§ 6.02 CONTRACTUAL LIABILITY AND OTHER NONTORT OBLIGATIONS

• Jurisdiction: Washington

§ 6.02 CONTRACTUAL LIABILITY AND OTHER NONTORT OBLIGATIONS

This section concerns the treatment of contractual liability and other nontort obligations in the community property context.

[1] In General

Most nontort obligations incurred during marriage are incurred voluntarily, but this is not always true. Medical expenses and residential placements, for example, may frequently be involuntary. In Dean v. Lehman, 143 Wn.2d 12, 18 P.3d 523 (2001), the court held that the costs of incarcerating a prison inmate create community liability. Id. at 30-31. The same would be true of tax liabilities, which are rarely voluntary. Reid v. United States, 2001-1 U.S. Tax Cas. (CCH) ¶ 50,250, 87 A.F.T.R.2d (RIA) 1042 (W.D. Wash. 2001). In general, the family expense statute, RCW 26.16.205, imposes community liability and separate liability on both spouses for "expenses of the family and the education of the children, including stepchildren."

The act of a spouse managing community property is presumed to be for community benefit, and so one spouse's knowledge may commence the running of the statute of limitations on a community claim. In Huling v. Vaux, 18 Wn. App. 222, 566 P.2d 1271 (1977), the court held that the statute began to run at the time at which the wife became aware of the true boundaries of community real property purchased in her name alone. The husband could not accept the benefit of his wife's purchase while repudiating her knowledge of the transaction. Similarly, one spouse acting alone may toll the statute of limitations on a claim against the community if the act is done for a community benefit. Again, the community benefit is presumed. Catlin v. Mills, 140 Wash. 1, 247 P. 1013 (1926). But that presumption can be rebutted. Gannon v. Robinson, 59 Wn.2d 906, 371 P.2d 274 (1962).

Whether running or tolling applies to all of the property of the nonacting spouse seems unclear. The courts have held under the family expense statute, RCW 26.16.205, which imposes a three-way liability upon the community and the separate property of each spouse, that an action by one of the spouses that would toll the statute does not continue separate liability of the nonacting spouse. See Haddad v. Chapin, 153 Wash. 163, 279 P. 583 (1929). Whether the statute is tolled depends on the particular facts. See Burnham v. Burnham, 18 Wn. App. 1, 567 P.2d 242 (1977) (award to the wife, in a dissolution decree, of real property encumbered by a mortgage did not constitute a new promise to pay).

It should be noted that RCW 26.16.200, requiring an antenuptial separate debt of a husband or wife to be reduced to judgment within three years of the marriage to be enforceable against that person's earnings, is not a statute of limitations. Accordingly, it is not affected by the tolling statute, RCW 4.16.270. See discussion in § 6.04, below.

Early on, when the husband alone was given primary authority to manage community personal property, the court created a presumption that debts incurred by the husband as manager were community obligations. Oregon Improvement Co. v. Sagmeister, 4 Wash. 710, 30 P. 1058 (1892). Conversely, the unilateral act of the wife created a separate obligation. Jones-Rosquist-Killen Co. v. Nelson, 98 Wash. 539, 167 P. 1130 (1917); Balkema v. Grolimund, 92 Wash. 326, 159 P. 127 (1916); U.S. Fid. & Guar. Co. v. Lee, 58 Wash. 16, 107 P. 870 (1910); Freeburger v. Gazzam, 5 Wash. 772, 32 P. 732 (1893).

The wife had, and continues to have, the power to create separate obligations and to manage her separate property. RCW 26.16.020; Streck v. Taylor, 173 Wash. 367, 23 P.2d 415 (1933); Knickerbocker Co. v. Hawkins, 102 Wash. 582, 178 P. 628 (1918). In addition, the wife could create community obligations in the furtherance of a business in which the wife participated with the consent or acquiescence of her husband. Community liability for the wife's transactions was also imposed when authority was found or estoppel invoked. See, e.g., Colagrossi v. Hendrickson, 50 Wn.2d 266, 310 P.2d 1072 (1957); Lucci v. Lucci, 2 Wn.2d 624, 99 P.2d 393 (1940). The wife's verification of assets for a creditor did not, without more, create separate liability as to her. Yakima Plumbing Supply Co. v. Johnson, 149 Wash. 257, 270 P. 829 (1928). In U.S. Lumber Co. v. McDonald, 68 Wn.2d 741, 415 P.2d 77 (1966), the liability of a marital community for debts of a community business did not make the wife a "partner" to subject her separate property to liability.

Now that management by the husband has been replaced by the equal management regime, RCW 26.16.030, the presumptions created when the husband managed community personalty should be applied equally to debts incurred by either spouse. Sunkidd Venture v. Snyder-Entel, 87 Wn. App. 211, 215, 914 P.2d 16 (1997), review denied, 134 Wn.2d 1007 (1998); Oil Heat Co. of Port Angeles, 26 Wn. App. at 353-54; In re Marusic, 139 B.R. 727, 731-32 (Bankr, W.D. Wash.1992) (presumption of community liability applied to wife's credit-card debt).

Resolution of the question of whether a debt incurred for the purchase of personal property is a community debt or separate debt is generally not dependent upon whether the nonacting spouse approved of the obligation. When it is affirmatively shown that personal property is acquired for a community purpose, then community liability follows despite evidence of protest by the other spouse prior to the purchase, even if the disagreement is expressed to the other contracting party. Bellingham Motors Corp. v. Lindberg, 126 Wash. 684, 219 P. 19 (1923). When dealing with community personal property, the managing spouse can expose the community property, both real and personal, to a judgment lien that will be enforced even though the other spouse expressly opposed the transaction giving rise to the judgment against the community. Floding v. Denholm, 40 Wash. 463, 82 P. 738 (1905).

The power to create a community obligation also does not require knowledge on the part of the other spouse. Capital Nat'l Bank v. Johns, 170 Wash. 250, 16 P.2d 452 (1932) ; Gould v. Culver, 148 Wash. 689, 270 P. 93 (1928). The obligation must not be a gift. It must be created with the expectation to produce a "community benefit." Brubaker v. Hovde, 45 Wn. App. 44, 723 P.2d 1193 (1986); Beyers v. Moore, 45 Wn.2d 68, 272 P.2d 626 (1954); Sun Life Assurance Co. v. Outler, 172 Wash. 540, 20 P.2d 1110 (1933) . The community obligation exists even if the anticipated benefit is not realized. Beyers, 45 Wn.2d 68; Way v. Lyric Theater Co., 79 Wash. 275, 140 P. 320 (1914). Although the presumption of community obligation is rebuttable, it is becoming increasingly difficult to rebut it, as discussions of particular types of obligations will indicate.

There is little law as to whether the presumption of community liability continues when a couple has separated. Under RCW 26.16.140, an argument can be made that the presumption should vanish because earnings and accumulations once a couple is living "separate and apart" are separate. Conversely, however, until community property has actually been divided at dissolution, there is likely to be community property to be managed and/or benefited as a consequence of obligations undertaken during separation. This is illustrated by Dizard & Getty v. Damson, 63 Wn.2d 526, 528-31, 387 P.2d 964 (1964), which seems to be the only Washington Supreme Court decision squarely to address the issue. The court held that the presumption of community liability continued during separation and, further, that the marital community failed to rebut the presumption in that case. But the court's holding is complicated by the fact that the obligations incurred involved the management of a community business and the wife had expressly authorized her husband to manage the business during separation. See also Oil Heat Co. of Port Angeles, 26 Wn. App. at 354 ("When no community exists to incur liability because the parties are living separate and apart, the presumption may be overcome as community liability ordinarily will not attach to a marriage that is clearly defunct.").

Comment: Professor Harry M. Cross argued that "[a]fter a permanent separation, no community relationship exists between the spouses to support a presumption of the community character of a debt unrelated to the community property at hand." Harry M. Cross, The Community Property Law in Washington (Revised 1985), 61 WASH. L. REV. 13, 124 (1986). We concur, but note that it will still be necessary to allocate the burden of proving that an obligation was or was not related to community property at hand. In In re Marriage of Lukoskie, No. 49544-5-I, 2002 Wash. App. LEXIS 2582, 114 Wn. App. 1015 (Wash. Ct. App. Oct. 28, 2002) (unpublished), the court affirmed the trial court's conclusion that unsecured credit-card debt incurred by the husband during separation was only his separate obligation. The husband argued that the majority of the $177,000 was borrowed in support of the community and the couple's community property tofu business, but the court seems to have imposed on him the burden of proving that this was true and to have concluded that he failed to meet that burden.

[2] Particular Kinds of Obligations

Community property issues may arise in connection with a variety of nontort obligations, including loans and promissory notes, renewals and extensions, suretyship and guarantees, negotiable instruments, and others, discussed in the following sections.

[a] Loans and Promissory Notes

Promissory notes represent the obvious method of management of community credit, and notes executed by one spouse alone are presumptively community obligations. Bierer v. Blurock, 9 Wash. 63, 36 P. 975 (1894). This presumption is not lightly overcome, but requires clear and convincing evidence. Morrison v. Dungan, 182 Wash. 503, 47 P.2d 988 (1935). The wife's "forbidding" the husband to execute a note does not limit...