presumptively community. This presumption is rebuttable. Property acquired by a spouse during marriage upon the separate credit of the spouse is separate property.
a. Agreement Between Creditor and Spouse. It is well established that where it is shown the lender agrees to look solely to the separate estate of one spouse for satisfaction of the debt, such property is the separate property of the contracting spouse. Cockerham, 527 S.W.2d 162, Gleich, 99 S.W.2d 881. The agreement between the borrower and the creditor is one of the primary indicators of the character of the loan to be made. Wierzchula, 623 S.W.2d 730.
In Holloway, the Dallas Court of Appeals stated:
Despite some judicial expression to the contrary, the law was settled in Gleich v. Bongio, 128 Tex. 606, 99 S.W.2d 881, 886 (1937), that the intention of the spouses cannot control the separate or community character of property purchased on credit or of funds borrowed during the marriage and that such property is community unless there is an express agreement on the part of the vendor or lender to look solely to the separate estate of the purchasing spouse for satisfaction of the indebtedness.
Holloway, 671 S.W.2d 51 (emphasis added).
The foregoing language in Holloway has sometimes been cited for the proposition that an agreement between the lender and the borrower is the exclusive manner by which property can be acquired upon separate credit during the marriage. However, as discussed below, some disagreement exists on this point.
The Holloway court examined the evidence of the loan transaction as follows: Although there is no direct testimony of an express agreement, we conclude that there is evidence to support such a finding. Pat testified that he opened the "Pat S. Holloway, Separate Property" account with the proceeds of a loan of $10,000 from Republic National Bank. The loan papers were admitted in evidence. They included a promissory note and a security agreement from Pat to the bank, each dated May 10, 1979, and signed "Pat S. Holloway, Separate property." A statement of purpose for the loan on a bank form, also signed, "Pat S. Holloway, Separate property," recites the purpose of the loan to be "Equity in pipeline venture." This statement refers to the collateral specified in the security agreement and is certified by an officer of the bank on May 10, 1979. An affidavit by Pat Holloway, dated May 16, 1979, states that all the securities listed as collateral in the security agreement, valued at more than $40,000 are his separate property, having been acquired before his marriage to Robbie, and that the affidavit is made with knowledge that it will be relied on by the bank in making the loan for his separate account to be secured by the securities listed and in order to induce the bank to make a loan to him for which the community estate shall not be liable. Pat testified that he delivered these papers to the bank at the time of the loan transaction. There is also a deposit slip for $10,000 to the "Pat S. Holloway, Separate property" account, dated May 17, 1979, although no check in this account for the $3000 paid for the Sterling Pipeline Stock was offered in evidence.
The court then held:
This evidence, in our view, is sufficient for the jury to infer that by accepting these papers on the basis for a loan to "Pat S. Holloway, Separate property," the bank agreed to look solely to Pat's separate property for repayment of the loan and that Pat purchased the stock in Sterling Pipeline with the proceeds of this loan. Consequently, we hold that the evidence supports the finding that this stock is his separate property.
Id.
In Wierzchula, the husband entered into an earnest money contract to purchase a home before marriage. The husband alone made application for a loan and the loan commitment was made to the husband before marriage. The deed was made to husband after marriage (but recited "as a single man") and the husband alone signed the note to secure the vendor's lien and deed of trust. The note did not recite that the lender agreed to look only to the separate property of the husband. The court held the property to be the husband's separate property, first upon the application of the inception-of- title rule to the earnest money contract, and then further stated:
A second presumption arises that the property was community property as a result of the note being signed after the marriage. A debt acquired by either spouse during marriage is presumptively a community debt. Gleich v. Bongio, 128 Tex. 606, 99 S.W.2d 882 (1937). This presumption is also rebuttable. Proof that the lender agreed to look only to the separate property of one spouse for the security for the debt will rebut this presumption. The agreement between the borrower and the creditor is one of the primary indicators of the character of the loan to be made.
In our case, prior to marriage, the appellee alone made application for a loan as a single man. The loan commitment was made by the Veteran's Administration to the appellee as a single man. The deed was made to the appellee as a single man and the appellee alone signed the note to secure the vendor's lien and deed of trust. The lender's intention appears to be clear that it was looking only to the appellee to met the obligation contained in the note. Wierzchula, 623 S.W.2d at 732.
In Mortenson, it was held that the bank "obviously intended" to seek satisfaction of the debt from the wife alone by requiring her separate property certificate of deposit as collateral for the loan to her. Mortenson, 604 S.W.2d 269.
b. Intention of the Spouses. Some Texas cases hold that the intention of the spouses is a primary consideration affecting the community or separate nature of property
acquired with borrowed funds. Other cases, such as those cited above, appear to require an agreement on behalf of the lender to look only to separate property for repayment.
Early Texas Supreme Court cases addressing property acquired on credit spoke of the "intentions of the parties" as the controlling factor in determining whether such property was community or the separate property of one of the spouses. McClintic v. Midland Grocery & Dry Goods Co., 154 S.W. 1157 (Tex. 1913); Sparks v. Taylor, 90 S.W. 485 (Tex. 1906). In Armstrong v. Turbeville, 216 S.W. 1101, 1105 (Tex. Civ. App. - El Paso 1919, writ dism'd), the court relied upon McClintic and Soarks for the proposition that, "[if] the wife borrowed money for the benefit of her separate property, intending to repay it, out of her separate estate, and both she and her husband intended that the borrowed funds shall belong separately to the wife, such will be its status, though the husband has signed the note and pledged his separate property to secure the loan." Id.; see also Edsall, 240 S.W.2d 424.
In Foster v. Christensen, the court held:
The land, of course, presumptively became the community property of Mr. and Mrs. Newgent when it was conveyed to them jointly with no recital of her separate ownership; but her ownership of the land as her separate property would have been established by proof of the allegations in the answer that the cash payment was made out of her separate funds and that it was agreed at the time by the parties to the deed that the land should be her separate property and that the balance of the purchase money should be paid out of her separate funds. The effect of such proof would not be altered by the fact that the husband joined in the promise to pay the balance of the purchase money. Foster, 67 S.W.2d 246.
The mere fact that a debt is repaid with separate funds does not overcome the community presumption. In Broussard v. Tian, 295 S.W.2d 405 (Tex. 1956), the Supreme Court followed the Gleich rule in establishing that the mere fact separate funds are used to pay the purchase money debt will not suffice.
The opinion by the Corpus Christi court in Welder v. Welder, contains an extensive analysis of Texas cases on the status of property acquired on credit. See Welder v. Welder, 794 S.W.2d 420. In Welder, the husband acquired a ranch after marriage with two promissory notes, the assumption of debt already existing on the property, and paid cash for existing improvements on the land. The purchase agreement, the deed and the notes themselves all named the husband as the grantee/debtor. The husband testified that the wife opposed the purchase of the ranch and never showed any interest in it, and that he intended to and did pay for the property out of his separate funds. The husband contended that his intentions to hold the ranch as separate property and pay for it out of his separate funds established the funds and the ranch as his separate property. The wife, however, claimed that the ranch was entirely community property because it was purchased with community debt. Id.
The husband testified concerning his conversations with the wife about acquiring the Welder- Dobie Ranch that the wife was specifically against it, but that, "I told her I was going to buy it, and I think that was essentially all that was ever said." Thereafter, husband alone negotiated the purchase of the ranch, taking the deed in his name and signing the notes in his name alone. The court held:
[T]he intention of the spouses is the primary consideration affecting the community or separate nature of property acquired with borrowed funds .
. . . These facts together with the ability of husband to pay for the ranch
with his separate funds and his actions in the face of her objections to the purchase, his assertion that "I" not we, would purchase the ranch, together with the wife's apparent acquiescence to the assertion, are sufficient to justify the fact finder in determining that both spouses intended for [the ranch] to be held as the husband's separate property.
Id.
However, the wife complained that the trial court erred in submitting an incorrect instruction regarding separate property credit. The charge instructed the jury that:
Property acquired with separate property monies, property, or separate credit is separate property.
If the spouse evidenced a clear intention to repay the credit with his separate funds at the time of extension of credit, the credit and the proceeds from the credit is separate property.
Id.
The court discussed the case law concerning the unilateral intention of one spouse, as follows:
Where all or part of the funds used in acquiring the property is borrowed, the lender's knowledge of the spouses' intentions is of significant importance. However, the intention of one spouse alone to repay a loan out of separate funds and hold the property purchased with the proceeds of that loan as separate property has never been controlling.
These cases suggest that the intention of the lender to look solely to the property of one spouse is an evidentiary factor of prime importance in showing by clear and convincing evidence that the spouses intended to hold the property as one spouse's separate property, especially where there is no other evidence of such an agreement.
The court held:
The present jury instruction, suggesting that the unilateral intention of the husband was controlling in determining the separate nature of the funds borrowed, and of the ranch thereby acquired, was clearly a misstatement of the law.
Id.
On the other hand, the appellate court in Edsall suggested that the unilateral intention of one spouse, without an agreement with the lender, is sufficient to establish the character of borrowed funds. See Edsall, 240 S.W.2d 424. The Dallas Court of Appeals expressly declined to follow Edsall in Holloway, 671 S.W.2d 51.
Rath v. Rath, 218 S.W.2d 217 (Tex. Civ. App. -Galveston 1949, no writ), involved a similar situation. The husband secured the wife's consent to the use of community cash in the acquisition of a new tract of land for the husband's separate estate, it being agreed at the time of the purchase contract that other land belonging to the husband's separate estate would be sold and the proceeds used to pay the balance of the purchase price and to reimburse the community for community funds used in making the down payment. The court ruled that, under the circumstances, there was no impediment to effectuating the agreement of the spouses that the new acquisition should be the husband's separate property. Id.