[WSBAPT] Separate debt - community property question

Wed Jan 29 14:37:46 PST 2020

Yes, you are definitely right to be concerned.

>From WSBA Community Property Deskbook Ch. 6.2:

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<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=170+Wash.+250&fn=Washington%20Community%20Property%20Deskbook>, 16 P.2d 452<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=16+P.2d+452&fn=Washington%20Community%20Property%20Deskbook> (1932); Gould v. Culver, 148 Wash. 689<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=148+Wash.+689&fn=Washington%20Community%20Property%20Deskbook>, 270 P. 93<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=270+P.+93&fn=Washington%20Community%20Property%20Deskbook> (1928). The obligation must not be a gift. It must be created with the expectation to produce a "community benefit." Beyers v. Moore, 45 Wn.2d 68<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=45+Wn.2d+68&fn=Washington%20Community%20Property%20Deskbook>, 272 P.2d 626<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=272+P.2d+626&fn=Washington%20Community%20Property%20Deskbook> (1954); Sun Life Assurance Co. v. Outler, 172 Wash. 540<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=172+Wash.+540&fn=Washington%20Community%20Property%20Deskbook>, 20 P.2d 1110<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=20+P.2d+1110&fn=Washington%20Community%20Property%20Deskbook> (1933). The community obligation exists even if the anticipated benefit is not realized. Beyers, 45 Wn.2d 68<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=45+Wn.2d+68&fn=Washington%20Community%20Property%20Deskbook>; Way v. Lyric Theater Co., 79 Wash. 275<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=79+Wash.+275&fn=Washington%20Community%20Property%20Deskbook>, 140 P. 320<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=140+P.+320&fn=Washington%20Community%20Property%20Deskbook> (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.

BUT from Ch. 6.2(2)(c):

In the absence of a community benefit, guarantees, accommodation endorsements, and suretyship contracts are ineffective to create community liability. Potlatch Fed. Credit Union v. Kennedy, 76 Wn.2d 806<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=76+Wn.2d+806&fn=Washington%20Community%20Property%20Deskbook>, 459 P.2d 32<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=459+P.2d+32&fn=Washington%20Community%20Property%20Deskbook> (1969). Even a holder in due course may not recover against community property. Peterson v. Zimmerman, 142 Wash. 385<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=142+Wash.+385&fn=Washington%20Community%20Property%20Deskbook>, 253 P. 642<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=253+P.+642&fn=Washington%20Community%20Property%20Deskbook> (1927); Gund v. Parke, 15 Wash. 393<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=15+Wash.+393&fn=Washington%20Community%20Property%20Deskbook>, 46 P. 408<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=46+P.+408&fn=Washington%20Community%20Property%20Deskbook> (1896). Absent community benefit, an accommodation endorsement by one spouse constitutes an attempt to give community credit-an act ineffective without the consent of both spouses. RCW 26.16.030<http://links.casemakerlegal.com/states/WA/books/Revised_Code/browse?ci=14&codesec=26.16.030&title=26&fn=Washington%20Community%20Property%20Deskbook>(2); Nichols Hills Bank v. McCool, 104 Wn.2d 78<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=104+Wn.2d+78&fn=Washington%20Community%20Property%20Deskbook>, 701 P.2d 1114<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=701+P.2d+1114&fn=Washington%20Community%20Property%20Deskbook> (1985). In Nichols Hills Bank, the court also refused to allow the beneficiary of a unilateral spousal guarantee to reach the obligated spouse's half interest in the couple's community property.

I think, representing the contractor, I would advise the client to require that both spouses sign the personal guarantee jointly and severally. That would potentially subject all community and both spouse's separate property. Or, at the very least have the husband sign as separately liable and the wife sign to confirm community liability (but not her separate liability). You would want the community liable as a whole, not just 50%, I would think. It gets very messy trying to figure out what "50% community liability" even means in reference to a specific asset to be attached/garnished/foreclosed.

As a matter of security for the contractor, it makes no sense to give the community any defense based on the separate/community distinction.

Sincerely,

Eric

Eric C. Nelsen
Sayre Law Offices, PLLC
1417 31st Ave South
Seattle WA 98144-3909
206-625-0092
eric at sayrelawoffices.com

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Ron Housh
Sent: Wednesday, January 29, 2020 12:40 PM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Separate debt - community property question

LLC owns real estate and has contracted to build a home.

Contractor wants husband to sign a personal guaranty guarantying payment owed to contractor.

Husband wants to sign "John Doe - In His Individual Capacity on behalf of his Separate Property"

I represent contractor.  I had asked that he sign "John Doe - In His Individual Capacity on behalf of his Separate Property and his 50% interest in community property."

My concern is that Husband John Doe may not have any liquid separate property.

Am I correct in being concerned that if Husband signs "John Doe - In His Individual Capacity on behalf of his Separate Property" and the LLC defaults on payments and John Doe has no liquid separate property, Contractor may not be able to recover against John Doe - Husband's interest in community property??

Bar exam type question???

Thanks,

Ron

I AM TYPICALLY IN THE SEATTLE OFFICE ON TUESDAY AND THURSDAY AND IN THE MOUNT VERNON OFFICE ON MONDAY, WEDNESDAY AND FRIDAY

Ronald G. Housh, P.S.
Attorney at Law

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Phone:   206-381-1341
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Email:    ron at housh.org<mailto:ron at housh.org>

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