt went to the recorder's office, they did so with the purpose of changing the property into Husband's name only.

In anticipation of divorce, but prior to either Husband or Wife consulting an attorney, Husband made a list of the property he believed to be community property.   Included on the list was the Columbia property.   This list was entered into evidence over objection by Husband.   In describing why Husband gave her the list, Wife characterized it as Husband's proposal to settle without an attorney.   Husband testified that he included the Columbia property on the list because he had mistakenly believed the law made the property a community asset.   He had not consulted an attorney at the time of making the list.

I.

 TRANSMUTATION OF SEPARATE PROPERTY;  COMPROMISE ADMISSIONS.

“[I]t is well settled that property may be converted into community property at any time by oral agreement between the spouses ․, and an agreement at the time the property is acquired has the same effect.”  (Tomaier v. Tomaier (1944) 23 Cal.2d 754, 757–758, 146 P.2d 905.)

The parties do not question this rule.   However, Husband argues the evidence of oral transmutation was inextricably supported by the admission of his offer of compromise.

Husband's theory was that the document was part of a settlement agreement and, therefore, was inadmissible under section 1152 of the Evidence Code.   Wife's attorney argued that the document could not be a settlement offer since no litigation was pending at the time.   The court agreed and overruled the objection on the grounds that it was not an offer to settle litigation because the point of settlement of litigation had not been reached at the time the document was written.   Also, the court viewed the document as a simple acknowledgement by Husband of what community property the parties owned.

The day after the hearing, the court issued an ex parte order, ruling that the Columbia property had become community property.   The court reasoned,

“By his word and conduct the [Husband] manifests his intent that the property become community property.   This includes reference as to the property as ‘our property’, the making of repairs with community property money and with community property labor, and the treatment of rent as community property.   The Court finds the property had become community property.”

At a motion to reopen, Husband challenged the sufficiency of the evidence underlying this decision by arguing the court had erroneously admitted Husband's property list in evidence.   He wanted to present further evidence intended to refute each of the factors relied upon by the court when it found the property ownership had been transmuted.   With those factors eliminated, Husband theorized, the finding of community property would be reversed.   Husband suggested the court had erred in overruling his objection on the basis that pending litigation was required.   He did so by reference to Georgia-Pacific Corp. v. California Coastal Com. (1982) 132 Cal.App.3d 678, 183 Cal.Rptr. 395.   In Georgia-Pacific, the court stated:

“The trial court's finding that the offers were made in ‘attempted compromise of litigation’ is supported by the evidence of them in the administrative record.   The relevance of an offer of compromise, as an ‘admission of conduct,’ is overridden by the ‘public policy in favor of settlement of disputes' which underlies Evidence Code section 1152.  [Citations.]  The policy applied here even if the precise language of the statute did not, and its application was not affected by the fact that litigation was not pending when the offers were made by Georgia-Pacific.  [Citation.]  The exclusionary ruling challenged here was correct.”  (Id., at p. 693, 183 Cal.Rptr. 395.)

While acknowledging a need to review the recent Georgia-Pacific case, the court discussed the basis for its conclusion, omitting any reference to the list.   Principal reliance was placed on the long period of conduct of the parties which, coincidentally, was consistent with the list.   As to Georgia-Pacific, the court stated:  “I don't base my ruling on the fact that there was no lawsuit in existence.   I want that to be clear.”   The paper was simply a list, nothing more.   In rejecting an offer of more testimony concerning the intention of Husband's parents, the court emphatically stated the transmutation was based upon the conversations and conduct of the Husband and Wife and no reliance was placed on evidence offered to show the parents had bound themselves to grant or leave the property in any particular way.

We note the court had already heard Husband's testimony that he did not correct Wife when she referred to the property in terms of “ours,” and in fact had no reason to correct her because, by his own testimony, he too thought it was community property.   Husband admitted he did not learn he could make a separate property claim until he consulted with his counsel for these proceedings.   The parties had lived on the property many years, improved it, treated it as jointly owned property and, assuming the truth of Wife's testimony, had even gone to a county office in an aborted attempt to place title in both names.

The trial court heard nothing to indicate Husband included the Columbia property on the list as a concession of some kind.   To the contrary, Husband, even to this day, would presumably testify that the longtime belief of both parties was that the property had become community property.   His testimony in this respect lent credibility to Wife's testimony.   Although not then considered to be of significance, the record title remained in the parents' names for all the years concerned.   The probate proceedings were started concurrently with the present proceeding.

In its tentative decision, the trial court again found the property list admissible, stating:

“It appears to the Court that Exhibit 1 contains a list of what [Husband] honestly believed to be community property, to be divided, and that he intended ‘to admit liability and to seek to buy or secure relief against a liability recognized as such,’ and ‘to exact all that he deemed himself entitled to,’ as in the rule stated above.   Indeed, his own testimony supports this.   He does not testify that in making up Exhibit 1 that he listed as community items which he though[t] to be his separate property, in an effort to compromise conflicting claims.   Instead, he testified that he believed the Columbia property was actually community property at that time, and did not change his view until conferring with his attorney later.   There is no evidence whatsoever that in compiling Exhibit 1 he gave up anything which he felt (at that time) was his.   So it is an admission, not an offer to compromise, and is therefore admissible.”

Evidence Code section 1152 provides, in pertinent part, as follows:

“(a) Evidence that a person has, in compromise or from humanitarian motives, furnished or offered or promised to furnish money or any other thing, act, or service to another who has sustained or will sustain claims that he has sustained or will sustain loss or damage, as well as any conduct or statements made in negotiation thereof, is inadmissible to prove his liability for the loss or damage or any part of it.”

We need not engage in a detailed analysis of the section.   Cases may be found which seem to support the contentions of each party.  (Rose v. Rose (1896) 112 Cal. 341, 344, 44 P. 658, admissions nevertheless admissible.)   In more recent times the section has been given greater prohibitory effect.  (Witkin, Cal.Evidence (2d ed. 1966) Circumstantial Evidence, § 379, pp. 337–338.)

Ordinarily, until there is a dispute, there is no controversy to negotiate.   When Husband prepared his list he was in agreement with Wife as to community property ownership.   If there was even a borderline “controversy,” it would result from his suggested manner of dividing the property or value placed upon it.   The parties had separated and were trying to avoid the cost of attorney fees.   When the list was prepared the parties had not “reached a stage of clear disagreement.”  (Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 297, 85 Cal.Rptr. 444, 466 P.2d 996.)   This is so if we look only to the thoughts of the parties concerning property ownership.

More realistically, Husband was preparing for a possible argument over the division of property, and thus may well have started a process of “negotiation” which brought his list within the protection of the law.  “The purpose of section 1152 [is] to promote candor in settlement negotiation․”  (Ibid.)   We need not resolve this close question because Husband was not prejudiced by the court's ruling.  (Id., at pp. 299–300, 85 Cal.Rptr. 444, 466 P.2d 996.)   Assuming the court erred in admitting Husband's “list,” the question remains whether the evidence which was properly admitted at the hearing was sufficient to sustain the verdict, thereby rendering the error harmless.  (6 Witkin, Cal.Procedure (2d ed. 1971, pt. 1) Appeal, § 303, p. 4286.)

The standard for review of the sufficiency of the evidence in a civil case is well established:

“In reviewing the evidence on such an appeal all conflicts must be resolved in favor of the respondent, and all legitimate and reasonable inferences indulged in to uphold the verdict if possible.   It is an elementary, but often overlooked principle of law, that when a verdict is attacked as being unsupported, the power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the conclusion reached by the [trier of fact].  When two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court.  [Citations.]”  (Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429, 45 P.2d 183.)

We will not presume Husband testified differently because of the admission of his list of property.   He believed the Columbia property was being acquired as the common property of the marriage.   Later, when he first saw an attorney, he learned of other possibilities.   Presumably he would have similarly testified if there had been no list.   We therefore assume he would again give the same response if asked that simple ownership question on cross-examination during a new trial.   His list declared no more than his belief at the time, a belief he was permitted to explain.   Husband would not have obtained a more favorable result if the exhibit had been excluded.   In fact, the trial court made that clear during the argument.

 The trial court had a duty to view the evidence in its parts and as a whole.   Its discussion with counsel indicates it did so and found the cumulative effect of the evidence was supportive of Wife's testimony.   There was ample evidence to conclude the parties expressly agreed to the community ownership of the Columbia property;  an implied agreement would suffice.   (In re Marriage of Lotz (1981) 120 Cal.App.3d 379, 386, 174 Cal.Rptr. 618.)   Although the testimony was often in direct conflict, on appeal we resolve factual conflicts in support of the verdict.  (Crawford v. Southern Pac. Co., supra, 3 Cal.2d at p. 429, 45 P.2d 183.)

II.

CIVIL CODE SECTION 4800.2

Because we affirm the community property finding, the question arises whether Husband is entitled to reimbursement pursuant to Civil Code section 4800.2.¹

Section 4800.2 provides as follows:

“In the division of community property under this part unless a party has made a written waiver of the right to reimbursement or signed a writing that has the effect of a waiver, the party shall be reimbursed for his or her contributions to the acquisition of the property to the extent the party traces the contributions to a separate property source.   The amount reimbursed shall be without interest or adjustment for change in monetary values and shall not exceed the net value of the property at the time of the division.   As used in this section, ‘contributions to the acquisition of the property’ include downpayments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property but do not include payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property.”

The Legislature has expressed an intent that section 4800.2 be applied to cases such as this one, even though any purported agreement to transmute the Columbia property occurred prior to the section becoming law.

“SEC. 4. This act applies to the following proceedings:

“(a) Proceedings commenced on or after January 1, 1984.

“(b) Proceedings commenced before January 1, 1984, to the extent proceedings as to the division of the property are not yet final on January 1, 1984.”   (Stats.1983, ch. 342, § 4(a)–(b), No. 7, West's Cal.Legis.Service, p. 2501.)

Trial on the issue commenced prior to this date.   The agreement was reached during the period between 1960, when Husband and Wife moved onto the property, and 1981 when they separated.   The petition for dissolution was filed in July of 1981, and trial on the issue began in April of 1983.

We are well aware that the retroactivity of sections 4800.1 and 4800.2 has been litigated and resolved variously in a number of reported cases, and cases are yet pending.   Our facts do not involve the joint tenancy aspect of the law found in section 4800.1.   Instead, we have a traditional transmutation case in which separate property, by agreement, became community property.

If vested rights are at all involved, we would find them resulting from application of the reimbursement aspect of the law.   Tracing of separate and community funds to other property of the marital parties for reimbursement or ownership purposes has been a common practice.   This has been done to counteract presumptive titles.  (Cardew v. Cardew (1961) 192 Cal.App.2d 502, 515, 13 Cal.Rptr. 620.)   Nevertheless, the parties have been able to control the actual ownership by their “intention, understanding or agreement.”   (Gudelj v. Gudelj (1953) 41 Cal.2d 202, 212, 259 P.2d 656, quoting Socol v. King (1950) 36 Cal.2d 342, 345, 223 P.2d 627.)

In the normal course of events, if there has been a transmutation agreement, it is reasonable to conclude that absent an express agreement, separate property contributions to community property are intended as unqualified gifts.  (In re Marriage of Lucas (1980) 27 Cal.3d 808, 815–816, 166 Cal.Rptr. 853, 614 P.2d 285.)   However, section 4800.2 represents a legislative conclusion that agreements to reimburse are to be implied absent a contrary writing.

 Retroactive effect of marital property legislation is permitted in case of sufficiently important state interests.  (In re Marriage of Bouquet (1976) 16 Cal.3d 583, 592–594, 128 Cal.Rptr. 427, 546 P.2d 1371.)   The state's interest in the equitable dissolution of the marital relationship justifies the retroactive application of section 4800.2.   If accomplishing nothing else, it prohibits the use of easily made, and difficult to contradict, post-separation recollections of pre-separation “understandings.”   On this issue of retroactivity, we follow In re Marriage of McNeill (1984) 160 Cal.App.3d 548, 206 Cal.Rptr. 641, and similar published cases.

 Wife suggests that section 4800.2 applies only to voluntary transfers, and not “findings” of transmutation.   We disagree.   The section is concerned with the “acquisition” of community property.   Because the acquisition takes place when the agreement is made, literally or by implication, the court is concerned with a preexisting transfer and contributions to the acquisition.   Court findings merely evidence the prior fact.

 Wife also points to the language of section 4800.2 defining “contributions to the acquisition of the property.”   It commences:  “As used in this section, ‘contributions to the acquisition of the property’ include downpayments, payments for improvements․”  (Emphasis added.)   The argument follows that an expectancy or fully owned piece of real property is not a “downpayment,” etc.   We must reject that narrow construction of the section.   The legislative intent was to protect separate property contributions.   The definition found in the section is one of inclusion, not to the exclusion of other separate property sources.

“Section 4800.2 overrules the case of In re Marriage of Lucas, 27 Cal.3d 808 [166 Cal.Rptr. 853, 614 P.2d 285] [citations omitted] (1980) (and cases following it), which precluded recognition of the separate property contribution of one of the parties to the acquisition of community property, unless the party should show an agreement between the spouses to the effect that the contribution was not intended to be a gift.   Under section 4800.2, a party making a separate property contribution to the acquisition of the property is not presumed to have made a gift, unless it is shown that the parties agreed it was a gift, but is entitled to reimbursement for the separate property contribution at dissolution of marriage.   The separate property contribution is measured by the value of the contribution at the time the contribution is made.”  (17 Cal.Law Revision Com.Rep. 864–865 (1984);  83 Sen.J. 4866.)

In a recent case, a husband had deeded his separate property home to the marital parties “as husband and wife,” raising a presumption of community property ownership.   Therefore, at the time of the dissolution proceeding, when the property was found to be community property, section 4800.2 became operative.   By its terms, section 4800.2 speaks of the time of trial:  “In the division of community property under this part․”  Irrespective of how the property became community property, the section makes its reimbursement provisions applicable.   A fully owned separate property home which by deed became presumptive community property prior to the separation of the parties constituted a “contribution” even though in literal terms it was not a “downpayment.”  (In re Marriage of McNeill (1984) 160 Cal.App.3d 548, 561–563, 206 Cal.Rptr. 641.)

III.

RELIEF TO BE AFFORDED.

 Because we affirm the trial court's community property finding, but hold that section 4800.2 requires appropriate reimbursement of Husband's contribution to the Columbia community property, we must reverse the judgment.   However, we limit further trial to the previously unconsidered issue of reimbursement.   Whether by reversal in part or reversal with directions, the appellate court may affirm that portion of the trial which has resolved distinct and severable issues without reversible error while at the same time reversing and directing the trial court to determine a specified issue anew, or for the first time.  (Austero v. National Cas. Co. (1978) 84 Cal.App.3d 1, 36, 148 Cal.Rptr. 653;  In re Marriage of Steinberg (1977) 66 Cal.App.3d 815, 820–822, 136 Cal.Rptr. 299.)   Further evidence will be taken if necessary to afford a full hearing on the issue.

IV.

EVIDENTIARY RULES.

For the assistance of counsel who may wish to negotiate a change in the property division due to the right of reimbursement, and to assist counsel and court if further trial is undertaken, we will summarize certain principles of law which may apply.

 Transmutation agreements are effective from the date of the agreement.  (In re Marriage of Lotz, supra, 120 Cal.App.3d 379, 386, 174 Cal.Rptr. 618;  Estate of Wilson (1976) 64 Cal.App.3d 786, 798, 134 Cal.Rptr. 749.)

 A husband and wife may enter into an agreement concerning property ownership, effective as to currently owned property and expectancies.  (Perkins v. Sunset Tel. and Tel. Co. (1909) 155 Cal. 712, 719, 103 P. 190;  Tompkins v. Bishop (1949) 94 Cal.App.2d 546, 211 P.2d 14.)   A potential heir may assign his right to an expectancy.  (United States F. & G. Co. v. Mathews (1929) 207 Cal. 556, 559, 279 P. 655.)   The agreement may be oral.  (Estate of Wieling (1951) 37 Cal.2d 106, 230 P.2d 808.)

The trial court may find this transmutation agreement was reached prior to Mother's death.   Therefore, pending her death the parties became equal owners of the expectancy.   Under section 4800.2, the amount of reimbursement is the value of the contributed property at the time of contribution.   Legal title to Mother's property passed to her heirs at the time of death, subject to probate.  (Prob.Code, § 300;  Estate of Roulac (1977) 68 Cal.App.3d 1026, 1032, 136 Cal.Rptr. 492.)

The purpose of marital property litigation is the “equitable distribution of marital property upon dissolution of the marriage․”  (In re Marriage of Bouquet, supra, 16 Cal.3d at p. 593, 128 Cal.Rptr. 427, 546 P.2d 1371.)   Historically, divorce suits have been considered actions in equity.  (Harron v. Harron (1899) 123 Cal. 508, 56 P. 334.)   Although there have been statutory prohibitions of assignments by heirs of expectant interests (§§ 700, 703, 1045), where a son, before his mother's death, assigned his right to inherit property on her death, it was held the assignment could be enforced against property actually descending to him after the death.  (Bridge v. Kedon (1912) 163 Cal. 493, 126 P. 149.)   The court quoted Pomeroy, as follows:

“ ‘The assignee of an expectancy, possibility or contingency acquired at once a present equitable right over the future proceeds of the expectancy, possibility, or contingency which was of such a certain and fixed nature that it was sure to ripen into an ordinary equitable property right over those proceeds as soon as they came into existence by a transformation of the possibility or contingency into an interest in possession.   There was an equitable ownership of property in abeyance, so to speak, which finally changed into an absolute property upon the happening of the future event.’ ”  (Id., at p. 499, 126 P. 149.)

The court then interpreted this proposition as providing:

“[A]s soon as the assignment is executed the assignee becomes vested of an equitable right to receive the property ultimately, a right which, by the rules of equity, is sure to become an ordinary vested property right when the event occurs by which the possibility is realized as a certainty.   He does not mean to say that the possibility by which the estate becomes an estate of the heir in possession is sure to happen, but that if it does happen the equitable right is then sure to ripen into an ordinary property right.”  (Id., at p. 500, 126 P. 149.)

For similar reasoning, see Kelly v. Kelly (1938) 11 Cal.2d 356, 364, 79 P.2d 1059.)   Therefore, if the transmutation agreement was reached prior to Mother's death, the expectancy would be valued as of that agreement date.   For this purpose the equitable property interest would be created at that time even though contingencies were present and the enjoyment of the legal title might never occur.   During this pre-death interval, community improvements to the property would be at the risk of Wife as well as Husband.   If the expectancy became a reality, as in this case, the intervening community contributions would be of joint benefit and not subject to reimbursement.

If the transmutation agreement was reached after Mother's death, Husband's separate property contribution would again be valued as of the date of the agreement, his title having vested earlier.   Community improvements to the property made before and after Mother's death would again be reflected in the ultimate value of the property, assuming the value exceeded Husband's contribution.

The judgment is reversed for further proceedings consistent with this opinion.   Each party to bear his or her own costs.

FOOTNOTES

1.   All statutory references are to the Civil Code unless otherwise indicated.

WOOLPERT, Associate Justice.

FRANSON, Acting P.J., and BEST, J., concur.