Earp v. Earp

Opinion

In this case we hold that where the lease of a mobilehome park was intended to be security for payment of a debt, the lease was in effect a mortgage, and thus the lessee’s rights to accrued profits from operation of the mobilehome park were limited to the amount of the debt, plus interest. Doris N. Earp appeals from a judgment determining that she owed $290,656 plus interest to her former husband, Kenneth H. Earp, pursuant to her lease of the mobilehome park from Kenneth. We affirm.

A 1983 judgment of dissolution required Kenneth to pay Doris $723,341 plus interest to equalize the division of community property. Both parties appealed. In an unpublished decision, we modified the judgment to correct a mathematical error. (In re Marriage of Earp (Feb. 1, 1988) A024976.)

While the appeal was pending, Doris obtained and recorded a writ of execution on the mobilehome park. Kenneth asked Doris to stay her writ, and she indicated she would do so provided she would have adequate

Kenneth exercised his option on June 9, 1988, making the full equalizing payment as modified by the appellate judgment. At that time there was $290,656 in the reserve fund. Kenneth demanded this sum under the provision of section “C” giving him “the balance of the tenant reserve fund.” Doris refused. She asserts that under section 3.7, surplus funds of approximately $186,500 through the end of 1987 had become her property, so that Kenneth was only entitled to remaining surplus funds that had accrued after January 1, 1988, which were exceeded by an amount Kenneth owed her on two promissory notes.

Kenneth sued Doris for, among other things, the total amount of the reserve fund, plus $6,373 which Doris had taken from the reserve fund to pay attorney fees already paid by Kenneth. On May 7,1990, the court issued a written “decision” on the reserve fund issue, finding that Kenneth was “entitled to all funds in the tenant reserve fund as of June 9, 1988.” Trial on other issues was continued to a later date. The court issued a “partial judgment” on July 2, 1990, stating more specifically that Kenneth was “entitled to all funds in the Tenant Reserve Fund ... for the period July 1, 1987 through June 9, 1988, regardless of where the Funds were deposited or transferred to by [Doris] . . . .”

On the day the partial judgment was issued, trial was held on the remaining issues, and the court ruled that Kenneth was entitled to the additional $6,373 which Doris had taken from the reserve fund to pay attorney fees. Doris’s counsel requested a statement of decision on all issues, but the court ruled the request was untimely as to the reserve fund issue because that issue had already been determined by the “partial judgment.” (See Code Civ.

Doris first contends the court erred when it denied a statement of decision on the reserve fund issue. There was no error. The court tried that issue separately and before the trial of other issues (Code Civ. Proc., § 1048, subd. (a)), so that a statement of decision on the reserve fund issue could be separately requested (Cal. Rules of Court, rule 232.5). Because the separate trial lasted less than a day, any request for a statement of decision had to be made before submission of the matter for decision. (Code Civ. Proc., § 632.) Doris failed to do this, and thus her request at the subsequent trial of remaining issues was untimely.

Doris argues the request was timely because she made it immediately after rendition of the partial judgment. She relies on a pre-1983 provision in rule 232 of the California Rules of Court which required findings if requested within 10 days after mailing of a modification of a decision. That provision is irrelevant, however, since no similar version appears in any current court rule or statute.

There is another reason why no statement of decision was required. As Doris herself concedes, the interpretation of the lease was a question of law, since no extrinsic evidence was admitted. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861 , 865 [ 44 Cal.Rptr. 767 , 402 P.2d 839 ].) The record does not demonstrate a material factual issue on any other point, such as the amount of money in the reserve fund. Where there are no factual issues, and only a pure question of law is presented, the court need not issue a statement of decision. (Enterprise Ins. Co. v. Mulleague (1987) 196 Cal.App.3d 528 , 539-540 [ 241 Cal.Rptr. 846 ].)

Doris also contends that, as a matter of law, the lease must be interpreted as entitling her to all surplus money in the reserve fund as of the end of 1987. Relying on the general rule requiring an interpretation which gives effect to every part of a contract (Civ. Code, § 1641), she asserts that section “C” of the lease, which gave Kenneth “the balance of the tenant reserve fund” as of the date he exercised his option, can be harmonized with section 3.7, which gave Doris the contents of the reserve fund at the end of each calendar year. Because the court received no extrinsic evidence, the meaning of these provisions is a question of law, subject to our independent interpretation. (Parsons v. Bristol Development Co., supra, 62 Cal.2d at p. 865.)

Ordinarily, we would adopt the latter interpretation, and construe section 3.7 as entitling Doris to the amount in the reserve fund at the end of 1987, in order to give effect to both sections of the lease. But there is a fundamental problem with that interpretation, arising from the law of mortgages.

Kenneth has consistently argued, both below and on appeal, that the lease was in effect a mortgage. He is correct. “Every transfer of an interest in property, other than in trust, made only as a security for the performance of another act, is to be deemed a mortgage . . . .” (Civ. Code, § 2924.) Doris’s answer to Kenneth’s complaint admitted his allegation that the lease was negotiated “as a result” of her desire for security. This is tantamount to a concession that the parties intended the lease to be security for Kenneth’s performance of his equalizing obligation.

Moreover, when the sales price of property bears no proportion to its market value, this is a compelling indicator that the parties intended a transfer of interest to be security. (Husheon v. Husheon (1886) 71 Cal. 407 , 412 [ 12 P. 410 ]; see also Beeler v. American Trust Co. (1944) 24 Cal.2d 1 ,17 [ 147 P.2d 583 ]; Rickless v. Temple (1970) 4 Cal.App.3d 869 , 890 [ 184 Cal.Rptr. 828 ].) Such is the case here. If Kenneth had failed to make the equalizing payment, Doris could have purchased the mobilehome park for a price—the amount of the equalizing debt plus Kenneth’s future mortgage payments—which bore absolutely no relationship to the park’s market value.

Ordinarily, the lack of proportion of price to value is demonstrated by great inequality between the two. (E.g., Husheon v. Husheon, supra, 71 Cal. at pp. 412-413.) In this case, however, the record does not indicate market value at the time the lease was executed. Kenneth contended that in 1988 the park was worth at least $14 million and had an encumbrance of $10,690,000, but Doris’s answer denied the park was worth this amount, admitting only

We must therefore conclude that the lease was intended to be security for the equalizing debt, and thus is to be deemed a mortgage. Consequently, Doris was a mortgagee in possession of the mobilehome park. As such, her rights to accrued profits from operation of the park were limited to the amount of Kenneth’s equalizing debt, plus the interest thereon. (Nelson v. Bowen (1932) 124 Cal.App. 662 , 670-671 [ 12 P.2d 1083 ].)

Doris contends it is reasonable to conclude the parties intended she would also receive compensation for personally operating the park. But as a mortgagee in possession, she was not entitled to compensation for her personal services. (Wadleigh v. Phelps (1906) 149 Cal. 627 , 644-645 [ 87 P. 93 ]; Benham v. Rowe (1852) 2 Cal. 387 , 408.) This well-worn rule against personal compensation to a mortgagee in possession applies even where the parties had agreed otherwise. “The general rule is that a mortgagee, even after he has taken possession under his mortgage, is not entitled to compensation for his personal trouble in taking care of the estate, and renting it, although the mortgagor has agreed that he may have such compensation; the reason being that to allow such compensation would tend directly to facilitate usury and oppression.” (Snow v. Warwick Institution for Savings (1890) 17 R.I. 66 [ 20 A. 94 ].) Denial of such compensation to Doris is thus not a forfeiture, as she contends, but is the implementation of a policy against oppression by mortgagees in possession, who, after all, take possession “for the furtherance and protection of [their] own interests.” (Benham v. Rowe, supra, 2 Cal. at p. 408.)

The law of mortgages therefore precludes Doris from retaining any portion of the reserve fund. This being the case, it would be pointless, and thus incorrect, to construe section 3.7 otherwise, since any such construction would render that section unlawful and without legal effect. (Civ. Code, §§ 1641, 1643.) Accordingly, we must conclude, as did the trial court, that Kenneth was entitled to the total amount of the reserve fund during the period July 1, 1987, through June 9, 1988.

This conclusion does not result in any unfairness to Doris, for two reasons. First, it is not clear she expended significant personal effort in operating the mobilehome park. At oral argument Kenneth’s counsel asserted, and Doris’s counsel did not deny, that the property was in large