Escrow Service Co. v. Cressler

• Court: Washington Supreme Court
• Writing for the Court: OTT; FINLEY; HILL; FINLEY; ROSELLINI
• Citation: Escrow Service Co. v. Cressler, 365 P.2d 760, 59 Wn.2d 38 (Wash. 1961)
• Decision Date: 26 October 1961
• Docket Number: No. 35161
• Parties: ESCROW SERVICE CO., Inc., an Oregon corporation, Respondent, v. George E. CRESSLER and Pauline G. Cressler, husband and wife, Appellants. . En Banc

Page 38

59 Wn.2d 38

365 P.2d 760

ESCROW SERVICE CO., Inc., an Oregon corporation, Respondent, v. George E. CRESSLER and Pauline G. Cressler, husband and wife, Appellants.

No. 35161.

Supreme Court of Washington. En Banc.

Oct. 26, 1961.

Rehearing Denied Dec. 6, 1961.

Charles B. Welsh, South Bend, for appellants.

Eisenhower, Hunter & Ramsdell, Tacoma, for respondent.

OTT, Judge.

The stipulated facts in this case are as follows: Escrow Service Co., Inc., an Oregon corporation, is engaged in the finance business in that state. George E. Cressler and Pauline G. Cressler are husband and wife. During all of the time here in question, they were residents of the state of Washington and, as a community, owned real property in Grays Harbor County. George Cressler, with the knowledge and consent of his wife, used community funds to purchase a retail lumber and hardware business in Portland, Oregon, which was operated as a partnership with C. William Nau, under the firm name of Western Lumber Company.

July 2, September 10, and December 26, 1956, George Cressler and C. William Nau borrowed from Escrow Service Co., Inc., in Portland, a total of $6,000 on their personal notes. The checks for the loans were made payable to Western Lumber Company, deposited in the partnership account, and used in the business.

Thereafter, George Cressler purchased the interest of C. William Nau, assumed the partnership liabilities, and continued the firm name. The business subsequently failed.

Escrow Service Co., Inc., commenced this action against George E. Cressler and wife, in Grays Harbor County, Washington, to recover judgment upon the notes which had been executed by the husband in Oregon, and attached the real property of the community.

George Cressler's answer admitted his execution of the notes, but denied that they constituted a community debt. Pauline Cressler appeared individually, denied separate liability, and, as a member of the community, denied community liability for the reason that the obligation relied upon was, under the Oregon law, the separate obligation of her husband; hence, not a community debt.

From a judgment adjudicating the debt to be a community obligation, George and Pauline Cressler have appealed.

Appellants' sole contention is that the court erred in its determination that the debt was a community obligation. We agree with appellants' contention.

The law of the state of Oregon relating to obligations incurred by the husband alone (ORS 108.020) provides:

'Neither husband nor wife is liable for the debts or liabilities of the other incurred before marriage; and except as otherwise provided in ORS 108.040, they are not liable for the separate debts of each other, nor is the rent or income of property owned by either husband or wife liable for the separate debts of the other.'

(The exception provided in ORS 108.040 is not material to this proceeding.)

ORS 108.050 provides:

'The property and pecuniary rights of every married woman at the time of her marriage or afterwards acquired including real or personal property acquired by her own labor during coverture, shall not be subject to the debts or contracts of her husband.' (Italics ours.)

Debt liability is determined by the laws of the state where the obligation is incurred. Maag v. Voykovich, 1955, 46 Wash.2d 302, 280 P.2d 680. The legislature of the state of Oregon, in the exercise of its discretion, enacted the cited statutes which plainly provide that property of the wife 'shall not be subject to the debts or contracts of her husband.' (Italics ours.) An executed promissory note is a contract for the payment of money. The character of the debt and the extent to which property will be subjected to execution are policy determinations resting solely within the discretion of the legislature of the state where the obligation is incurred.

The maxim of lex loci contractus has been applied continuously to such cases in this state since 1896. In La Selle v. Woolery, 1896, 14 Wash. 70, 44 P. 115, 32 A.L.R. 73, this court held that a contract entered into in the state of Wisconsin by the husband alone was his separate debt, collectible only in Wisconsin from his separate property, and that the status and character of the debt did not change by instituting a suit thereon in the state of Washington.

In Achilles v. Hoopes, 1952, 40 Wash.2d 664, 245 P.2d 1005, this court applied the maxim of lex loci contractus to an obligation incurred in Oregon by the husband alone, and said:

'The defendants are husband and wife and have been such at all times material to this case. * * *

'The community or separate character of a debt incurred by the husband is determined by the law of the place where it arose. La Selle v. Woolery, 1896, 14 Wash. 70, 44 P. 115, 32 L.R.A. 73. This rule has been cited with approval in the following cases: Clark v. Eltinge, 1902, 29 Wash. 215, 223, 69 P. 736; Huyvaerts v. Roedtz, 1919, 105 Wash. 657, 658, 178 P. 801; Meng v. Security State Bank, 1943, 16 Wash.2d 215, 133 P.2d 293. See Great American Indemnity Co. of New York v. Garrison, D.C., 1948, 75 F.Supp. 811; 1 de Funiak, Principles of Community Property, 532, § 186 and comment in note 76.

'We have examined the authorities cited by plaintiff in support of the rule for which he contends, and have also read the discussion of this and other rules in 2 Beale, Conflict of Laws, 1077 et seq., § 332.1; 2 Rabel, Conflict of Laws, 357 et seq., chapters 28 to 33 inclusive, and some of the authorities these authors cite. We find no sufficient reason to depart from the long established rule expressed in our cited cases. * * *

'The law of Oregon, proven in this case, created no community obligation on the note, and there is not basis for the assertion of a contract between the plaintiff and the community. See 2 Beale, op. cit. supra, 1090, § 332.4; Restatement, Conflict of Laws, 409, 410, 413, 438, §§ 332(d) comment c, 336, 358 comment b. Being inherently the separate obligation of the husband when created, by the law of the state where it arose, it retains that character and is free of any presumption that it is a community obligation. Recovery cannot be had against the community for the separate obligation of one spouse. La Selle v. Woolery, supra, and Smyser v. Smyser, 1943, 17 Wash.2d 301, 135 P.2d 455, and cases cited.'

In Mountain v. Price, 1944, 20 Wash.2d 129, 146 P.2d 327, the appellant sued in this state upon an Oregon judgment and raised the identical contention now urged by respondent. We rejected the contention, stating [20 Wash.2d at page 136, 146 P.2d at page 330]:

'In the case at bar, appellant sued respondent on the judgment which she recovered against him before the Oregon court, and was awarded, by the judgment appealed from, the same judgment she recovered in Oregon. The fact that an execution issued upon the judgment now before us for review may be less effective in reaching property from which appellant desires to satisfy her judgment than would be an execution issued upon the Oregon judgment is immaterial.'

The Washington community property statute relating to separate debts, RCW 26.16.200, provides, inter alia:

'Neither husband or wife is liable for the debts or liabilities of the other incurred before marriage, nor for the separate debts of each other, * * *.' (Italics ours.)

Under this statute, community property has never been held liable for the separate obligation of either spouse. A partial list of the cases which hold that the community is not liable for the separate debt of the husband is as follows: Smith v. Retallick, 1956, 48 Wash.2d 360, 293 P.2d 745; Maag v. Voykovich, 1955, 46 Wash.2d 302, 280 P.2d 680; Achilles v. Hoopes, 1952, 40 Wash.2d 664, 245 P.2d 1005; Smyser v. Smyser, 1943, 17 Wash.2d 301, 135 P.2d 455; Meng v. Security State Bank of Woodland, 1943, 16 Wash.2d 215, 133 P.2d 293; Stafford v. Stafford, 1941, 10 Wash.2d 649, 117 P.2d 753; Bergman v. State, 1936, 187 Wash. 622, 60 P.2d 699, 106 A.L.R. 1007; Curtis v. Hickenbottom, 1930, 158 Wash. 198, 290 P. 822; Kinman v. Roberts, 1929, 151 Wash. 35, 274 P. 719; Peterson v. Zimmerman, 1927, 142 Wash. 385, 253 P. 642; Spokane State Bank v. Tilton, 1925, 132 Wash. 641, 233 P. 15; Snyder v. Stringer, 1921, 116 Wash. 131, 198 P. 733; Deering v. Holcomb, 1901, 26 Wash. 588, 67 P. 240, 561; Stockand v. Bartlett, 1892, 4 Wash. 730, 31 P. 24.

The respondent urges that such cases be overruled, and that the long established common-law maxim of lex loci contractus be abandoned.

The respondent contends, first, that the Washington community property law should apply to this Oregon contract for the reason that Oregon has no community property status and the parties should be bound as though the contract had originated in Washington. Respondent cites no cases, and we have found none, wherein the maxim of lex loci contractus has been modified to include the laws of the states of each contracting party. The parties may legally contract to be bound by the law of either jurisdiction, but such an exception to the maxim of lex loci contractus is not within the purview of the stipulated facts in this case.

Respondent further contends that the Washington law permits the community to become unlawfully enriched, and that the law operates as a hardship upon, and is unfair to, those out-of-state institutions which finance Washington residents.

When a financial institution loans money, it dictates the terms of the contract upon which it will make the loan. After the terms have been agreed upon, the law of the state where the agreement is made determines its validity and its character. Maag v. Voykovich, supra. The state law becomes as much a part of the contract as if the applicable statutes were actually written into it. State ex rel. Washington Toll Bridge Authority v. Yelle, 1960, 56 Wash.2d 86, 99, 351 P.2d 493; Fischler v. Nicklin, 1958, 51 Wash.2d 518, 522, 319 P.2d 1098; Dopps v. Alderman, 1942, 12...