Kirkland v. Risso

• Decision Date: 23 November 1979
• Citation: 159 Cal.Rptr. 798,98 Cal.App.3d 971
• Court: California Court of Appeals Court of Appeals
• Parties: Sandra K. KIRKLAND, Plaintiff and Respondent, v. Louis RISSO, et al., Defendants and Appellants. Civ. 41849.

Page 798

159 Cal.Rptr. 798

98 Cal.App.3d 971

Sandra K. KIRKLAND, Plaintiff and Respondent, v. Louis RISSO, et al., Defendants and Appellants.

Civ. 41849.

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

Nov. 23, 1979.

Hearing Denied Jan. 17, 1980.

Alfred Nelson, Oakland, for defendants and appellants.

Mike C. Buckley, Carole D. Bergeron, Crosby, Heafey, Roach & May, Professional Corp., Oakland, for plaintiff and respondent.

MILLER, Associate Justice.

Louis and Lloyd Risso appeal from that portion of the trial court's judgment which set aside, as against respondent, a deed of trust executed by trustor Louis Risso in favor of beneficiary Lloyd Risso covering certain real property located in the County of San Joaquin.

In a prior action, judgment was entered on July 16, 1974, in favor of respondent and against appellant Louis Risso for $635,165.35, the amount adjudged due and owing to respondent's assignor, John O'Neill, on a book account for hay, feed and other products dating back to 1949.

Respondent was unable to collect the judgment through the execution process due to claims made by appellant Lloyd Risso that he was not the owner of property formerly belonging to appellant Louis Risso. Respondent filed an action in San Mateo County to quiet her title to the real property and for fraudulent conveyance naming, Inter alia, Louis and Lloyd Risso, the appellants herein.

The record reveals that respondent filed her original action on August 3, 1973 and served appellant Louis Risso on August 5, 1973. On August 20, 1973, appellant Louis Risso executed and recorded a trust deed on certain property in San Mateo County owned by Louis in favor of his brother, Lloyd. On September 18, 1973, another trust deed for property Louis owned in San Joaquin County was recorded in favor of Lloyd.

On July 8, 1974, a jury trial in the original action began in San Mateo County. According to testimony of Louis Risso in this action and statements of appellants' counsel, early that very same morning, Louis executed several documents assigning certain of his assets to his brother Lloyd. Appellants stipulated that the purpose of the transfers was to prefer Lloyd over all other of Louis' creditors.

On July 10, 1974, the jury returned a verdict for respondent and against Louis Risso. Five days later, Louis executed an "assignment of proceeds of sale of dairy products" directing Foremost Foods (the company buying Louis' milk) to pay the "entire proceeds" of "any dairy products heretofore or hereafter sold by me to Foremost Foods Company" to his brother Lloyd.

Shortly after receiving judgment against Louis, respondent proceeded to levy on these assets to collect the judgment. After each levy, appellant Lloyd Risso filed third party claims asserting a security interest in the assets of his brother Louis based on the assignments and interests described above.

On November 12, 1974, respondent filed the complaint in this action in an effort to collect on the earlier judgment. After the quiet title portions of the complaint were dismissed, the case proceeded to trial against Louis and Lloyd on the issue of whether the conveyances of the San Mateo and San Joaquin properties were fraudulent.

At the trial below, appellants contended that the transfer of the deed of trust was not fraudulent because a substantial sum of money was owed by Louis to Lloyd which provided a fair consideration for the transfer. Appellants produced evidence indicating that Louis owed Lloyd $287,000 for the purchase of cattle, plus interest over a twenty-year period. They also asserted that Lloyd had advanced over $51,000 for payment of bills incurred by his brother and that Lloyd had paid substantial sums due on the first deed of trust covering the San Joaquin property.

Respondent contended that the aforementioned debts were illusory and were expressly excluded from the deeds of trust, that the payments on the deed of trust for the San Joaquin property, if actually made, were made voluntarily.

The trial judge found that respondent was a creditor of Louis at all relevant times, that Louis was insolvent at all relevant times, and that the transfer of the security interest in the San Joaquin property was fraudulent because it was made without fair consideration. The court found that fair consideration was given for the deed of trust on the San Mateo property, and hence it was not fraudulent. Thus, the only transfer at issue on appeal is the San Joaquin conveyance.

Appellants' briefs contain no statement of issues. They appear to be an attempt to retry the case. Their single assertion of trial error is that the trial court erred in rejecting the testimony of all the defense witnesses. We can only conclude that appellants' sole issue on appeal is that the judgment is not supported by the evidence.

The standards for the substantial evidence test are well settled. "In resolving the issue of the sufficiency of the evidence, we are bound by the established rules of appellate review that all factual matters will be viewed most favorably to the prevailing party (Citations.) and in support of the judgment (Citations.). All issues of credibility are likewise within the province of the trier of fact. (Citations.) 'In brief, the appellate court ordinarily Looks only at the evidence supporting the successful party, and disregards the contrary showing.' (6 Witkin, Cal.Procedure, Supra, § 249, at p. 4241.) All conflicts, therefore, must be resolved in favor of the respondent. (Citations.)" (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925-926, 101 Cal.Rptr. 568, 571, 496 P.2d 480, 483, emphasis in original.)

The trial court made three findings concerning the conveyance of the San Joaquin property from Louis to Lloyd as being fraudulent. In finding 5 it was stated that "(a)t the time of granting said lien and security interest on said real properties, the debts owed by LOUIS RISSO exceeded the assets owned by LOUIS RISSO, and he was insolvent." Finding 6 states, "(t)he conveyance by LOUIS RISSO to LLOYD RISSO of the beneficial interest in the deed of trust covering real property located in San Joaquin County, California, was made without fair consideration." Finding 8 states, "(a)t the time of receiving the beneficial interests in the two deeds of trust referred to in paragraph 3, LLOYD RISSO did not have the actual intent to defraud the creditors of his brother, LOUIS RISSO."

These findings are framed in terms of pertinent provisions of the Uniform Fraudulent Conveyance Act (Civ.Code, §§ 3439.01-3439.12). The act provides two distinct grounds, set forth in different sections thereof ( §§ 3439.04 and 3439.07), for finding a conveyance to be fraudulent as to creditors. (Hansford v. Lassar (1975) 53 Cal.App.3d 364, 374, 125 Cal.Rptr. 804.) We are not here concerned with section 3439.07, dealing with Actual fraud, since the trial court determined that Lloyd had no actual intent to defraud Louis' creditors. Rather, we deal with section 3439.04 ¹, the Constructive fraud statute.

"In order to establish a conveyance as fraudulent under section 3439.04 of the Civil Code, it must appear that the transferor is insolvent at the time of the conveyance or will be rendered insolvent thereby And that the conveyance was made without a fair consideration." (T W M Homes, Inc. v. Atherwood Realty & Inv. Co. (1963) 214 Cal.App.2d 826, 842-843, 29 Cal.Rptr. 887, 896, emphasis in original.)

A person is insolvent under the Uniform Fraudulent Conveyance Act "when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured." (Civ.Code, § 3439.02(a).) There does not appear to be any dispute in the present case over finding No. 5 concerning Louis' insolvency. Louis freely admitted his insolvency at all relevant times. The fact of the conveyance of the deed of trust on the San Joaquin property to Lloyd was also freely admitted. It was stipulated that Louis intended to prefer Lloyd over other creditors. Therefore, the only issue that remains is whether there was sufficient evidence to support the trial court's finding No. 6 that Louis' conveyance of the San Joaquin property to Lloyd was made without fair consideration.

Section 3439.03 of the Civil Code provides in pertinent part that "(f)air consideration is given for property, or obligation: . . . (b) (w)hen such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained." What constitutes a fair consideration is a question of fact (Copple v. Lazzarevich (1951) 108 Cal.App.2d 143, 146, 238 P.2d 612), and must be determined from the standpoint of the creditor. (Patterson v. Missler (1965) 238 Cal.App.2d 759, 766, 48 Cal.Rptr. 215.)

The issue then arises as to which party, after insolvency has been proven, has the burden of proof concerning consideration. Appellants, citing Peterson v. Wilson (1948) 88 Cal.App.2d 617, 626, 199 P.2d 757, 763 (overruled on other grounds in Bangioni v. Hill (1963) 59 Cal.2d 121, 28 Cal.Rptr. 321, 378 P.2d 593), strenuously assert that "(f)raud is never presumed, and the burden is on the creditor who seeks to avoid the transfer to both allege and prove inadequacy of the consideration. Conversely, the grantee is not required to either allege or prove the adequacy of the consideration."

The majority of California cases dealing with the Uniform Fraudulent Conveyance Act discuss the burden of proof for insolvency, rather than for fair consideration. In those cases solvency and not insolvency is presumed. (Stearns v. Los Angeles City School Dist. (1966) 244 Cal.App.2d 696, 737, 53 Cal.Rptr. 482; Miller v. Keegan (1949) 92 Cal.App.2d 846, 851-852, 207 P.2d 1073.) Most cases cited by respondent deal either with Actual, as opposed to...