Robertson v. Willis

• Decision Date: 02 February 1978
• Citation: 77 Cal.App.3d 358,143 Cal.Rptr. 523
• Court: California Court of Appeals Court of Appeals
• Parties: Gerald L. ROBERTSON, Plaintiff and Respondent, v. Frances WILLIS, Defendant and Appellant. Civ. 51134.

Page 523

143 Cal.Rptr. 523

77 Cal.App.3d 358

Gerald L. ROBERTSON, Plaintiff and Respondent, v. Frances WILLIS, Defendant and Appellant.

Civ. 51134.

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

Feb. 2, 1978.

Rehearing Denied Feb. 21, 1978.

Hearing Denied May 1, 1978.

Cooney & Cooney and Lee Fineman, Sherman Oaks, for defendant and appellant.

Harry E. Barnes, Sherman Oaks, for plaintiff and respondent.

WIENER, ^** Associate Justice.

Frances Willis (Frances) appeals from a judgment against her in the principal sum of $4,750, plus attorneys' fees of $1,500 and costs of suit and appeal. She contends that, although a business debt incurred during marriage by her husband may be satisfied from community property, this does not warrant her personal liability under the facts of this case. We agree.

The questions to be decided on appeal are: (1) whether the fact that community property stands in the name of one spouse only is in itself sufficient reason to create personal liability for that spouse, and (2) whether Civil Code section 5116, effective January 1, 1975, can be applied retroactively.

At the time of appellant's marriage to John Willis (John) in July of 1951, she had been employed as a teacher for approximately 19 years. She continued to be so employed until her retirement in 1975. Her husband worked with varying degrees of success in the painting and decorating business for about 22 years before their marriage and after, continuing up until his death on October 10, 1974.

On April 22, 1970, he entered into a written agreement with plaintiff for the purpose of conducting business as partners under the firm name of John R. Willis Painting and Decorating for which the plaintiff paid him $5,000. Shortly thereafter, the parties decided to terminate their short-lived venture by John returning that sum to the plaintiff. This obligation was reflected in a promissory note dated September 10, 1970, signed by John Willis. It is this business transaction and the promissory note which form the basis of the present litigation.

Plaintiff's original complaint, against John only, contained four causes of action, including a cause of action based on the unpaid balance of the promissory note in the sum of $4,750. Thereafter, his first amended complaint was filed which added appellant as a defendant and which contained an additional allegation of a conspiracy between her and her husband to defraud and mislead creditors, including the plaintiff. Plaintiff appealed from a summary judgment entered in favor of Frances. This court reversed the judgment on the authority of Shinn v. Macpherson (1881) 58 Cal. 596 and Demetris v. Demetris (1954) 125 Cal.App.2d 440, 270 P.2d 891. (Robertson v. Willis, unpublished opinion filed May 2, 1973.)

The practice of the parties during their entire marriage was that each maintained a separate checking account into which each deposited his or her earnings and from which each paid certain household bills. Although each could sign checks on the other's account this was not the typical procedure. There were no joint accounts. Expenses relating to John's business were apparently paid from his account. Prior to their marriage Frances had purchased a residence in her name only which was used during marriage as the family home, payments on which were made by her from her checking account. After their marriage she acquired another house, certain stocks and cash in checking and savings accounts, all of which were in her name only acquired from her earnings deposited into her separate account. Admittedly, the handling of their family finances may not have been typical of many working couples, but the trial court expressly found as a fact that there was no evidence of a conspiracy between Frances and her now deceased husband to defraud the plaintiff. Their practice did, however, result in Frances, at the time of her husband's death, having substantially more of the community property in her name than in her husband's name. It is this result which caused the trial court to conclude that Frances was unjustly enriched. She has never contended that the property standing in her name only which was acquired from community sources was her separate property and exempt from execution arising from a judgment against her husband. (Cf. Hansford v. Lassar (1975) 53 Cal.App.3d 364, 125 Cal.Rptr. 804.) Rather, she concedes that neither she nor her husband did anything whatsoever to attempt to change the amount of community property liable for her husband's obligations.

Community property is available to satisfy a husband's debts to his creditors. (Weinberg v. Weinberg (1967) 67 Cal.2d 557, 63 Cal.Rptr. 13, 432 P.2d 709.) Whether the debts are incurred before or after marriage the community estate, including the interest of the wife, is subject to execution. (Grolemund v. Cafferata (1941) 17 Cal.2d 679, 111 [77 Cal.App.3d 363] P.2d 641.) Because the rights of a creditor may turn on the character of property, whether that property is separate or community is significant. (See 7 Witkin, Summary of Cal. Law (8th ed.) Community Property, § 82 et seq., p. 5170.)

All real property situated in this state and all personal property wherever situated acquired during the marriage by a married person while domiciled in this state is community property. (Civ. Code, § 5110.) The character of property is not determined merely by whose name it is in, but by the time and method of its acquisition.

Even though there is a presumption that property acquired by a wife in writing is her separate property (Civ. Code, § 5110), this presumption is rebuttable and can be overcome by circumstantial evidence. (Nichols v. Mitchell (1948) 32 Cal.2d 598, 197 P.2d 550.)

It is only proper that the rights of a creditor should be increased to include the separate property of a wife if it can be traced to the fruits of her husband's fraud. (Demetris v. Demetris, supra, 125 Cal.App.2d 440, 270 P.2d 891.) In this case plaintiff did not trace any of the funds obtained from him to any item of property owned by Frances. There was also no conspiracy between Frances and her husband to defraud the plaintiff.

The trial court's conclusion that Frances was unjustly enriched was predicated upon the assumption that the net value of the community was reduced by their practice of handling their finances. There is no evidence that any creditor who would otherwise have had access to the community had lost that right and remained unpaid. No penalty should be affixed because a husband and wife may select a unique, but convenient and simple method of handling their personal affairs.

Plaintiff has not established that the net value of the community estate has in any way been diminished nor that the segregation of earnings and income deprived creditors of recourse to community assets.

It would be inappropriate for appellant to concede on appeal that the community property is liable for the post-marital debts of her husband, but whipsaw the plaintiff at the time of his levy on that property by contending that it is all exempt because its source is her earnings under pre-1975 Civil Code section 5117. ¹ " . . . (W)hen the earnings of the wife are preserved separate and distinct from the rest of the community property, . . . they cannot be reached by the creditors of the husband regardless of whether the debts contracted with these creditors are community debts or separate debts of the husband." (Street v. Bertolone (1924) 193 Cal. 751, 754, 226 P. 913, 914.) The exemption available to the wife can be lost when her earnings have become commingled with other community property so as to lose their identity. (Tedder v. Johnson (1951) 105 Cal.App.2d 734, 738, 234 P.2d 149.) The trial court, in anticipation that the defendant would make the contention that all of the community property represented her uncommingled earnings only, made a finding that the transaction was governed by Civil Code section 5116, ² effective January 1, 1975, even though the contract creating the debt was entered into before that date.

On October 1, 1973, the Dymally Bill ³ was signed into law, effective January 1, 1975. The new law made a fundamental change in the California community property system by giving to both spouses joint and several management and control of the community property after January 1, 1975. Because the legislation made no distinction as to pre- and post-1975 community property, it prompted comment on the constitutionality of its retroactive application. Was Spreckels v. Spreckels (1897) 116 Cal. 339, 48 P. 228 still alive? (See Bonanno, The Constitution and "Liberated" Community Property in California Some Constitutional Issues and Problems Under the Newly Enacted Dymally Bill (1974), 1 Hast.Const.L.Q. 97; Reppy, Retroactivity of the 1975 California Community Property Reforms (1975) 48 So.Cal.L.Rev. 977.)

In order to avoid the many complex questions that are certain to arise when a statute is enacted to apply retroactively, the initial legislation involving Civil Code section 5116 (Stats.1973, ch. 987, §§ 7, 20-21) provided that all community property would become liable only for debts contracted by either spouse on or after January 1, 1975. Prior to that date the general rule would continue that only property managed and controlled by the debtor spouse would be liable.

The legislation was amended after its enactment, but before its effective date, by a fourth act (Stats.1974, ch. 1206, §§ 1-7) which was denoted a "trailer bill" and dealt with technical amendments including whether the legislation would apply retroactively. (See Bonanno, supra, p. 98, fn. 6.) The fourth act eliminated the prospectivity provision covering contract creditors and gave creditors retroactive rights. (Stats.1974, ch. 1206, § 2.) The language of Civil Code section 5116, as amended, expressly provides that the community is liable for contracts of either spouse made either before...