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Fletcher Law Practice Case Summary: Estate Law and Family Law

May 28

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Brief Summary: California Appellate Court, Fourth District decided In re Marriage of Lund while addressing issues of Estate Law and Family Law. In the case, Husband entered into an agreement to establish interest in property with Wife while completing an estate plan. In the agreement, Husband transmuted his separate property to community property for the purpose of the estate plan. At time of dissolution, Husband argued the transmutation did not apply and he suffered undue influence from not understanding the documents signed; the lower court agreed. On appeal, the appellate court overruled the lower court because the document clearly transmuted Husband’s property interest and he in fact understood the scope of the agreement.

Case Summary: Husband and Wife entered into a written agreement for transmutation of property in preparation for the signing of wills and trusts. The agreement originally set aside property as separate property for Husband, but at the time of signing the agreement Husband and Wife crossed out sections related to Husband’s separate property thus identifying it as community property. The wills and trusts contradicted the written agreement for transmutation by reverting the community property to separate property upon dissolution. This ambiguity and conflict of documents were the grounds by which the lower court ruled no transmutation occurred; the signing of documents also were caused by undue influence.

Wife appealed the decision to determine (1) whether or not a transmutation occurred and (2) that she placed no undue influence upon Husband.

As to the transmutation, a married couple may convert separate property into community property through an express written declaration consented to by both parties. (Fam. Codes §§850, 852(a).) The express declaration must be unambiguous as to the change of characterization of property ownership. (In re Marriage of Starkman (2005) 129 Cal.App.4th 659, 664 (Starkman).) Upon a dissolution, community property withdrawn from a trust remains community property “unless there is a valid transmutation of property at the time of distribution or withdrawal.” (Fam. Code §761(b).)

The interpretation of ambiguity looks to the instrument of transmutation independently, “without resort to extrinsic evidence.” (id. at pp. 664.) Nor can a transmutation be, “limited in purpose or otherwise rendered conditional or temporary.” (Marriage of Holtermann (2008) 166 Cal.App.4th 1166.)

Husband and Wife entered into the agreement for transmutation of property. In that agreement, Husband crossed out and initialed the section regarding his own separate property thus transmuting it to community property. Where the court should look only to the document itself for ambiguity and not ancillary documents, it was clear on the face that Husband had consented to the transmutation. Further, the other documents signed should not factor into the court’s interpretation as a person cannot limit the transmutation for purposes of a will or trust.

Because a second transmutation did not occur at the time of the distribution of the estate during the dissolution, and the original document provided an express written declaration with the consent of the parties, Husband did transmute his separate property to community property.

Second, Husband alleged he signed the agreement under undue influence because he failed to understand the terms of the agreement. “[I]n transactions between themselves, a husband and wife are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners . . . .” (Fam. Code § 721(b).)
When one spouse gains advantage from a transmutation, it is presumed that the spouse induced undue influence. (In re Marriage of Haines (1995) Cal.App.4th 277, 293-294 (internal citation omitted).) The requirements of Family Law Code Section 852 only act as a prerequisite for transmutation but does not, by itself, determine whether the transmutation is valid. (In re Marriage of Barneson (1999) 69 Cal.App.4th 583, 588.)

When a party raises an issue of undue influence, the advantages spouse must establish that the disadvantaged spouse acted freely and with full and complete knowledge of the effect of transmutation. (In re Marriage of Burkle (2006) 139 Cal.App.4th 712, 738-739.)

In addition, Husband signed the agreement with the statement “I have carefully read and understand all the provision of the foregoing Agreement and approve of and agree to all the terms hereof.” At trial neither the drafting attorney nor Husband testified; the court could only make its determination based on Wife’s testimony. With the little information provided, the appellate court could only determine that Husband did freely enter into the agreement with full knowledge.

Husband clearly transmuted his property in the agreement to establish interest in property and did not suffer from undue influence; he did property transmute his separate property to community property. The appellate court overturned the lower court decision.

Fletcher Law Practice Case Summary: Contract Law and Attorney Fees

May 22

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Brief Summary: The Fourth Appellate District of California issued its ruling on Silver Creek, LLC v. Blackrock Realty Advisor, Inc. The appellate court determined the lower court incorrectly applied its discretion by not awarding attorney fees to Silver Creek. Parties contract included a clause awarding attorney fees to the prevailing party. The lower court ruled neither party prevailed. The appellate court reversed the lower court on the grounds that even though both parties did in fact prevail on different issues, Silver Creek prevailed on the primary issue and thus would be denied equitable consideration not to receive attorney fees pursuant to the contract.

Case Summary: Silver Creek, LLC (Plaintiff) entered into an agreement for the sale of property to Blackrock Realty Advisor (Defendant). Parties set to close escrow on July 1, 2005. During the escrow process, Plaintiff required satisfactory loan assumption agreements. Disputes arose between the parties as to the loan assumption agreements. Thereafter escrow failed to close before July 1, 2005 without an extension.

Plaintiff then alleged escrow terminated for failure to obtain a satisfactory loan assumption prior to the close of escrow. Shortly there after Plaintiff sent a letter offering to relinquish its rights to the deposit and assert it did not default upon execution of an acceptable settlement agreement. Defendant failed to respond and Plaintiff filed the subsequent action.

Defendant cross-complained. It argued that Plaintiff failed to act reasonably in approving loan assumption agreements. Defendant sought reimbursement for the initial escrow deposit, damages, or in the alternative, specific performance.
At trial, the lower court held that Plaintiff did not default on the agreement. The court also found Defendant’s cross complaint valid and even though Plaintiff did not act in bad faith to retain the deposit, it must now relinquish the deposit to Defendant.
Upon issuing the ruling, the lower court determined that in applying its discretion, since both parties prevailed, the clause regarding attorney fees did not apply. Plaintiff appealed the order.

Plaintiff appealed the decision arguing that the lower court’s abused its discretion by determining neither party prevailed, and Plaintiff should be awarded attorney fees as the prevailing party.

California Civil Code Section 1717 allows for contracts to award attorney fees to the prevailing party. Prevailing is defined as, “the party who recovered a greater relief in the action on the contract.” (CCP §1717(b)(1)). The court may determine that neither party prevailed. Id.

The court with its power of discretion to award attorney fees may also identify which party obtained a greater relief. (Sears v. Bacaglio (1998) 60 Cal.App.4th 1136,1151.) The term greater “includes ‘[l]arger in size that others of the same kind’ as well as ‘principal’ and ‘[s]uperior in quality.’” Id. Further, the court should respect substance over form and should follow the principle of equitable consideration. (Hsu v. Abbara (1995) 9 Cal.4th 863, 887 (Hsu).)

Where the trial court has discretion under section 1717, the appellate court should not disturb the decision without a finding of “manifest abuse of discretion, a prejudicial error of law, or necessary findings not supported by substantial evidence. (Yield Dynamics, Inc. v. Tea Systems Corp. (2007) 154 Cal.App.4th 547, 577.)
Both Plaintiff and Defendant won arguments in the trial court. However, the issue of the deposit was secondary to the larger issue of disposition of the property. Further, Defendant sought, in part, damages and specific performance. The court granted neither.

The lower court also determined Plaintiff did not act in bad faith when rejecting loan assumption agreements. Where Plaintiff properly rejected the agreements, and escrow failed, Plaintiff had the right to withdraw from the sale agreement.

Hsu’s requirement for equitable considerations must relate to the litigation success by a prevailing party. (Hsu, supra 9 Cal.4th at p. 887) Therefore, if one party does achieve success greater than the other party, the prevailing party should not be denied the equitable consideration for the attorney fees clause.

Plaintiff prevailed on the larger issue of property disposition. Even though Defendant did secure the return of the deposit, this had a significantly smaller impact on the litigated matter. Therefore, the court erred in its discretion denying Plaintiff attorney fees. Appellate court reversed the decision and remanded it back for further proceedings.