Earp v. Earp

231 Cal. App. 3d 1008 (1991)

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Earp v. Earp

California Court of Appeal
231 Cal. App. 3d 1008 (1991)

Facts

Kenneth Earp (plaintiff) and Doris Earp (defendant) got divorced. As part of the divorce settlement, Kenneth owed Doris approximately $700,000. Doris held a writ of execution over a mobile home park Kenneth owned, which would allow her to force a sale to satisfy Kenneth’s debt to her. Doris agreed to withdraw her writ in exchange for an adequate security for her debt. To provide that security, Kenneth and Doris negotiated a lease of the mobile home park. Pursuant to the terms of the lease, Doris took possession of the park, operated it, paid its operating expenses, and collected the tenants’ rents in a reserve fund. The lease agreement contained a term providing that any excess left in the reserve fund after paying the park’s expenses at the end of each year would become Doris’s property. The lease agreement further provided that Kenneth could pay his $700,000 debt by a certain date to terminate the lease. If Kenneth missed that deadline, Doris had the option to forgive Kenneth’s debt as a means to purchase the mobile home park. The market value of the mobile home park was approximately $5 million. Kenneth repaid the $700,000 by the deadline and retook possession of the mobile home park. At that time, the reserve fund had approximately $200,000 in accumulated funds from previous calendar years. Doris claimed the excess funds as her own under the lease agreement. Kenneth sued to recover the excess funds. The trial court ruled in favor of Kenneth, holding that the purported lease was actually a mortgage. Because mortgagees in possession of property were not entitled to profits in excess of the debt, the court held, Doris could not retain the excess funds. Doris appealed.

Rule of Law

Issue

Holding and Reasoning (King, J.)

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