BOYD v. OSER (1943)

Appeal by plaintiff from a judgment of the Superior Court of Butte County.

Plaintiff is the executor of the last will and testament of G. F. Waterland, generally known as Frank Waterland, Defendant is the administrator with the will annexed of the estate of Amelia Waterland, Amelia and Frank Waterland were married in 1894, and for many years thereafter operated a candy store in Chico, California, both devoting their time and labor to the business. There were no children of said marriage. From time to time the profits of the candy business were invested in income producing real estate, deeds therefor being taken in Frank Waterland's name. On January 1, 1920, the store was sold and thereafter the parties lived upon the income from their investments, which consisted of rentals collected from their real estate, and interest on occasional loans of cash. Moneys received from these various sources were deposited in bank accounts that also produced income by way of interest.

In May, 1935, Amelia Waterland made a will. Thereby she disposed of a few personal effects and an interest in real estate in San Francisco which was her separate property, provided that the sum of $50 per month should be paid to a sister as long as said sister should live, then devised the residue of her estate to her husband, naming him as executor. On September 25, 1935, she died. Her will was thereafter admitted to probate and letters testamentary were issued to her surviving husband. However, before said probate proceedings had been terminated, Frank Waterland died testate, and in November, 1939, plaintiff herein qualified as executor of his last will and testament. He filed an inventory and appraisement, listing therein, as the separate property of said decedent, all of the property acquired by the spouses, including the real estate, furniture and furnishings, promissory notes, cash in five different banks an automobile and a watch.

In January, 1940, respondent, who had been appointed administrator with the will annexed of the estate of Amelia Waterland, filed an amended and supplementary inventory and appraisement, listing therein, as the property of the estate of said Amelia Waterland, an interest in the real property described in the inventory filed in Frank Waterland's estate, together with a one–half interest in certain described personal property consisting of furniture and furnishings of apartment houses located on said lands, and a one–half interest in certain specified bank accounts. He thereupon made demand upon plaintiff to deliver to him moneys in bank amounting to some thirteen thousand dollars. Plaintiff refused to comply with said demand, and filed this action seeking to quiet title to the real property in question, and, in a separate count, asking a declaration of the rights of the respective parties in and to both the real and personal property claimed by the respective parties. Defendant answered, claiming that all of the property, both real and personal, described in plaintiff's complaint, together with the rents, issues and profits thereof acquired by the spouses after their marriage, was subject to the testamentary disposition of Amelia Waterland, and that he was entitled to the possession and control of one–half thereof to the extent necessary to permit him to carry into effect all of the provisions, legacies and bequests set forth in the will of Amelia Waterland.

Trial of the issues presented was had by the court sitting without a jury, and during the course thereof defendant conceded that no portion of the community property acquired by the spouses prior to July 16, 1923, the effective date of the amendment of section 1401 of the Civil Code, St.1923, p. 30 (now sec. 201 of the Prob.Code), was subject to administration in the estate of the deceased wife. But as to moneys in bank accounts, all of which accounts were opened after July 16, 1923, and, with accumulated interest, amounted to $24,323.75, he contended that same constituted community property, one–half of which was subject to the testamentary disposition of the wife and was disposed of by her in her said will. At the conclusion of the trial the court made findings of fact in which it found that with the exception of one piece of real estate, all the real property in controversy was the separate estate of Frank Waterland at the time of his death. As to the excepted piece, title to which had been acquired in 1929 in the names of both Frank and Amelia Waterland, it was found that same was the community property of the spouses at the time of the death of the wife, and that one–half thereof was subject to the testamentary disposition of the wife. And as to the personalty the court found that up to the time of the death of Amelia Waterland, Frank Waterland “collected rents and income from the community real estate which was owned by said husband and wife as community property on the 16th day of July, 1923, and deposited said rentals and income in bank accounts, and withdrew and redeposited and reinvested the same. That all of the personal and real property described in this finding had its source in said rentals and income so deposited, redeposited and reinvested, and none of it had its source in the earnings of said husband and wife after the 16th day of July, 1923. That none of said real or personal property consists of the original rentals or income from said community real estate so owned on the 16th day of July, 1923, by said husband and wife or the original deposits of the said rentals and income so received from said property. That the real and personal property referred to in this finding is specifically described as follows:” Then followed a description of the excepted parcel of real property above mentioned, and moneys in banks amounting to $24,323.75, a promissory note for $500 and the Buick sedan. Judgment followed quieting the title of defendant to an undivided one–half interest in the property found subject to the testamentary disposition of the wife, and quieting plaintiff's title to the remainder.

A motion for a new trial made by plaintiff was denied. This appeal followed, the questions propounded by appellant being whether Amelia Waterland had a right to bequeath one–half of the rentals received after the effective date of the 1923 amendment to section 1401 of the Civil Code, derived from community real property acquired prior to said date; and, if said rentals were not subject to the wife's testamentary disposition, whether the deposit of such rentals in savings account or other transmutation in the form thereof, rendered said community property, in its new form, subject to the wife's power of disposition by will. The latter question results apparently from the written opinion of the trial court filed prior to its judgment, in which it was stated that if, after July 16, 1923, community property which was owned on that date was reinvested, the title to the specific community property then acquired would be subject to the amendment (citing In re Estate of Phillips, 203 Cal. 106, 113, 263 P. 1017); that income from community property owned on July 16, 1923, which had been collected and invested in another form of community property after said date was subject to the amendment of section 1401 of the Civil Code; and that the collection of rentals and their deposit in banks constituted a reinvestment which rendered said bank accounts subject to the wife's right of testamentary disposition.

Respondent, in his brief, contends that whether reinvested or not, the rents, income and profits which were acquired subsequent to 1923 must be held to be after–acquired property subject to the wife's right of testamentary disposition, such as is referred to in Re Estate of Phillips, supra, and Sexton v. Daly, 95 Cal.App. 754, 273 P. 109; that such income was not and could not have been in existence at the date of the amendment of section 1401, and that as subsequently acquired property it was subject to the provisions of that section.

Except in so far as it may have been involved in Henry v. Hibernia Savings & Loan Soc., 5 Cal.App.2d 141, 42 P.2d 395, 396, the question here presented appears not to have been directly decided by the courts of this state. In that case moneys which were the community property of Annie Henry and her husband, P. W. Henry, were deposited with defendant Bank, in the wife's name. When Annie Henry was 84 years old and nearly blind she went to said bank with her son, and transferred said moneys to a joint account in the names of Annie Henry and William R. Henry, the son, without the knowledge of the husband. Thereafter Annie Henry died and her husband soon followed her in death. Plaintiff then brought suit against the bank and the administratrix of his father's estate to collect the moneys in the joint account, claiming that they were the separate property of the wife, and that she had given them to him prior to her death. The trial court found that said money was community property and therefore a part of the estate of the deceased husband. On appeal the court said that of the community funds on deposit, all had been deposited prior to the effective date of section 161a of the Civil Code in 1927, and that all but $500 prior to the effective date of the 1923 amendment to section 1401 of the Civil Code (Prob.Code, sec. 201). It said: “All that acquired prior to 1923, with the increase thereof represented by the interest paid by the bank, vested in the husband, and that portion the wife did not have power to devise or give away. Riley v. Gordon, 137 Cal.App. 311, 314, 30 P.2d 617. As to that portion acquired subsequent to 1923, but prior to the 1927 amendment to section 161a of the Civil Code, * * * it is clear that the title also vested in the husband (McKay v. Lauriston, 204 Cal. 557, 565, 269 P. 519), subject, however, to the wife's testamentary disposition of one–half thereof. * * * To restate the foregoing––none of the community property acquired prior to the 1923 amendment was subject to the testamentary disposition of the wife and the title to none of that acquired prior to the 1927 amendment was vested in her. Hence, when, in 1928, she attempted to make a gift of the entire fund to the appellant, she assumed control over property in which she had no vested interest and in which she did not acquire title by operation of law as was the case in Lynch v. Lynch, 207 Cal. 582, 586, 279 P. 653.” In the trial court no question of the wife's right to dispose of community property by gift or will was in issue; but on appeal the question of the effect of the wife's will was raised and the court then held, as above stated, that the part of the money acquired prior to 1923, with the increase thereof represented by the interest paid by the bank, vested in the husband. As to the sum of $500 deposited after 1923 a retrial was ordered.

Whether, by its statement that the portion acquired prior to 1923 with the increase thereof represented by interest paid by the bank vested in the husband, the court intended to include interest accrued after 1923 is not clear. Its citation of Riley v. Gordon, supra, as authority for its holding indicates that it did not, as that case did not involve such a question. If the court did mean that interest earned after 1923 vested in the husband so as to preclude the testamentary disposition of any part thereof by the wife, we do not agree with such conclusion, but are of the opinion that income by way of rentals and interest received by the spouses after 1923, though the proceeds of community property theretofore acquired, constituted “after acquired property” within the language of the Supreme Court in Re Estate of Phillips, supra, one–half of which was subject to the testamentary disposition of the wife.

Appellant cites McKay v. Lauriston, supra, and Trimble v. Trimble, 219 Cal. 340, 26 P.2d 477, to the effect that the amendment of section 1401 of the Civil Code did not give the wife testamentary disposition of community property acquired prior to 1923. But those cases did not involve the question presented here; and the court did hold therein that the rights of the spouses are determined by the law in force at the time of the acquisition of community property, and did not hold that rentals or other forms of income acquired after the effective date of the amendment are not “after acquired” property subject to its terms.

Since it is a matter of common knowledge that the amendments of 1923 and 1927 were enacted for the purpose of making possible a division of the income of husband and wife for income tax purposes, the presumption is that the Legislature intended to make all subsequently acquired income subject to the terms of the amendments, regardless of its source. Income from previously acquired community property is community property, and obviously that received after the effective date of the amendment of section 1401 cannot be said to have been previously “acquired.”

We are cited to no authority holding that to so provide was bevond the power of the Legislature. In re Estate of Phillips, 203 Cal. 106, 113, 263 P. 1017, 1020, the Supreme Court said of section 1401, supra: “As applying to community property acquired after the adoption of said amendment it is, in our opinion, a valid and binding legislative enactment”; and in Cutting v. Bryan, 206 Cal. 254, 274 P. 326, 328, Preston, J., in a concurring opinion, expressed the view that the right of the wife in community property acquired since the effective date of section 1401 in 1923, is “a vested one, as is intimated in the recent case of [In re] Estate of Phillips. * * *”

The amendment of section 1401 affects only the rights of the husband and the wife as between themselves, and not the rights of third persons, since creditors are protected by the provisions of sections 202 and 203 of the Probate Code; and the rights of heirs are only what the law makes them. And as to the sacredness of the so–called vested rights of the husband in community property, it has been well said that when, in the regulation of the state's dominant institution, the family, it becomes necessary to alter vested property rights, the benefit to society may well be considered to outweigh the detriment to particular individuals. Numerous cases can be cited up–holding statutes enacted under the police power for the public welfare which affect and even destroy vested rights. Zoning laws and our own alien land laws are conspicuous examples. And if, as they purport, the recent amendments of the community property laws were enacted for the benefit of wives and for the greater protection of their interests in community property, the social benefits accruing may well be said to outweigh the detriment that may result to individuals. If they are to be construed as effective only insofar as future earnings of the spouses are concerned, they will give but little protection for years to come, and will be of but slight benefit to wives in being at the time such statutes were enacted.

We should not close this opinion without mention of certain decisions of the United States Circuit Court of Appeals cited and relied upon by appellant, particularly Hirsch v. United States, 9 Cir., 62 F.2d 128, and Rogan v. Delaney, 9 Cir., 110 F.2d 336, which hold that income received after the effective dates of the amendments above mentioned, from community property previously acquired, shall be taxed as income of the husband under the federal income tax acts. They do not purport to pass upon the rights of the wife to dispose by will of one–half of such community income. Also, while all proper respect is due those decisions, they are not binding upon the courts of the State as to the construction to be put upon the statutes under consideration, which are matters of local law, but must yield to the final decisions of the California courts except in so far as the construction to be put upon federal statutes is involved. Witness Wardell v. Blum, 9 Cir., 276 F. 226, overruled in effect by Stewart v. Stewart, 199 Cal. 318, 249 P. 197. Without a share of the moneys claimed to be assets of the estate of Frank Waterland, the estate of Amelia Waterland is insufficient to take care of the bequests under her will, and as between her rights in the community property and the claims of the devisees under the will of Frank Waterland equity supports the claims of respondent to one–half of the community income acquired after 1923.

The judgment is affirmed.

PER CURIAM.