Grappo v. Coventry Financial Corp.

Decision Date22 October 1991
Docket NumberNo. A048790,A048790
Citation235 Cal.App.3d 496,286 Cal.Rptr. 714
CourtCalifornia Court of Appeals Court of Appeals
PartiesMichael A. GRAPPO, Plaintiff and Appellant, v. COVENTRY FINANCIAL CORPORATION et al., Defendants and Respondents.

John Starbuck, Law Offices of John Starbuck, Oakland, for plaintiff and appellant.

Jonathan R. Bass, Jeffrey S. Cogen, Coblentz, Cahen, McCabe & Breyer, San Francisco, for defendants and respondents Coventry Financial Corp. and A.D. Lerman.

Ned Robinson, Lafayette, for defendant and respondent Tillie A. Grappo.

Scott L. Thomas, Thomas & Porrazzo, San Jose, for defendant and respondent Ticor Title Ins. Co. of California.

Steven R. Walker, Michael J. Forkin, Leland, Parachini, Steinberg, Flinn, Matzger & Melnick, San Francisco, for defendant and respondent North American Title Co.

MERRILL, Acting Presiding Justice.

Michael A. Grappo appeals from a judgment finding that he had no community property interest in certain real property located in Incline Village on Lake Tahoe in Nevada; that he was not entitled to the imposition of an equitable lien on the property; and that he had no interest in the property entitled to priority over the claims of respondents. It should be noted initially that in this proceeding appellant is not seeking to recover an indebtedness on the basis of a loan transaction but is claiming an interest in real property. We affirm the judgment.

I FACTUAL AND PROCEDURAL HISTORY

Respondent Tillie D. Grappo and appellant Michael A. Grappo were married in 1974 and based on appellant's testimony the trial court found they separated in 1979. 1 Both parties had been married previously and had families from those marriages. Appellant had retired from his 25-year career as an agent of the Internal Revenue Service. He was an active real estate investor. Since his retirement, he actively managed a large number of real estate investments. Aside from the pension he received from the Internal Revenue Service, appellant received income in the form of rents from 25 parcels of real estate which he owned in his own name. Appellant was also an attorney, an accountant, and a licensed real estate broker.

In 1977, respondent acquired three unimproved lots on Lakeshore Drive, Incline Village, Nevada, one of which was 1046 Lakeshore Drive, the property at issue in this case. She acquired this property in her own name, as her separate property, with funds obtained by her through a bank loan. Appellant was aware of the fact that the property was acquired by respondent as her separate property, and acknowledged this fact at trial.

Appellant and respondent resided together in Alameda, California, until late 1979, when respondent moved to one of her properties on Lakeshore in Incline Village. Although from time to time the parties would visit each other at their respective residences in Alameda, California, and Incline Village, Nevada, appellant testified that he and respondent never resumed residence together after 1979. Appellant filed for a dissolution of the marriage in 1983, but did not prosecute it. According to appellant, he wanted the marriage to be terminated in 1979, and considered himself separated from respondent as of that time.

Appellant testified that since the beginning of this marriage with respondent, they had kept their property segregated, in order that their separate property would remain separate and not be commingled with or transmuted to community property. It was appellant's intention, which he made clear to respondent, that all property acquired by either of them during their marriage was to remain the separate property of the person acquiring it. In addition, appellant and respondent had "an explicit understanding" that any incremental increase in value to each party's separate property attributable to their personal time and effort spent managing and supervising such property would also be separate property, and not community property.

After the parties separated in 1979, respondent began the construction of a house on the property with which we are now concerned in Incline Village. Respondent originally intended to borrow the money for the construction project through her son-in-law, James R. Schuler. Fearing that this would give either a bank or respondent's son-in-law an interest in the property, and desiring to provide respondent with a source of income that would lessen his exposure for alimony after a dissolution of the marriage, appellant actively discouraged respondent from obtaining the money from Schuler and instead provided respondent with the construction funding himself. First, he loaned her $41,000 in 1980. This money was used to pay off the outstanding balance on the bank loan which respondent had used to purchase the Incline Village properties. As a condition of this loan, appellant had respondent execute a promissory note secured by a deed of trust on some of her separate property in Alameda, California. Next, appellant loaned respondent $40,000 in 1981; he also had her execute an agreement or "receipt" to repay this loan.

After this, appellant continued to provide money to respondent for construction of the house on the property, but without any formal documentation. Appellant testified that he considered these to be loans made to respondent on her oral promises or agreements to repay. Although appellant repeatedly pressed respondent both orally and in writing to give him some security for these funds in the form of deeds of trust, she consistently refused to do so. She never gave appellant any deed of trust to the property at issue in this case, and never agreed that she would do so in the future. Nevertheless, despite respondent's refusal to give him a promissory note and deed of trust, his attorney's advice that he obtain such security, and his own experience as an attorney, an accountant and a real estate broker, appellant continued to advance funds to respondent for the construction of the house on the property. Even after threatening to cut off the funding in January 1983 if she failed to execute a note and deed of trust, appellant still continued to advance money to respondent for several more years.

Aside from lending respondent money to complete the construction of the house, appellant assisted respondent by generally overseeing the construction contractors, dealing with disputes and adjustments with the contractors and local government agencies, and helping respondent to buy materials. At trial, appellant estimated that he spent at least 10 hours a week working on the project.

On all the checks which appellant sent to respondent he wrote " 'loans for construction of 1046 Lakeshore Drive.' " Respondent acknowledged that she also considered these payments to be loans. Appellant never intended these payments to respondent as gifts; from the outset, it was his intention to be repaid. He expected that he would receive at least partial repayment from the sale either of the property itself with the new house, or of an adjoining parcel of property also owned by respondent. At trial, appellant testified that he always assumed that he was protected by some form of unwritten, equitable "lender's lien" on the property because his money was used to fund the construction of the house. However, in contemporaneous written memoranda made in appellant's own bookkeeping and accounting files and ledgers, he notated his loans to respondent as being "unsecured."

After the construction of the residence was completed, appellant again told respondent that he wanted a promissory note and deed of trust on the property to secure his repayment for the money he had loaned her. According to appellant, respondent suggested either putting the property into a form of cotenancy with a life estate in appellant and respondent, with the remainder in respondent's children, or else selling the property "when the market was good." Although appellant did not agree to either of these proposals, he never presented respondent with a note and deed of trust for her to execute.

In 1984, appellant entered into discussions with respondent and her son-in-law, James Schuler, about transferring to Schuler appellant's rights to repayment for the money he had lent respondent, in return for some interest in Schuler's oil and gas engineering company. The entire purpose of these discussions was to determine a way to pay off appellant's loans to respondent. 2 Although some documents were drawn up, they were never finally executed, and no exchange took place.

Appellant continued to ask respondent for a note and deed of trust "from time to time." However, he continued to do nothing else to secure any interest in the property. At some point, respondent sold Schuler an interest in the property. Schuler, his wife and respondent then borrowed $350,000 from A. David Lerman, doing business as Lerman Mortgage Company. This loan was secured by the property. Schuler, his wife and respondent subsequently defaulted on their payments to Lerman, and the latter initiated foreclosure proceedings. Claiming an interest in the property, appellant thereupon filed the instant action seeking a declaration that his interest in the property was prior and superior to that of Lerman; an order enjoining the foreclosure; an equitable lien in excess of $1 million on the property; and damages according to proof. 3

At the parties' first appearance before the trial court, upon the suggestion of Lerman and Coventry, the trial court bifurcated the proceedings so that the first thing tried would be appellant's claim to a community property or equitable interest in the property; and only after that would appellant's further claims for relief be tried. Appellant conceded that he would have to prove his equitable and community property interest in the property in order to prevail on all the causes...

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