Estate of Blanco

• Court: California Court of Appeals
• Writing for the Court: JEFFERSON; FILES, P. J., and ALARCON
• Citation: Estate of Blanco, 150 Cal.Rptr. 645, 86 Cal.App.3d 826 (Cal. App. 1978)
• Decision Date: 29 November 1978
• Parties: , 6 A.L.R.4th 850 In the Matter of the Estate of Maria Astrid BLANCO, Deceased. Theodore ENCINAS and Ofelia Encinas, Appellants, v. John D. CLOSS, appearing as Guardian ad Litem for Victor T. Blanco and Richard J. Blanco, Respondents. Civ. 52065.

Page 645

150 Cal.Rptr. 645

86 Cal.App.3d 826, 6 A.L.R.4th 850

In the Matter of the Estate of Maria Astrid BLANCO, Deceased Theodore ENCINAS and Ofelia Encinas, Appellants, v. John D. CLOSS, appearing as Guardian ad Litem for Victor T. Blanco and Richard J. Blanco, Respondents.

Civ. 52065.

Court of Appeal, Second District, Division 4, California.

Nov. 29, 1978.

Robert D. Bannon, Los Angeles, and Lascher & Wilner by Edward L. Lascher, Ventura, for appellants.

John D. Closs, Los Angeles, for respondents.

JEFFERSON, Associate Justice.

This is an appeal from an order in a probate proceeding that denied a petition by petitioners Theodore Encinas and Ofelia Encinas for a decree adjudging and declaring petitioners to be the owners of certain real property.

I The Factual Background

Four parcels of real property were originally owned by petitioners. On December 4, 1973, by grant deeds, petitioners conveyed these parcels to their married daughter, Maria Astrid Blanco. These conveyances were made pursuant to an oral understanding between petitioners and Maria that Maria would hold title in trust for petitioners and reconvey the parcels upon request of petitioners. Maria furnished no consideration for the transfers.

At the date of petitioners' conveyances to Maria, there was pending against petitioner Theodore Encinas a medical malpractice action that had been filed by Esmilia Topete. Mrs. Topete had been a patient of Theodore Encinas who was a chiropractor and in his late seventies at the time. The Topete suit sought damages of $150,000.

According to Theodore's testimony, the transfers to Maria were made at the suggestion of Theodore's attorney who was representing him in the Topete-Encinas action.

Following the transfers to Maria, Theodore continued to collect the rents from the tenants and pay the taxes and the expenses for repairs to the four parcels. At no time did Maria display or assume any acts of ownership or control over any of the four parcels of real property.

On March 13, 1975, Maria died suddenly. She died intestate and was survived by her husband, Victor, and their two children who were minors. Prior to Maria's death, no request had been made by Theodore and Ofelia for a return of the properties.

In August 1975, in a court trial, judgment was rendered in favor of petitioner Theodore and against Esmilia Topete in the malpractice action. Thereafter, petitioners requested reconveyance of the properties from Victor Blanco, the surviving husband of Maria. Victor complied and executed grant deeds in favor of petitioners. The estate of Maria was in the process of probate and the interest of Victor in the properties involved constituted a one-third interest with a two-thirds interest resting in Maria's two minor children. It was this two-thirds interest that petitioners were seeking to reach by their petition filed in the probate proceedings involving the estate of Maria Blanco. ¹ Respondents are the two minors, Victor T. Blanco and Richard J. Blanco, by their guardian ad litem. The trial court's order from which the appeal has been taken denied the petition and declared and adjudged that the ownership interests in the four parcels of real property were vested in the two minor children of Maria as to an undivided two-thirds interest and in petitioners Theodore Encinas and Ofelia Encinas as to an undivided one-third interest.

Although there were no written findings of fact and the court's order was silent as to the basis for the order, it is clear from statements of the court that petitioners Theodore and Ofelia were denied relief on the ground that the conveyances to Maria were made by petitioners with intent to defraud Esmilia Topete as a creditor of petitioners. Hence, under the doctrine of "clean hands," petitioners were denied the right of recovery.

II The Doctrine of Clean Hands The Effect of a Grantor's Unclean Hands Upon His Right To Recover Property Conveyed with Intent To Defraud a Creditor

On this appeal, petitioners assert that the doctrine that a person with unclean hands may not recover in a court of equity was improperly applied by the trial court. Although petitioners state that the facts are not in dispute, nevertheless, petitioners set forth as undisputed facts which would tend to negate any intention by petitioners to defraud Mrs. Topete who had a pending malpractice action against petitioner Theodore at the time of the property transfers. Petitioners' assertion as to what constituted undisputed facts below is unacceptable in light of the well-settled standard of appellate review which requires the appellate court to "view the facts in the light most favorable to (the prevailing party below), giving (that party) the benefit of every reasonable inference and resolving all conflicts in (that party's) favor . . . ." (Horn v. General Motors Corp. (1976) 17 Cal.3d 359, 367, 131 Cal.Rptr. 78, 81, 551 P.2d 398, 401.)

We must start with the premise, therefore, that, in spite of the testimony that Theodore and Ofelia transferred their properties solely because Theodore's attorney in the Topete malpractice action so advised him, there was evidence to justify the trial court's implied finding that Theodore and Ofelia had an intent to put their properties beyond the reach of Mrs. Topete in the event she were to obtain a judgment for damages against Theodore.

Civil Code section 3439.07 provides: "Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors."

Civil Code section 3439.01, for the purposes of the Uniform Fraudulent Conveyance Act (Civ.Code, §§ 3439.01 et seq.), defines a "creditor" as "a person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent."

At the time of the conveyances to Maria, Mrs. Topete was a "creditor" of Theodore Encinas within the meaning of Civil Code section 3439.01, since she had a contingent claim for damages. The rule of law which normally precludes a grantor from recovering his property from a grantee when the conveyance is deemed a fraudulent conveyance is known as the equitable principle of "clean hands." The application of the doctrine was stated in Tognazzi v. Wilhelm (1936) 6 Cal.2d 123, 125, 56 P.2d 1227, 1228, in the following language: " '(H)e who executes a conveyance of property for the purpose of hindering, delaying or defrauding his creditors cannot by an action in equity obtain a reconveyance from his grantee, nor can anyone claiming under him, except an innocent purchaser.' "

In Tognazzi, plaintiff sought to get back property he had conveyed to his daughter to protect against the possibility of a deficiency judgment on a deed of trust given by plaintiff to a savings and loan association. The complaint alleged that no deficiency action had ever been filed. In upholding the trial court's sustaining of a demurrer to the complaint, the court remarked: "The admitted purpose of the transfer was to defeat an Existing creditor whose claim, in part, might thereafter assume the form of a deficiency judgment. The fraudulent scheme was therefore fully consummated upon the conveyance of the property. It no longer remained, as appellant urges, an unconsummated intent to defraud." (Tognazzi, supra, 6 Cal.2d 123, 125, 56 P.2d 1227, 1228.) (Emphasis added.)

In relying upon Tognazzi as stating a rule that supports the trial court's order in the case at bench, respondents assert that there is no difference between an Existing creditor involved in Tognazzi and a Contingent tort creditor involved in the instant case. Certainly, for purposes of the Uniform Fraudulent Conveyance Act, a tort claimant before judgment is rendered is a "creditor" within the meaning of Civil Code section 3439.01. And it was stated in Smedberg v. Bevilockway (1936) 14 Cal.App.2d 312, 316, 58 P.2d 173, 175: " ' "that one having a claim for a tort is a creditor before the commencement of an action thereon as well as after, and as such creditor is, upon recovering judgment, entitled to avoid a fraudulent transfer antedating the commencement of his action". . . .' "

In the instant case, however, we are dealing with the question of the right of a grantor who has made a conveyance to a grantee for the purpose of hindering or precluding a tort claimant from levying on the grantor's property in the event the tort claim matures into a judgment.

III Dissipation of a Grantor's Original Unclean Hands to Preclude Application of the Clean Hands Doctrine

The main thrust of petitioners' argument on appeal is that the evidence establishes as a matter of law that the original "unclean hands" by petitioners became dissipated by subsequent events to preclude application of the "clean hands" doctrine to petitioners' action to recover the properties conveyed to their daughter Maria.

Petitioners assert that there are several situations in which a grantor's original "unclean hands" may become dissipated to preclude application of the "clean hands" doctrine. Thus, it has been said that "(t)he fact that a court of equity is the proper court for (an action), however, does not necessarily dictate the conclusion that the doctrine of clean hands is a complete defense. It is well settled that public policy may favor the non-application of the doctrine as well as its application." (Radich v. Kruly (1964) 226 Cal.App.2d 683, 686, 38 Cal.Rptr. 340, 342.) "Whenever an inequitable result would be accomplished by application of the 'clean hands' doctrine the courts have not hesitated to reject it." (Womack v. Womack (1966) 242 Cal.App.2d 572, 579, 51 Cal.Rptr. 668, 673.)

In Soon v. Beckman (1965) 234 Cal.App.2d 33, 36, 44 Cal.Rptr. 190, 192, the court set forth the principle that: " 'In applying the maxim that he who comes into equity must do so with clean hands the...