Burrows v. Jorgensen

• Decision Date: 25 March 1958
• Citation: 323 P.2d 150,158 Cal.App.2d 644
• Court: California Court of Appeals Court of Appeals
• Parties: William BURROWS and Hilda Randall, Plaintiffs and Respondents, v. Lillian C. JORGENSEN and Hans C. Jorgensen, Defendants and Appellants. William BURROWS and Hilda Randall, Plaintiffs and Respondents, v. Lillian C. JORGENSEN, Hans C. Jorgensen, Patricia Franke, and Joyce C. Camozzi, Defendants and Appellants. Civ. 17596.

Page 150

323 P.2d 150

158 Cal.App.2d 644

William BURROWS and Hilda Randall, Plaintiffs and Respondents, v. Lillian C. JORGENSEN and Hans C. Jorgensen, Defendants and Appellants.

William BURROWS and Hilda Randall, Plaintiffs and Respondents, v. Lillian C. JORGENSEN, Hans C. Jorgensen, Patricia Franke, and Joyce C. Camozzi, Defendants and Appellants.

Civ. 17596.

District Court of Appeal, First District, Division 1, California.

March 25, 1958.

Sugarman, Bernheim & Gilbert, Irving C. Sugarman, San Francisco, for appellants.

Joseph A. Brown, San Francisco, for respondents.

BRAY, Justice.

Defendants appeal from an order appointing a receiver upon proceedings heard together (1) under a complaint in equity to set aside transfers allegedly in fraud of creditors; (2) under supplementary proceedings in the original case.

Questions Presented.

1. Was the appointment of a receiver of the leased apartment houses improper (a) because the transfer of the leases were for consideration, (b) because of the provision providing for cancellation in the event of the appointment of a receiver?

2. Was the appointment of a receiver to receive future income proper?

Record.

Plaintiffs filed an action for fraud in the sale of a certain leasehold. Defendants defaulted and judgment was entered in favor of plaintiffs for $8,075 damages and $20,000 exemplary damages. ¹ Plaintiffs moved for appointment of a receiver to take over the management and control of defendants' property to satisfy the judgment. Theretofore plaintiffs filed an action to set aside transfers in fraud of creditors. An order to show cause why a receiver should not be appointed was heard together with the above mentioned motion for appointment of receiver. On August 14, 1956, a minute order of the Hon. Twain Michelsen, Judge of the Superior Court of San Francisco, granting the appointment of a receiver was entered in each proceeding. On August 24, defendants appealed in each proceeding from said order. However, on August 15, in the action to set aside transfers, Hon. Theresa Meikle, judge of said court, signed a formal order appointing a receiver in said action, which order was entered on August 27. ² At defendants' request and pursuant to rule 2(c), Rules on Appeal, we deem defendants' notices of appeal valid as to both orders. See Larrus v. First National Bank, 1954, 122 Cal.App.2d 884, 886, 266 P.2d 143.

In the original case defendants Lillian and Hans Jorgensen appeared before a referee in an examination into their assets. It appeared they consisted of a joint checking account, balance $50, $1,000 in Federal Savings & Loan Co. which had been assigned to their attorneys for services, and a 1950 Plymouth. Prior to May 19, 1956, said defendants were in the business of operating leaseholds (apartment buildings). Judgment was entered in the original action July 27, 1955. On May 19, 1956, the Jorgensens transferred three leaseholds to their daughter and son-in-law Joyce and Gene Cammozzi. No money was paid for these transfers. One lease had ten months to run, one hand four years, and the third three years left. All three leases contain provisions restricting assignment and for termination in the event of transfer by operation of law. The lease of 925 Geary Street provides for cancellation in the event of the appointment of a receiver. Lillian testified that the transfers were made on advice of the landlords who consented thereto. The furniture at two of the leaseholds is security for a loan of $7,800 from Morris Plan. The furniture at the third leasehold is security for the performance of that lease. The Camozzis assumed the obligations of the leases and of the Morris loan, their names being now on the leases and note with the Jorgensens. There is no agreement that the Jorgensens are to receive any income from the leased properties.

1. Receivership.

(a) Consideration.

Defendants contend that all the transfers were for consideration and not in fraud of creditors; hence the appointment of a receiver was improper. They contend that the consideration was the assumption of the Morris Plan loan by the transferees and of the obligations under the leases. Mrs. Camozzi testified that the leases were not worth over the $8,000 loaned by Morris Plan. There was no contrary testimony. However, plaintiffs' attorney made an offer to prove that they were worth $25,000. The court did not rule on the offer as the parties became sidetracked on an unaccepted offer of settlement. Plaintiffs offered no evidence on the subject nor was the court ever asked to rule upon said offer of proof.

In Peterson v. Wilson, 88 Cal.App.2d 617, 626, 199 P.2d 757, 763, 6 A.L.R.2d 258, we quoted from Mix v. Yoakum, 138 Cal.App. 290, 294, 31 P.2d 1071; "A conveyance, in consideration of the assumption of a mortgage on the property, is based on a valid consideration. There is authority for the proposition that where the property conveyed is of value in excess of the mortgage, an agreement on the part of the grantee to pay the same is not a valuable consideration as against the grantor's creditors. It has been held in this state that the disparity between the value of the property and the encumbrance must be such as to show gross inadequacy of consideration. [Citation.] * * *" and held that the burden of proving disparity between the value of the property and the debt assumed is on the creditor. In view of plaintiffs' failure to prove such disparity we cannot find that there was not consideration for the transfer. But that fact alone does not make the appointment of the receiver void. Even where a transfer is made upon consideration, nevertheless the transfer may be set aside if it was made with intent to delay, hinder or defeat creditors. Cioli v. Kenourgios, 59 Cal.App. 690, 211 P. 838.

Peterson v. Wilson, supra, 88 Cal.App.2d 617, 199 P.2d 757, cited by defendants, is not in point. There the court expressly found that the conveyance in question was not made in anticipation of an adverse judgment against the grantor nor to hinder, delay or defraud the creditor.

'In such a case, the fact that the transferee gave consideration is immaterial.' Heffernan v. Bennett & Armour, 110 Cal.App.2d 564, 584, 585, 243 P.2d 846, 859; Chichester v. Mason, 43 Cal.App.2d 577, 586, 111 P.2d 362; Puccetti v. Girola, 63 Cal.App.2d 240, 252, 146 P.2d 714; see also Civ.Code, § 3439.07. The fraud must be proved by clear and convincing evidence because there is a presumption of fair dealing and against fraud. See Hedden v. Waldeck, 9 Cal.2d 631, 636, 72 P.2d 114. In our case the fact that the transfers were made to delay, hinder or defeat plaintiffs' judgment clearly and convincingly appears. The transfers were made the day after the Jorgensens were served with order of examination in the original action. When Mrs. Jorgensen was asked if this was not so, defendants' counsel interrupted and stated: 'That is the reason why she had to do it. There is no question about it.' Mrs. Jorgensen practically admitted the same thing. The transfers were of almost all of Jorgensens' nonexempt property (an indication of fraud--see Keeley v. Anderson, 14 Cal.App.2d 467, 471, 58 P.2d 410). The transferees were a daughter and a son-in-law (also an indication of fraud--Menick v. Goldy, 131 Cal.App.2d 542, 547, 280 P.2d 844). Section 564, subdivisions 1, 4 and 7, Code of Civil Procedure, authorize the appointment of a receiver in actions of this kind. See also Heffernan v. Bennett & Armour, supra, 110 Cal.App.2d 564, 588, 243 P.2d 846; Murray v. Murray, 115 Cal. 266, 274-275, 47 P. 37, 37 L.R.A. 626; Sibert v. Shaver, 113 Cal.App.2d 19, 247 P.2d 609.

As the trial court impliedly found that the transfers were made with the intent to delay, hinder and defeat plaintiffs' judgment, the appointment of the receiver was proper unless affected by the other grounds urged.

(b) Cancellation provisions.

The only lease providing for cancellation in the event of appointment of a receiver is that of 925 Geary. It and the other two leases provided that an assignment without the landlord's consent either voluntary or involuntary or by operation of law or otherwise would be void and cause for termination of the lease. Defendants contend that these provisions present a situation analogous to a debtor's exempt property as to a transfer of which it is well settled that a creditor may not complain. See Prudential Ins. Co. of America v. Beck, 39 Cal.App.2d 355, 103 P.2d 241; In re Johnson, D.C., 97 F.Supp. 779; American State Bank v. Butts, 111 Wash. 612, 191 P. 754, 17 A.L.R. 168. However, the leases are not analogous to exempt property because the leases can be reached if the lessor consents to a transfer either by sale or by the court order appointing a receiver. As most leases contain such restrictions on transfer, such a ruling practically would make all leases exempt property. Elson v. Nyhan, 45 Cal.App.2d 1, 113 P.2d 474, is not in point. It dealt with the refusal of the trial court to appoint a receiver to take possession of cab licenses. The case did not hold that a receiver could not be appointed. It held that as the appointment of a receiver rests entirely within the discretion of the trial court, and the transfer of such licenses required the consent of the Police Commission whose policy was to refuse to recognize involuntary transfers, the trial court did not abuse its discretion in denying a receiver. With the possible exception of the Geary Street lease, the covenants of the leases against involuntary assignment are not sufficiently strong to prevent the taking of possession by the receiver of the leased premises. While the question of the effect of such covenants has not been decided in California, it appears from the following cases in other jurisdictions that the receiver acquires no title but only the right to possession as an officer of the court and hence his appointment is not a violation of the type of covenant against assignment...