| [1] | Supreme Court of California |
| [2] | S012304 |
| [3] | 51 Cal.3d 262, 794 P.2d 911, 272 Cal.Rptr. 153 |
| [4] | Aug 9, 1990 |
| [5] | Estate of MARGERY M. macdonald, deceased. JUDITH BOLTON, as Executirix, etc., Contestant and Appellant, v. ROBERT F. MacDONALD, Claimant and Respondent |
| [6] | Hersh & Hersh, Jill Hersh, Dan Bolton and Philip D. Humphreys for
Contestant and Appellant. McClintock & Quadros, Gordon E. McClintock, Brent A. Babow and
William A. |
| [7] | PANELLI, J. |
| [8] | Civil Code section 5110.730, subdivision (a) (section 5110.730 (a))
provides: "A transmutation of real or personal property is not valid
unless made in writing by an express declaration that is made, joined in,
consented to, or accepted by the spouse whose interest in the property is
adversely affected." |
| [9] | In this case we are asked to decide what type of writing is necessary
to satisfy the statute's requirements. In our view, section 5110.730 (a)
must be construed to preclude reference to extrinsic evidence in the proof
of transmutations. Accordingly, we conclude a writing is not an "express
declaration" for the purposes of section 5110.730 (a) unless it contains
language which expressly states that a change in the characterization or
ownership of the property is being made. thus, we affirm the judgment of
the Court of Appeal. |
| [10] | Facts and Proceedings Below |
| [11] | Decedent Margery M. MacDonald (Margery or decedent) married respondent
Robert F. MacDonald (Robert) in 1973. Both had been married previously,
and each had children by a previous spouse. Robert was president of R. F.
MacDonald Company(the company), where he participated in a defined benefit
pension plan. |
| [12] | In August 1984, Margery learned that she had terminal cancer, and she
and Robert made plans to divide their property into separate estates.
Wishing to leave her property to her own four children, Margery divided
the couple's jointly held stock, sold her half, and placed the proceeds in
her separate account. The MacDonalds thereafter consulted with their
personal accountant and attorney regarding the division of their jointly
held real property. These properties were appraised and divided; Robert
paid Margery $33,000 to equalize the division. |
| [13] | Robert was covered by a company defined benefit pension plan which
came into existence on January 1, 1977. The designated beneficiary of
Robert's interest in the pension plan was a revocable living trust he had
established in 1982. The terms of the trust left the bulk of the corpus to
Robert's children. In November, 1984 Robert turned 65 and his defined
pension plan was terminated. On March 21,1985, Robert received a
disbursement of $266,557.90 from the plan. It is undisputed that Margery
possessed a community property interest in the plan's benefits. *fn1 The pension
funds were not divided or otherwise accounted for at the time of the
couple's previous division of their jointly held assets. These community
funds were deposited into IRA accounts at three separate financial
institutions. |
| [14] | The IRA accounts were opened solely in Robert's name, the designated
beneficiary of each being the revocable living trust which had been
designated as beneficiary of the pension plan. The three form documents
prepared by the financial institutions for signature by IRA account
holders, each entitled "Adoption Agreement and Designation of Beneficiary"
(adoption agreements), provided space for the signature of a spouse not
designated as the sole primary beneficiary to indicate consent to the
designation. *fn2 Robert signed the adoption agreements, indicating his
agreement to the terms of the IRA account agreements and designating his
trust as beneficiary; Margery signed the consent portions of the adoption
agreements (consent paragraphs). |
| [15] | Margery died on June 17, 1985, bequeathing the residue of her estate
to her four children. Executrix Judith Bolton filed a petition to
determine title to personal property (Prob. Code, § 851.5), seeking to
establish decedent's community property interest in the funds held in the
IRA accounts. The trial court found that, in signing the consent
paragraphs of the adoption agreements, decedent intended to waive any
community property interest in the pension funds and to transmute her
community property share of those funds into Robert's separate property.
The court denied Bolton's petition, ruling that decedent had either waived
her community property interest in the pension funds or, alternatively,
transmuted it to Robert's separate property. |
| [16] | The Court of Appeal reversed, holding that the adoption agreements did
not satisfy section 5110.730 (a). (The court also declined to apply the
"terminable interest rule" to the pension funds. Robert's petition for
review does not challenge the Court of Appeal's opinion in this regard.) A
dissenting justice argued that because decedent, in signing the consent
paragraphs, had taken "specific, clear and final [action to] accomplish
both [a] transfer and a subsequent transmutation[, t]he language and
purpose of the statutory requirement were fully satisfied." |
| [17] | We granted review to construe section 5110.73 x(a). |
| [18] | Discussion |
| [19] | It is undisputed that Margery possessed a community property interest
in Robert's pension funds at the time they were disbursed to him. However,
in California, married persons may by agreement or transfer, with or
without consideration, transmute community property to separate property
of either spouse. *fn3 |
| [20] | In this case, the trial court made a factual finding that "[d]ecedent,
in executing the Adoption Agreement[s] for the three IRA's, intended to
waive any community right she had in those IRA's and in fact to transmute
her share of that community property asset to the separate property of
Respondent." (1) However, we defer to a trial court's factual findings
only when they are supported by substantial evidence.(Crawford v. Southern
Pacific Co. (1935) 3 Cal.2d 427, 429 [45 P.2d 183].) |
| [21] | Our close review of the record reveals that no substantial evidence
supported the finding that Margery intended a transmutation. *fn4 The Court of
Appeal incorrectly stated that Robert presented his own testimony and that
of decedent's accountant as to decedent's state of mind when she signed
the adoption agreements. In fact, there is absolutely no record evidence
relating to Margery's intentions or state of mind when she signed the
adoption agreements. The only testimony presented as to her state of mind
during her estate planning activities relates to when she and her husband
arranged an equal division of their jointly held real properties. The
couple's accountant testified that she did not assist them in the division
of any other assets. |
| [22] | (2a) Even if the trial court's findings as to Margery's intent were
supported by substantial evidence, however, they would not support a
finding of transmutation in this case. The statute providing for
transmutation by transfer is by its own terms "[s]ubject to Sections
5110.720 to 5110.740, inclusive" (Civ. Code, § 5110.710), including,
obviously, section 5110.730 (a). Section 5110.730 (a) invalidates attempts
to transmute real or personal property unless certain conditions are met.
We must therefore determine whether Margery's actions, whether or not they
were intended to transfer her interest in the pension funds, were
effective under section 5110.730 (a) to transmute those funds from
community property to Robert's separate property. We are of the opinion
that they were not. *fn5 |
| [23] | Section 5110.730 (a) requires that a valid transmutation be made, not
just in writing, but in "writing by an express declaration that is made,
joined in, consented to, or accepted by the spouse whose interest in the
property is adversely affected." (§ 5110.730 (a), italics added.) There is
no dispute that the consent paragraphs in the adoption agreements, and
decedent's signatures thereon, are "made in writing." These writings are
manifestly "made, joined in, consented to or accepted by the spouse whose
interest in the property is adversely affected," viz., decedent. Thus, the
sole remaining issue to be decided is whether they constitute "an express
declaration" for the purposes of section 5110.730 (a). |
| [24] | (3) It is a fundamental rule of statutory construction that a court
"should ascertain the intent of the Legislature so as to effectuate the
purpose of the law." (Select Base Materials, Inc. v. Board of Equal.
(1959) 51 Cal.2d 640, 645 [335 P.2d 672].) In determining such intent
"[t]he court turns first to the words themselves for the answer." (People
v. Knowles (1950) 35 Cal.2d 175,182 [217 P.2d 1].) |
| [25] | (2b) It is not immediately evident from a reading of section 5110.730
(a) what is meant by the phrase "an express declaration." Examination of
the words of the statute and their arrangement reveals only that the
"express declaration" called for is to be one "by" which "[a]
transmutation of real or personal property" is "made." The statute does
not state what words such an "express declaration" must include, what
information it must convey, or even what topics it should
discuss. |
| [26] | Since the words of section 5110.730 (a) themselves, including the
phrase "an express declaration," are unclear and ambiguous, it is
necessary to resort to other indicia of the intent of the Legislature to
determine what meaning the statute should be given. (Lungren v. Deukmejian
(1988) 45 Cal.3d 727, 735 [248 Cal.Rptr. 115, 755 P.2d 299]; In re Lance
W. (1985) 37 Cal.3d 873, 886[210 Cal.Rptr. 631, 694 P.2d 744].) In doing
so, we consider the historical circumstances of the statute's enactment,
as well as its legislative history. (California Mfrs. Assn. v. Public
Utilities Com. (1979) 24 Cal.3d 836, 844 [ 157 Cal.Rptr. 676, 598 P.2d
836].) |
| [27] | Section 5110.730 (a) was adopted in 1984. (Stats. 1984, ch. 1733, § 3,
p. 6302.) Both parties refer to a 1983 report of the California Law
Revision Commission (Commission) to ascertain the intent of the
Legislature in enacting section 5110.730 (a). In recommending that the
Legislature enact that statute, the Commission described "[s]ection
5110.730 [as] impos[ing] formalities on interspousal transmutations for
the purpose of increasing certainty in the determination whether a
transmutation has in fact occurred." (Recommendation Relating to Marital
Property Presumptions and Transmutations, 17 Cal. Law Revision Com. Rep.
(1984) (Commission report) pp. 224-225.) The Commission report goes on to
state that section 5110.730 overrules existing case law that permitted
oral transmutation of personal property. (Commission report, supra, at pp.
224-225.) |
| [28] | In its discussion of the law then governing transmutations (Commission
report, supra, at pp. 213-215), the Commission observed that "[u]nder
California law it is quite easy for spouses to transmute both real and
personal property; a transmutation can be found based on oral statements
or implications from the conduct of the spouses." (Id., at p.
213.) |
| [29] | The Commission further observed that "the rule of easy transmutation
has also generated extensive litigation in dissolution proceedings. It
encourages a spouse, after the marriage has ended, to transform a passing
comment into an ' agreement' or even to commit perjury by manufacturing an
oral or implied transmutation." (Commission report, supra, at p. 214.) The
Commission concluded its discussion of transmutation law by saying that
"California law should continue to recognize informal transmutations for
certain personal property gifts between the spouses, but should require a
writing for a transmutation of real property or other personal property."
(Ibid.) Unfortunately, the Commission did not explicitly expand upon the
question of what such a writing should be required to contain, except to
warn that "[t]he requirement of a writing should not be satisfied by a
statement in a married person's will of the community character of the
property, until the person's death." (Ibid.) The Commission stated only
that its recommendations would be effectuated by the enactment of certain
measures, including section 5110.730 (a). (Commission report, supra, at p.
217.) |
| [30] | It thus appears from an examination of the Commission report that
section 5110.730 (a) was intended to remedy problems which arose when
courts found transmutations on the basis of evidence the Legislature
considered unreliable. To remedy these problems the Legislature decided
that proof of transmutation should henceforth be in writing, and therefore
enacted the writing requirement of section 5110.730 (a). |
| [31] | There is no question that the Legislature intended, by enacting
section 5110.730 (a), to invalidate all solely oral transmutations.
(Commission report, supra, at pp. 224-225.) By definition, any writing
requirement would accomplish this limited goal. It is equally clear,
however, that the Legislature intended that section 5110.730 (a) would
invalidate some transmutations which, under then-prevailing case law,
would have been upheld on the basis of evidence other than oral
statements. (Commission report, supra , at p. 214 [" ... easy
transmutation ... encourages a spouse ... to commit perjury by
manufacturing an oral or implied transmutation ...." (Italics
added.)].) |
| [32] | In our view, the Legislature cannot have intended that any signed
writing whatsoever by the adversely affected spouse would suffice to meet
the requirements of section 5110.730 (a). First, to so construe that
statute would render mere surplusage all the language following the words
"unless made in writing," including the phrase "an express declaration." A
construction rendering some words surplusage is to be avoided. (People v.
Black (1982) 32 Cal.3d 1, 5 [184 Cal.Rptr. 454, 648 P.2d 104]; Watkins v.
Real Estate Commissioner (1960) 182 Cal.App.2d 397, 400 [6 Cal.Rptr.
191].) Second, as respondent acknowledges, some of the "easy
transmutation" cases which section 5110.730 was intended to overturn
involved nonoral conduct or signed writings. *fn6 Therefore, it
seems reasonable to assume that the Legislature intended section 5110.730
(a) to invalidate some claimed transmutations even though some form of
writing existed. |
| [33] | Thus, to construe section 5110.730 (a) so that it does not contain
mere surplusage, as well as to effect legislative intent, we must fashion
a test by which courts may judge the adequacy of particular writings for
section 5110.730 (a) purposes. *fn7 |
| [34] | We have previously construed a statutory writing requirement similar
to section 5110.730 (a). In doing so we elucidated a principle of
construction which is of fundamental importance for this case. In
California Trust Co. v. Bennett (1949) 33 Cal.2d 694 [204 P.2d 324]
(Bennett), we concluded that a rental agreement respecting a bank
safe-deposit box, printed on a card and signed by a husband and wife,
which by its terms related only to rights of possession and access, did
not satisfy a writing requirement for the creation of joint tenancies
found in Civil Code section 683 (section 683). |
| [35] | Section 683 defines a joint tenancy and states the methods by which a
joint tenancy may be created. Pursuant to section 683, a joint tenancy may
be created by certain transfers, including one "from a husband and wife,
when holding title as community property or otherwise to themselves and
others or to one of them and to another or others, when expressly declared
in the transfer to be a joint tenancy .... A joint tenancy in personal
property may be created by a written transfer, instrument or agreement."
(Civ. Code, § 683, subd. (a), italics added.) We held in Bennett that
section 683 is mandatory, and that under it joint tenancies can be created
only by a writing. (Bennett, supra, 33 Cal.2d at p. 697.) |
| [36] | More importantly, the defendant in Bennett contended that evidence of
the decedent's declarations and the circumstances surrounding the renting
of the safe-deposit box should be admitted to interpret the rental card,
and that, when interpreted with this extrinsic evidence, the card was
sufficient to satisfy the statutory requirement of a writing. (Bennett,
supra, 33 Cal.2d at p. 699.) |
| [37] | We found that the rental agreement card in Bennett was "clear" and did
"not purport to affect the title to the contents of the box," because it
used neither the words "title" nor "ownership," but expressly referred
only to rights of possession and access. We further observed that "it is
well settled that where a statute requires the formality of a writing for
the creation of an interest in property, it must contain words indicating
an intent to transfer such interest, and in the absence of words which
could be interpreted to show such intent, no parol evidence will be
admitted." (Bennett, supra, 33 Cal.2d at p. 699.) Accordingly, we refused
to allow parol evidence to supplement the words of the written agreement
on the card so as to satisfy the writing requirement of section 683. (33
Cal.2d at pp. 698-699.) |
| [38] | Thus, just as section 5110.730 (a) requires an "express declaration"
for a valid transmutation, section 683 requires that the creation of a
joint tenancy be "expressly declared." Unlike section 5110.730 (a),
however, section 683 explains what the express declaration it calls for
must include. Specifically, section 683 requires that an express
declaration creating a joint tenancy must, "in the transfer," declare the
interest being transferred "to be a joint tenancy." (Civ. Code, § 683,
subd. (a).) Section 683 thus ensures that a court need not look beyond the
face of a proffered writing to determine whether its writer intended to
create a joint tenancy. (Bennett, supra, 33 Cal.2d at p.
699.) |
| [39] | Following the approach elucidated in Bennett, we conclude that a
writing signed by the adversely affected spouse is not an "express
declaration" for the purposes of section 5110.730 (a) unless it contains
language which expressly states that the characterization or ownership of
the property is being changed. |
| [40] | Our conclusion honors each of the principles of statutory construction
we have discussed. First, it interprets "express declaration," so as to
give significance to all the words of section 5110.730 (a). Second, it
effects the intent of the Legislature to create a writing requirement
which enables courts to validate transmutations without resort to
extrinsic evidence and, thus, without encouraging perjury and the
proliferation of litigation. Third, it is consistent with our
interpretation of the similar requirement in section 683. *fn8
|
| [41] | (4) We must now consider whether the writing involved in this case satisfies section 5110.730 (a). Decedent signed paragraphs consenting to the designation of a beneficiary on three standard bank-form adoption agreements. These paragraphs read in full: "If participant's spouse is not designated as the sole primary beneficiary, spouse must sign consent. Consent of spouse: Being the participant's spouse, I hereby consent to the above designation. [Signature.]" |
| [42] | Obviously, the consent paragraphs contain no language which
characterizes the property assertedly being transmuted, viz., the pension
funds which had been deposited in the account. It is not possible to tell
from the face of the consent paragraphs, or even from the face of the
adoption agreements as a whole, whether decedent was aware that the legal
effect of her signature might be to alter the character or ownership of
her interest in the pension funds. There is certainly no language in the
consent paragraphs, or the adoption agreements as a whole, expressly
stating that decedent was effecting a change in the character or ownership
of her interest. Thus, we agree with the Court of Appeal that these
writings fail to satisfy the "express declaration" requirement of section
5110.730 (a). |
| [43] | (2c) We do not hold that section 5110.730 (a) requires use of the term
"transmutation" or any other particular locution. Although a writing
sufficient to satisfy the "express declaration" requirement of section
5110.730 (a) might very well contain the words "transmutation," "community
property," or "separate property," it need not. For example, the paragraph
signed by decedent here would have been sufficient if it had included an
additional sentence reading: "I give to the account holder any interest I
have in the funds deposited in this account." *fn9
|
| [44] | We are aware that section 5110.730 (a), construed as we have construed
it today, may preclude the finding of a transmutation in some cases, where
some extrinsic evidence of an intent to transmute exists. But, as
previously discussed, it is just such reliance on extrinsic evidence for
the proof of transmutations which the Legislature intended to eliminate in
enacting the writing requirement of section 5110.730 (a). |
| [45] | Manifestly, there are policy considerations weighing both in favor of
and against any type of transmutation proof requirement. On the one hand,
honoring the intentions of the parties involved in a purported
transmutation may suggest that weight should be given to any indication of
these intentions. On the other hand, the desirability of assuring that a
spouse's community property entitlements are not improperly undermined, as
well as concern for judicial economy and efficiency, support somewhat more
restrictive proof requirements. The Legislature, in enacting section
5110.730 (a), apparently thought it unwise to rely on some kinds of
evidence to effect transmutations. It is not for us to question that
legislative conclusion. Accordingly, the judgment of the Court of Appeal
is affirmed. |
| [46] | Lucas, C. J., Broussard, J., Eagleson, J., and Kennard, J.,
concurred. |
| [47] | MOSK, J. |
| [48] | I concur in the judgment. I agree with the majority's ultimate
conclusion that the purported "transmutations" in this case are not valid.
But I do not agree with their construction of the controlling statute.
|
| [49] | Civil Code section 5110.730, subdivision (a) (hereafter section
5110.730 (a) ), provides: "A transmutation of real or personal property is
not valid unless made in writing by an express declaration that is made,
joined in, consented to, or accepted by the spouse whose interest in the
property is adversely affected." |
| [50] | First, section 5110.730 (a) establishes a formal requirement for the
validity of transmutations. The majority appear to interpret the provision
merely as a rule governing proof. But such an interpretation founders on
the very words of the code section: "A transmutation ... is not valid
unless" the requirement imposed is met. The language is clear. There is no
reason for a court to look beyond the provision's words. But if it did so,
there is certainly no reason to depart from their plain
meaning. |
| [51] | Second, section 5110.730 (a) lays down a formal requirement of
definite content. The majority discern ambiguity in the language of the
provision. I do not. It states: "A transmutation ... is not valid unless
made in writing by an express declaration" that is binding on the
adversely affected spouse. With these words the code section unmistakably,
albeit impliedly, requires an express declaration of
transmutation. |
| [52] | In sum, although I do not agree with the majority's construction of
section 5110.730 (a), I do indeed agree with their result: the purported
"transmutations" here are invalid. Therefore, I concur in the
judgment. |
| [53] | ARABIAN, J., |
| [54] | Dissenting. |
| [55] | Introduction |
| [56] | If the decedent in extremis had in her last breath uttered the
question, "Oh death, where is thy sting?," the majority garbed in grim
shrouds would have whispered, "At probate." |
| [57] | It has been said that no good deed goes unpunished. Unhappily, there
is a kernel of truth in this otherwise cynical aphorism, perfectly
illustrated in the majority opinion, which begins its journey attempting
to protect spouses against questionable transmutations of community
property, and ends by negating the estate plan of the decedent herein, and
of others who, like decedent, can no longer dictate their intentions.
Worse, in exalting form over substance, the majority impose unnecessarily
rigid requirements on the drafting and interpretation of future transfers
between spouses. In the process, they undermine the deference that trial
courts deserve and merit on review. Therefore, I must respectfully
dissent. |
| [58] | Background |
| [59] | In August 1984, Margery MacDonald (hereafter Margery or decedent)
sadly learned that she had terminal cancer. Faced with mortality, she
undertook the labor of finalizing her estate. Fortunately, it was a task
to which she was well suited. |
| [60] | Margery had worked for many years as a bookkeeper with the accounting
firm of Hemming-Morse in San Mateo. Indeed, it was there that she met her
second husband, Robert MacDonald, who employed the firm to oversee the
corporate accounts of his business, Robert F. MacDonald Company. After the
couple married in 1973 (it was a second marriage for Robert, as well),
Margery became employed as the bookkeeper for her husband's firm. In that
capacity she kept the books, the balance sheets, the income statements,
tax returns and payroll. In addition, she took responsibility for the
couple's personal finances and was exceptionally aware of their
assets. |
| [61] | Both Margery and Robert had children from their prior marriages.
Margery wished to leave the bulk of her estate to her four children.
Accordingly, the couple's immediate goal became the apportionment of their
property into separate estates. To that end, the MacDonalds consulted with
their personal accountant, Elizabeth Gommel, regarding their holdings and
the division of assets. As Ms. Gommel recalled, "[Decedent's] immediate
objective was to separate her assets ... and have an entirely separate
estate .... She wanted it as easy to administer as it possibly could be,
that all assets would be separate, so there would be no reason for
difficulties to arise between her heirs and Mr. MacDonald." |
| [62] | The MacDonalds divided their stock holdings and Margery sold her half
and placed the proceeds into her separate account. in addition, she
prepared a schedule of all the couple's real property holdings(in addition
to their home in Hillsborough, the couple owned residences in Foster City,
Pacific Grove, San Carlos, Sacramento, and Roseville), valued the
properties and divided them with her husband; Robert paid $33,000 in cash
to equalize the division. |
| [63] | Several months later, in November 1984, Robert reached the age of 65,
and his company pension plan was terminated. On March 21, 1985, he
received his pension disbursement of over $266,000; the money was
immediately deposited into three IRA accounts in separate financial
institutions. These pension funds had not been previously addressed in the
couple's efforts to divide their estate, although it was undisputed that
Margery was aware of their existence. |
| [64] | The three IRA accounts were opened solely in Robert's name. The
designated beneficiary of each was a living trust that Robert had
established in 1982. The terms of the trust gave the bulk of the corpus to
Robert's children from his earlier marriage. Each of the three IRA
documents, entitled "Adoption Agreement and Designation of Beneficiary"
(agreement), provided space for the signature of a spouse not designated
as the sole primary beneficiary to allow consent for the designation.
Margery signed the consent portion of each agreement. |
| [65] | Three months later, on June 17, 1985, Margery died. Her will
bequeathed the residue of her estate to her four children. Thereafter, her
daughter and executrix of her estate, Judith Bolton, filed a petition to
establish decedent's community property interest in the IRA funds.
Following a probate hearing, the trial court denied the petition,
concluding that the IRA funds were not assets of decedent's estate. The
court's conclusion was based on the following express findings: "1.
Decedent Margery MacDonald, both because of her occupation and as a result
of advice received from professionals was both competent to [sic] and
sophisticated in the administration of her assets; [ ¶] 2. Decedent was
active in the business of Respondent Robert F. MacDonald and was aware of
the financial decisions being made in that business, particularly in terms
of the pension plan itself; [¶] 3. Decedent was aware of the terms of the
Living Trust which left the bulk of Respondent's estate to Respondent's
children and left Decedent a life interest in the estate; [¶] 4. Decedent
made conscious and substantial choices regarding her assets and sought to
put her estate in order to eliminate the possibility of any dissension
between her children and her spouse; [¶] 5. Decedent, in executing the
Adoption Agreement for the three IRA's, intended to waive any community
property right she had in those IRA's and in fact to transmute her share
of that community property asset to the separate property of
Respondent." |
| [66] | The Court of Appeal, with one justice dissenting, reversed. A majority
of the court concluded that decedent's consent to the IRA agreements did
not satisfy the provisions of Civil Code section 5110.730, subdivision
(a), *fn1 which
requires that transmutations of property be "made in writing by an express
declaration that it is made, joined in, consented to, or accepted by the
spouse whose interest in the property is adversely affected." Justice
Holmdahl, in dissent, would have held that the IRA agreements satisfied
both the language and purpose of section 5110.730, subdivision
(a). |
| [67] | Discussion |
| [68] | The narrow issue presented is whether, in order to satisfy the
requirements of section 5110.730, subdivision (a), a writing must
expressly state that the writer is effecting a transmutation of property.
Conceding that the statutory language yields no ready answer, the majority
turn to legislative history. From their reading of the pertinent sources,
they conclude that the statute was intended to foreclose the courts from
the use of extrinsic evidence to ascertain the writer's intent. An
examination of those same historical sources, however, reveals that the
majority's conclusion is fundamentally flawed; the plain evidence shows
that the Legislature intended a simple writing requirement akin to the
statute of frauds - a formality that would admit the use of collateral
evidence to clarify the writer's meaning. |
| [69] | The primary source relied on by the majority is the California Law
Revision Commission (Commission) Report to the Legislature recommending
enactment of section 5110.730. (Recommendations Relating to Marital
Property Presumptions and Transmutations, 17 Cal. Law Revision Com. Rep.
(1984) (Commission report) pp. 205-227.) The Commission report is indeed
enlightening, although it leads to a conclusion precisely the opposite of
that reached by the majority. The salient portion of the Commission report
reads as follows: "Under California law it is quite easy for spouses to
transmute both real and personal property; a transmutation can be found
based on oral statements or implications from the conduct of the spouses.
[Fn. omitted.] [¶] California law permits an oral transmutation or
transfer of property between the spouses notwithstanding the statute of
frauds. [Fn. omitted.] ... It encourages a spouse, after the marriage has
ended, to transform a passing comment into an 'agreement' or even to
commit perjury by manufacturing an oral or implied transmutation. [ ¶]
Most people would find an oral transfer of such property, even between
spouses, to be suspect and probably fraudulent, either as to creditors or
between each other. [¶] California law should continue to recognize
informal transmutations for certain personal property gifts between the
spouses, but should require a writing for the transmutation of real
property or other personal property." (Commission report, supra, at pp.
213-214, italics added.) |
| [70] | As the text of the Commission report thus makes clear, the statute was
designed to overrule those decisions that had permitted transmutations
"based on oral statements or implications from the conduct of the
spouses." The Commission report's frequent references to "oral" agreements
and the possibility of "fraudulent" conveyances demonstrate that the
purpose of section 5110.730 was to "require a writing" in the nature of
the "statute of frauds." (Commission report, supra, at pp.
213-215.) |
| [71] | The Commission comment accompanying the text of section 5110.730 makes
that intent even more plain: "Section 5110.730 imposes formalities on
interspousal transmutations for the purpose of increasing certainty in the
determination whether a transmutation has in fact occurred. Section
5110.730 makes clear that the ordinary rules and formalities applicable to
real property transfers apply also to transmutations of real property
between the spouses. See Civil Code §§ 1091 and 1624 (statute of frauds)
.... This overrules existing case law. See, e.g., Woods v. Security First
Nat'l Bank, 46 Cal.2d 697, 701, 299 P.2d 657, 659 (1956). Section 5110.730
also overrules existing law that permits oral transmutations of personal
property ...." (Commission report, supra, at pp. 224-225, italics
added.) |
| [72] | The Commission's explicit reference to "the ordinary rules and
formalities applicable to real property transfers," in conjunction with
its express citation to the statute of frauds (§ 1624), leaves no doubt as
to the nature of the writing requirement contemplated by the statute's
authors. The plain statement of intention to overrule Woods v.
Security-First Nat. Bank (1956) 46 Cal.2d 697 [299 P.2d 657]
(transmutation of real property based on oral agreement of the spouses)
and the Commission report's explicit criticism of In re Marriage of Lucas
(1980) 27 Cal.3d 808 [166 Cal.Rptr. 853, 614 P.2d 285] (finding a
transmutation on the basis of a mobilehome document of title) underscore
the legislative intent to create a simple writing requirement analogous to
the statute of frauds. (Commission report, supra, at pp. 211,
222.) |
| [73] | That goal is evidenced further by the Commission's favorable reference
to Reppy, Debt Collection from Married Californians: Problems Caused by
Transmutations, Single-Spouse Management, and Invalid Marriage (1980) 18
San Diego L.Rev. 143 (hereafter Reppy). Like the Commission report itself,
this article criticizes California's case law tradition of "easy
transmutation," singling out for particular censure such cases as Lucas,
supra, and Woods, supra, as well as Pacific Mut. Life Ins. Co. v.
Cleverdon (1940) 16 Cal.2d 788 [108 P.2d 405] (husband's act of depositing
funds into wife's separate account supports finding of intent to transmute
to wife's separate property) and O'Connor v. Travelers Ins. Co. (1959) 169
Cal.App.2d 763 [337 P.2d 893] (wife's deposit of earnings to her separate
account transmutes funds to her separate property). Consistent with the
Commission's ultimate recommendation, the article calls for legislative
enactment of a "statute of frauds" to govern transmutations of property
between spouses. (Reppy, supra, at p. 240.) |
| [74] | Thus, the historical sources - the very sources cited and relied on by
the majority - demonstrate irrefutably that the underlying purpose of
section 5110.730 was to overrule decisions permitting transmutations
"based on oral statements or implications from the conduct of the spouses"
(Commission report, supra, at p. 213), and to create the equivalent of a
statute of frauds to govern transmutations of property between spouses.
(Id. at p. 222.) *fn2 |
| [75] | California's general statute of frauds provides that certain specified
contracts are invalid "unless they, or some note or memorandum thereof,
are in writing and subscribed by the party to be charged or by the party's
agent." ( § 1624.) To satisfy the statute, it is well settled that a
writing must contain only. the essential terms of an agreement, and that
what is essential depends on the particular agreement and its context.
(Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d
752, 762-763 [206 Cal.Rptr. 354, 686 P.2d 1158].) |
| [76] | The modern trend of the law favors a liberal construction of writings
in order to carry out the intentions of the parties. (Sunset-Sternau Food
Co. v. Bonzi (1964) 60 Cal.2d 834, 838, fn. 3 [36 Cal.Rptr. 741, 389 P.2d
133]; Okun v. Morton (1988) 203 Cal.App.3d 805, 817 [250 Cal.Rptr. 220];
Hennefer v. Butcher (1986) 182 Cal.App.3d 492, 500-501 [227 Cal.Rptr.
318].) Ultimately, if the parties have completed a transaction in which it
appears that they intended to make a contract, "the court should not
frustrate their intention if it is possible to reach a fair and just
result, even though this requires a choice among conflicting meanings and
the filling of some gaps that the parties have left." (Okun v. Morton,
supra, 203 Cal.App.3d at p. 817, quoting 1 Corbin on Contracts (1963) §
95, p. 400.) As we have previously explained, an "'agreement will not be
held deficient [under the statute of frauds] for the failure to express
that which is clearly implied when the writing is interpreted in
accordance with the intentions of the parties.' [Citations.]" (Seaman's
Direct Buying Service, Inc. v. Standard Oil Co., supra, 36 Cal.3d at p.
763, quoting Seck v. Foulks (1972) 25 Cal.App.3d 556, 568 [102 Cal.Rptr.
170], original italics.) |
| [77] | In light of these settled principles, it is evident that the
Legislature could not have contemplated the strict test for compliance
with section 5110.730 formulated by the majority. As noted, the
legislative history reveals an intent to apply the "ordinary rules and
formalities" associated with the statute of frauds. (Commission report,
supra, at p. 225.) The Legislature, therefore, must have envisaged the
introduction of extrinsic evidence where the writing, "'interpreted in
accordance with the intentions of the parties"' (Seaman's Direct Buying
Service, Inc. v. Standard Oil Co., supra, 36 Cal.3d at p. 763),
demonstrates at least an intent to transmute property pursuant to section
5110.730. |
| [78] | Applying this test to the case at bar, it is clear that such an
intention is readily discernible from the face of the IRA agreements. The
transfer of the pension disbursement to Robert's IRA accounts involved a
transfer of community property funds. The agreements contained an express
declaration that the funds were being placed in Robert's name only.
Decedent, the spouse whose interest was adversely affected, expressly
consented to the designation of Robert's living trust, not herself, as the
beneficiary. Thus, as contemplated by section 5110.730, the IRA documents
plainly involved a transfer of property and contained an express consent
to that transfer by the spouse whose interests were adversely
affected. |
| [79] | To be sure, the agreements did not explicitly describe the pension
funds as community property or expressly state that decedent intended to
transfer her interest to Robert. By requiring her consent,however, the
documents clearly alerted decedent to the fact that she had an interest in
the funds for which a waiver was required. |
| [80] | The majority, nevertheless, assert that there is no substantial
evidence to support the trial court's finding that decedent knew she had a
community property interest in the pension funds and intended to waive or
transmute that interest. This is a patently selective reading of the
record, contrary to the fundamental rule that a reviewing court must
indulge all reasonable inferences in favor of the judgment. (People v.
Johnson (1980) 26 Cal.3d 557, 576 [162 Cal.Rptr. 431, 606 P.2d 738, 16
A.L.R.4th 1255].) The trial court found, and the undisputed evidence
showed, that decedent had worked as a bookkeeper for her husband's
business and had managed the family's financial affairs. She was aware of
her husband's pension plan. She consented to the designation of Robert's
living trust as the beneficiary of the IRA funds. The amount was in excess
of $250,000.For what conceivable reason would an intelligent and
financially sophisticated woman consent to relinquish so large an interest
to which she was not even entitled? It is an insult to the decedent, and a
distortion of the appellate review process, to insinuate that decedent was
ignorant of her interest in the IRA funds. |
| [81] | In applying the "ordinary rules and formalities" to transfers under
section 5110.730, the Legislature intended to preserve the traditional
rules that govern the interpretation of writings where the intent of the
parties is in dispute and may depend, in part, on the evaluation of
extrinsic evidence. (See Parsons v. Bristol Development Co. (1965) 62
Cal.2d 861 [44 Cal.Rptr. 767, 402 P.2d 839].)The trial court here was in
the best position to judge decedent's purpose, construed in light of the
documents, the evidence, and the testimony and demeanor of the witnesses.
In overruling that court's considered judgment, we not only contravene the
legislative intent, but repudiate the necessary deference accorded trial
courts in making such difficult determinations. |
| [82] | Worse, however, is the injury that the majority visits upon the
decedent and others similarly situated. As her personal accountant
testified, Margery's overriding interest, upon learning of her impending
death, was to effect a clear allocation of assets in order to avoid any
possibility of acrimony between Robert and her children. Her children were
well provided for, having received substantial separate property and stock
assets. The pension funds, though community property, were essentially the
product of Robert's 35 years in business, most of which preceded his
marriage to decedent; thus, Margery's election to waive and transfer any
interest in those funds was eminently reasonable. *fn3
|
| [83] | There is no evidence of overreaching here, nor any hint of
exploitation. There is only an effort by an obviously intelligent and
courageous woman to set her estate in order before her passing, to
effectuate a clear and fair allocation of her assets. Her intentions were
good, but as Shakespeare observed, "The evil men do lives after them; the
good is oft interred with their bones." *fn4 The majority,
sadly, prove the truth of that statement. |
| [84] | On September 6, 1990, the opinion was modified to read as printed
above. |
| [85] | |
|
| |
| Opinion Footnotes | |
|
| |
| [86] | *fn*
Pursuant to California Constitution, article VI, section 21. (Opinion by
Panelli, J., with Lucas, C. J., Broussard, Eagleson and Kennard, JJ.,
concurring. Separate opinion by Mosk, J., concurring in the judgment.
Separate dissenting opinion by Arabian, J.) |
| [87] | *fn1 The
dissent erroneously states (post, at p. 281) that the pension funds "...
were essentially the product of Robert's 35 years in business, most of
which preceded his marriage to decedent ...." Actually, as noted above,
the pension fund did not even come into existence until 1977, more than
three years after Robert married decedent. Thus all payments into the plan
occurred during the marriage of the parties. |
| [88] | *fn2 The
adoption agreements are one page long. They provide space for the entry of
"General Information" (where Robert entered his name, address, and other
personal data), for "Designation of Beneficiary," for "Consent of Spouse,"
for "General Provisions" (relating to payout procedures upon the
participant's death) and for "Adoption of Plan" (which Robert signed,
agreeing to participate in the particular financial institutions'
retirement account plans). The consent portions of the adoption agreements
each provided in full: "If participant's spouse is not designated as the
sole primary beneficiary, spouse must sign consent. Consent of Spouse:
Being the participant's spouse, I hereby consent to the above
designation." |
| [89] | *fn3 Civil
Code section 5110.710 provides: "Subject to Sections 5110.720 to 5110.740,
inclusive, married persons may be agreement or transfer, with or without
consideration, do any of the following: [¶](a) Transmute community
property to separate property of either spouse. [¶](b) Transmute separate
property of either spouse to community property. [¶](c) Transmute separate
property of one spouse to separate property of the other
spouse." |
| [90] | *fn4 No
substantial evidence supports several other "factual findings" which the
trial court incorporated into its judgment. The record contains no
substantial evidence that Margery was "aware of the financial decisions
being made in [her husband's] business, particularly in terms of the
pension plan itself." The plan was stipulated to have been established in
1977, before Margery became active in her husband's business. (She was
bookkeeper in the years 1978-1980.) The record does not support the
conclusion she was aware of its terms; at best she knew of its existence.
Nor is there any evidence that she was "aware of the terms of the Living
Trust [established by Robert MacDonald and made by him the beneficiary of
his pension plan when the plan was established, and later named by him
beneficiary of the IRA accounts]." The living trust was established in
1982, when Margery was no longer bookkeeper for R. F. MacDonald Company.
In short, the record discloses no evidence that Margery even knew she had
a community property interest in the pension plan proceeds. |
| [91] | *fn5 We
decline to treat respondent's IRA accounts as decedent's will substitute,
as urged by respondent. Respondent has argued that Civil Code section
5110.730 does not apply to testamentary dispositions and/or to
dispositions made by will substitutes. He further alleges that the IRA
consent forms signed by Margery were a will substitute. We disagree. The
record contains no substantial evidence that Margery or Robert intended
that the IRA accounts would be so regarded. Moreover, consideration of
respondent's will-substitute theory, advanced for the first time in this
court, would be contrary to our established policy. (See Cal. Rules of
Court, rule 29(b).) |
| [92] | *fn6 For a
detailed analysis of existing transmutation law, the Commission referred
the Legislature to Reppy, Debt Collection from Married Californians:
Problems Caused by Transmutations, Single-Spouse Management, and Invalid
Marriage (1981) 18 San Diego L.Rev. 143 (Reppy article). (Commission
report, supra,at p. 213, fn. 20.) Examples of objectionable transmutation
cases discussed in the Reppy article include Nevinsv. Nevins (1954) 129
Cal.App.2d 150 [276 P.2d 655]. There, a husband filed his separate federal
income tax return (which at that time called for him to report half the
community income) without including half of his wife's income. Since he
was aware of the existence of his wife's income, the court found that the
husband's signed tax return, which did not include it, was highly
probative of the husband having transmuted his community property interest
in his wife's income to his wife's separate property. Another example
discussed in the Reppy article is In re Marriage of Lucas (1980) 27 Cal.3d
808 [166 Cal.Rptr. 853, 614 P.2d 285]. There, a motor home purchased by a
couple during marriage was declared to have been transmuted to the wife's
separate property when a purchase contract was made out in the husband's
name only, but title and registration were made out in the wife's name
only. (27 Cal.3d at pp. 817-818; Reppy article, supra, at pp. 156-157,
fns. 48-53.) See also Pacific Mut. Life Ins. Co. v. Cleverdon (1940) 16
Cal.2d 788, 791 [108 P.2d 405] [transmutation of wife's community earnings
when husband "borrowed" and repaid some of them] and O'Connor v.
Traveler's Ins. Co. (1959) 169 Cal.App.2d 763 [337 P.2d 893]
[transmutation of wife's community earnings when husband made no objection
to her giving some of them to her son], both discussed in the Reppy
article. |
| [93] | *fn7 The
only reported California decision to consider the adequacy of a signed
writing to meet the requirements of section 5110.730 (a) concluded that
the writing in question was not sufficient. (Estate of Blair (1988) 199
Cal.App.3d 161, 167-168 [244 Cal.Rptr. 627].) In Blair, a surviving
husband disputed a probate order that he pay his deceased wife's estate
one-half of the net proceeds from the sale of the family residence, which
had been purchased by the couple during their marriage and held in joint
tenancy. The probate court had found that there had been a transmutation
of the property from joint tenancy to community property"as a result of an
agreement or understanding" between the spouses during the course of their
subsequent separation. The agreement was said to consist in the wife
having listed the residence as community property in her petition for
legal separation and the husband having signed a deposition in the
dissolution proceeding which said that he "believed" the residence was
community property. The Court of Appeal held that the husband's deposition
was not sufficient to satisfy Civil Code section 5110.730 because,
although in writing, it did "not necessarily show the parties' separate
agreement that the jointly held property was actually community property."
(Estate of Blair, supra, 199 Cal.App.3d at pp. 165- 168.) |
| [94] | *fn8
Following the filing of his petition for review, Robert submitted a letter
to court asking to amend his petition for review to include the issue of
whether the adoption agreements constituted a valid written consent to the
disposal of a community property asset under Civil Code section 5125,
subdivision (b). Apparently, respondent's request amounted to a
reformulation of his alternative argument in the Court of Appeal that
decedent "waived" her interest in the IRA funds. The Court of Appeal found
this argument to be "merely another means of circumventing the
requirements of section 5110.730 ... allowing transmutations by oral
agreement or conduct." We agree with the view of the Court of Appeal and,
for the same reasons, reject Robert's waiver contention. In any event,
Robert's letter seeking to amend his petition was never filed or approved
by the court and, accordingly, our grant of review was limited to the
issue of construing section 5110.730 (a). |
| [95] | *fn9
Married persons who decide to open IRA accounts with community funds, of
course, may or may not, in individual cases, wish to transmute those
funds. Thus we do not assume that drafters of IRA account adoption
agreements will want to revise their standard forms so that a spouse's
signature consenting to a designation of beneficiary will always effect a
transmutation. |
| [96] | *fn1 Unless
otherwise indicated, all statutory references are to the Civil
Code. |
| [97] | *fn2 In
response to the obvious thrust of the Commission report and the Reppy
article, the majority advance two arguments. Neither is persuasive. First,
they suggest that a simple writing requirement analogous to the statute of
frauds would render mere surplusage the statutory language, "unless made
in writing by an express declaration ...." (§ 5110.730, subd. (a).) This
begs the question, of course, since the very issue we must decide is, an
"express declaration" of what? The majority would require specific
language stating that the writer is effecting a transmutation of property.
The legislative history, however, demonstrates that the purpose was simply
to impose a statute-of-frauds equivalent; as explained in the discussion
which follows, any writing that evidences an intent to alter the character
of property fulfills this requirement. The majority also assert that the
Legislature "cannot have intended that any signed writing whatsoever"
would suffice, because some of the cases the statute was designed to
overrule involved writings. Of course, the Commission report does not
suggest that "any" signed writing would satisfy the statute, only those
that meet the formalities of the statute of frauds. Moreover, the cases
cited by the majority, Nevins v. Nevins (1954) 129 Cal.App.2d 150 [276
P.2d 655] and In re Marriage of Lucas, supra, 27 Cal.3d 808, plainly fail
to meet this standard. Neither involved a writing that even remotely
evidenced, on its face, an intent to change the character of property.
Nevins held that a husband's intent to transfer his community property
could be inferred from his income tax return. Lucas, as noted earlier,
inferred an intent to transmute property from the title document to a
mobilehome. Neither of the writings at issue in Nevins and Lucas would
have complied with section 5110.730. |
| [98] | *fn3
Robert's defined benefit pension plan became effective in January 1977 and
matured seven years later, in 1984; the distribution came to over
$250,000. Although the payments into the plan occurred during the course
of his marriage to decedent, Robert's substantial contributions during the
seven short years that the plan was in existence were plainly the product
of his three decades in business, most of which preceded his second
marriage. |
| [99] | *fn4
Shakespeare, Julius Caesar, act III, scene 2. |