Opinion
Rehearing Granted April 13, 1989.
Previously published at 208 Cal.App.3d 1082
Jeffrey P. Meyer, Los Angeles, for defendant and appellant.
Nancy V. Powell, Palo Alto, for plaintiff and respondent.
STATEMENT OF THE CASE
CAPACCIOLI, Acting Presiding Justice.
Defendant Foothill Thrift and Loan (Foothill) appeals from an order granting a preliminary injunction that prevents Foothill from foreclosing on a trust deed to plaintiff Anne Reiserer's home. (Code Civ.Proc., § 904.1, subd. (f); U.S. Hertz, Inc. v. Facts
In April 1985, Foothill lent Trade Channel International (TCI) $473,131.32 for the purchase of computer equipment, and TCI executed a promissory note, secured by the new computer equipment, agreeing to make monthly payments of principal and interest. In addition, plaintiff's husband Kenneth Reiserer (Reiserer), an attorney, who had done some legal work for and was a personal friend of Sean Mortazavi and Al Alborzi, principals of TCI, signed a continuing guaranty (Guaranty) for the TCI loan. The Guaranty was secured by a trust deed to Reiserer's and plaintiff's residence. At the same time, Reiserer obtained from plaintiff a quitclaim deed, conveying to him as his separate property any interest she had in their residence.
TCI failed to make any loan payments, and on July 1, 1985, Foothill informed TCI and Reiserer of its intention to foreclose on the trust deed. However, foreclosure did not take place because in September 1985, Mortazavi and Alborzi negotiated an agreement with Foothill, whereby TCI paid the interest due, late charges, attorney's fees, and foreclosure fees and thereafter agreed to make monthly payments of interest only.
After some months, TCI again defaulted, and in December 1986, Foothill recorded a notice of default and intention to foreclose.
In June 1987, plaintiff filed this action against, among others, TCI, Foothill, Alborzi, Mortazavi, and her husband Reiserer, seeking to prevent a foreclosure sale of her home. She obtained a temporary restraining order against Foothill and then applied for a preliminary injunction. On July 10, 1987, a hearing was held on this application. Foothill sought but the trial court denied a request for a continuance. Thereafter, the court granted a preliminary injunction pending trial, and Foothill filed this appeal.
Discussion
I. The Preliminary Injunction
Foothill claims the trial court abused its discretion in granting the preliminary injunction. We disagree.
The decision to grant a preliminary injunction rests in the sound discretion of the trial court and will not be reversed unless the trial court " ' "exceeded the bounds of reason or contravened the uncontradicted evidence." ' " (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69, 196 Cal.Rptr. 715, 672 P.2d 121.)
"The trial courts consider two interrelated questions in deciding whether to issue a preliminary injunction: 1) are the plaintiffs likely to suffer greater injury from a denial of the injunction than the defendants are likely to suffer from its grant; and 2) is there a reasonable probability that the plaintiffs will prevail on the merits." (Robbins v. Superior Court (1985) 38 Cal.3d 199, 206, 211 Cal.Rptr. 398, 695 P.2d 695; Weingand v. Atlantic Sav. & Loan Assn. (1970) 1 Cal.3d 806, 820, 83 Cal.Rptr. 650, 464 P.2d 106.)
On review, we examine the evidence in the light most favorable to the prevailing party, drawing all reasonable inferences in his or her favor and resolving conflicts in the evidence in favor of the trial court's order. (Christopher v. Jones (1964) 231 Cal.App.2d 408, 412, 41 Cal.Rptr. 828.)
A. Irreparable Harm
The record clearly supports a finding of irreparable harm to plaintiff. If the sale were allowed before trial on the merits, plaintiff would lose any interest in the residence, as well as her claims for a permanent injunction or rescission or reformation of the Guaranty. In contrast, the potential, measurable harm to Foothill, if any, from a preliminary injunction is far less grave. Indeed, Foothill presented no evidence below that its security would be impaired pending trial or that delay in foreclosure would be harmful. Moreover, in B. Probability of Success on the Merits
In her complaint, plaintiff seeks, inter alia, declaratory relief, specifically, a finding "that the pending foreclosure proceedings do not affect her community property interest in the house."
As noted above, plaintiff executed a quitclaim deed conveying any interest she had in the property to her husband as his separate property. Although this deed would appear to prevent plaintiff from claiming an interest in the property, she now seeks to invalidate it. In the complaint, she alleges that Foothill, Alborzi, and Mortazavi promised Reiserer that the Guaranty would last for at most three months and in reliance upon this promise, Reiserer executed the Guaranty. She then alleges Reiserer represented to her that her signature was necessary on, inter alia, a quitclaim, and, without receiving any consideration, she executed one, conveying her interest in the real property to him. She further alleges she executed the quitclaim "in reliance on statements by K. Reiserer, Mortazavi, Alborzi and Foothill that any security was temporary and only for sixty to ninety days, and that she was not putting her share of the Property at risk and not obligated to pay any money to Foothill either under the terms of the Note or otherwise." Thus, she claims that her signature on the quitclaim deed is void due to (1) a unilateral mistake of fact, (2) breach of her agreement to execute the quitclaim deed, (3) lack of consideration for the quitclaim deed, and (4) fraud.
At the hearing on the preliminary injunction, plaintiff presented sufficient evidence concerning mistake of fact and lack of consideration to establish a reasonable probability of invalidating her quitclaim deed. Both she and Reiserer state that she received no consideration for the quitclaim, despite language to the contrary in the quitclaim deed itself. (See 2 Witkin, Evidence (3d ed. 1986) § 1001 [parol evidence admissible to contradict written recital of consideration in agreement].) Moreover, both she and Reiserer indicate that she executed the quitclaim deed upon the belief that the guaranty would last at most for three months.
Assuming the quitclaim deed is invalid, we now turn to the nature of her interest in the property.
Civil Code section 5127 provides that each spouse may properly exercise management and control over community real property, but "both spouses either personally or by duly authorized agent, must join in executing any instrument by which such community real property or any interest therein is ... encumbered." Under this section, a nonconsenting spouse may maintain an action to set aside an encumbrance. (Clar v. Cacciola (1987) 193 Cal.App.3d 1032, 1036, 238 Cal.Rptr. 726; Wolfe v. Lipsy (1985) 163 Cal.App.3d 633, 642, 209 Cal.Rptr. 801; Harper v. Raya (1984) 154 Cal.App.3d 908, 912-913, 201 Cal.Rptr. 563; Andrade Development Co. v. Martin (1982) 138 Cal.App.3d 330, 334-339, 187 Cal.Rptr. 863; Mitchell v. American Reserve Ins. Co. (1980) 110 Cal.App.3d 220, 223, 167 Cal.Rptr. 760; Gantner v. Johnson (1969) 274 Cal.App.2d 869, 876-877, 79 Cal.Rptr. 381; Rubenstein v. Solk (1935) 5 Cal.App.2d 426, 427, 43 P.2d 524; See 14 Pac.L.J. 927, 948-949; Bassett, California Community Property Law (1988) §§ 8.03[A]-8.03[A], pp. 8(34)-8(42) (hereafter "Bassett".) The documentary evidence presented below indicates that the real property subject to foreclosure was Reiserer's separate property before his marriage to plaintiff. Plaintiff presented no evidence contradicting this fact or showing that Reiserer transmuted this separate property to community property either orally or in writing after their marriage. Thus, it apparently remained his separate property after his marriage. (Civ.Code, §§ 5108, 5110.710, and 5110.730; In re Marriage of Denney (1981) 115 Cal.App.3d 543, 549, 171 Cal.Rptr. 440; In re Marriage of Jafeman (1972) 29 Cal.App.3d 244, 255, 105 Cal.Rptr. 483; see Bassett, supra, § 4.02[C], pp. 4(47)-4(54).)
While the authorities cited above agree that a nonconsenting spouse may bring such an action, they disagree concerning whether the spouse may void the entire encumbrance or whether he or she may void it only as to his or her one-half interest in the community real property. (Compare Andrade Development Co. v. Martin, supra, 138 Cal.App.3d 330, 334-339, 187 Cal.Rptr. 863 to Mitchell v. American Reserve Ins. Co. (1980) 110 Cal.App.3d 220, 223, 167 Cal.Rptr. 760. In this case, we need not cast a vote on this issue.
Plaintiff now claims a community property interest in this property because, as she alleges in the complaint, "[a]t the time of their marriage the residence on the Property was an 850 square foot shack" and "Plaintiff and K. Reiserer used community property funds to demolish the former residence and build a new home beginning in June, 1982."
It is settled that "[t]he use of community funds to improve the separate property of one spouse does not alter the separate character of the property. [Citation.] In the absence of a contrary agreement, the improvements have the character of the separate property and belong to its owner." (In re Marriage of Jafeman, supra, 29 Cal.App.3d 244, 256, 105 Cal.Rptr. 483; accord: In re Marriage of Camire (1980) 105 Cal.App.3d 859, 866, 164 Cal.Rptr. 667; see 7 Witkin, Summary of California Law (8th ed. 1974) Community Property, § 36, p. 5129.) Here, plaintiff offered no evidence of an agreement concerning the character of the house. Hence, it became part of Reiserer's separate property, since the underlying realty remained Reiserer's separate property after marriage. (See Fowler v. Fowler (1964) 227 Cal.App.2d 741, 749, 39 Cal.Rptr. 101; Bowman v. Union T. Co. of San Diego (1940) 41 Cal.App.2d 397, 402, 106 P.2d 913; 34 Cal.Jur.3d Fixtures, § 41, p. 259.)
It is also well settled, however, that the use of community funds to improve the separate property of one spouse may nevertheless entitle the community to reimbursement of the community funds expended or, if the funds actually enhanced the value of the property, to a pro tanto interest in the appreciated separate property. (See In re Marriage of Moore (1980) 28 Cal.3d 366, 371-372, 168 Cal.Rptr. 662, 618 P.2d 208; In re Marriage of Gowdy (1986) 178 Cal.App.3d 1228, 1230-1234, 224 Cal.Rptr. 400; see also Bassett, supra, § 6.07, p. 6(74).)
Here, the use of community funds to demolish and build a new home on Reiserer's separate property and the absence of any evidence that plaintiff intended the community property contribution to be a gift to Reiserer makes it reasonably probable plaintiff will establish a substantial community property interest in her home. Moreover, in light of the evidence that she did not consent to an encumbrance lasting for more than three months, it also appears reasonably probable that she will succeed in setting aside the encumbrance under Civil Code section 5127. That section is clearly designed to protect the community's interest in real property and, in our view, applies whether the interest encompasses the whole property or, as here, comprises a substantial part of a spouse's separate property.
Under these circumstances, a foreclosure sale prior to a determination of plaintiff's interest in her home would be premature. Therefore, we conclude that Foothill has failed to prove the trial court's order exceeded the bounds of reason or contravened the uncontradicted evidence.
Since the record clearly supports the trial court's action, it is unnecessary to address the particular reasons stated by the trial court in its order granting the injunction. (See D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 18-19, 112 Cal.Rptr. 786, 520 P.2d 10; Fredericks v. Filbert II. Denial of motion for continuance
Foothill contends that the trial court erred in denying its motion for a continuance. It claims that under Code of Civil Procedure section 527 ("Section 527") it had "an absolute and unqualified right to one continuance upon request." We agree that the trial court erred.
Section 527, subdivision (a), provides, in relevant part, that when an application for a preliminary injunction "comes up for hearing the party who obtained the temporary restraining order must be ready to proceed and must have served upon the opposite party at least two days prior to the hearing, a copy of the complaint and of all affidavits to be used in the application and a copy of the points and authorities in support of the application; if the party is not ready, or if he or she fails to serve a copy of his or her complaint, affidavits and points and authorities, as herein required, the court shall dissolve the temporary restraining order. The defendant, however, shall be entitled, as of course, to one continuance for a reasonable period, if he or she desires it, to enable him or her to meet the application for the preliminary injunction." (Emphasis added.)
Here, at the hearing on plaintiff's application for a preliminary injunction, there was some dispute concerning whether Foothill had been served a copy of plaintiff's supplemental points and authorities and supporting declarations. In any event, defense counsel represented that regardless of service, he had not seen nor been able to prepare a response to these documents prior to the hearing and on this ground requested a continuance. The trial court denied the request, finding that the papers had been served.
The language of section 527, subdivision (a), is clear and unambiguous: upon request, a defendant is entitled as a matter of right to one continuance to respond to the plaintiff's initial application papers. (See Wutchumna Water Co. v. Superior Court (1932) 215 Cal. 734, 740, 12 P.2d 1033.) This rule is reasonable and appropriate since a plaintiff is fully protected during any continuance by the existence of a temporary restraining order. Nothing in this section suggests, and plaintiff provides no supportive authority, that a continuance may be denied upon proof that the defendant properly has been served with the plaintiff's papers.
We note that section 527, subdivision (a) also provides that, "[t]he defendant may ... present affidavits relating to the granting of the preliminary injunction, and if such affidavits are served on the applicant at least two days prior to the hearing, the applicant shall not be entitled to any continuance on account thereof." (Emphasis added.) The lack of a similar limitation on granting defendant a continuance strongly implies that the issue of service is irrelevant to the defendant's right to continuance. In other words, a defendant is entitled to a continuance if he or she desires additional time to respond to the plaintiff's application, regardless of whether he or she previously has been served plaintiff's papers.
Asserting, as she did below, that Foothill played hard-to-get in being served with her papers, plaintiff suggests that a continuance may properly be denied where the request is made in bad faith to delay the proceedings. Even if we accept this proposition, the record does not conclusively establish Foothill's intention to delay the hearing, and the trial court made no finding that Foothill's request was made in bad faith. Moreover, in our view, Foothill's interest appeared to lie not in delaying the hearing but in attempting to defeat the plaintiff's application as soon as possible so it could proceed with the foreclosure sale.
In sum, we conclude it was error to deny Foothill a continuance. This error, however, does not compel reversal.
The only potential prejudice to Foothill was its inability to prepare a response to plaintiff's supplemental points and authorities and three affidavits, all of which were filed in response to Foothill's claim that key allegations of plaintiff's complaint were made on information and belief and, The order granting a preliminary injunction is affirmed.
COTTLE and ELIA, JJ., concur.
We also note that since plaintiff's action was filed within one year of the effective date of section 5127, it is not barred by one year statute of limitations contained therein. (See Stats. 1987, c. 128, § 3.)