Hammonds v. Commissioner of Internal Revenue

• Decision Date: 30 August 1939
• Docket Number: No. 1832.,1832.
• Citation: 106 F.2d 420
• Parties: HAMMONDS v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Tenth Circuit

106 F.2d 420 (1939)

HAMMONDS v. COMMISSIONER OF INTERNAL REVENUE.

No. 1832.

Circuit Court of Appeals, Tenth Circuit.

August 30, 1939.

Fred P. Branson, of Muskogee, Okl. (W. K. Garnett and Chas. H. Garnett, both of Oklahoma City, Okl., on the briefs), for petitioner.

Warren F. Wattles, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the briefs), for respondent.

Before PHILLIPS, BRATTON, and WILLIAMS, Circuit Judges.

PHILLIPS, Circuit Judge.

This is a petition to review a decision of the Board of Tax Appeals involving income taxes of Mamie S. Hammonds¹ for the years 1931 and 1932.

In exchange for personal services rendered in the state of Texas and elsewhere during coverture, petitioner acquired an undivided one-half interest in certain oil and gas leases situated in the state of Texas. She gave no consideration therefor other than her personal services.

Petitioner, her husband, O. O. Hammonds, and their co-owner sold and assigned certain of the leases in 1931 for an agreed cash consideration of $189,800, and a further consideration of $451,850 to be paid out of the assignee's share of the oil from the leases, as and when produced. $139,800 of the cash consideration was paid in 1931. The balance of the cash consideration remained unpaid due to the fact that certain checks given therefor were dishonored. An agreement was entered into whereby the unpaid balance of the cash consideration was to be paid in future installments. From the sale of the leases, petitioner and her husband received of the cash consideration $69,900 in 1931 and $17,392.50 in 1932. They also received from payments out of the oil produced $25,555.51 in 1932.

Petitioner and her husband filed separate income tax returns for the years 1931 and 1932 in which they treated the gain derived from the sale of the leases as community property and each returned one-half of such gain. They also treated the amount of the cash consideration paid in 1931 and 1932 as a cash bonus and claimed a depletion deduction of 27½ per cent thereof.

The Commissioner held that the entire consideration received for the leases in 1931 and 1932 was the separate property of petitioner, denied the depletion allowance, and proposed a deficiency against petitioner. The Board made a depletion allowance based on the payments received out of oil produced, otherwise sustained the action of the Commissioner, and ordered a deficiency assessment of $4,896.24 for the year 1931 and $1,799.54 for the year 1932.

I. Were the Leases Community Property of Petitioner and O. O. Hammonds?

Petitioner and O. O. Hammonds were married in 1906 and since 1927 have been bona fide residents of Oklahoma City, Oklahoma. Under the laws of Oklahoma the earnings of the wife are her separate property.²

Under the law of Texas oil and gas in place are part of the realty and an oil and gas lease transfers to the lessee an interest in real estate.³

Articles 4613 and 4614 of Vernon's Ann.Texas Stat. Vol. 13, provide that all property, both real and personal, of a member of the community, owned or claimed by him or her before marriage and that acquired afterwards by gift, devise, or descent, and the increase of all lands thus acquired, and the rents and revenues derived therefrom, shall constitute his or her separate property.

Article 4619, Vernon's Ann.Texas Stat. Vol. 13, reads as follows:

"Sec. 1. All property acquired by either the husband or wife during marriage, except that which is the separate property of either, shall be deemed the common property of the husband and wife; * * * all the effects which the husband and wife possess at the time the marriage may be dissolved shall be regarded as common effects or gains, unless the contrary be satisfactorily proved."

It is a fundamental postulate of the community property system that whatever is gained during coverture, by the toil, talent, or other productive faculty of either spouse, is community property.⁴

Indeed, the sole source from which the community estate must arise is the toil, talent, or other productive faculty of the spouses and the earnings and income from community property itself.

While the community system is believed to have had its origin in the Teutonic peoples, the community property statutes of Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, and Washington are drawn from the Spanish, Mexican, or French law. The statutes of France and Spain regulating the property rights of husband and wife were real, not personal, statutes. They operated on things and not persons and applied to all acquisitions made in those countries by married persons, whether resident or nonresident therein.⁵

And such is the construction placed upon the community property statutes of other jurisdictions where they are couched in general terms and make no reference to the residence of the spouses.⁶

In Heidenheimer v. Loring, 6 Tex.Civ. App. 560, 26 S.W. 99, 101, the court said:

"The statute of Texas declaring that all property acquired by either husband or wife during the marriage shall be deemed the common property of both will control as to real estate situated in Texas, although the parties may both reside in another state, where a different rule of law may apply to such property."

In Monroig v. Parker, 6 Porto Rico Fed.Rep. 595, 600, 601, the court said:

"Complainants allege that this law does not apply to an American citizen not domiciled in Porto Rico. There might be some question on the evidence as to where the domicil of the defendants is, but that is not material. The lex rei sitae governs all matters relating to real property. Unless a foreigner is prohibited from owning land, or except so far as conditions are affixed to his ownership, he holds land in Porto Rico upon the same title as anyone else. It is not material whether he comes to Porto Rico to live or not. Whatever rights in real property are given to a married woman by the Porto Rican law apply, so far as relates to the land owned, to the wife of the landowner, whether she ever comes to Porto Rico or not. There cannot be two laws governing the same real property at the same time."

In 11 Am.Jur. p. 182, § 11, the rule is stated as follows:

"In the absence of an antenuptial contract between the parties, the respective rights of the husband and wife in real property are governed by the law of the place where such property is situated, rather than by the law of the domicil of the parties or of the place where the marriage was celebrated. Accordingly, upon consideration of comity, real estate acquired in a state by a nonresident married couple is governed by the lex rei sitae."

In 23 Tex.Jur. 146, § 117, it is said:

"If the parties have their domicile in Texas, their acquisitions of personal property in another state are governed by our laws. If the acquisition be of real property in another state, comity requires that the title be determined by the law of the state where it is situated. Upon the same consideration of comity, real estate acquired in Texas by a nonresident married couple is governed by our law."

The general rule in the community property states that marital rights in lands, regardless of the residence of the husband and wife, are regulated by the law of the situs is subject to the qualification that where property is acquired in a community property state, through purchase by funds which are the separate property of one of the spouses, or in exchange for separate property of one of the spouses, the character of the funds or of the property given in exchange is transmitted to the property acquired.⁷ Separate property remains separate through all its mutations and changes so long as it can be clearly and indisputably traced and identified.

It is contended that the qualification should be extended to embrace not only property acquired with separate funds or through the giving in exchange of separate property, but also property acquired through the rendition of personal services. No authority is cited in support of this extension of the qualification to the general rule.⁸ It is argued, however, that had petitioner received cash or other personal property in payment for her services, and with such cash or personal property acquired the leases in Texas, the latter would have been her separate property, and that the same result should follow where she exchanged her services directly for such leases.

To so hold would violate the fundamental concept of the community property system that property acquired during coverture through the toil, talent, or other productive faculty of either spouse is conclusively presumed to be community property. Furthermore, it would make the qualification or exception to the general rule that community statutes operate upon things and regulate the marital rights of land acquired in a community property state by nonresidents as broad as the general rule itself, and leave no field of operation for the latter. Under the community property statutes, property acquired through gift, devise, or inheritance, and the increase or earnings thereof is separate property. Under the qualification, property acquired with separate property or funds is separate property. Community property is derived solely from the toil, talent, or other productive faculty of the spouses and from the earnings of community property itself. Thus, it will be seen that should we extend the qualification to embrace real property acquired through the toil, talent, or other productive faculty of the spouses, the result would be to encompass the general rule and make the qualification thereto the rule rather than the exception.

We conclude that the community property statute in Texas is a real statute; that it operates on things, not persons; and that real property acquired in the state of Texas during coverture by the toil, talent, or productive faculty of either spouse is community property,...