Court Opinion

ID: 9681537
Source: CourtListenerOpinion
Date Created: 2023-08-24 07:52:14.225023+00
Date Added: 2024-06-11T15:00:21.544207
License: Public Domain

On Motion for Rehearing.
Appellant has filed a vigorous motion for rehearing in which it briefs one point of error as follows: “The court erred in holding, as the sole ground for its decision, that the properties sought to be reached by appellant are exempt under Ar.ticle 4616 of the Revised Civil Statutes.” It asserts that our original opinion fails to recognize the fact that we are not dealing with “such income” but on the contrary with properties which were indirectly derived from “such income”; citing Strickland v. Wester, 131 Tex. 23, 112 S.W.2d 1047; Walker-Smith Co. v. Coker, Tex.Civ.App., 176 S.W.2d 1002; Articles 4616, 4099, Vernon’s Ann. Civ.St.; 18 Tex.Jur., pp. 29 and 816; Article 16, sec. 28, Texas Const., Vernon’s Ann. St.; 54 Am.Jur., pp. 247 and 468; Gaddy v. First National Bank, 115 Tex. 393, 283 S.W. 472.
The motion directly raises the question of whether or not á 'tracing of the assets of the trust will disclose assets which may be reached by execution, or otherwise,- under a proper construction of Arts. 4616 and 3661, V.A.C.S.
Appellant contends there are such assets, while appellee contends to the contrary.
The trial court at appellant’s request found the facts as follows:
“(1) On November 27, 1926, E. H. Ray, by Bill of Sale, transferred to his unmarried daughter, Roberta Ray, the following securities:
Imperial Japanese -.Government Bonds due. February .1, 1954 $10,000.00
Czechoslovak State Loan of 1922 due Oct. 1, -1952 10,000.00
*655Republic of Haiti Bonds due Oct. 1, 1953 ■ 10,000.00
Saxan Public Works Bonds due Feb. 1, 1945 . -10,000.00.
Republic of Finland External Loan due March 1, 1950 10,000.00
“(2) On the same date,- November 27, 1926, Roberta Ray executed an instrument placing the bonds scheduled in Paragraph 1 in trust with her father as trustee. Upon his death her mother, Mrs. Bell Ray, was named as successor trustee. The trust agreement empowered the trustee ‘to not only keep possession of said bonds as said trustee, but to collect the revenues due on and derived therefrom and to reinvest the same as he thinks best, or to expend the - same for my use and benefit.’
“(3) Roberta Ray married George O. Wilson on December 29, 1927.
“(4) E. H. Ray acted as trustee until his death, which occurred on October .18, 1940.
■ “(5) Mrs. Bell Ray acted as trustee after his death until March 20, 1952, when -the trust was dissolved and the trust estate was delivered to Roberta Ray Wilson.
“(6) George O. Wilson died. September-24, 1951, leaving a will duly probated under which Roberta Ray Wilson was named as sole legatee and independent, executrix. She duly qualified and is acting as such.
“(7) Estate of Geo. O. Wilson is insolvent and creditors were paid proportionately only a very small percentage of their claims. ' -
“(8) Geo. O. Wilson served in the Armed Services of the United States from February 24, 1942 until March 13, 1946 and was stationed in North Africa and Italy about thirty-three months of that time.
“(9) On April 16, 1928 the Czechoslovak Bonds were exchafiged for Republic of Chile Bonds maturing February 1961, in the principal amount of $10,000.00.
“(10) On June 1, 1937 Imperial Japanese Government Bonds of 1954 were exchanged for Imperial Japanese, Government Bonds due 1965 in the principal amount of $12,OOQ.OO.
“(11) The Republic of Finland Bonds due February 1, 1945 were exchanged for Finland Bonds due 1958. These bonds were refunded at 4% bonds and were redeemed for $9,00.0.00 in cash on August 31, Í939.
“(12) At time of death of E. H. Ray on Octobér 18,' 1940 the trust estate cónsist-ed of:
Imperial Japanese Bonds $12,000.00
Republic of Chile Bonds 10,000.00
Republic of Haiti Bonds 10,000.00
Saxan Public Works Bonds Í0,000.00
and the following obligations of E..H. -Ray payable to the trust:
Note dated Jan. 1, 1937 covering 1936 income $ 1,102.22
Note dated Jan. 1, 1938 .cover- . ing 1937 income . 1,614.40
Note dated Jan. -1, 1939 cover- . - ing 1938 income 1,561.73
Note dated Jan. 1, 1940 cover-* - . ing. 1939 income 1,765.57
Account receivable covering in- • ' .come-from Jan. 1, 1940-to Oct. 18, 1940 . 1,084.05
Total income obligations . .$ 7,127.97
Note dated Jan. 1, 1939 cover-., ing sale of Republic of Finland- ; Bonds . . . 9,000.00
Total obligations of E. H. Ray $16,127.97
“(13) On January 21, 19⅜2 '' the Estate of E. H. Ray paid to the trust decedent’s obligation in the sum of ' $16,127.97
“(14) On September 7, 1951 George 'O. Wilson borrowed the sum of $3,350 from plaintiff, Mercantile National Bank at Dallas, executing his note in that amount to evidence same. Defendant Roberta Ray Wilson was not a party to the note either. *656as maker, endorser or otherwise. This note bears the following credits:
Deposit in bank offset September • 24, 1951 14.79
Amount by Executrix of Estate' of Geo. O. Wilson on December 10, 1952 ‘ . 71.00
leaving a balance due on principal of ' $3,264.21
“(15) The note of the plaintiff provided for ten per cent interest after maturity and for 10% attorneys’ fees, and the amount due as of May 20, 1954, the date of trial was:
Principal , $3,264.21
Interest 1,180.52
Attorneys’ fees • 444.47
$4,889.20
“(16) On September 24, 1951 the dáte of the death of George O. Wilson, the trust estate consisted of the following assets:
Imperial Japanese Bonds due 5-1-65 face value $12,000.00
Saxan Public Works Bonds due ■ ■ 2 — 1—45 face value ■ 10,000.00
Republic of Chile Bonds due 12-31-93 face value 10,000.00
United -States Savings Bonds ' face value 11,000.00
50 sh. F. W. Woolworth' Co. at cost $2,414.12
38 sh. Montgomery Ward at cost 2,496.03
16 sh. Am. Tel. & Tel. at cost 2,548.96
38 sh. Texas , Company at cost 2,470.60
50 sh. Houston P & L at cost . 975.00
10,904.71'
Cash 163.92
Total $54,068.63
“(17) As of March 20, 1952, the date of dissolution of the trust estate, its assets cónsisted’of the following:
Imperial Japanese Bonds — face value $12,000.00
Saxan Public Works Bonds — ‘ face value 10,000.00
Republic of' Chile Bonds — face value ’ • 10,000.00
Stocks as listed in-paragraph 16' ’ above 10,904.71
Cash ' 329.22
Total' $43,233.93
“(18) On January 21, 1942/ the cash on deposit in the-credit of the trust was ■ $ 770.69
On that date, check of Estate of , - E. H. Ray was deposited to, the credit of the trust in amount of $16,127.97
Total cash oil deposit $16,898.66
On the same date the following securities lyere,purchased by the trust: . ,
U. S. Savings Bonds, Series G. $11,000
50 sh. Dallas Fed. Sav. ' & Loan 5,000 $16,000.00
Remaining cash Bal. as of' Jan. 21, 1942 $’ 898.66
“(19) Cash on Deposit Jan. 22, 1942 was $ 898.66
Net income deposited to September 21, 1942 was 464.38
Gash , balance September 29, 1942 was $ 1,363.04
On that date the trustee purchased
25 sh. Houston Power & Light Co. .... 975.00
“(20) The 25 shares of Houston Power & Light’ Company were subsequently' in*657creased to SO shares by a stock dividend of 25 shares.
“(21) On April 5, 1943 cash on deposit to the credit of the trust was $1,602.62
On April 5, 1943 there was distributed to Roberta Ray Wilson $ 400.00
On' April 5, 1943 the trust purchased U. S. Treasury note of 1,000.00 1,400.00
Cash balance on April' 5, 1943 ' was ' $ 202.62
“(22) On Aug. 10, 1943 trust cash balance was $ 267.27
On Aug. 10, 1943 -the trustee redeemed 50 sh. of Dallas Federal Savings and Loan Ass’n for 5,000.00
Cash balance after deposit $5,267:27
On Aug. 10, 1943 trustee delivered to Roberta Ray Wilson 5,250,00
Leaving cash balance as of Aug. 10, 1955 (1943) $ 17.27
“(23) The cash distribution of $5,250.00 to Roberta Ray Wilson was used by her to liquidate a mortgage lien upon her homestead.
“(24) On May 6, 1948 the ■ trust bank balance was $ 3.13
On May 6, 1948 the Haiti Bonds were redeemed for 9,997.50
On June 14,- 1948 dividend of Houston Power & Light Co. was deposited 25.00
Bank balance on June 14, 1948 was $10,025.63
On June 14, 1948 the trustee purchased the. following securities:
F. W. Woolworth Co. 50 sh. $2,414.12
Montgomery Ward 38 sh. 2,496.03
Am. Tel & Tel Co. 16 sh. 2,548.96
The Texas Company 38 sh. 2,570.60
$9,929.71
, Trust bank balance after purchase was $ 95.92
“(25) On Aug. 22, 1951 the bank account of Roberta Ray Wilson showed an overdraft of $ (6.59)
On that date the trustee delivered to her the $1,000 U. S. Treasury note purchased on April 5, 1943, which was cashed by her and deposited to her personal account 1,050.00
On September 17, 1951 she deposited ' 15.00
$1,058.41
Between Aug. 23, 1951 and Sept. 24, 1951 Mrs. Wilson issued various checks amounting to 516.47
The balance in Mrs. Wilson’s personal account as of Sept. 24, 1951 the date of the death of George O. Wilson, was $ 541.94
“(26) The checking account of Roberta Ray Wilson was subject only to her signature.
“(27) On Jan. 7, 1952 the trustee converted the $11,000 U. S. Bonds, Series G, to cash and delivered to Roberta Ray Wilson the proceeds on Jan. 22, 1952 amounting to $10,769.00
“(28) On April 24, 1943 George O. Wilson conveyed their homestead to Roberta Ray Wilson by Warranty Deed recorded in Vol. 240/', Page 405, of the Deed Records of Dallas County, Texas, reciting consideration paid out of hér separate funds and estate arid the property was conveyed to her as her separate property and estate.
“(29) At the time of the payment by Roberta Ray Wilson of the mortgage lien on her homestead (Aug. 10, 1943), George ' O. Wilson was in the Armed Services of the United States and was stationed either in North Africa dr Italy; he was not consulted about the payment, did not make a gift to her of any amount paid on the loan; *658but was subsequently advised of her action, and approved the payment.
“(30) Income tax returns for the years 1943, 1944, 1945, 1946, and 1947 showed distributed income from the trust estate, of which one-half was included in the return of Mrs. Roberta Ray Wilson.
“(31) On March 19, 1941 Mrs. Bell Ray, substitute trustee, opened a bank account in her- name as trustee. All trust income, and proceeds of trust capital sales were deposited in this account; and all purchases of securities, all expenses incurred and all distributions to the beneficiary, Roberta Ray Wilson, were paid out of the same account by the substitute trustee.
“(32) The plaintiff, Mercantile National Bank at Dallas, in its Trust Department, used the identical procedure in handling its trust accounts as was used by the substitute trustee.
“(33) On Feb. 10, 1949 the Republic of Chile Bonds of 1961 in the principal, amount of $10,000 were exchanged for Republic of Chile Bonds 2%-3% due in 1993 with a value of $2,737.50, resulting in a capital loss of $6,562.50.”
Under the trust instrument the trustee, and substitute trustee were each bound to invest the revenue or deliver the same to Mrs. Wilson, or to expend the same for her use and benefit. Properly considered, the trustees under such instrument were bound to first, pay out or expend the income from the trust before paying out or expending the corpus of the trust, and in our opinion there is,a presumption that the trustee and substitute trustee did, as was his duty, first pay out or expend such income before paying out or expending the corpus of the trust. The beneficiary had no control over the trust funds and should not be prejudiced by the trustee or substitute trustee placing • the income in the same account as that in which he kept the corpus of the estate. Based on the above conclusion, and the trial court’s findings that at the time of the death of George O. Wilson, (a) the original Japanese Bonds had been exchanged for other bonds which were on hand at the time of George O. Wilson’s death; (b) that the Czechoslovak Loan was exchanged for Republic of Chile Bonds which were on hand at the time of George Q. Wilson’s death ;,, (c) that the original Saxan Bonds (at this time worthless) were on hand at the time of George O. Wilson’s death; (d) that the Haiti Bonds were redeemed for $9,997.50 and that on May 6, 1948 $9,929.71 of such proceeds was invested in Woolworth, Montgomery-Ward, American Tel. & Tel. Co. and Texas Co. Stocks, leaving a balance of $67.79 on hand from such proceeds, which was deposited in the estate bank account; (e) that the Republic of Finland Bonds were redeemed for $9,000 (a loss of $1,000 on the cost thereof) ; and the $9,000 together with certain of the income from the trust' was borrowed by E. H. Ray, trustee, and was later on January 21, 1942 fully repaid by him and then invested in the stocks listed in finding No. 24 abdve quoted.
On the death of George O. Wilson the trust had on hand in addition to the items set out above $11,000 in U. S. Savings Bonds, fifty shares of Flouston P. & L. Stock, and $163.92 in cash. These items are accounted for as follows: On January 21, 1942 the estate of E. ,H. Ray paid the trust $16,000 to cover (a) $9,000 which he had borrowed from the trust and which the estate had acquired from the sale of the Republic of Finland Bonds and $7,127:97 he owed the estate. The $11,000.in Savings Bonds on hand were purchased (Finding 18) the same day the estate of E. H. Ray paid the $16,000. Such sum is accounted for as follows: Savings Bonds $11,000 and fifty shares of Dallas Federal Savings & Loan Association $5,000. The excess over $16,000 was paid out of the moneys on hand at the time.
Under the above record we will again consider points 6 to 9. They assert insufficiency of the evidence ,to support findings 9, 10, 11, and 32 above quoted.
Appellant correctly asserts there is no direct evidence to sustain these findings. However they are sustained by circumstantial evidence in the form of nota*659tions on original instruments which, when taken with the original inventories and the nature of the assets on hand on the death of George O. Wilson and when considered together, make questions of fact for the trier of the facts and sustain the findings of fact here questioned. Too, the admission in evidence that appellant uses the same procedure as used here in handling its trust accounts, in our opinion was not reversible error. Under the record the evidence was admissible as a part of the circumstances showing, by secondary evidence, facts which could not be shown by better or by a higher degree of evidence. The applicable rule was stated by former Justice Looney, now deceased, of this Court, in Cocke v. Hum-phreys & Day, Tex.Civ.App., 293 S.W. 892, at 'page 893 as follows: “Before evidence can be excluded on the ground that it is secondary, it must appear, either from the nature of' the fact to be proven or by evidence introduced by the objecting party, that there is in existence higher evidence and of what it consists. (Citing authorities.)”
We therefore overrule appellant’s assignments in its motion for rehearing based on our original disposition of points 6 to 9 inclusive.
We next consider appellant’s attack on ■our action on points 1 to 5 inclusive, summarized in our original opinion. By these points it is contended that the evidence is undisputed- that at the time of George O. Wilson’s death some of the assets in the hands of the trustee were community'property and liable for his debts, created during his lifetime, on the theory that they cannot be traced with sufficient certainty as being exempt property under Art. 4616, V.A.C.S.
During the existence of the trust Mrs. Wilson owned an equitable interest only, over which she had no control, and under the terms of the instrument the power was irrevocable by Mrs. Wilson during the lifetime of her father and mother who were trustee and substitute trustee of the trust. In our opinion the instrument created a spendthrift trust. Such a trust is defined in Black’s Law Dictionary, 3rd ed., as follows : “A term commonly applied to those trusts which are created with a view of providing a fund for the maintenance of another, and at the same time securing it against his improvidence or incapacity for his protection. Provisions against alienation of the trust fund by the voluntary act of the beneficiary or by his creditors are the usual incidents. * * *”
The record further shows that the trust was not dissolved until March 20, 1952 after the death of George O. Wilson, and after the death of both the trustee and substitute trustee; and the balance of the assets of the trust on hand were thereafter delivered to Mrs. Wilson on March 20, 1952.
We will consider separately the moneys paid by the trustee to Mrs. Wilson, the beneficiary, during the time such trust was in full force and effect, and used by Mrs. Wilson to pay off the mortgage on her homestead. The income from the corpus of the trust was community property, and while held by the trustee and the beneficiary, being income from Mrs. Wilson’s separate property, was exempt under Art. 4616, V.A.C.S.; and when used to pay off the mortgage- on her homestead — in other words, as a part payment of part of the purchase price of the homestead — it was in effect an exchange of exempt property for other exempt property by Mrs. Wilson;. and under such circumstances was also exempt from community debts created by the husband. Schneider & Bros. v. Gray, 59 Tex. 668; 18 Tex.Jur. 816, Exemptions, sec. 14.
Such exchange did not affect the exemption, and the Bank has no lien on Mrs. Wilson’s homestead as a result thereof.
Considering next the other matters raised in points 1 to 5 inclusive, the trustee and substitute trustee, as said above, were bound to reinvest the income from the trust corpus or deliver same to Mrs. Wilson, or to expend the same for her use and benefit. It follows that they were therefore required to pay out income first, and even if such income was commingled with corpus funds. *660it will be presumed that the first moneys paid out, until all income was exhausted, was in fact income; and Mrs. Wilson as beneficiary could not be prejudiced by the trustee or substitute trustee having' deposited both the corpus and- the income in the same bank account, since both items, corpus and income, could be definitely ascertained as to amounts and disbursement by the trustee and substitute trustee in such manner as that each item of corpus or income could be properly ascertained and disbursed to those entitled to it.
The trial court’s findings that at the time of’the death of George O. Wilson, (a) the Japanese Bonds had been exchanged for other bonds which were still in the hands of substitute trustee, supported by evidence, settled the question that such bonds were a part of the corpus of the estate and not income; (b) that the Czechoslovak Loan was exchanged for Republic.of Chile Bonds which were on hand by the substitute trustee, were part of the estate corpus; (c) that the original Saxan Bonds were on hand and were estate corpus; (d) that the Haiti Bonds were redeemed for $9,997.50 and later $9,929.71 thereof together with $7,127.97 paid by Ray to the estate, to the extent of $16,000 was invested in Woolworth, Montgomery-Ward, American Tel. & Tel. and Texas Company stocks, leaving a balance of $67.69 which constituted capital gain remaining in the estate bank account, being supported by evidence, were binding on this Court; (e) Finding 11, that the Republic of Finland Bonds were redeemed for $9,000 and together with certain estate income amounting to $7,127.97 was taken from the trust by E. H. Ray and his note for $16,127.97 was deposited in its stead, and that the note was repaid by E. H. Ray to the trust on January 21, 1942 (Finding 13), and at that time $9,929.71 thereof was invested in stocks listed in Finding No. 24 above quoted, being- supported by evidence, is also binding on this Court.
The $11,000 par Savings Bonds on hand when George O. Wilson died were purchased (Finding 18) the same day E. H. Ray paid the estate $16,127.97, on January 21, 1942, as follows: Savings Bonds $11,-000, and fifty shares of Dallas Building & Loan Association stock $5,000, and the excess over $16,000 was paid by Ray out of moneys on hand at the time.
Under such facts $9,997.50 of such investment was corpus and $6,002.50 was income; and such stocks must be charged with that amount in favor of the community estate of George O. Wilson, deceased, and Mrs. Wilson as of the time of George O. Wilson’s death. The findings further show a balance of $541.94 in Mrs. Wilson’s bank account at the time of George O. Wilson’s death. Under the record this sum was the balance from the sale of one Treasury note cashed by Mrs. Wilson and deposited in her account. The $541.94 was therefore ¿ distribution to her of a part of the proceeds from such corpus and therefore not income on hand at George O. Wilson’s death.
Our above holdings necessitate the sustaining of points 1 to 5, inclusive, in part, and modifying the judgment below so as to hold that $6,002.50 of the moneys from the Savings Bonds was community property.
However, such Savings Bonds were not liable for the debts of George O. Wiléon, deceased, under Art. 4616, V.A.C.S., unless or until converted into other assets not exempt under Art. 4616, V.A.C.S. Under, the record here we cannot say that such bonds have been so converted as to lose the Art. 4616 exemption. We therefore overrule appellant’s assignments asserting error in our overruling points 1 to 5 inclusive.
Point 10, if material to the disposition of this appeal, would necessitate our examining the record to ascertain if Finding 7 is supported by any evidence. However, under our holding on the other points, point 10 has become immaterial to the disposition of the case. In other words, if sustained would not affect the result reached by us. Assignments attacking our disposition of Point 10 are therefore overruled.
Finding no error in our former judgment of affirmance, appellant’s motion for rehearing is overruled.