Estate of Rogers
| Decision Date | 16 March 1972 |
| Citation | 24 Cal.App.3d 69,100 Cal.Rptr. 735 |
| Parties | In the Matter of the ESTATE of David Carl ROGERS, Deceased. Florence Lee ROGERS, as Executrix, etc., Plaintiff and Appellant, v. Houston I. FLOURNOY, State Controller, etc., Defendant and Respondent. Civ. 13238. |
| Court | California Court of Appeals Court of Appeals |
Fred M. Bollinger, Stockton, for plaintiff and appellant.
Roy Gill, Sacramento, for defendant and respondent.
This is an appeal by plaintiff (executrix and widow of the deceased) from the trial court's order affirming the report of the inheritance tax appraiser and denying plaintiff's petition for a refund of gift tax paid.
On March 30, 1963, David Carl Rogers, now deceased, was seriously injured in an accident caused by the negligence of another. 2 Rogers thereafter commenced an action in tort to recover damages for personal injuries suffered. Prior to the time the action was brought to trial, Rogers and the defendant shipping corporations entered into a compromise settlement on June 1, 1964. On the same date, Rogers, by his guardian ad litem and wife, Florence Rogers, executed a general release discharging the defendants from all liability. Pursuant to the court order authorizing compromise, Rogers received $265,667 in full settlement of all claims.
Rogers died on March 31, 1969, leaving all of his estate to his wife, Florence, who was also named executrix of the will. The State Controller determined that a gift tax should be paid on $113,500 of the proceeds from the settlement on the theory that this sum was the decedent's separate property under section 163.5 of the Civil Code, and had been transmuted into community property by the conduct of Rogers and his wife. In the probate proceedings, the controller also levied an inheritance tax on the theory that section 13560 of the Revenue and Taxation Code was applicable. 3
On November 24, 1970, plaintiff Florence Rogers, individually and as executrix of the will of David Carl Rogers, filed an action to recover gift tax paid. On that same date, Mrs. Rogers, as executrix filed her objections to the report of the inheritance tax appraiser. The matters were consolidated for trial, and thereafter the court issued its order affirming report of inheritance tax appraiser and denying the petition for refund of gift tax paid. This appeal followed:
1. Character of Property.
Plaintiff contends all of the money received by her husband for damages for personal injuries by way of a compromise settlement was community property, and thus no gift or inheritance tax is owed the state.
Section 163.5 of the Civil Code, as it read in 1964, provided as follows: 'All damages, special and general, awarded a married person in a civil action for personal injuries, are the separate property of such married person.'
Plaintiff contends the legislative history and intent preclude the application of this statute to the facts before us since damages received by way of compromise settlement are not damages 'awarded.'
Section 163.5 of the Civil Code was enacted in 1957. (Stats.1957, ch. 2334, § 1, p. 4065.) Prior to 1957, and recovery which a married person received as damages for personal injuries suffered was the community property of the injured person and his spouse. It is clear that the legislative purpose in enacting section 163.5 was to relieve an innocent spouse from the harsh penalty resulting from application of the doctrine of imputed contributory negligence. (Estate of Simoni (1963) 220 Cal.App.2d 339, 341--343, 33 Cal.Rptr. 845; 1 Cal. Family Lawyer (Cont. Ed. Bar) § 7.26, p. 244; § 7.29, pp. 245--246; 4 Witkin, Summary of Cal. Law (1969 Supp.), Community Property, § 7A, p. 1517.) Since this doctrine is in no way involved in this case, there being no contributory negligence, plaintiff contends the reason for the application of section 163.5 is absent and hence it would be unjust to apply the statute. (Cf. Estate of Simoni, supra, 220 Cal.App.2d at p. 343, 33 Cal.Rptr. 845 ().)
Secondly, plaintiff contends that section 163.5 of the Civil Code requires a strict construction in order to reach a just result. Under such construction, the term 'award,' as used in the statute, does not embrace a settlement. Thus, she argues a compromise settlement is not an award made by a court of law within the meaning of section 163.5 of the Civil Code, and therefore a compromise agreement should retain its community status.
Plaintiff contends it is significant that in the amended form of the statute the Legislature added the words 'pursuant to an agreement for the settlement or compromise of a claim . . ..' (Civ.Code, § 5109 ().) 4 Had this phraseology been in the statute in 1964, it would be clear that the Legislature intended a compromise settlement to be separate property, but no such language appears.
Plaintiff also finds some support in the legal literature which indicates that a compromise settlement is not an award under section 163.5 of the Civil Code as it read at that time. Mr. Witkin states: '(T)he section refers only to 'damages . . . awarded,' and leaves some doubt as to whether the unliquidated cause of action is community or separate. The proposed State Bar statute covered both, and thereby avoided a further problem which will arise in the event of a settlement without judgment. If the cause of action is still community property, as held by a long list of prior decisions 5 . . . money paid by way of compromise and satisfaction thereof may likewise be regarded as community property, for the statute refers only to 'damages . . . awarded . . . in a civil action.'' (4 Witkin, Summary of Cal.Law (7th Ed. 1960) Community Property, § 7, p. 2713; see 45 Cal.L.Rev. 779, 780, fn. 2; 32 State Bar J. 507--508.)
Another author in Volume I of The California Family Lawyer (Cont. Ed. Bar) states as follows:
'A good case can be stated for maintaining the community nature of a recovery by way of settlement. Civil Code § 163.5 refers only to damages awarded. The legislature intended merely to prevent imputation of negligence between spouses. See § 7.30. It is not necessary to change the property nature of a settlement to prevent this, because imputation applies only when the case is tried. Had the legislature intended to change the character of damages obtained through settlement, it could have said so explicitly. This interpretation would avoid imputed negligence and would also preserve the existing property status of settlements.
'However, the Supreme Court has stated that the cause of action and the recovery may not have different property characteristics. In Zaragosa v. Craven (1949) 33 C.2d 315, 202 P.2d 73, disapproving a prior case to the contrary, the Court rejected a contention that a wife's cause of action is separate property and that the damages recovered are community property. Damages were first held to be community property because they did not come under a statutory definition of separate property (Moody v. Southern Pac. Co. (1914) 167 C. 786, 141 P. 388), and since damages were community property, the cause of action was also community in nature. This argument may fail when applied to § 163.5, if it is held that the legislature intended to distinguish the cause of action from the recovery by mentioning only the word 'award." (§ 7.29, p. 246.) 6
The precise question before us appeared in Blankenship v. Blankenship (1963) 212 Cal.App.2d 736, 748, 28 Cal.Rptr. 176, but the court found it unnecessary to decide the point after waiver by one of the parties. However, in a footnote the court stated:
(P. 748, fn. 4, 28 Cal.Rptr. p. 184.)
Finally, plaintiff contends that section 163.5 of the Civil Code was a limited exception to the general statutory and case law declaring property acquired by married persons to be community. Since the law does not favor repeal by implication (see, e.g., 1 Sutherland, Statutory Construction (1943 3d ed.), § 2014, pp. 468--470), the statute should be limited to damages awarded in a civil action and not be construed to cover negotiated settlements where there is no problem of imputed negligence between spouses. (Cf. Estate of Simoni, supra, 220 Cal.App.2d at p. 343, 33 Cal.Rptr. 845.) In other words, plaintiff contends the section should have no further application than to rectify a flaw in the community property system.
The controller takes the opposite position and finds support for his views in the legislative history. He agrees that the purpose of the Legislature in enacting section 163.5 of the Civil Code in 1957 was to relieve an innocent spouse of the harsh penalty resulting from the imputed contributory negligence doctrine. He notes, however, that in 1957, and as a part of the same act which added section 163.5, the Legislature also amended section 171c of the Civil Code. (Stats.1957, ch. 2334, §§ 1 and 2, pp. 4065--4066.) Prior to 1957, section 171c of the Civil Code provided, in part, as follows: '(T)he wife has the management, control and disposition . . . of community property money earned by her, Or community property money damages received by her for personal injuries suffered by...
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... ... (Cf. Estate of Rogers (1972) 24 Cal.App.3d 69, 77, 100 Cal.Rptr. 735 [similarly concluding that compromise settlements fell within purview of a statute ... ...
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