Opinion
A148199
06-01-2017
PARAMVIR SINGH, Plaintiff, Cross-defendant and Appellant, v. GAGANDEEP K. JOHAUL et al., Defendants, Cross-complainants and Respondents; RANJAN D. KHURANA et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Solano County Super. Ct. No. FCS042173)
Paramvir Singh (Singh) and Daljeet Singh Johaul (Johaul) agreed that Singh would take out a mortgage and purchase a home in Singh's name with the understanding that the Johaul family would provide the down payment, make all insurance, property tax, utility and maintenance payments for one year, and then purchase the property from Singh or assume the mortgage. Singh claimed that the Johauls reneged on the agreement and failed to timely perform their obligations. Singh sued to quiet title and to recover damages. The Johauls claimed that Singh sought to delay sale of the property to allow Singh to benefit from a first-time homebuyer's tax credit and mortgage and property tax deductions. The trial court credited the Johauls' version of the facts and declared a resulting trust in the Johauls' favor.
Under the trial court's factual findings, Singh's arguments alleging unenforceability of the agreement, failure to satisfy the legal requirements for a resulting trust, and breach of a realtor's fiduciary duties lack merit. We therefore affirm the court's judgment requiring transfer of the property to the Johauls, conditioned on their ability to assume the mortgage obligations.
I. BACKGROUND
Following a bench trial, the court made the following findings of fact: "[I]n the fall of 2009, defendants Gagandeep K. Johaul [(Johaul's daughter)], [Johaul], and Sarabjit K. Johaul ([Johaul's wife;] hereinafter referred to as '[t]he Johauls') were seeking to purchase a residence in Fairfield, California. The Johauls had bad credit as a result of one, if not two, short sales of real property they had owned. The Johauls sought help from a friend who was a real estate broker, defendant Ranjan D. Khurana, to help secure financing and to find a residence. [Khurana] informed [t]he Johauls that although their financial situation had improved enough to make a down payment to purchase a residence, their credit prevented them from securing a loan. The Johauls needed a third party to secure the loan for them.
"The Johauls had met [Singh], who was a friend of [Johaul]'s friend, Balwinder Singh [(also known as Balwinder Singh Sekhon; hereafter Sekhon)]. [Singh] had good credit. [Johaul] approached [Singh] and asked him to secure the loan for a residence. [Johaul] proposed to [Singh] that [t]he Johauls would make the down payment, pay the mortgage, pay all of the costs associated with maintaining the property, [and] pay all of the taxes and [Singh] could take the tax deductions. The Johauls also agreed that after transferring title to [t]he Johauls, [t]he Johauls would help [Singh] with the down payment on a residence of his own.
"Initially, [Singh] refused [Johaul]'s request. At the time of [Johaul]'s request, [Singh] and his wife had been actively searching for a residence of their own. [Singh] had put in bids for homes in the South and East Bay, but mostly on short sale homes. No bids had been accepted.
"A short time after [Singh] had rejected [Johaul]'s request, [Johaul] met with [Singh] and [Khurana]. In this meeting, [Khurana] explained to [Singh] [Johaul]'s offer and informed [Singh] that in addition to the tax deductions [Singh] would get from owning the property, he would receive a federal tax credit from the First Time Buyer's Credit program which was going to expire in 2010 and that by owning a piece of real property, it would increase [Singh]'s credit rating.
"[Singh] was still not convinced so he telephoned his friend, [Sekhon], for advice. [Sekhon] supported the idea of helping [t]he Johauls, so [Singh] ultimately agreed to the deal. The original terms of the deal were that [t]he Johauls would supply a down payment of twenty percent (20%), [and] pay the mortgage and property tax payments and the maintenance of the residence. In exchange for securing a loan on the property, [Singh] would receive his First Time Buyer[']s tax credit, and be allowed to take the tax deductions on the mortgage and property tax payments made by [t]he Johauls. The parties were to complete a title transfer within one year, whereby [t]he Johauls would either refinance the property in their names or outright buy the property. At the conclusion of the transfer of title to the property, [t]he Johauls would lend [Singh] twenty thousand dollars ($20,000.00) to use as part of a down payment on a residence of his own. [(Hereafter the Agreement.)]
"After the parties reached [the Agreement], [t]he Johauls and [Khurana] selected 3941 Clay Bank Road in Fairfield (hereinafter referred to as [Property]) as the residence [t]he Johauls wished to purchase. The [Property] was purchased for four hundred and seventy thousand dollars ($470,000.00). The Johauls put down ninety-seven thousand dollars ($97,000.00) and [Singh] obtained a loan for three hundred and sixty-five thousand dollars ($365,000.00). Escrow closed on December 31, 2009 and [t]he Johauls moved into [the Property] in January of 2010. The Johauls began making the mortgage and tax payments. [Singh] received approximately eight thousand dollars ($8,000.00) from the Federal Government from the First Time Buyer's program.
"In August of 2010, [t]he Johauls informed [Singh] that they were ready to transfer title of [the Property]. [Singh] asked [t]he Johauls to delay the transfer of title as he would had to pay back the First Time Buyer[']s Tax Credit if he relinquished ownership of [the Property] within three years of purchasing [it]. By the actions of the parties, they agreed to extend transferring [the Property] from one to three years, in order to preserve the First Time Buyer's tax credit for [Singh].
"Since the parties agreed to delay transferring title to [the Property] from one to three years at the request of [Singh], on August 12, 2010, [Singh] executed a Grant Deed placing defendant Gagandeep K. Johaul as a Joint Tenant on [the Property] as protection for [t]he Johauls. [Singh] gave the Grant Deed to [Johaul]; he asked [Johaul] not to record the Grant Deed since recording the Grant Deed would trigger the forfeiture of the First Time Buyer[']s tax credit.
"Between January of 2010 and March of 2013, [t]he Johauls lived in [the Property], paid the mortgage, the taxes, the utilities and all of the maintenance on [the Property]. [Singh] never took residence in [the Property]; instead he maintained his Concord residence until September of 2010. In October of 2010, [Singh] and his wife, Gurpeet Kaur, spent time in India and returned to the United States in January of 2011. It is unclear if [Singh] and his wife lived for any significant time at [the Property] between January of 2011 and April of 2011. In April of 2011, [Singh] moved to Milpitas.
The court found "Singh did not have keys to [the Property] as one would expect of an owner. [Singh] testified that he always called ahead to be let into the residence."
"In March of 2013, the parties agreed to transfer title of [the Property] from [Singh] to [t]he Johauls. The parties consulted [Khurana] as to the best course of action to accomplish the transfer. [Khurana] recommended a sales contract and a new mortgage in the name of [t]he Johauls as the easiest way to transfer the title and to get [Singh] relieved from the current mortgage. On March 18, 2013, a sales contract was drafted and the sales price of [the Property] was set at the outstanding balance of the current mortgage, three hundred and sixty-five thousand dollars ($365,000.00).
"There is conflicting testimony as to the reasons why the sales contract never closed. What is clear is that [Singh] never issued any demands, written or otherwise for [t]he Johauls to perform as required by the sales contract, nor did he give any written notice that the contract was cancelled. Instead, [Singh] waited until after what he believed was the date that escrow was to close before he acted. In June of 2013, [Singh] informed [t]he Johauls he would not sell them [the Property] and that they had to vacate [the Property]. In essence, [Singh] was taking [the Property] as his own. [¶] [Johaul] responded by recording the Grant Deed dated August 12, 2010, and litigation commenced."
The parties presented starkly different versions of events following their initial agreement. Singh testified that after the purchase he lived in the Property about half time, thus implying he legally qualified for the tax credit and deductions. He wanted to complete the transaction after one year, but the Johauls asked for more time because they were still unable to buy or refinance the Property. The Johauls tricked him into signing the August 2010 deed that made Gagandeep Johaul a joint tenant by saying she needed the document to prove her resident status for school. After three years, the Johauls still failed to purchase or refinance the Property and Singh lost patience and insisted they vacate the Property, which Singh intended to reoccupy. He offered to repay the Johauls their down payment "minus the market rent" (apparently the difference between the Johauls' monthly payments on the Property and the fair market rent) from 2009-2013.
Singh sued the Johauls, Khurana and Bay City Real Estate, Inc. (allegedly Khurana's employer) to quiet title to the Property in him alone. He also sued the Johauls for fraud and ejectment; Khurana and Bay City Real Estate, Inc. for breach of fiduciary duty, constructive fraud, and negligent misrepresentation; and Khurana for intentional misrepresentation. The Johauls brought cross-claims for a constructive trust based on fraud and for a resulting trust.
The trial court ruled that Singh failed to establish any of his claims. The quiet title claim (and related claims for injunctive relief and ejectment) failed because Singh "never intended to be the actual owner of the [Property]," as demonstrated by the Johauls' payment of all Property expenses (except two installments after litigation commenced), Singh's failure to claim the Johauls' payments as rental income on his tax returns, Singh's execution of the grant deed naming Gagandeep Johaul as joint tenant in August 2010, Singh's receipt of tax benefits while he held the Property in his name, and Singh's lack of occupancy of the Property. Singh's fraud claim against the Johauls, which was based on allegations that they tricked him into signing the August 2010 grant deed, failed because it was not credible that Singh did not understand what he was signing in light of his level of education (a Master's degree in engineering), fluency in English, and prior experience with rental contracts in the United States and contracts in India. Singh's claim for breach of fiduciary duty, which was based on an allegation that Khurana misadvised Singh about the tax implications of purchasing the Property, failed because Singh had "thus far" suffered no damages with respect to the improper tax credits and deductions. Singh's claims for constructive fraud and misrepresentation, which were based on allegations that Khurana concealed from Singh that the Johauls had had two short sales that prevented them from being able to refinance or purchase the Property within one year, failed because Singh relied on Sekhon's advice, not Khurana's representations, to enter into the Agreement. Moreover, the Johauls' purchase of another property in 2013 demonstrated they could have purchased the Property within the three-year period sought by Singh to keep his tax credits.
The court granted the Johauls' cross-action for a resulting trust in the Property. As a preliminary matter, the court ruled that "[a]ll parties in this lawsuit come to the Court with unclean hands. This case involves the parties intentionally engaging in illegal conduct, in the purchase of [the Property]. They agreed to mislead the mortgage lender, the Internal Revenue Service of the United States of America, the [F]ranchise Tax Board of the State of California and the County of Solano, Tax Assessor. They knowingly signed legal documents which failed to accurately describe the true facts of the purchase." Relying on Johnson v. Johnson (1987) 192 Cal.App.3d 551 (Johnson), the court nevertheless ruled that the Agreement could be enforced in favor of the Johauls, who were less morally culpable than Singh and who would be disproportionately prejudiced by a failure to enforce the Agreement and that a resulting trust could be declared. The court granted the Johauls 80 days to secure a loan to either refinance or satisfy Singh's mortgage on the Property, and ordered Singh to execute a grant deed in the Johauls' favor if the Johauls were able to do so. In the event the Johauls failed to refinance or satisfy the mortgage, the court ordered the Property sold with the proceeds used to pay off Singh's mortgage and excess funds transferred to the Johauls.
II. DISCUSSION
A. Resulting Trust
" 'A resulting trust arises from a transfer of property under circumstances showing that the transferee was not intended to take the beneficial interest. [Citation.] [¶] It has been termed an "intention-enforcing" trust, to distinguish it from the other type of implied trust, the constructive or "fraud-rectifying" trust. The resulting trust carries out the inferred intent of the parties; the constructive trust defeats or prevents the wrongful act of one of them.' " (American Motorists Ins. Co. v. Cowan (1982) 127 Cal.App.3d 875, 884-885.)
" 'When a transfer of real property is made to one person, and the consideration therefor is paid by or for another, a trust is presumed to result in favor of the person by or for whom such payment is made.' The trust that is 'presumed to result' from this situation is termed a 'resulting trust'; its purpose is to enforce the intentions of the parties. . . . Clear and convincing proof is required to support a declaration that a resulting trust exists." (Johnson, supra, 192 Cal.App.3d at pp. 555-556.)
"In reviewing the trial court's decision [in a resulting trust case], we must 'accept as true all evidence tending to establish the correctness of the finding as made, taking into account, as well, all inferences which might reasonably have been thought by the trial court to lead to the same conclusion. Every substantial conflict in the testimony is, under the rule which has always prevailed [on appeal] to be resolved in favor of the finding.' " (Johnson, supra, 192 Cal.App.3d at pp. 553-554.) We decide issues of law de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 800.)
1. Illegal Agreement
Singh first contends that the trial court erred in finding the Agreement was an illegal contract. Singh argues the trial court was required to construe the contract as legal if possible, citing Civil Code section 1643: "A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties." (Italics added.) The italicized phrase is pertinent here. The trial court expressly found that the parties here "intentionally . . . agreed to mislead the mortgage lender [and tax authorities] . . . [and] knowingly signed legal documents which failed to accurately describe the true facts of the purchase." The signed documents stated that Singh was purchasing a home that he would occupy and that his tax deductions were for "home mortgage" payments, but the court found "Singh never took residence in [the Property]; instead, he maintained his Concord residence until September 2010," then traveled to India and moved to Milpitas. At most, he might have stayed in the Property a few months in 2011. Singh argues the court could have, and therefore should have, interpreted the agreement as a one-year rental with an option to purchase (apparently for the outstanding mortgage balance), but this interpretation would not have purged the illegality. Singh still would have reaped homebuyer benefits (the first-time homebuyer credit and mortgage and property tax deductions) that were lawfully available only to purchasers of their own residences.
Even if the Agreement was an illegal contract, Singh argues, the court erred in enforcing it in the Johauls' favor. Ordinarily, an illegal contract will not be enforced by a court of law. " 'But the . . . fundamental purpose of the rule must always be kept in mind, and the realities of the situation must be considered. Where, by applying the rule, the public cannot be protected because the transaction has been completed, where no serious moral turpitude is involved, where the defendant is the one guilty of the greatest moral fault, and where to apply the rule will be to permit the defendant to be unjustly enriched at the expense of the plaintiff, the rule should not be applied.' " (Johnson, supra, 192 Cal.App.3d at p. 557.)
In Johnson, a couple was planning to purchase a home with a $7,500 down payment. Their son, a veteran, persuaded them to take title in his name and finance the purchase with a GI loan that required no down payment, then make him an interest-free loan of the $7,500 so he could make other real estate investments. "[I]t was fully understood by defendant and his parents that the latter would be the actual and beneficial owners of the property." (Johnson, supra, 192 Cal.App.3d at p. 554.) The parents made all subsequent loan payments, paid the maintenance costs with a single $165 exception, and invested $5,500 in renovating the property. Defendant, however, resisted their requests that he transfer title and ultimately claimed the home as his own. (Id. at pp. 554-555.) Assuming for purposes of argument that the parties' agreement was illegal, the reviewing court nevertheless affirmed the resulting trust declared by the trial court in favor of the surviving parent: "The transaction is completed, not executory, so application of the rule cannot protect the public except by example. No serious moral turpitude is involved on the part of [the surviving parent]. Instead, the 'one guilty of the greatest moral fault' clearly is defendant. He instigated the arrangement and then took advantage of it by making an interest-free loan of the money his parents had intended to use as a down payment for their home. Finally, application of the in pari delicto rule in this case would unjustly enrich defendant by allowing him to reap the full benefits of any appreciation in the value of the house, notwithstanding his role in the transaction and his subsequent conduct." (Id. at p. 557.) The Johnson court distinguished Hainey v. Narigon (1966) 247 Cal.App.2d 528, 531, where on similar facts the court refused to declare a resulting trust, instead granting the purported beneficial owner an equitable lien against the property equivalent to his cash investment. (Johnson, at p. 558.) Johnson explained, "[T]he plaintiff in Hainey was not importuned to enter into the transaction by the defendant veteran, as were [the surviving parent] and her husband in this case. To the contrary, it did not appear that the principal defendant in Hainey did anything beyond telling the plaintiff (his brother-in-law) that he could use his GI loan entitlement, and making a single monthly payment." (Johnson, at p. 558.)
Accord In re Torrez (9th Cir. 1987) 827 F.2d 1299, 1301-1303 (parents purchased farmland in name of son and daughter-in-law so they could exceed their maximum allotment of federally-subsidized irrigation water; applying California law, court declared resulting trust in favor of parents despite illegality); In re Marriage of Ruelas (2007) 154 Cal.App.4th 339, 341-345 (parents purchased condominium in name of daughter because she had better credit; court declared resulting trust in favor of parents despite illegality).
Singh notes that the trial court wrote that it was following Johnson "reluctantly," implying a view that the Johauls were culpable in the transaction. Singh argues the court erred in failing to recognize the Johauls were more culpable than Singh because they had orchestrated the transaction. The court, however, made findings of fact that support a contrary inference. The court found that, while the Johauls initiated discussions about the transaction, Singh did not agree to it until Khurana told him he would receive the first-time homebuyer's credit and mortgage and property tax deductions while the mortgage remained in his name and the purchase would increase his personal credit rating. The final Agreement incorporated Singh's use of the credit and deductions as a contract term. The court also found that the Johauls were ready to take over Singh's mortgage or purchase the Property after about nine months, but Singh asked them to delay the transfer for a full three years in order to protect his tax credit and extend his use of the deductions. These findings support an inference that Singh played at least as much of an orchestrating role as the Johauls.
Finally, Singh argues declaration of the resulting trust was inequitable because the Johauls gained all of the benefits they expected from the transaction while he received nothing. While acknowledging that he received the tax credit and mortgage and property tax deductions, Singh argues he would have enjoyed those benefits if he had purchased his own home in 2009 as he had been planning to do absent the Agreement, so he gained no net benefit from the transaction and lost the opportunity to build equity in his own residence. The court, however, wrote: "Singh had put in bids for homes in the South and East Bay, but mostly on short sale homes. No bids had been accepted." Impliedly, the court found it was not likely that Singh would have purchased his own home had he not assisted the Johauls in 2009. In any event, Singh obtained the exact benefit of the bargain he negotiated with the Johauls according to the court's findings: he claimed the credit and tax deductions as anticipated and the Agreement was extended to three years at his request to safeguard those benefits. Thus, the court reasonably concluded that declaration of the resulting trust was an equitable result.
We conclude the trial court did not abuse its discretion in declaring a resulting trust in favor of the Johauls.
2. Clear and Convincing Evidence for Resulting Trust
Singh argues the trial court failed to find by clear and convincing evidence that the parties intended that the Johauls would be the beneficial owners of the Property and therefore erred in declaring a resulting trust in their favor. He also argues the court's finding regarding the parties' intent is not supported by substantial evidence. We affirm.
The trial court expressly ruled that the Johauls "have established by clear and convincing evidence that they are the true owners of [the Property] and that a Resulting Trust should be imposed." Singh argues this statement is fatally undermined by the court's specific finding that "[i]t is unclear why the March 18, 2013 contract was not completed." We disagree. The propriety of declaring a resulting trust rests on the parties' intent when they make and carry out their agreement, not whether a dispute arises at the time a transfer of property is scheduled to take place. There would be no lawsuit without such a dispute. The failure to execute the March 2013 contract occurred after expiration of the Agreement to hold the Property in Singh's name for three years. Therefore, it was not relevant to the court's finding regarding the parties' prior intent.
Singh argues the court's finding that (in Singh's words) "Singh was simply holding the property in trust and on title in name only" was not supported by substantial evidence. Instead, he argues, the undisputed evidence showed "the [P]roperty would be transferred only upon the condition precedent of the Johauls relieving [Singh's] obligation on the mortgage." Singh acknowledges that the court expressly found the parties agreed "to complete a title transfer within one year, whereby [t]he Johauls would either refinance the property in their names or outright buy the property." Therefore, Singh's real argument seems to be that a resulting trust cannot be based on such an agreement. The case law defeats this argument. In Johnson, the title and mortgage were in the son's name and the parents made the mortgage payments. (Johnson, supra, 192 Cal.App.3d at p. 554.) The court declared a resulting trust in the surviving parent's favor and directed the trial court to "retain[] jurisdiction to make such orders as are appropriate to safeguard defendant against the contingency of liability on account of any default in payments on the loan." (Id. at p. 559.) Implicitly, the Johnson court concluded that a resulting trust could be declared even if the parties intended the non-title-holder to have beneficial ownership of the property on the condition that she pay off the other party's mortgage (either all at once or over the life of the mortgage). Similarly, in In re Marriage of Ruelas, the title and mortgage were in the name of the daughter and the parents made the mortgage payments. (In re Marriage of Ruelas, supra, 154 Cal.App.4th at p. 341.) Again, the court declared a resulting trust even though the agreement was implicitly conditioned on the non-title-holder's payment of the mortgage and other property-related expenses. (Id. at pp. 342, 344.) Singh claims the Johauls had a "prospective right of ownership" rather than beneficial ownership giving rise to a resulting trust. However, on the facts of this case as found by the trial court we see no material difference between the two concepts. B. Claims Against Khurana
Singh argues the trial court erred in finding he did not rely on Khurana's advice when he made the Agreement with the Johauls. He argues the undisputed evidence shows he made the Agreement in at least partial reliance on Khurana's representation that the Johauls could assume the mortgage or purchase the home within one year, which he claims Khurana knew was false because Khurana knew but did not disclose to Singh that the Johauls had just been involved in two short sales. We need not resolve this issue because the trial court rejected Singh's fraud and misrepresentation claims against Khurana and Bay City Real Estate, Inc. on alternative grounds. As to the misrepresentation claims, the court effectively found there was no material misrepresentation: "[T]he parties by their actions . . . mutually agreed that the transfer of [the Property] would occur after the First Time Buyer[']s Credit refund had expired. . . . The Johauls did obtain a loan to purchase [a property] in May of 2013 [(i.e., after the three-year tax credit period had expired)]. Said property was purchased for [$330,000] and demonstrated that [t]he Johauls had the financial wherewithal to obtain a loan to relieve [Singh] of the mortgage obligation." In other words, Khurana's representation that the Johauls could refinance or purchase the Property within the extended time limit of the Agreement turned out to be true, and any concealment of the short sales was immaterial. While the court did not cite this same reason as a basis for rejecting the constructive fraud claim (which was based on unspecified representations), we affirm that ruling on this alternative ground. (See Coral Construction, Inc. v. City and County of San Francisco (2010) 50 Cal.4th 315, 336 [appellate courts review a trial court's rulings not its reasoning].)
Singh's breach of fiduciary duty claim against Khurana does not come within the scope of Singh's appellate argument because it was not based on Khurana's alleged misrepresentation of the Johauls' ability to refinance or purchase the Property. --------
III. DISPOSITION
The judgment is affirmed. Singh shall bear the respondents' costs on appeal.
/s/_________
BRUINIERS, J. WE CONCUR: /s/_________
JONES, P. J. /s/_________
NEEDHAM, J.