Canal-Randolph Anaheim, Inc. v. J. E. Wilkoski

• Decision Date: 12 March 1980
• Docket Number: CANAL-RANDOLPH
• Citation: 103 Cal.App.3d 282,163 Cal.Rptr. 30
• Court: California Court of Appeals Court of Appeals
• Parties: ANAHEIM, INC., a California Corporation, Plaintiff and Respondent, v. James E. WILKOSKI, J. E. Wilkoski, a Professional Corporation, Defendant and Appellant, and Joseph M. Murphy, Third Party Claimant and Appellant. Civ. 20793.

Page 30

163 Cal.Rptr. 30

103 Cal.App.3d 282

CANAL-RANDOLPH ANAHEIM, INC., a California Corporation, Plaintiff and Respondent, v. James E. WILKOSKI, J. E. Wilkoski, a Professional Corporation, Defendant and Appellant and Joseph M. Murphy, Third Party Claimant and Appellant.

Civ. 20793.

Court of Appeal, Fourth District, Division 2, California.

March 12, 1980.

James E. Wilkoski, Anaheim, for defendant and appellant J. E. Wilkoski, a Professional Corporation.

Joseph M. Murphy, in pro. per.

Millar & Hodges and Richard W. Millar, Jr., Newport Beach, for plaintiff and respondent Canal-Randolph Anaheim, Inc.

Christian R. Van Deusen, in pro. per., for third party claimant and respondent.

OPINION

TAMURA, Acting Presiding Justice.

This is an appeal from a judgment denying a claim of exemption and adjudicating several third party claims to office equipment, furnishings and law books of J. E. Wilkoski, a law corporation, which were subject to a levy under a writ of execution on a judgment against the law corporation. The principal issue, which appears to be one of first impression, is whether a law corporation is entitled to the benefit of the exemption provided by Code of Civil Procedure section 690.4. ¹

The record on appeal consists only of the judgment roll and a limited engrossed settled statement. The engrossed settled statement relates only to proceedings under the third party claim of appellant Joseph M. Murphy. According to this rather limited record, defendant J. E. Wilkoski, a professional law corporation (Corporation) rented a suite of business offices from plaintiff Canal-Randolph Anaheim, Inc. (Canal-Randolph). Defendant fell considerably behind in its rental payments. In January of 1978, plaintiff obtained a judgment against the Corporation in an unlawful detainer action; the judgment ordered restoration of the premises and payment of the sum of $6,125 plus interest. Pursuant to a writ of possession, the sheriff removed the personalty (equipment, furnishings, books) remaining in the suite of offices and placed them in storage. About a week later, the sheriff levied on this personalty pursuant to a writ of execution obtained by plaintiff.

James E. Wilkoski filed a claim of exemption on behalf of the Corporation as to certain items claiming that they were exempt under section 690.4 because they were essential for the carrying on of the profession (law) by which the Corporation earned its livelihood.

Joseph M. Murphy, a law clerk employed by Corporation, filed a third party claim for other items, including the collection of law books. The engrossed settled statement reveals that Murphy and Wilkoski had been close associates for some years and that Murphy had been employed by the Corporation as a law clerk. Murphy testified that Wilkoski, acting on behalf of the Corporation, sold the claimed items to him in February 1978 and that the consideration for the sale was the cancellation of a debt owed him by the Corporation for past due wages and an agreement to pay the balance owing at $250 per week. The settled statement reveals that Murphy knew at time of purchase that Corporation had no money to pay its lawyers to pursue an appeal in the unlawful detainer action, that a writ of possession had been served on the Corporation and that Wilkoski wished to retain the equipment, furniture and books belonging to the Corporation but feared losing them through execution since the Corporation did not have the financial ability to satisfy its judgment debt. The contract of sale was an oral agreement; no bill of sale or other paper documented the agreement. The items supposedly purchased by Murphy remained at the corporate offices until removed to storage by the sheriff. At the storage company, the items claimed by Murphy were listed on a separate inventory from the other personalty sent to storage from the Corporation's offices.

Darlene M. Wilkoski made a third party claim to still other items of personalty which had been levied upon, including some office furniture and a photocopy machine. In her verified claim, she stated that she was the absolute owner of these items and that she acquired them by purchase. The record contains no additional evidence regarding this claim.

Finally, Christian R. Van Deusen filed a third party claim to certain items. Van Deusen's claim overlapped those of the Corporation, Murphy and Ms. Wilkoski and included the collection of law books as well as certain furnishings and equipment. In a declaration filed with his claim, Van Deusen stated that he is an attorney; that he and Wilkoski had agreed to purchase the law practice of Maher & Moore in 1974; that he had furnished Wilkoski with the cash ($5,400) to purchase the practice and thus should be adjudged the beneficial owner of the property to which he laid claim. In support of his claim, Van Deusen furnished a copy of a Memorandum of Understanding concerning the purchase of the Maher & Moore practice executed by Wilkoski and Van Deusen in July of 1974 and a disbursal form authorizing the Union Bank to deposit $1,250 of Van Deusen's personal funds in the commercial account of "Wilkoski & Van Deusen, Attorneys At Law Trust Account."

The above described exemption and third party claims came on for hearing pursuant to Code of Civil Procedure sections 689 and 690.50. After extended hearings, the court rendered its decision as follows: Denied Murphy's third party claim on the ground "that the transfer was a fraudulent transfer as to the creditors of the corporation"; denied Ms. Wilkoski's third party claim because she failed to carry her burden of proof; denied the Corporation's claim of exemption; and granted Van Deusen's claim as to an undivided one-half interest in 12 of the items listed in the storage company's inventory since Corporation held these items in trust for him pursuant to a resulting trust. ² The court retained jurisdiction over the claims matter until counsel for plaintiff Canal-Randolph, defendant Corporation and claimant Van Deusen had agreed upon the particular items of inventory which were subject to Van Deusen's undivided one-half interest. After negotiations among the three interested parties and their attorneys, a hearing was held to determine claimant Van Deusen's entitlement to particular items. A judgment was ultimately entered denying the claims of Murphy, Ms. Wilkoski and Corporation and adjudging Van Deusen vested with title to an undivided one-half interest in certain of the levied-upon items. Defendant Corporation and claimant Murphy appeal from this judgment. ³

Corporation contends that the trial court erred in failing to apply the "livelihood" exemption provisions of Code of Civil Procedure section 690.4 to a professional corporation; that the trial court exceeded its jurisdiction in applying the doctrine of "resulting trust" to establish title in a third party in a hearing conducted pursuant to section 689; ⁴ that the evidence was insufficient to support the finding of a resulting trust and, for the first time on appeal, contends that Van Deusen's third party claim was barred by laches and estoppel. Claimant Murphy contends that the evidence adduced at the hearing was wholly insufficient to support the conclusion that the transfer of personalty from the Corporation to him was a fraudulent conveyance. The issues of laches and estoppel are not properly before us on appeal since they were not raised at the hearing. ⁵ In the analysis set out below, we have concluded that the remaining issues are without merit and that the judgment should be affirmed. ⁶

I PROFESSIONAL CORPORATION'S CLAIM OF EXEMPTION UNDER SECTION 690.4

Section 690.4 is one of the "exemption" statutes found in sections 690.1 to 690.29. Property listed in these code sections is exempt from execution when a claim of exemption is made by a judgment debtor or defendant. ( § 690. ⁷) Section 690.4 states in pertinent part that any tools of a trade or calling such as instruments, furnishings or books "and other personal property ordinarily and reasonably necessary to, and personally owned and used by, the debtor exclusively in the exercise of the trade, calling, or profession by which he earns his livelihood" up to a cash value of $2,500 are exempt from attachment or levy.

The Corporation contends that section 690.4 should apply to professional corporations who are debtors, as well as to individuals who find themselves in financial straits. As we explain below, our analysis of the language, context and history of the exemption statutes, of case law and statutory development on the analogous question of the right of members of a partnership to exemptions, of persuasive authority on the issue of corporate exemptions from another jurisdiction, of the views of commentators on the California law, and of the structure and purposes of professional corporations, especially those involving the legal profession, convinces us that the Legislature did not intend for professional corporations to be entitled to a claim of exemption under section 690.4.

In our search for legislative intent, we turn first to the language of section 690.4 and to a consideration of its meaning in the context of the entire exemption scheme found in sections 690.1-690.29. (E. g., Moyer v. Workmen's Comp. Appeals Bd., 10 Cal.3d 222, 230, 110 Cal.Rptr. 144, 514 P.2d 1224; West Pico Furniture Co. v. Pacific Finance Loans, 2 Cal.3d 594, 607-608, 86 Cal.Rptr. 793, 469 P.2d 665; Livingston v. Heydon, 27 Cal.App.3d 672, 677, 104 Cal.Rptr. 83.) Initially, we note that section 690.4 contains the phrases "personally owned and used by . . . the debtor" and "he earns his livelihood." This terminology connotes a reference to an individual person who needs his tools or implements to eke out a living for self and family, rather than to a corporate entity. The other exemptions in the 690 series strongly reinforce this connotation. Nearly all of them refer to items which would...