Weisenburg v. Cragholm, S.F. 22806

• Decision Date: 01 November 1971
• Docket Number: S.F. 22806
• Citation: 97 Cal.Rptr. 862,5 Cal.3d 892,489 P.2d 1126
• Court: California Supreme Court
• Parties: , 489 P.2d 1126 L. E. WEISENBURG, Jr., Plaintiff and Respondent, v. Lemuel C. CRAGHOLM at al., Defendants and Appellants. In Bank

Page 862

97 Cal.Rptr. 862

5 Cal.3d 892, 489 P.2d 1126

L. E. WEISENBURG, Jr., Plaintiff and Respondent, v. Lemuel C. CRAGHOLM at al., Defendants and Appellants.

S.F. 22806.

Supreme Court of California,

In Bank.

Nov. 1, 1971.

Rehearing Denied Dec. 1, 1971.

Harold R. Martin, Berkeley, Stark, Stewart, Simon & Sparrowe, John F. Banker, and Merrill J. Schwartz, Oakland, for defendants and appellants.

Meis, Hill & Sager, Steven T. Sager and Low & Ball, San Francisco, for plaintiff and respondent.

McCOMB, Associate Justice.

Defendants appeal from a judgment setting aside certain conveyances found to have been made for the purpose of hindering, delaying, and defrauding plaintiff of his rights as a judgment creditor of defendants Leroy B. Thomas and Jean G. Thomas, husband and wife.

For many years, the Thomases owned a 310-acre tract of land located on Bethel Island in Contra Costa County. Thomas became interested in developing the property as a subdivision and marina. In 1964, he entered into an agreement with plaintiff, a contractor and developer with experience in building marinas, for the purpose of developing the land, and plaintiff began activities essential for the development, including the obtaining of governmental approval for the conditional road abandonment necessary to utilize the property as a marina.

Plaintiff and Thomas agreed to, and did, form a corporation, which became known as Delta Coves, Inc. (Delta). Plaintiff and two real estate agents were the first directors, but in late 1964 Thomas and defendants Harold R. Martin and Lemuel C. Cragholm also became directors. Pursuant to the original agreement between plaintiff and Thomas, an agreement giving Delta an option to purchase the property at a minimum price of $1500 an acre (a total of $465,000) was signed on July 1, 1964. In early 1965, a dispute arose between plaintiff and Thomas as to the meaning of the agreement. Cragholm and Martin supported Thomas' interpretation.

In February 1965, Cragholm lent $61,000 to Thomas and received a deed of trust on the Bethel Island property. It was agreed that the money would be used to pay off two of three existing deeds of trust on the property; that Cragholm would receive a first deed of trust as to all the property except for 50 acres, as to which the third encumbrance became first; and that Cragholm would hold a second deed of trust as to that property. Plaintiff was unaware of these developments.

Later, a dispute arose at a Delta board meeting as to when the option to purchase would expire; and, over plaintiff's objections, the corporation refused to exercise its option. In July 1965, plaintiff filed an action against the Thomases for specific performance and damages (action 97605 in the Superior Court of Contra Costa County).

In April 1966, Cragholm advanced Thomas an additional $5,000, for which the previously executed deed of trust was considered security. Until July 1, 1966, Thomas paid approximately $350 a month as interest due on the total loan; but on July 1, 1966, the first payment of principal fell due, and he defaulted in that payment. On September 29, 1966, Cragholm filed a notice of default.

In June 1967, a memorandum decision was rendered in favor of plaintiff in his action against the Thomases. On September 5, 1967, findings of fact and conclusions of law were filed, and judgment was rendered in favor of plaintiff in the sum of $151,607.45, on the theory that the land had increased in value $300,000 as a result of plaintiff's efforts and that under the joint venture agreement between the parties he was entitled to half the enhance ment. Because of a technical error, the judgment was vacated September 18, 1967.

On September 26, 1967, Thomas executed a note for $15,000, secured by a deed of trust on his home, to Martin to compensate him for legal services rendered in connection with plaintiff's action against the Thomases.

During September 1967, Cragholm instituted foreclosure proceedings on the Bethel Island property, and on October 9, 1967, a foreclosure sale was regularly conducted. Cragholm made the only bid at the foreclosure sale and received a trustee's deed to the property, which deed was recorded October 11, 1967.

On October 3, 1967, the Thomases conveyed to Nelson by grant deeds two lots adjacent to the Bethel Island property, allegedly as compensation for services rendered by Nelson in 1965 and 1966 with respect to development of the Bethel Island property.

On October 10, 1967, judgment in the sum of $151,607.45 was entered in favor of plaintiff in his action against the Thomases. On that date, the Thomases held assets worth approximately $800. When plaintiff sought to execute on the judgment, it was discovered that the Thomases were, in effect, insolvent.

Plaintiff then brought this action to have the various transfers set aside as made for the purpose of hindering, delaying, and defrauding him of his rights as a judgment creditor of the Thomases. The trial court rendered a judgment in his favor, giving him a lien on each of the parcels of real estate and making such liens 'effective from and after October 10, 1967, the date on which judgment was entered by the court in Action Number 97605 on file in this court; but subordinate to Deed of Trust of Lemuel and Clara Cragholm.'

While the appeal herein was pending, the Court of Appeal reversed the judgment in plaintiff's favor in action 97605. (Weisenburg v. Thomas, 9 Cal.App.3d 961, 89 Cal.Rptr. 113 (hear. den. by Supreme Court).) ¹ Defendants contend that, as a result, the basis for the trial court's judgment in the present case has been eliminated, and they are entitled to a reversal herein.

Question: When (1) an alleged creditor reduces his claim to judgment, (2) the judgment debtor during pendency of the action transfers his property to third...