BACCIOCCO v. CURTIS (1937)

This is an action to set aside as fraudulent a conveyance from defendant husband to defendant wife and to subject the property to plaintiffs' judgments. The trial court denied any relief to the plaintiffs and awarded to the defendant W. H. Curtis judgment in the sum of $6,400 on the fourth cause of action pleaded in his cross-complaint. The plaintiffs having appealed from the entire judgment.

In February, 1923, Reuben Kern leased to A. G. Steelman property in San Francisco to be used for a garage and Steelman executed a chattel mortgage to secure the covenants of the lease covering all the equipment and fixtures placed in the premises by the lessee or his assigns. Thereafter the plaintiffs purchased the property from Kern, and on November 30, 1926, leased the premises to defendant W. H. Curtis for a period of 10 years, at a total rent of $144,000, payable $950 per month. To secure performance of the lease Curtis acknowledged the existence of the chattel mortgage on the fixtures of the garage and also the payment to plaintiffs under paragraph XVII of the lease of the sum of $5,000, denominated a ‘bonus for the lessor's execution of this lease.’ The lease provided that, so long as there was no default by the lessee, the lessors would allow him semiannually a sum equal to interest at the rate of 6 per cent. per annum on the said $5,000, and that in the event of full performance the $5,000 would be credited on the rent for the last 5 odd months of the term.

On June 22, 1930, upon written consent of plaintiffs, the lease was assigned by Curtis to Steelman and Pike, Curtis expressly agreeing to remain liable on the covenants thereof. On February 25, 1931. with plaintiffs' written consent, the lease was assigned by Steelman to Pike, the assignor expressly agreeing to remain liable on all covenants. For the months of April, May, and June, 1931, neither Curtis, Steelman, nor Pike made any rental payment.

On November 12, 1930, Curtis secured, as lessee, a 15-year lease on two lots in Redding, Shasta county, which property he improved and operated as the ‘A–1 Motor Court.’ On June 16, 1931, Curtis conveyed to Clara E. Curtis, his wife and codefendant herein, all his interest in the A–1 Motor Court, including the leasehold and improvements. It is this conveyance which plaintiffs, by this action, would set aside as in fraud of their rights as creditors.

One day after the conveyance was made, on June 17, 1931, plaintiffs served on Curtis, Pike, and Steelman, with respect to the San Francisco garage, the 3-day statutory notice to quit, and on June 22, 1931, plaintiffs gave written notice of termination of the lease. The next day, June 23, 1931, plaintiffs filed in the San Francisco superior court an action in unlawful detainer against W. H. Curtis, Pike, and Steelman, seeking restitution of the garage premises, rent for April, May, and June, and attorney's fees. Separate answers were filed by W. H. Curtis and the other two defendants, alleging special defenses, such as the existence of the chattel mortgage given to secure performance of the lease, an agreement of sale dated July 25, 1930, whereby W. H. Curtis transferred to his codefendants all his interests in the personal property located in the garage, and an agreement of plaintiffs to release W. H. Curtis of all liability under the lease in consideration for the transfer to plaintiffs of the unpaid balance due on this contract of July, 1930. Trial of the action resulted in a judgment for plaintiffs, which bacame final on January 5, 1932.

On June 29, 1932, plaintiffs commenced a second action against the same defendants, Curtis, Pike, and Steelman, for foreclosure of the chattel mortgage. Curtis defaulted, and on September 1, 1932, a decree of foreclosure was entered for plaintiffs as against all of the defendants, in the sum of $3,095.48, plus $250 attorney fees, interest, and costs. A foreclosure sale was had at which plaintiffs bought in the property for about $25, and on September 21, 1932, a deficiency judgment was filed in their favor and against defendants for $3,564.80, with interest. On March 29, 1933, Steelman was adjudicated a bankrupt, with estate of no value, and on February 9, 1934, a writ of execution against Pike was returned unsatisfied. On July 6, 1933, writ of execution against Curtis directed to the sheriff of Shasta county was likewise returned wholly unsatisfied.

On June 18, 1934, Plaintiffs commenced this present action against Curtis and his wife to set aside his conveyance to her on June 16, 1931, of his interest in the A–1 Motor Court at Redding. The complaint, based on sections 3439, 3440, and 3442 of the Civil Code, alleged that the conveyance was unaccompanied by any real change of possession, made without filing of the statutory notice of transfer required by section 3440 of the Civil Code, and with intent to defraud creditors at a time when Curtis was financially impotent and knew that he had already been indebted to plaintiffs for 3 months and that the unlawful detainer suit was about to be instituted by plaintiffs, and that no relief could be secured from Pike and Steelman. The prayer of the complaint was that the transfer be declared fraudulent and void; that defendants be restrained by injunction from interfering with the property or its proceeds (in January, 1934, the Curtis' had sold a portion of their interest in the motor camp to the Shell Oil Company) except under direction of the court, and that plaintiffs' judgments be satisfied out of it, and for general relief.

To plaintiffs' complaint defendants Curtis and wife filed an answer setting up a number of affirmative defenses, an amended answer, amendments thereto, and W. H. Curtis filed a cross-complaint alleging four causes of action, the fourth cause being later amended to conform to proof. On the subject of fraud, defendants averred that the wife paid the husband, as consideration for the transfer, $5,480 from her separate assets which sum he used to pay creditors; also that the conveyance was accompanied by an immediate change of possession. Another separate defense was that for a valuable consideration plaintiffs had agreed with and promised defendant Curtis that they would not attempt to enforce against him the judgment obtained by them in the prior unlawful detainer action. The gravamen of the charge in the four causes of cross-complaint was that, at the time plaintiffs secured judgment in the prior action in unlawful detainer, they converted personal property of Curtis worth $5,000 and also held unforeclosed the chattel mortgage given to secure performance of the lease covering $5,000 worth of other property in the garage, which property they took possession of and converted to their own use, and yet, when they purported by the second action to foreclose the chattel mortgage and to sell the property at a purported foreclosure sale to themselves for $25.50, they allowed Curtis no credit on account of the indebtedness under the lease, or in satisfaction of the judgment obtained in the first action, notwithstanding the value of the property was sufficient to satisfy in full both said indebtedness and said judgment. Furthermore, the cross-complainant alleged (fourth cause of action as amended to conform to proof) that when on June 30, 1931, the lease was terminated by mutual consent with $2,825 due for unpaid rent thereunder, and Curtis permitted plaintiffs to have possession of said $5,000 worth of personal property, thus discharging the $2,825 obligation, Curtis thereupon became entitled to receive back from plaintiffs the $5,000 which he originally deposited with them upon execution of the lease.

The questions presented by appellants on the appeal are: (1) In a suit in unlawful detainer, and for rent, if the defendant has the defense that plaintiff for a valuable consideration promised not to attempt to enforce the money judgment he was about to obtain (which plea is a satisfaction of all the rent sued for), is he required to plead these facts then and there, prior to judgment, or else lose the benefit of such defense? (2) Does the evidence support the findings of the trial court that the $5,000 deposited by W. H. Curtis at the time he secured the lease was in fact a deposit of security for rent and not a pure bonus as designated in the lease? (2b) If so, have not the defendants lost the right to assert this claim in their cross-complaint through the failure of W. H. Curtis to so plead it in one or both of the prior actions, or is it not a matter adjudicated as put in issue indirectly, if not directly, in the prior actions? (3) Does the evidence support the findings of the trial court that the transfer from W. H. Curtis to Mrs. Curtis was not in fraud of the creditors of the former, and was not made while Curtis was insolvent or in contemplation of insolvency?

In the unlawful detainer action Curtis pleaded as a special defense that on June 13, 1931, the plaintiff L. A. Bacciocco entered into an agreement with Curtis whereby, in consideration of the release of Curtis of all liability under the lease, there was assigned to plaintiffs all the interest of Curtis in the sum of $3,400 due him under his agreement of sale with Pike and Steelman. This was a plea that none of the rent sued for was due from Curtis to plaintiffs. In the latter agreement, dated July 25, 1930, Curtis agreed to sell to Pike and Steelman ‘all the equipment and personal property now located on the premises' and all of the interest of Curtis in the sum of $5,000 held by the lessor ‘under the terms of said lease.’ Trial of the unlawful detainer action was commenced on July 1, 1931, with all parties present and represented by counsel. The court found that it was not true that the plaintiffs released Curtis from any liability or responsibility arising out of the lease as alleged in this separate answer. It also found that the sum of $2,825 in unpaid rentals was due from Curtis and his codefendants to the plaintiffs in that action. In the present case Curtis alleged that, by reason of an oral agreement made the day before the trial commenced in the unlawful detainer case, plaintiffs made the same promise to release him from liability, but for a different consideration—an agreement to transfer to plaintiffs title to a portion of the same personal property which, in his special defense in the unlawful detainer case, he had alleged was under contract of sale to Pike and Steelman. On July 2, 1931, during the course of the trial of the unlawful detainer case, counsel for Curtis stipulated in open court that they had no interest in the possession of the premises ‘except from our contract with Mr. Bacciocco.’ In the present case the trial court found that on June 30, 1931, Curtis was the owner and entitled to the possession of this personal property and that, on the same day, plaintiffs promised they would never attempt to collect or enforce either of the judgments against Curtis. (The only agreement pleaded in the answer setting up this defense was alleged only to have carried the promise of the plaintiffs that they would not require Curtis to pay or satisfy any judgment obtained in the unlawful detainer action.) The consideration for this agreement was found to be Curtis' transfer to the plaintiffs of the personal property in the garage. It should be noted here that this agreement was found to have been made after the alleged agreement of Curtis to transfer his interest in the sale contract with Pike and Steelman, before the stipulation in open court that he had no interest in the possession, and before the commencement of the trial in the unlawful detainer action in which he went into court freely and openly in the effort to prove the alleged contract of June 13, 1931, with no mention of the alleged contract of June 30, 1931. Manifestly, when he contended in open court on July 1st that he was entitled to possession of this personal property under his contract with Pike and Steelman, he could not have made a legal transfer to the plaintiffs on June 30th of the same property. And the stipulation of July 2d that he was no longer interested in the possession was made to support his defense that Pike and Steelman were in possession under his contract with them, his interest in which he asserted he had assigned to plaintiffs in consideration for the alleged release. The situation briefly then is this—the defendant had a legal defense to the former action of payment and satisfaction which he pleaded and the finding was adverse to him. In this collateral proceeding he alleges, in effect, that the former defense was incorrectly pleaded—that the release claimed was based upon a different consideration than that formerly pleaded.

The plea now made is not a valid defense upon any theory. On the former trial the defendant alleged an agreement to release him from all liability and responsibility under the lease. The trial court found that the allegation was not true. On the second trial he pleaded the same release, but on a different consideration. The release was the matter in issue—more so than the consideration—but in a broader sense the defendants' obligations and liability were in issue, and it was the matter of the release and of that liability to pay the accrued rent which was then adjudicated. The law does not countenance piece-meal litigation and to this end it has been declared that, ‘If the existence, validity or construction of a contract, lease, conveyance or other obligation has been adjudicated in one action it is res judicata when it comes again in issue in another action between the same parties, though the immediate subject matter of the two actions be different.’ Freeman on Judgments, fifth edition, § 672, page 1418. In Price v. Sixth District Agricultural Ass'n, 201 Cal. 502, 511, 258 P. 387, 390, this court said: ‘Appellants, however, apparently have a misconception of this rule. They seem to contend that an issue heard and determined in a former case is binding only as to such grounds supporting or opposing said issue as were actually urged and litigated. But an issue may not be thus split into pieces. If it has been determined in a former action, it is binding notwithstanding the parties litigant may have omitted to urge for or against it matters which, if urged, would have produced an opposite result. In other words, when an issue has been litigated all inquiry respecting the same is foreclosed, not only as to matters heard but also as to matters that could have been heard in support of or in opposition thereto.’ See 15 R.C.L. § 446, pp. 969, 970; Andrews v. Reidy, 7 Cal.(2d) 366, 60 P.(2d) 832. This doctrine was given further recognition in English v. English (Cal.Sup.) 70 P.(2d) 625, where it was said to be applicable to cases of this general type, but inapplicable to a case based upon a severable contract—hence that a default judgment ordering payment of a matured installment did not preclude the defense of fraud and duress in another suit upon a subsequent installment.

The rule is statutory when the defense is in the nature of a counterclaim arising out of the same transaction. Section 439, Code Civ.Proc. The same rule should apply to a plea of satisfaction in an unlawful detainer action when a counterclaim or cross-complaint is not permitted. Both test the right of the plaintiff to recover on the cause of action pleaded and, if recovery is had, that judgment sweeps away every defense that should have been raised. In this limited extent is found the exception to the rule of Arnold v. Krigbaum, 169 Cal. 143, 146 P. 423, Ann.Cas.1916D, 370, hereafter discussed. Here it should be noted that there is no allegation or proof that any act of the plaintiffs caused Curtis to forego any defense to either of the former actions or that he was induced by any promise of plaintiffs to contend less vigorously. The facts are that, after the alleged agreement, the trial was had with Curtis defending fully and freely. His pleadings in this action do not support any charge of fraud or estoppel. The contention now made seems to have been conceived many years after the agreement is alleged to have been made.

In his first cause of cross-complaint filed herein on July 9, 1935, defendant Curtis alleged that during the year 1932 plaintiffs, without his consent, took possession of certain equipment located in the garage as ‘described in Exhibit ‘E’ annexed to the amendments to the answer,' and in his amended fourth cause of cross-complaint, filed herein on March 25, 1936, he alleged that on June 30, 1931, he was indebted to plaintiffs in the sum of $2,825 as unpaid rent under the lease and that he then fully paid said obligation ‘by the transfer to said plaintiffs * * * of personal property * * * described in Exhibit ‘E’, annexed to the amendments to the answer.' It is this last allegation that the trial court here found to be true. Under these circumstances it is futile for respondents to talk of fraud, extrinsic fraud, and estoppel. If Curtis secretly made the agreement on June 30, 1931, and sat by during the trial of the unlawful detainer action withholding that information from his counsel and from the court, and insisting upon a defense which was wholly inconsistent with such agreement, he is in no position now to say that the fraud and deception was the fault of his adversary.

(2) The portion of the judgment awarding Curtis recovery on his fourth cause of cross-complaint is not supported by any competent evidence. When the lease was executed in November, 1926, there was on deposit in escrow the sum of $5,000 paid in by the former lessee which was treated as a payment by Curtis in the transfer of the respective interests of the parties. In the lease to Curtis it was stipulated that ‘as a bonus for the lessor's execution of this lease, the lessee has paid him, unconditionally upon execution thereof the sum of five thousand dollars ($5000.00).’ The trial court herein found that this fund was not a bonus but a deposit as security for the performance of the covenants of the lease. The terms of the contract are clear and leave no room for judicial interpretation. The parties agreed that the sum was paid unconditionally as a bonus, or consideration, for the execution of the lease. If all the terms were fully met and performed, portions of the fund would be repaid to the lessee, but no obligation was assumed by the lessor to repay under any other circumstances. The case is fully covered by Curtis v. Arnold, 43 Cal.App. 97, 101, 102, 184 P. 510; Wood v. Hipwell, 107 Cal.App. 680, 682, 290 P. 1040; and A–1 Garage v. Lange Investment Co., 6 Cal.App. (2d) 593, 596, 44 P.(2d) 681. Respondents rely wholly upon Sullivan v. Johnson, 116 Cal.App. 591, 3 p.(2d) 72, a decision which was fully explained by the same court in the A–1 Garage Case.

It is the accepted rule that where the terms of a contract are ambiguous the court may consider evidence of the construction made by the parties in order to determine their intention when that is inaptly expressed in the contract. It is equally well settled that when the contract is clear and unambiguous the courts will not substitute their interpretation when such course would establish a contract radically different from the one made.

The positions of the respondents in this matter are inconsistent. They contended in the trial court, and it was so found, that under the terms of the lease it was agreed that if Curtis defaulted in any of the covenants the plaintiffs could deduct a sufficient amount from this fund to compensate them for any loss suffered. There is not a word in the lease which justifies this finding. In plain language the lease provides that refunds should be made only when there was no default. But if it were true, then, when the unlawful detainer action was tried, plaintiffs were paid the full amount of the rent sued for and this was a defense to the action which should have been pleaded. Arnold v. Krigbaum, 169 Cal. 143, 146, 146 P. 423, Ann.Cas.1916D, 370. Notice of default in payment of rent was given June 17, 1931. The answer of Curtis was filed June 26, 1931. There was no controversy as to the amount of rent due at that time. The failure to pay this rent was the only default claimed and was the sole ground upon which the unlawful detainer action was based. If Curtis was entitled to have the amount in default credited from the sum on deposit he was entitled to it at the time he filed his answer. In the Arnold Case, 169 Cal. 143, at page 146, 146 P. 423, 424, Ann.Cas.1916D, 370, the court said: ‘If, by reason of dealings between them prior to the alleged forfeiture, the rent was paid or discharged at that time, he may show that fact, and in that way questions of contractual relations may properly arise in such an action. But this is not to be allowed to estend to a right of set-off; it can only go to the question whether or not, when the notice to quit was given, the rent claimed therein was due; that is, the question whether or not, by some agreement, express or implied, between them, the claims due to the tenant from the landlord were to be applied on the rent.’ (Italics added.)

In the unlawful detainer action the trial court found that the full amount of rent claimed was then due. Judgment was entered against all the defendants for the full sum. If Curtis was entitled to have the sum deducted from the fund held by the lessor, no money judgment could have been entered against any of the defendants. We are compelled to assume from the face of that judgment that all available defenses were heard and determined. Hence, for the reasons heretofore given in answer to the first question, the defendants are foreclosed in this proceeding from raising the question of the status of that fund.

All that has been said herein in reference to the failure to interpose these pleas in the unlawful detainer action applies with greater force to the failure to interpose them in the action to foreclose the chattel mortgage. It should be noted that the defendants did not plead that any act or promise of the plaintiffs induced Mr. Curtis to fail to tender any of his available defenses to that action. Since the plaintiffs there prayed for a deficiency judgment as well as foreclosure, the defenses now urged would have constituted valid counterclaims in that action, and, not having been pleaded at that time, they may not be set up in this action. Section 439, Code Civ.Proc. Since fraud may not be presumed but must be pleaded and proved, there is no foundation for the argument now made by these respondents that any extrinsic fraud on the part of the plaintiffs prevented them from having their day in court in the foreclosure proceeding.

(3) The finding adverse to plaintiffs upon their cause of action was based primarily on the finding that defendants were not indebted to plaintiffs in any amount and that the transfer was not therefore in defraud of them as creditors of W. H. Curtis. Since the findings on the issue of indebtedness cannot be sustained, the cause must be remanded for a new trial upon issues properly prepared, and it would serve no purpose at this time to discuss the evidence covering the issue of the alleged fraudulent transfer.

The judgment is reversed.

NOURSE, Justice pro tem.

We concur: WASTE, C. J.; LANGDON, J.; SHENK, J.; EDMONDS, J.; SEAWELL, J.