Fidelity Union Ins. v. Hutchins , 111 S.W.2d 292 ( 1937 )

On Rehearing. This suit is not one brought by the plaintiffs to compel a partition and distribution of the community property, as provided in R.S. 1925, art. 3681. According to the pleadings and prayer for relief, the suit is not one seeking to enforce an accounting by said community administrator. It is a suit seeking recovery, on the bond of G. B. Hutchins against him and his sureties, of the sums or amounts in which plaintiffs' claim to have been damaged as the result of alleged devastavits and/or conversions by the community administrator of their interest, as heirs of their mother, in said community estate.

When Hutchins' bond and the inventory and appraisement were approved and filed, Hutchins, as community administrator, then possessed all the rights and powers "to control, manage and dispose of such community property" as should seem to him to be "for the best interest of the estate" [including the right of "suing" and liability of "being sued with regard to same"] in the same manner as during the lifetime of his deceased wife. R.S. 1925, art. 3669. The powers and rights thus vested in him were not only as broad and comprehensive as any he could have had if he had qualified as regular administrator of his wife's estate and guardian of the estate of his children, and in each such capacity had under proper and necessary orders of the probate court exercised the fullest powers such court could by such orders legally authorize, but even broader and more comprehensive. For examples, he had the right, without liability to the heirs, to sell the community homestead, although free and clear of any liens or charges, and apply the proceeds to the payment of unsecured community debts. Stone v. Jackson, 109 Tex. 385,210 S.W. 953; Wiener v. Zweib, 105 Tex. 262, 141 S.W. 771, 147 S.W. 867; Martin v. McAllister, 94 Tex. 567, 63 S.W. 624, 56 L.R.A. 585; Watts v. Miller, 76 Tex. 13, 13 S.W. 16; Ashe v. Yungst, 65 Tex. 631; Watkins v. Hall, 57 Tex. 1. He had the right to use the proceeds from the sale of community property to pay debts barred by limitation. Stone v. Jackson, supra; Dawson v. Holt, 44 Tex. 174, 179. The long mooted question apparently has at last been settled finally that the right of the survivor to qualify under the statutes and thereby be empowered to sell and convey community property is not dependent upon the existence of debts. Brunson v. Yount-Lee Oil Co., 122 Tex. 237, 56 S.W.2d 1073. It was so held in Dawson v. Holt, supra, Cordier v. Cage, 44 Tex. 532, 533, Morse v. Nibbs (Tex.Civ.App.) 150 S.W. 766, and Stone v. Light (Tex.Civ.App.)228 S.W. 1108, but the question like Bancho's ghost would not down. That the community administrator has much broader powers than an ordinary administrator has been often declared. James v. Turner, 78 Tex. 241,14 S.W. 574; Carter v. Conner, 60 Tex. 52; Hollingsworth v. Davis,62 Tex. 438; Huppman v. Schmidt, 65 Tex. 583; Moody v. Smoot, 78 Tex. 119,14 S.W. 285. That powers unavoidably liable to abuse are vested in the community administrator by the statutes was at an early day recognized by the Supreme Court. It was said: "We are aware that this view of the law places the destinies and fortunes of the offspring in the power of the father, but in forming general laws and rules it is questionable whether any safer or more disinterested custodian of the rights and welfare of the child has ever been devised than that of the father. That this rule is liable to abuse is not a sound argument against it." Dawson v. Holt, supra.

The obligation of the community administrator's bond — stated as a unity — is that "he will faithfully administer such community estate, and pay over one half of the surplus thereof after the payment of the debts with which the whole of such property is properly chargeable to such person or persons as shall be entitled to receive the same." R.S. 1925, art. 3667. It has sometimes been said that such bond stands in lieu of the property, but only in a very general sense can that be regarded as an accurate statement. It is not true that the obligation of the bond is substituted for all interest of the heirs in the property. Manifestly, if that were true, the heirs would have no right to compel partition as provided in R.S. 1925, art. 3681, or under any circumstances to waive claim of liability on the bond and sue directly for the property. The mother's interest in community property vests in her children at the time of her death, whatever character of administration may be had. Belt v. Cetti, 100 Tex. 92, 93 S.W. 1000, 1002; Miller v. Miller (Tex.Civ.App.)227 S.W. 737; Hales v. Peters (Tex.Civ.App.) 162 S.W. 386. Such title is no more divested by qualification of the community administrator than it would be by the qualification of a regular administrator. If the corpus of all property remained on hand until the administration was completed and the heirs were tendered their interest in same; it is quite clear, we think, that they could not refuse to accept it, and yet have an action on the bond as for a devastavit or conversion for one-half the value of such property.

These observations are made in order to show more clearly what must be the true nature and functions of a bond of the kind in question. Such a bond when its provisions are closely examined is seen to impose two distinct obligations, each of which affords indemnity against very different things. The obligation to "faithfully administer such community estate" is an indemnity against acts or omissions which are fraudulent or mala fides. The other obligation to "pay over one-half the surplus thereof, after the payment of the debts with which the whole of such property is properly chargeable, to such person or persons as shall be entitled to receive the same" is an indemnity against failure or refusal of the community administrator for any reason to pay over the one half surplus "after the payment of the debts with which the whole of such property is properly chargeable." The first obligation is to provide indemnity to creditors and heirs against loss resulting from devastavits and/or conversions. It takes the place of wasted property. Brown v. Seaman, 65 Tex. 628. The second obligation indemnifies heirs (not creditors) and may operate without reference to the existence of any fraudulent or mala fides acts or omissions. Each of the two things indemnified against being of such distinctly different natures, may naturally require a different character of action to enforce the indemnity. In one character of action an essential element would be a showing of fraud or bad faith. In another, only the existence of a surplus and failure to pay one-half of it when due and demanded might be sufficient to fix the liability.

Let us consider now some of the reasons and authorities which seem to compel the above conclusions. Take the first provision of the bond obligating the survivor to "faithfully administer" the community estate. In granting and defining the powers and duties of community administrators, the lawmakers seem to have considered no distinction between persons possessing a high degree of sound judgment, care, and prudence and other persons not so fortunately gifted. The provision of law as to all alike is that after taking the requisite steps to qualify, thereby vesting the survivor with the exclusive management, control, and disposition of the community property, those powers should be exercised by the husband (when the survivor) after the death of his wife "in the same manner as during her lifetime, or sanity." (Italics ours.) R.S. 1925, art. 3663. Here is the test for determining the extent of, and limitations upon, the rightful powers of the survivor. As to the management, control, and disposition of the community property, his powers, rights, and duties are the same as while the wife was living. What powers over community property can a husband exercise during the lifetime of his wife, and while she is sane, without incurring a legal liability to her? The answer to this question should answer the question of what are the powers of the survivor? The answer is that, except as to some special restrictions regarding the homestead, he can do anything that he could do if he were the sole owner, provided only his actions and conduct be free from mala fides or fraud. The undertaking to "faithfully administer" the community estate cannot be held to indemnify against anything other than fraudulent or mala fides acts or omissions without having the effect, contrary to the plain declarations of the statute, of limiting or restricting the powers and rights of the husband which he possessed during the lifetime and sanity of the wife, to manage, control, and dispose of the community property. In order to give effect to all provisions of the law, the obligation to faithfully administer must be given a construction which will leave the surviving husband, as a community administrator, free to exercise the power and right to manage, control, and dispose of the community property "in the same manner asduring her lifetime, or sanity." (Italics ours.) This would seem to be self-evident. Let us, therefore, now pass to a more detailed consideration of the second of the two obligations of the bond. The obligation to "pay over one-half the surplus," etc., indemnifies against a failure of duty which obviously could not have existed during the lifetime of the deceased spouse. It is therefore a duty, the enforcement of which involves no limitation or restriction upon the exercise of those powers and rights of management, control, and disposition which he had in the lifetime of his wife. The surplus, one-half of which, the bond requires the administrator to pay over, is the surplus "after the payment of the debts," etc. As a means of determining the nature and amount of the debts and expenses and the fact of their payment, and the property available for such payment, and also as a means of ultimately determining the surplus available for distribution, other statutory provisions impose other duties upon the community administrator. It is provided that the "survivor shall keep a fair and full account and statement of all community debts and expenses paid by him and of the disposition made of such community property," etc. R.S. 1925, art. 3670. Thus is imposed a duty both to creditors and heirs. While the creditors have no interest in the ultimate surplus, the interest of the heirs in such surplus makes them interested in the debts and expenses which determine the surplus. Would a failure of duty as imposed by the provision just quoted alone constitute such fraud or bad faith as to give rise to a cause of action in favor of the creditors or heirs for a devastavit or conversion — a tort? It is not believed that the statute, properly interpreted, can be given such effect. As in substance already said, such duty cannot be made to qualify or restrict the right of management, control, and disposition of property in the samemanner as during the lifetime or sanity of the wife. It would have that effect, if, from mere ignorance, inattention or any other reason not involving fraudulent or bad faith actions or omissions, his failure to keep accounts should alone be held to be determinative of the existence of claimed devastavits or conversions.

In addition to the duty declared in the language of article 3670 above quoted, the succeeding clause further provides: "and, upon final partition of said estate [community administrator], shall account to the legal heirs of the deceased for their interest in such estate, and the increase and profits of the same, after deducting therefrom all community debts, unavoidable losses, necessary and reasonable expenses, and a reasonable commission for the management of the same." Unlike the duty imposed by the preceding clause, here is declared a duty of the survivor only to the heirs. Its plain purpose is not to afford evidence to convict the survivor of devastavits or conversions, but simply to provide a means of determining the surplus of the estate, after the payment of the debts, or whether there be any surplus, in order that the community administrator may perform, or the heirs enforce, the second obligation of his bond. A breach of this duty may subject the administrator to liability wholly regardless of any fraud or bad faith In his account he may claim credit with entire good faith for a loss as being unavoidable, or for expenses or commissions as necessary and reasonable, and yet, in a proper action or proceeding, the court may determine against him that the loss was not unavoidable, or the expenses not necessary or reasonable, or the commission not reasonable, all as a means of establishing the amount of the surplus available, or which should be available for distribution. Under the duty enjoined by the first clause, the survivor may in the utmost good faith pay a debt or expenses which were not legally a debt or expense of the estate but believed to be, and, in a proper action he may be made to restore it as a part of the surplus to be paid over to the heirs. For example, he may pay out of the community funds the current taxes or expenses of repairs on his homestead, honestly believing since it was a part of the community estate that he was entitled to credit for such payments in his final accounting, and yet he would be disallowed such credits under authority of Strickler v. Kassner (Tex.Civ.App.)64 S.W.2d 1025, which seems to be fully supported by Sargeant v. Sargeant, 118 Tex. 343, 15 S.W.2d 589.

The duty now under consideration is one which by the express terms of the statute comes into existence "upon final partition of said estate." On the subject of the partition of such estates, another statutory provision is that, "After the lapse of twelve months from the filing of the bond by the survivor, the persons entitled to the deceased's share of such community estate, or any portion thereof, shall be entitled to have a partition and distribution thereof in the same manner as in other administrations." R.S. 1925, art. 3681. This does not create a right to partition and distribution not otherwise existing. Its necessary effect therefore is rather to prescribe a limitation upon such pre-existing right. It amounts to a declaration that there shall be no partition until twelve months have elapsed, and then the right is given only to the heirs, not the survivor, and is of a continuing nature. Pressler v. Wilkie, 84 Tex. 344, 19 S.W. 436. No reason seems to support the contention that at the end of twelve months the survivor has imposed upon him the duty immediately to make partition or initiate a proceeding in court for that purpose. If any such duty exists, then in perhaps a majority of the cases the advantages of a community administration over an ordinary administration would be to a great extent lost. The survivor could not pay over money or personal property to minor heirs. A guardianship proceeding would, therefore, have to be instituted which would be entirely unnecessary if the partition or distribution was postponed a few years pending such disability of the heirs. It would seem to be the far more reasonable view that after the twelve months the duty of the survivor to make partition arises only upon demand of one or more of the heirs. If such demand be not made for years, the powers, rights, and duties of the survivor continue. The opinion of Judge Dunklin in Tholl v. Speer (Tex.Civ.App.) 230 S.W. 453, 456, appears to be sound that no article of the statutes provides for a termination of the community administration, except said article 2238 (now article 3681) "and such termination under that article is made dependent upon a demand by the children for a partition and distribution of the estate." See, also, Drought v. Story (Tex.Civ.App.) 143 S.W. 361.

It would seem to be a reasonable conclusion that when it is sought to enforce the duty of the survivor to "account to the legal heirs of the deceased for their interest in such estate," etc., such duty can only be enforced as the basis of recovery upon the second obligation of the bond hereinbefore discussed, and in an action for an accounting incident to and a part of an action for partition and/or distribution. A duty created by statute which provides that it be enforced in an action of a particular kind is only enforceable in such action. Such is the principle applied in the recent decision in Bowyer v. Bowyer (Tex.Com.App.)109 S.W.2d 741. As said before, the present suit does not purport to be such an action.

In the instant case there was a total absence of evidence to show fraud, or bad faith, necessary to support an action for devastavits or conversions. There was no evidence, more certainly there was insufficient evidence, to support a finding that the survivor ever claimed any interest in the property adversely to the interest of the heirs. The suit was in no sense an action to enforce an accounting or a partition or distribution. The conclusions of fact and law indicate the view that the failure of the survivor to keep and submit formal accounts and statements of his transactions was evidence of the alleged devastavits or conversions. After due consideration, we find ourselves unable to concur in such view, although the literature on the subject well enables us to understand and appreciate how the learned trial judge reached his conclusions upon the point. It was found, in effect, that the survivor by mortgaging the 320-acre tract and using all but $468 of the proceeds of $5,500 as part of the purchase price of the 158-acre tract, and the use of the latter as a homestead with a second wife and its ultimate loss under a foreclosure of liens to secure debts which he had assumed as part of the purchase price, constituted a conversion of the 320 acres, rendering the survivor liable upon his bond for its value of $8,000 at the time of the mortgage. It was further found that the survivor's act in conveying the three lots, then of the value of $3,000, as $3,500 of the consideration for the 158 acres (by which arrangement a debt of $1,024 against the lots was assumed and subsequently paid), and the after history of said 158-acre tract, constituted a conversion of the three lots, rendering the survivor liable for their value in the said sum of $3,000. These conversions were found to have occurred on August 14, 1928, from which time the recovery of legal interest was awarded as part of the damages. Yet another finding was that "on January 1, 1931, practically all of said community property listed in the inventory and appraisement, or its equivalent was on hand or in possession of said G. B. Hutchins, Sr."

If the transactions regarding the 320 acres of land and the three town lots were not conversions of such properties when they took place on or about August 14, 1928 — six days after the survivor qualified as such — then we fail to see how any subsequent acts or omissions could have the effect of making them such. Evidently the mere failure of the survivor to keep the accounts and statements was regarded as conclusive evidence, since there was no other. If those transactions constituted conversions of the property, then there could be no liability for devastavits based upon subsequent actions regarding the proceeds. If there was liability for such devastavits, growing out of such subsequent transactions, then there was no liability for conversion of the lands. If the lands were converted, then there could be no further liability based upon failure to account for the value thereof, for the further reason that the value was undisputed. There could be no liability based upon the survivor's failure to render an accounting of this dealings with the proceeds of the converted lands since if the lands were converted, the proceeds became the property of the conversioner. If there was liability for failure to account for, and pay over, the proceeds, then there was no liability for conversion of the lands; and the devastavits, if any, occurred long after the time the land was found to have been converted.

The evidence seems wholly insufficient to support any finding to the effect that the survivor converted either the 320-acre tract, or the town lots. Under the undisputed evidence by the transaction regarding the 320 acres, the survivor paid a community debt against same of $468. In the transaction regarding the three lots he procured to be paid a community debt of $1,024, which was a lien or encumbrance upon said land. Under such facts no conversion of the land would have been shown had the administrator never qualified but had so acted solely by virtue of his powers as the surviving partner of the marital union. Crawford v. Gibson (Tex.Civ.App.) 203 S.W. 375; Clemmons v. McDowell (Tex.Com.App.)12 S.W.2d 955; Jones v. Harris (Tex.Civ.App.) 139 S.W. 69. But when his rights and powers be tested by the rules relating to community administrations, the evidence does not remotely suggest any want of power or the existence of any fraud or bad faith. Can it be doubted for a moment that if Hutchins, instead of qualifying as community administrator, had procured himself to be made regular administrator of his wife's estate, and guardian of his two minor children, he could not have obtained proper and valid orders of the probate court authorizing just what he did with reference to mortgaging the 320-acre tract; the employment of the proceeds as he did; the exchange of the town lots as part consideration for the 158 acres; the acquisition of the latter for the price and upon the terms paid and promised? There can it seems be no doubt of it.

The question seems to be wholly unaffected by the fact that the second wife occupied the 158 acres, together with Hutchins and his children, as a home. That would not enable her to impress upon the land homestead rights to the prejudice of the children. Upon any partition her homestead rights would have been confined to the one-half interest of the husband, or at most to homestead rights of the husband to which the interest of the heirs was subject anyway. 29 C.J. 849, § 167; Clements v. Lacy,51 Tex. 150; Ferguson v. Reed, 45 Tex. 574; Massillon Engine Co. v. Barrow (Tex.Com.App.) 231 S.W. 368, Crocker v. Crocker,19 Tex. Civ. App. 296, 46 S.W. 870, 871; Pressley's Heirs v. Robinson,57 Tex. 453; Gilliam v. Null, 58 Tex. 298; Redding v. Boyd, 64 Tex. 498; Hoffman v. Hoffman, 79 Tex. 189, 14 S.W. 915, 15 S.W. 471. If the 158-acre tract was acquired with community property of the estate in administration, as the evidence and findings conclusively show, and was acquired with the intention that it be the property of said estate in lieu of the property given therefor, of which there was, it seems, no evidence to the contrary, and was acquired for the purpose of having the survivor's homestead transferred from the 320-acre tract to the 158-acre tract, the fact that the survivor had married a second wife who would occupy the new home with him was of no importance. The Legislature has not seen fit to limit the powers and rights of the husband as community administrator to such time as he shall remain unmarried as it has done in the case of the wife as survivor. Article 3680, R.S. 1925. Upon the finding set out above, but which may here be repeated, that "On January 1, 1931, practically all of said community property listed in the inventory and appraisement, or its equivalent, was on hand or in possession of said G. B. Hutchins, Sr.," no judgment could properly be rendered, as was done, upon the theory of conversions of practically one-half of the community estate on August 14, 1928, more than two years before. There were findings of other conversions, some apparently not made the basis of the judgment, but which, none-the-less, show the judgment to be erroneous because inconsistent with the grounds upon which it is based. If there was a conversion of the lands, the only thing, it would seem, upon which the value of the land could be the measure of recovery, then there was no conversion or devastavits based upon subsequent dealings or handling of the proceeds; and vice versa.

It would too greatly extend this opinion, already regrettably long, to attempt to point out in detail more specifically other reasons why it is thought the judgment should be reversed. However, for: the purpose of making clearer, if possible, the preceding discussion, the following will sketchily indicate what appears to be the rights and remedies of the parties as suggested by the record under the views expressed:

If conversions and/or devastavits can be shown, of course, recovery may be had therefor. That, as said before, would require a showing of fraud or bad faith. A failure to keep an account or statement may well effect the determination of the amount to be recovered, but would not be evidence of fraud or bad faith.

If the pleadings be so redrawn as to seek partition and distribution, and as incidental thereto, an accounting, the record, as it now stands, suggests some liability. There is no original property on hand. There is no surplus to be paid, unless the accounting shows there should be a surplus. It therefore results that the principal feature of any practically available action would be the accounting. If the survivor is outside the jurisdiction of the court, and therefore cannot be forced to render an accounting and fails to do so voluntarily, it would seem that the heirs will be under the necessity of establishing the state of the account by the best evidence available. In that case the court should no doubt resolve all reasonable doubts against the survivor.

When the town lots were conveyed in exchange for a conveyance to the survivor of the 158-acre tract, the agreed value of the lots was $3,500. Of that sum $1,024 was paid (finally) in discharge of a debt on the lots. The survivor was entitled to a credit upon a final accounting for payment of said sum of $1,024. The remainder of the $3,500, or $2,476 went into the purchase price of the 158 acres. The heirs' interest in the 158 acres stood for and in lieu of their interest in the $2,476. When the survivor borrowed $5,500 on the 320-acre tract and executed his obligations to repay it with interest, one-half of the $5,500, or $2,750 was then the property of the heirs. They retained their one-half interest in the land subject to the lien. One-half the obligation to repay the loan was their obligation. When out of the $5,500 the survivor paid $468 in discharge of a debt against the 320 acres, he was entitled to credit for that amount. When he paid the remainder of $5,032 as part of the purchase price of the 158-acre tract, the one-half interest of the heirs in that land stood in lieu of their one-half interest in the $5,032. When the survivor borrowed $3,000 from a Lamesa bank to make up the balance of the cash consideration for the purchase of the 158 acres, one-half that debt was the debt of the heirs To the extent that the $3,000 was used in payment for the 158 acres, the heirs' interest therein was transferred to and represented by their interest in the 158 acres. The remainder was chargeable to the survivor, subject to further accounting. The $5,600 indebtedness assumed as part of the consideration for the 158 acres, by such assumption, became a debt of the estate, one-half of which was the debt of the heirs. When the survivor paid interest on the assumed obligations as well as on the $5,500 debt, he was entitled to a credit for the sums so paid. When he paid off the $1,600 principal of the assumed Michner notes, he was entitled to be credited with that amount. When and if he repaid the $3,000 loan to the Lamesa bank, he was entitled to credit for such payment. When the $5,500 debt and the assumed $4,000 debt became due and payment was demanded if the survivor had no community funds with which to pay them, and each of the properties had depreciated in value to such extent that it was worth no more than the debt against it, the loss of the properties would, we think, be unavoidable. If it be granted that some extension could have been procured, that could not be conclusive. It would not warrant the inference that the debt could have been finally paid and the property saved.

So long as the 320 acres of land remained the homestead of the survivor, he was not properly chargeable as survivor with any of the rents or profits therefrom, nor entitled to be credited with taxes, or ordinary repairs. Strickler v. Kassner, supra. When the 158 acres was made the homestead instead of the 320 acres, he was likewise not chargeable with the rents or profits, nor entitled to credit for taxes, ordinary repairs, etc., on the latter, so long as it remained his homestead. But otherwise, when the survivor made payments out of community funds of property, it was his duty to keep accounts or statements showing that such payments were made upon community debts, or expenses, or if partly paid for such, and partly for others, then the part that was paid on the community debts or expenses. We think where it is shown that the survivor came into possession of community funds and when in a proper action called to account, no evidence is produced to show that same were paid on community debts or expenses, or for commissions or were lost, a prima, facie liability on the bond would thereby be established. The jurisdiction of the court would be fully invoked to determine whether claimed losses were legally unavoidable; whether debts and expenses were the debts and expenses of the estate; and the expenses necessary and reasonable; and whether commissions, if any, claimed were reasonable.