What Conflicting Presumptions in California's Family Code and Evidence Code Prevail Between Spouses?

In the recent decision in Wall v. Wall, the California appellate court considered the conflicting presumptions regarding property ownership by spouses as set forth in the Family Code and Evidence Code.

After her husband Benny Wall (decedent) died, petitioner Cindy Wall (wife) petitioned the probate court to determine that a home, titled in decedent’s name, was community property.

Decedent’s children, Timothy Wall and Tamara Nimmo (the children) objected unsuccessfully.

On appeal, the children contended the trial court erred in

(1) determining that the Family Code section 760 community property presumption prevailed over the Evidence Code section 662 form of title presumption;

(2) failing to consider tracing evidence rebutting the community property presumption;

(3) determining the Family Code section 721 undue influence presumption prevailed over the Evidence Code section 662 form of title presumption; and

(4) applying the undue influence presumption where there was no showing of unfair advantage.

Although the appellate court determined the first two contentions had merit, it still affirmed the judgment by finding the trial court was correct in rejecting the children's contentions 3 and 4.

After decedent died intestate (i.e., without a will) in 2016, wife petitioned the probate court to determine a home, titled in decedent’s name, was community property. The children objected, and a trial was held. At the trial, testimony was provided by the children, decedent’s sister, wife, a mortgage broker, and a real estate agent.

Decedent met wife in 2007, and they married in 2008. Decedent believed his prior wife took advantage of him, but he said he had learned from the experience and would not be taken advantage of again.

In 2010, decedent and wife decided to buy a home. Decedent took title to the home, as “Benny M. Wall, a married man as his sole and separate property,” and he used $99,205.83 from his separate property account for the down payment and financed the balance of the $134,000 purchase price.

During the marriage, decedent’s income came only from separate property sources: pension benefits earned pre-marriage and social security benefits. He deposited that income into his bank account and made mortgage payments from that account.

In 2013, decedent refinanced the home. He did not include wife on the loan, and the 2013 deed of trust listed the borrower as “Benny M. Wall, a married man as his sole and separate property.”

Wife testified that in 2008, she wrote decedent a check for $3,500 to use toward the future purchase of a home. In 2010, she and decedent decided to buy the home as joint owners. They applied for a loan as joint borrowers but were denied because she still had a home mortgage from her previous marriage.

The mortgage broker testified that when decedent and wife were denied a loan, she suggested decedent apply for the loan himself and add wife’s name to the title later. She recalled that decedent and wife agreed to do this.

Decedent then applied as the sole borrower and was approved. Afterward, the mortgage broker sent a congratulations card to decedent and wife congratulating them on their purchase. The mortgage broker testified she understood they both were owners.

The real estate agent also testified that he understood that decedent and wife were buying the house together, though he did not know how they took title.

Wife testified that a few days after they signed documents at the title company, the escrow officer called and said wife needed to sign another document. Wife was told it was a normal procedure though she did not know what “quitclaim” meant, and no one had explained it to her.

Decedent encouraged her to sign the quitclaim and said he would add her to the title later. Wife and decedent then went to the title office and wife signed the quitclaim deed, whereby she remised, released, and forever quitclaimed the home to decedent.

Wife testified that after signing, decedent told her the quitclaim meant nothing, and she was the owner of the property. Throughout the marriage, decedent reiterated that she was an owner and it was “their home.”

In 2013, she sold her home from her prior marriage, and wrote a check to decedent for half the sale proceeds, $2,500, plus $100 to help pay for dump fees. She said it should be used towards the purchase of their future home. The check memo line said “loan/help.”

After the home was purchased, wife paid for improvements, she painted, worked to improve the landscaping, and installed fixtures. Decedent contributed to the home from his separate property funds, paying for a new roof, a cement patio, and new carpet. They split household expenses, with decedent paying the power and trash bill, and both of them purchased groceries.

Wife testified that she helped because she believed she was an owner of the home. Also, her son and nephew rented rooms in the house, and she and decedent agreed she was entitled to half the rent. But for convenience, checks were written to decedent, who deposited them into his separate property bank account. Wife testified that decedent’s actions led her to believe she was financially contributing to paying down the mortgage on their home and was an owner of the property.

Wife also testified her marriage to decedent was close and intimate.

In her trial brief, wife argued that two Family Code presumptions should apply, sections 760 and 721. Family Code section 760 provides that property acquired during a marriage is community property.

Wife argues that Family Code section 721(b) provides that there is a rebuttable presumption of undue influence when one spouse obtains an advantage over another in a community property transaction.

The children maintained that the presumption in Evidence Code section 662 applies: absent clear and convincing proof to the contrary, ownership is as set forth in the legal title.

The appellate court concluded the Family Code section 721 presumption of undue influence when one spouse obtains an advantage over another was properly applied, and substantial evidence supported the conclusion that it had not been rebutted. On that basis, it affirmed the judgment.

Family Code section 760 and Evidence Code section 662 gave rise to conflicting presumptions in the case.

Family Code section 760 provides that: “Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.”

Evidence Code section 662 states: “The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.”

The appellate court concluded the probate court erred in determining Family Code section 760 prevailed over Evidence Code section 662 in the probate action. And because it so held, it did not need to address the children’s argument that, even if Family Code section 760 prevailed and the community property presumption did apply, the probate court erred in its determination of whether the presumption was rebutted.

The children next contended the probate court erred in determining Family Code section 721 applies over Evidence Code section 662 in the probate context, where the alleged influencer is not alive to testify.

Family Code section 721(b) provides in pertinent part: “in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.”

California courts have made clear that when the two presumptions in Evidence Code section 662 and Family Code section 721 conflict, the undue influence presumption prevails.

In cases involving interspousal property transactions, the "irreconcilable conflict" between the two presumptions established by section 721 and Evidence Code section 662 has been resolved in favor of section 721, based on the intent of the California Legislature in enacting fiduciary protections for interspousal transactions and general rules of statutory construction.

The form of title presumption simply does not apply in cases in which it conflicts with the presumption that one spouse has exerted undue influence over the other.

The appellate court concluded the probate court properly concluded the Family Code section 721 undue influence presumption applied.

Finally, the children contended that if Family Code section 721 is applicable in this context, it still should not apply where there is no showing of unfair advantage. However, the breach of a confidential relationship can constitute undue influence as constructive fraud.

And in the instant case, the lender’s suggestion to have the wife quitclaim her interest and be added to the title later, combined with the husband’s failure to fulfill his promise to do so, constituted constructive fraud amounting to undue influence.

Wife presented evidence that she and decedent decided to buy the home together. It was only after they were denied a loan that decedent, at the broker’s suggestion, applied for the loan by himself.

Wife later signed the quitclaim at decedent’s assurance that it meant nothing and that she would be added to the title later. While the children presented some contrary evidence, the wife’s evidence constituted substantial evidence of constructive fraud to support the probate court’s finding of undue influence under Family Code section 721.

LESSONS:

1.         Family Code section 760 provides that property acquired during a marriage is presumed to be community property.

2.         Family Code section 721(b) provides that there is a rebuttable presumption of undue influence when one spouse obtains an advantage over another in a community property transaction.

3.         Evidence Code section 662 provides that absent clear and convincing proof to the contrary, ownership is as set forth in the legal title.

4.         The breach of the confidential relationship between spouses can constitute undue influence as constructive fraud.