Court Opinion

ID: 9674862
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:36:37.91098+00
Date Added: 2024-06-11T18:16:29.964564
License: Public Domain

BASS, Justice,
dissenting.
The proposed disposition of this appeal disturbs me because I feel the law should facilitate commercial transactions and the administration of estates, rather than create obstacles which frustrate reasonable business expectations. The administrator’s duty is to marshall the assets of the estate and use them to pay off debts of the estate, not to evade payment of these debts through a procedurally rigid interpretation of the Probate Code.
The majority opinion disposes of the appeal by construing sec. 306(b) first, to provide that a secured claim has not been “presented” unless and until the sec. 306(a) election is explicitly made; and second, to require that presentment of a secured claim must be made within six months or the creditor’s right of election is waived. I disagree with both holdings.
1. When is a Claim “Presented”?
The majority holds that if the probate court finds that a secured claimant failed to make a sec. 306(a) election, this finding nullifies the creditor’s attempt to present a claim. That is, the majority takes the position that a claim is not “presented” until the election is made to the probate court’s satisfaction. The probate court will rarely determine, within six months of the granting of letters, whether the election was properly made. Therefore the majority’s decision means that a creditor cannot exercise his right to a judicial determination without risking his right to a sec. 306(a)(1) matured secured claim against the estate. If the court finds that he made no election, his presentment is deemed void and he has run out of time to present his claim and make an election to the satisfaction of the court (assuming the “time provided by law” of sec. 306(b) means six months from issuance of letters).
I believe a claim should be deemed presented for purposes of sec. 306(b) at the time it is filed with the estate. Sec. 306(a) clearly says that when a secured claim is presented the claimant shall make his. election. However, under the guidelines of Chisholm v. Bewley Mills, 155 Tex. 400, 287 S.W.2d 943 (1956), the requirement that the claimant “shall specify” should be viewed as directory, not mandatory, and therefore a failure to specify should render the claim defective, but not void. In Chisholm, the petitioner asked that a claim be treated as invalid because of the claimant’s failure to comply with art. 3523 (now Probate Code sec. 313), which said the claim “shall be filed” within 30 days of judgment. The court pointed out that while the word “shall” is often mandatory, “it may be and frequently is held to be merely directory.” Id. 287 S.W.2d at 945. As a guide to interpretation, the court stated:
Provisions which are not the essence of the thing to be done, but which are included for the purpose of promoting the the proper, orderly and prompt conduct *587of business, are not generally regarded as mandatory.
The requirement of 306(a) that claimant specify how its claim be treated is just such an administrative ease type provision. The “essence of the thing to be done” under part 4 of ch. 8 of the Probate Code is to administer the estate in an orderly manner to pay off debts of the decedent. The sec. 306(a) election is a provision which promotes the orderly conduct of the business of administration.
The court goes on to say,
If the statute directs, authorizes or commands an act to be done within a certain time, the absence of words restraining the doing thereof afterwards or stating the consequences of failure to act within the time specified, may be considered as a circumstance tending to support a directory construction.
Chisholm, 287 S.W.2d 943, 945. The Code does not prohibit making an election after the claim is presented, nor does it specify the consequences of failing to make a 306(a) election.
Therefore, even though the failure to elect makes the claim defective, the claim should be deemed presented at the time it is filed. The claimant could be allowed to care the defect and have the amendment relate back to the original filing of the claim. This would comply with the statutory construction guidelines of Chisholm, and would reconcile probate procedure with the liberal amendment policy of general civil procedure. See, Tex.R.Civ.Pro. 2 and 63.
2. What is “the time provided by law”?
The majority holds that the “time provided by law” of sec. 306(b) was intended to be the six months for filing claims for money set out in sec. 298(a). In my opinion, the phrase should be construed as a reference to the statute of limitations for the claim.
The majority’s holding causes the claims of unsecured creditors to receive better treatment than the claims of secured creditors. To see how this happens, it is helpful to consider that a secured claim is usually undersecured and is therefore, in reality, two claims: a property interest in the collateral whose value is equal to the proceeds from the sale of the collateral, and an unsecured claim for money against the debtor whose value equals the original debt minus the proceeds of the collateral. Thus, a secured claim has priority as a class 3 claim under sec. 322 up to the amount realized from the sale of the collateral. The remainder of the debt is a class 4 unsecured claim. Gibraltar Mortg. & Loan Corp. v. Lerman, 346 S.W.2d 487 (Tex.Civ.App.—Waco 1961).
The six-month time period does not destroy class 4 claims filed after the six months, but merely relegates them to a lower class 5 priority, sec. 298(a). However, the construction of sec. 306(b) adopted by the majority would automatically destroy the class 4 portion of a secured claim filed more than six months after letters are granted. There is no rational public policy reason to treat the claims of secured creditors more harshly than those of unsecured creditors, and indeed, sec. 306 was enacted to benefit secured creditors. Therefore, it is unlikely the legislature intended the result that the majority’s construction of the law mandates.
The Code itself does not support the interpretation adopted by the majority. Sec. 298(a) provides that class 4 claims must be presented within six months or they are relegated to class 5 status. It then says, “provided, however, that the failure of a holder of a secured claim to present his claim within said six months shall not cause his claim to be postponed,” thus removing secured claims from the six-month rule for unsecured claims, “but it shall be treated as a claim to be paid in accordance with subsequent provisions of the Code.” I agree with the majority that this naturally leads us to sec. 306(b), which provides that a secured claim will be treated as a nonrec-ourse claim against specific property, “if [it] is not presented within the time provided by law.” However, I feel no compulsion to leap to the conclusion that “the time provided by law” refers to the six months *588allowed by sec. 298 to obtain class 4 status for unsecured claims. There are two reasons this leap is unwarranted. First, sec. 298 specifically excepts secured claims from the six months, so there is no reason to think the legislators intended to undo the exception they labored to create. Second, if sec. 306(b) intended to refer to the six months of sec. 298, the drafting convention would be to refer to the Code itself, e.g., by saying “within the time provided for filing claims under the provisions of this Code,” or to refer to the Code section specifically.
If the law referred to in sec. 306(b) is deemed to be the general law limiting when claims may be collected, the results would be that probate practice would reflect commercial realities and expectations rather than defeat them, and sections 298 and 306 of the Code would be better harmonized.
If sec. 306(b) is read to refer to the statute of limitations, a secured creditor’s claim would be treated in probate just as it would be if the debtor were still alive. That is, the creditor could elect to go against the debtor personally (or the debt- or’s estate), or to strictly foreclose on the collateral in satisfaction of his claim (the sec. 306(a) election), and only when the cause of action on the claim is barred by the statute of limitations would the creditor be restricted to proceeding against the collateral only. This would avoid the anomalous result of the unsecured portion of a secured creditor’s claim being destroyed if the claim is not presented within six months, while an unsecured creditor only suffers postponement, not annihilation, of his valid claim.
Construing the “law” of sec. 306(b) to be the law limiting when actions on claims may be instigated also results in a closer parallel between sec. 298 governing unsecured claims, and sec. 306 on secured claims.
Section 298(c) provides that a claim against the estate “on which a suit is barred by a general statute of limitation” may not be allowed or approved. That is, the right to collect a debt (though not the debt itself) is destroyed by operation of law. Section 306(b) provides, in an analogous manner, that if a secured claim is not presented (presentment tolls the statute of limitations, sec. 299) within the time provided by law, only the security interest in the collateral survives. The unsecured portion of the secured claim against the estate is effectively destroyed by treating the claim as a claim against the collateral without recourse to the debtor’s estate generally, in accordance with sec. 306(a)(2) and sec. 306(c). This construction reflects the fact that while causes of action are extinguished by statutes of limitation, interests in property, such as liens, are unaffected. Prior to enactment of the precursor to 306(b), liens against property in probate were postponed just like unsecured claims if filed late. See, e.g., Graham v. Vining, 2 Tex. 433, 443 (1847). It seems likely that 306(b) was designed to prevent infringement of the property interests of secured creditors, and not to limit the secured creditors’ rights against the debtor’s estate generally.
In summary, a claim should be deemed presented when filed, and 306(b) should be triggered only if a claim is filed after the statute of limitations has run on it. Cessna presented its claim in a timely manner, and should be permitted to amend its claim to express its election in language satisfactory to the court below.
For the above reasons, I would sustain the appellant’s first four points of error. I therefore dissent to the portion of the majority’s opinion overruling these points, and concur with the remainder of the majority’s opinion.