CREDITOR CLAIMS IN PROBATE, HOMESTEAD, EXEMPT PROPERTY, ALLOWANCES, SALES OF PROBATE PROPERTY AND LIABILITY OF PERSONAL REPRESENTATIVE FOR TAXES

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1 CREDITOR CLAIMS IN PROBATE, HOMESTEAD, EXEMPT PROPERTY, ALLOWANCES, SALES OF PROBATE PROPERTY AND LIABILITY OF PERSONAL REPRESENTATIVE FOR TAXES Cantey & Hanger, L.L.P Burnett Plaza 801 Cherry Street Fort Worth, Texas (817) (Main no.) (817) (Ice) (817) (FAX) Copyright 1997 All rights reserved.

2 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property CREDITOR CLAIMS IN PROBATE, HOMESTEAD, EXEMPT PROPERTY, ALLOWANCES, SALES OF PROBATE PROPERTY AND LIABILITY OF PERSONAL REPRESENTATIVE FOR TAXES Table of Contents I. CLAIMS PROCEDURES IN PROBATE A. INTRODUCTION TECHNICAL CLAIMS PROCEDURES IN TEXAS AND 1997 AMENDMENTS TO THE TEXAS PROBATE CODE B. PAYMENT, CLASSIFICATION AND PRIORITY CLASSIFICATION PRIORITY OF CLAIMS A. DOES 320(D) APPLY TO INDEPENDENT ADMINISTRATIONS CLAIMANT S PETITION. ; PERMISSIVE ORDER OF PAYMENT DEFICIENCY OF ASSETS PERSONAL REPRESENTATIVE HOLDS ASSETS IN TRUST FOR CREDITORS AND BENEFICIARIES REMEDY OF CREDITOR AGAINST OTHER CREDITORS IN THE SAME CLASS PRIORITY OF ALLOWANCES PRIORITY AS AGAINST THE FEDERAL GOVERNMENT PREFERRED DEBT AND LIEN HOLDERS ADMINISTRATION EXPENSES ATTRIBUTABLE TO THE PRESERVATION OF PROPERTY SUBJECT TO A PREFERRED DEBT AND LIEN C. SPECIAL PROBLEMS OF SECURED CREDITORS i-

3 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property 1. ELECTION PROB. CODE A. MATURED SECURED CLAIMS B. PREFERRED DEBT AND LIEN C. FAILURE TO ELECT MATURED SECURED STATUS D. SECURED CREDITORS UNDER AN INDEPENDENT ADMINISTRATIONS TRAPS AND PITFALLS FOR THE SECURED CREDITOR PRE-DEATH JUDGMENT LIEN CREDITOR D. ORDER OF PAYMENT OF CLAIMS IN A GUARDIANSHIP PROCEEDING E. PAYMENT OF CLAIMS WITHOUT A GUARDIANSHIP E-1. DEATH OF A WARD IN A GUARDIANSHIP F. NOTICE GENERAL NOTICE TO CREDITORS AND COMPTROLLER OF PUBLIC ACCOUNTS A. METHOD OF GIVING NOTICE B. TIME FOR GIVING MANDATORY NOTICE C. TIME FOR GIVING PERMISSIVE NOTICE D. EFFECT OF GIVING PERMISSIVE NOTICE E. INDEPENDENT ADMINISTRATIONS SPECIAL NOTICE TO SECURED CREDITORS A. TO WHOM IS SPECIAL NOTICE GIVEN B. TIME FOR GIVING SPECIAL NOTICE C. METHOD OF GIVING SPECIAL NOTICE D. PROOF OF SERVICE OF NOTICE E. THE STATUTE ITSELF ii-

4 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property F. CONSEQUENCES OF FAILURE TO GIVE NOTICE G. PRESENTMENT CLAIMS REQUIRED TO BE PRESENTED A. CLAIMS FOR MONEY MUST BE PRESENTED B. OTHER CLAIMS NEED NOT BE PRESENTED C. ADMINISTRATION EXPENSES FORM OF CLAIM A. REQUIREMENT OF AUTHENTICATION (1) FORM OF AUTHENTICATION (2) WAIVER OF DEFECTS - VOUCHERS AND EXHIBITS (3) IMPORTANCE OF WHETHER OR NOT A CLAIM IS VOID B. AUTHENTICATION IN ESTATE'S OF WARDS-GUARDIANSHIPS. ; C. WHO MAY AUTHENTICATE D. SECURED CLAIMS METHOD OF PRESENTMENT TIME FOR PRESENTMENT H. ALLOWANCE OR REJECTION METHOD OF ALLOWANCE OR REJECTION EFFECT OF FAILURE TO ENDORSE OR ANNEX-AUTOMATIC REJECTION IF NOT APPROVED WITHIN THIRTY DAYS EFFECT OF ALLOWANCE EFFECT OF REJECTION - 90 DAY STATUTE OF LIMITATIONS SUIT ON REJECTED CLAIM-JURISDICTIONAL ISSUES A. LIQUIDATED CLAIMS B. UNLIQUIDATED CLAIMS iii-

5 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property 6. EFFECT OF PAYMENT WHICH HAS NOT BEEN APPROVED EXECUTION AND POWER OF SALE CLAIMS BY PERSONAL REPRESENTATIVE CLAIMS NOT ALLOWED AFTER ORDER FOR PARTITION AND DISTRIBUTION FAILURE TO PRESENT I. ACCOUNTING FOR DISPOSITION OF CLAIMS J. SPECIAL STATUTES OF LIMITATIONS ISSUES GENERAL STATUTES OF LIMITATIONS TOLLING OF GENERAL STATUTES OF LIMITATIONS APPLY TO INDEPENDENT ADMINISTRATIONS? DOES P.C. 299 APPLY TO INDEPENDENT ADMINISTRATIONS? NO CLAIM MAY BE ALLOWED ON WHICH A SUIT IS BARRED BY A GENERAL STATUTE OF LIMITATION TIME FOR PRESENTMENT TOLLING OF STATUTE OF LIMITATIONS BY DEATH RESPONSE TO A SUIT BY AN INDEPENDENT EXECUTOR K. INDEPENDENT EXECUTORS NOTICE, PRESENTMENT, FORM OF CLAIM, ALLOWANCE AND REJECTION, PAYMENT, CLASSIFICATION AND PRIORITY AMENDED SECTION REMEDY OF CREDITOR AGAINST OTHER CREDITORS IN THE SAME CLASS APPLICATION OF NOTICE RULES TO INDEPENDENT ADMINISTRATIONS PRESENTMENT OF CLAIMS TO INDEPENDENT EXECUTORS FORM OF THE CLAIM APPLICATION OF 301 TO INDEPENDENT ADMINISTRATIONS iv-

6 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property 6. ALLOWANCE, REJECTION AND SUIT ON REJECTED CLAIM 309, 310 AND 313 DO NOT APPLY TO INDEPENDENT ADMINISTRATIONS CLASSIFICATION AND PRIORITY APPLY TO INDEPENDENT ADMINISTRATIONS RESPONSE TO A SUIT BY AN INDEPENDENT EXECUTOR INDEPENDENT EXECUTORS AND THE TURNOVER STATUTE L. FORCING PAYMENT GENERAL CREDITORS SECURED CREDITORS M. CONCLUSIONS N. ACKNOWLEDGMENTS AND BIBLIOGRAPHY REGARDING CLAIMS PROCEDURES II. THE LIABILITY OF THE PERSONAL REPRESENTATIVE FOR TAXES A. TRANSFEROR LIABILITY FOR TAXES-IRC THE STATUTE WHAT IS A DEBT UNDER 3713? WHAT IS INSOLVENCY UNDER 3713? WHAT IS NOTICE UNDER 3713? DO THE STATE PRIORITY RULES APPLY UNDER 3713? WHO IS THE GOVERNMENT UNDER 3713? B. GOVERNMENT LIENS THE GOVERNMENT LIEN UNDER IRC 6321 AND A. THE GENERAL TAX LIEN OF B. THE SPECIFIC ESTATE AND GIFT TAX LIEN OF 6324(A)(1) C. ADMINISTRATION EXPENSES v-

7 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property D. TRANSFEROR AND TRANSFEREE LIABILITY UNDER 6324(A)(2) E. LIEN FOR GIFT TAX UNDER 6324(B) C. STATUTES OF LIMITATIONS D. RELEASE FROM PERSONAL LIABILITY A. RELEASE FROM ESTATE TAX LIABILITY MADE UNDER B. RELEASE FROM INCOME AND GIFT TAX LIABILITY MADE UNDER C. REQUEST FOR PROMPT ASSESSMENT MADE UNDER 6501(D) D. LIABILITY AND LIENS FOR STATE INHERITANCE TAXES IV. LIABILITY FOR MARITAL DEBTS A. COMMUNITY AND SEPARATE PROPERTY IN A NUTSHELL B. ADMINISTRATION OF MARITAL PROPERTY AFTER DEATH C. MANAGEMENT CONTROL AND DISPOSITION OF MARITAL PROPERTY DURING LIFE-FAMILY CODE D. LIABILITY OF MARITAL PROPERTY DURING LIFE-IN A NUTSHELL E. LIABILITY OF MARITAL PROPERTY AFTER DEATH F. UNILATERAL TRANSFER OF JOINT MANAGEMENT COMMUNITY PROPERTY DURING LIFE V. CHOICE OF PROBATE PROCEDURE, OR PROCEDURES IN LIEU THEREOF, AND ITS EFFECT ON CREDITOR'S CLAIMS. ; A. IS THE DECEDENT'S PROPERTY SUBJECT TO A STATUTORY LIEN FOR UNSECURED DEBTS? ; B. IMPORTANCE OF THE FOUR YEAR RULES C. PROBATE OF WILL AS MUNIMENT OF TITLE D. ORDER OF NO NECESSITY OF ADMINISTRATION. TEX. PROB. CODE E. STATUTORY SMALL ESTATE PROCEEDINGS vi-

8 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property 1. COLLECTION OF SMALL ESTATE BY AFFIDAVIT. TEX. PROB. CODE ORDER OF NO ADMINISTRATION. TEX. PROB. CODE SUMMARY PROCEEDINGS FOR SMALL ESTATES AFTER PERSONAL REPRESENTATIVE APPOINTED. TEX. PROB. CODE F. PROCEEDINGS TO DECLARE HEIRSHIP. TEX. PROB. CODE G. PREVENTING ADMINISTRATION BY CREDITORS. TEX. PROB. CODE VI. ESTATE TAX APPORTIONMENT, ORDER OF ABATEMENT AND EXONERATION A. ESTATE TAX APPORTIONMENT APPORTIONMENT UNDER FEDERAL LAW APPORTIONMENT UNDER STATE LAW B. ABATEMENT, EXONERATION, AND CLASSIFICATION OF BEQUESTS PRIOR LAW PROBATE CODE 322B CLASSIFICATION OF GIFTS A. SPECIFIC GIFTS B. DEMONSTRATIVE GIFTS C. GENERAL GIFTS D. RESIDUARY GIFTS. ACCORDING TO THE TEXAS SUPREME COURT: E. TESTATOR S INTENT. ; EXONERATION OF MORTGAGES ON SPECIFIC GIFTS C. WHO IS LIABLE FOR THE TAX ON IRA PROCEEDS OR QUALIFIED PLAN ASSETS? vii-

9 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property 1. CODE 2039 AND 4980A(D) PROBATE CODE 322A AND ESTATE TAX APPORTIONMENT A. APPORTIONING THE ESTATE TAX ON THE NONPARTICIPANT'S COMMUNITY PROPERTY INTEREST IN A QUALIFIED PLAN OR IRA. ; B. A MARITAL DEDUCTION WOULD HELP, BUT WILL NOT BE AUTOMATICALLY AVAILABLE D. WHO IS LIABLE FOR ADMINISTRATION EXPENSES ATTRIBUTABLE TO SPECIFIC GIFTS VII. THE LAW OF FRAUDULENT CONVEYANCES, LIFETIME TRANSFERS, AND SPENDTHRIFT TRUSTS A. FRAUDULENT TRANSFERS A TRANSFER INTENDED TO HINDER CREDITORS IS VOID STATUTES OF LIMITATIONS UNDER THE ACT INSOLVENCY UNDER THE ACT HEIRS AND PERSONAL REPRESENTATIVE HAVE NO STANDING TO SET ASIDE FRAUDULENT CONVEYANCE OF THE DECEDENT DISCLAIMER IS NOT A FRAUDULENT CONVEYANCE B. PAYING AN ANTECEDENT DATE/ CONVERSION OF NONEXEMPT PROPERTY INTO EXEMPT PERSONAL PROPERTY C. SPENDTHRIFT TRUST SPENDTHRIFT TRUSTS GENERALLY EFFECTIVE IN TEXAS A. THE STATUTE AND THE CASES B. SUPPORT TRUSTS MAY ALSO BE VALID SPENDTHRIFT TRUSTS SPENDTHRIFT TRUSTS GENERALLY NOT EFFECTIVE WITH RESPECT TO CLAIMS FOR CHILD SUPPORT SELF SETTLED SPENDTHRIFT TRUSTS GENERALLY NOT EFFECTIVE IN TEXAS AS TO CREDITORS OF THE GRANTOR viii-

10 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property 4. SPENDTHRIFT TRUSTS FOR LIFE SHOULD BE CONSIDERED IN TESTAMENTARY PLANNING D. LIFETIME TRANSFERS AND PARTITIONS E. FRAUD ON THE SPOUSE AND GIFTS OF NONPROBATE ASSETS. FRAUD ON SPOUSE GIFTS OF COMMUNITY PROPERTY LIFE INSURANCE SPOUSE HAS MADE TAXABLE GIFT FOR GIFT TAX PURPOSES IF OTHER SPOUSE MAKES GIFT OF COMMUNITY PROPERTY OUTSIDE THE MARRIAGE INTER-VIVOS GIFTS IN TRUST-LAND V. MARSHALL NAMING ESTATE AS BENEFICIARY OF COMMUNITY PROPERTY LIFE INSURANCE POLICY VIII. SALES OF PROPERTY IN PROBATE A. SALES MUST BE AUTHORIZED BY THE COURT OR BY THE WILL WHERE THERE IS NO WILL OR IF THE WILL DOES NOT SPECIFICALLY AUTHORIZE SALES, AN ATTEMPTED SALE WILL BE VOID UNLESS MADE PURSUANT TO COURT ORDER SALES MAY BE MADE IN ACCORDANCE WITH THE TERMS OF THE WILL WITHOUT A COURT ORDER SALES BY INDEPENDENT EXECUTOR A. SALES TO PAY DEBTS B. PARTITIONS AND SALES BY INDEPENDENT EXECUTOR WITHOUT A COURT ORDER C. PARTITIONS AND SALES BY INDEPENDENT EXECUTOR WITH A COURT ORDER D. CAUTION INDICATED REGARDING ESTATE TAX LIEN ix-

11 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property 4. NEITHER AN INDEPENDENT EXECUTOR NOR A DEPENDENT EXECUTOR HAS THE AUTHORITY TO GIVE A WARRANTY OF TITLE ABSENT A PROVISION AUTHORIZING SUCH POWER IN THE WILL B. REPRESENTATIVE IS UNDER A DUTY TO SELL PROPERTY THAT IS LIABLE TO PERISH, WASTE, OR DETERIORATE IN VALUE OR THAT WILL BE AN EXPENSE OR DISADVANTAGE TO THE ESTATE IF KEPT C. SALES OF OTHER PERSONAL PROPERTY AUTHORIZED IF IN THE BEST INTEREST OF THE ESTATE IN ORDER TO PAY EXPENSES OF ADMINISTRATION OF CLAIMS D. SALES OF LIVESTOCK E. SALES OF PERSONAL PROPERTY AT PUBLIC AUCTION F. SALES OF MORTGAGED PROPERTY G. REPORTING THE SALE OF PERSONAL PROPERTY IS NECESSARY TO VEST TITLE/REGULATIONS GOVERNING REPORT AND CONFIRMATION OF REAL ESTATE ARE APPLICABLE TO SALES OF PERSONAL PROPERTY H. SALE OF PROPERTY OF A MINOR WITHOUT A GUARDIANSHIP I. PURPOSES FOR WHICH REALITY CAN BE SOLD COURT SELECTS PROPERTY REAL ESTATE CAN ONLY BE SOLD FOR STATUTORY PURPOSE IF PROPERTY IS SOLD PURSUANT TO WILL PROVISION AUTHORIZING SALE, 341 DOES NOT APPLY J. CONTENTS OF THE APPLICATION TO SELL REAL ESTATE K. DEFECTS IN THE CONTENTS OF THE APPLICATION TO SELL REAL ESTATE L. HEARING, CITATION AND OPPOSITION TO AN APPLICATION TO SELL REAL ESTATE M. ORDER OF SALE OF REAL ESTATE TERMS OF ORDER x-

12 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property 2. IRREGULARITIES IN ORDER N. FORCING THE SALE OF PROPERTY O. TERMS OF SALE OF PROPERTY STATUTORY TERMS NONCOMPLIANCE WITH ORDER OF SALE P. REPORT OF SALE CONTENT OF REPORT DEFECTS IN REPORT Q. BOND ON SALE OF REAL ESTATE R. HEARING ON REPORT OF SALE/DECREE CONFIRMING SALE S. DELIVERY OF DEED CONVEYING TITLE TO REAL ESTATE T. FAILURE TO DELIVER DEED CONVEYING TITLE TO REAL ESTATE U. PROHIBITION AGAINST SELF DEALING SELF DEALING UNDER THE PROBATE CODE SELF DEALING UNDER THE TRUST CODE POWER OF TRUSTOR TO WAIVE RULE AGAINST SELF DEALING IS LIMITED IN THE CASE OF A CORPORATE TRUSTEE IX. EXECUTOR S FEES AND COMMISSIONS; A. WILL PROVISIONS CONTROL OVER STATUTE B. PROBATE CODE 241 THE 5% IN AND OUT RULE C. PROBLEMS WITH AND LIMITATIONS ON THE 5% IN AND OUT RULE SALE OF MORTGAGED PROPERTY MISCELLANEOUS ISSUES LOANS, TAXES, RECEIPTS FROM A BUSINESS, ETC xi-

13 Creditor Claims in Probate, Homestead, Exempt Property, (Printed on Monday, February 20, 2012 at : ) Allowances, and Sales of Probate Property 3. JOINT FIDUCIARIES COURT FINDINGS REQUIRED BEFORE COMMISSION CAN BE PAID xii-

14 CREDITOR CLAIMS IN PROBATE, HOMESTEAD AND ALLOWANCES I. CLAIMS PROCEDURES IN PROBATE. A. INTRODUCTION. 1. Technical Claims Procedures in Texas. Probate claims procedure in Texas is technical and formalistic. Failure to understand or follow the rules may not make much difference in a solvent independent administration. 1 In all other cases, however, the path that must be followed by the claimant is tortuous, and the claimant who strays may be ruined, especially if the administration is dependent. There are special traps for the secured creditor of a dependent estate which can operate to severely limit recovery, even where the estate is solvent. The estate representative has a duty to the creditors of the estate as well as to the beneficiaries. In this sense, the personal representative is similar to a trustee. However, if the creditor in a dependent administration fails to adequately perfect his claim, the representative has no choice but to deny it. How much assistance the representative should give to the creditor is a matter which may be open to debate. Most of the pitfalls facing a claimant in a dependent administration may be easily avoided by being aware of the proper procedures and being mindful of the importance of strictly following those procedures. These procedures are found, for the most part, in Part 4 of The Probate Code: Presentment and Payment Claims and 1997 Amendments to the Texas Probate Code. Effective January 1, 1996, much of the statutory law in Texas regarding claims procedure was rewritten in 1995 by the 74th Legislature. Additional changes were enacted by the 75th Legislature in 1997, effective September 1, 1997 (generally). B. PAYMENT, CLASSIFICATION AND PRIORITY. 1. CLASSIFICATION. After a claim has been allowed by a personal representative the court is required to either disapprove the claim or to approve and classify it within 10 days after it has been entered upon the claim docket. As a practical matter, the courts are usually unable to act within the 10 day period. There are seven classes of claims specified by Probate Code 322: Class 1. Funeral expenses and expenses of last sickness in a reasonable amount not to exceed $15,000, with any excess administration. 1 As will be discussed later in the outline, many of the procedural rules do not apply to an independent -1-

15 Class 2. Class 3. Class 4. Class 5. Class 6. Class 7. to be classified as an unsecured claim. 2 Expenses of administration and the preservation of the estate. Claims secured by liens, including tax liens, so far as may be paid out of the security alone, i.e., matured secured claims for money under P.C. 306(a)(1). Claims for certain taxes (including penalties and interest) due the state of Texas, under a host of enumerated statutes. Claims for the cost of confinement established by the Texas Department of Criminal Justice under Section of the Government Code. Claims for repayment of medical assistance payments made by the state under Ch. 32 of the Human Resources Code for the benefit of the decedent. All other claims. [Note that there is no longer a priority in the classification scheme for claims presented within six months!] In order to keep Class 7 claims in perspective, one must take note of 298: Sec Claims Against Estates of Decedents. (a) Time for Presentation of Claims. A claim may be presented to the personal representative at any time before the estate is closed if suit on the claim has not been barred by the general statutes of limitation. If a claim of an unsecured creditor for money is not presented within four months after the date of receipt of the notice permitted by Section 294(d), the claim is barred. (b) Claims Barred by Limitation Not to Be Allowed or Approved. No claims for money against a decedent, or against the estate of the decedent, on which a suit is barred under Subsection (a) of this section, Section 313, or Section 317(a) or by a general statute of limitation applicable thereto shall be allowed by a personal representative. If allowed by the representative and the court is satisfied that the claim is barred or that limitation has run, the claim shall be disapproved. Note further that allowances and preferred debts are not classed. In order to place these items in the scheme, one must look to 320, the priority statute. 2. PRIORITY OF CLAIMS. 2 Note that there is no longer a requirement that funeral expenses and expenses of last illness be presented within 60 days to be given class one status. The expense limit was raised from $5000 to $15,000 effective Setember 1,

16 The classification of a claim does not necessarily signify its priority. This makes for some confusion. Probate Code 320 provides that the order of payment of claims is to be as follows: a. Funeral expenses and expenses of last illness not to exceed $15, b. Allowances made to the surviving spouse and children. c. Expenses of administration and the preservation and management of the estate. d. Other claims in the order of their classification. The above list must be read in conjunction with 320(d), which provides: (d) Permissive Order of Payment. After the sixth month after the date letters are granted and on application by the personal representative stating that the personal representative has no actual knowledge of any outstanding enforceable claims against the estate other than the claims already approved and classified by the court, the court may order the personal representative to pay any claim that is allowed and approved. 2A. Does 320(D) Apply to independent administrations. 320(d), quoted immediately above, provides that after six months, the court may order the personal representative to pay all claims previously allowed and approved if the personal representative has no actual knowledge of any outstanding enforceable claims against the estate other than the claims already approved and classified by the court. There are two reasons for suspecting that 320(d) is not meant to apply to independent administrations. For one thing, the court would not have approved and classified any claims, and for another, it is inconsistent with the general scheme of an independent to have the court order an independent administrator to pay claims. 3. Claimant s Petition. The priority statute provides: A claimant whose claim has not been paid may petition the court for determination of his claim at any time before it is barred by the applicable statute of limitations and upon due proof procure an order for its allowance and payment from the estate Permissive Order Of Payment. Effective January 1, 1996, Probate Code Section 320(d) was added to provide: 3 There is no longer a requirement that the first $15,000 of funeral expenses and expenses of last illness be presented within 60 days, as was the case prior to 1996, thus removing an inconsistency that previously existed between Class One claims under 322 and the priority specified in 320(a)(1). 4 Tex. Prob. Code 320(c). -3-

17 After the sixth month after the date letters are granted and on application by the personal representative stating that the personal representative has no actual knowledge of any outstanding enforceable claims against the estate other than the claims already approved and classified by the court, the court may order the personal representative to pay any claim that is allowed and approved. 5 A similar provision was added as Probate Code Section 146(c)(2) in the case of an independent administration: (c) Liability of Independent Executor. An independent executor, in the administration of an estate, may pay at any time and without personal liability a claim for money against the estate to the extent approved and classified by the personal representative if: (1) the claim is not barred by limitations; and (2) at the time of payment, the independent executor reasonably believes the estate will have sufficient assets to pay all claims against the estate Deficiency of Assets. Probate Code 321 provides that claims in the same class are to be paid prorata if the assets are otherwise insufficient: When there is a deficiency of assets to pay all claims of the same class, other than secured claims for money, the claims in such class shall be paid pro rata, as directed by the court, and in the order directed. No personal representative shall be allowed to pay the claims, whether the estate is solvent or insolvent, except with the pro rata amount of the funds of the estate that have come to hand. 7 Reading 146(a)(3) and (c) together with 321 makes it clear that an independent executor is under the same duty as a dependent administrator to pay claims in the same class on a prorata basis. What if the personal representative gave the required notice, paid all properly presented claims within a reasonable period of time, and then had a claim presented which could not be fully paid, either because the estate s assets had been partially or fully distributed, or because the full payment of previously filed claims precluded full payment of the late filed claim? In the case of a dependent administration, 320(d) might afford some protection, 5 Tex. Prob. Code 320(d). 6 Tex. Prob. Code 146(c)(2). 7 Tex. Prob. Code

18 and in the case of an independent administration, 146(c)(2) ought to relieve the personal representative of liability if the inability to pay is a result of having paid other creditors. However, these statutes do not explicitly cover distributions to beneficiaries. Moreover, there is always the possibility of liability under the common law, depending on the facts and circumstances, if it can be shown that the personal representative breached a fiduciary duty to the creditor Personal Representative Holds Assets in Trust For Creditors and beneficiaries. Under the case law, a personal representative, whether independent or dependent, may have a fiduciary duty to creditors as well as to beneficiaries, as if the estate were held in trust for them. In any event the personal representative may not prefer one creditor over another in the same class Remedy of Creditor Against Other creditors In the Same Class. What happens if the dependent administrator, pursuant to 320(d), pays a creditor at a time when the administrator reasonably believes the estate will have sufficient assets to pay all claims against the estate, but it turns out the administrator was mistaken. In that event, Probate Code 318 which has always given creditors the right to proceed against the heirs now allows the creditors to proceed against other creditors who received an undue preference. No claim for money against the estate of a decedent shall be allowed by a personal representative and no suit shall be instituted against the representative on any such claim, after an order for final partition and distribution has been made; but, after such an order has been made, the owner of any claim not barred by the laws of limitation shall have an action thereon against the heirs, devisees, legatees, or creditors of the estate, limited to the value of the property received by them in distributions from the estate probably applies in an independent administration when the independent executor, pursuant to 146(c)(2), pays a creditor at a time when the independent executor reasonably believes the estate will have sufficient assets to pay all claims against the estate, but it turns out the executor was mistaken. 8. PRIORITY OF Allowances. Probate Code 320(a) would lead one to believe that both the allowances to the widow and children and the expenses of administration are to come ahead of matured secured Class 3 claims. This is because Probate Code 320 says that the 8 See Ertel v. O'Brien, 852 S.W.2d 17 (Tex. Civ. App. Waco 1993, writ den.). Cf., Humane Society v. Austin National Bank, 531 S.W.2d 574, 577 (Tex.1975). 9 Woods v. Bradford, 284 S.W. 673 (Tex. Civ. App. El Paso 1926, no writ). Jenkins v. First National Bank of Coleman, 101 S.W.2d 845 (Tex. Civ. App. Austin 1937, no writ). Ertel v. O Brien, 852 S.W.2d 17 (Tex. Civ. App. Waco 1993, writ den.). 10 Tex. Prob. Code

19 family allowances (priority (2)) are to be paid ahead of other claims against the estate in the order of their classification (priority (4)), and a matured secured claim is a Class 3 claim. However, Probate Code 290 provides: The family allowance made for the support of the surviving spouse and minor children of the deceased shall be paid in preference to all other debts or charges against the estate, except Class 1 claims [i.e., funeral expenses and expenses of last sickness in a reasonable amount not to exceed $15,000, with any excess to be classified as an unsecured claim ]. 11 [Emphasis added.] On the other hand, 277 (in the inimitable style of our Probate Code) provides: If property upon which there is a valid subsisting lien or encumbrance shall be set aside to the surviving spouse or children as exempt property, or appropriated to make up allowances made in lieu of exempt property or for the support of the surviving spouse or children, the debt secured by such land shall, if necessity requires, be either paid or continued as against such property. This provision applies to all estates, whether solvent or insolvent. 12 [Emphasis added.] Read together, the statutes have been construed to mean that the right of a Class 3 secured (Prob. Code 320, 290 and 277) creditor is superior to the claim for allowances, but is inferior to Class 1 and 2 claims. 13 This is interesting because the claim for allowances is superior to Class 2 claims (administration expenses). Stated another way, the matured secured creditor, to the extent of his security, comes ahead of the family allowance but behind expenses of administration; whereas, somewhat ironically, the family allowance comes ahead of expenses of administration, though behind the matured secured creditor. Note that the neither the classes or the priority categories mention where claims of the federal government fit in, nor do they directly address the super priority afforded a secured preferred debt and lien. 9. PRIORITY AS AGAINST THE FEDERAL GOVERNMENT. In general, claims of the United States are given superior priority over all other 11 Tex. Prob. Code Tex. Prob. Code George v. First National Bank of Tulia, 67 S.W.2d 324 (Tex. Civ. App.-1933, writ ref'd); Dallas Joint Stock Land Bank In Dallas v. Maxey, 112 S.W.2d 305 (Tex. Civ. App.-Dallas 1937, no writ); and Woodward and Smith, Probate and Decedents' Estates, 18 TEXAS PRACTICE (1971),

20 debts. 14 Funeral and administration expenses 15 are not debts, but expenses of last illness are. 16 The family allowance is not, strictly speaking, a debt, and the th Circuit decision of Schwartz v. Commissioner, 17 indicates that such allowances are not subject to the superior priority of United States claims. This issue has yet to be squarely determined and there is contrary authority. 18 This means that the claims of the federal government, such as claims for income taxes, (1) will come ahead of all other creditor claims, (2) will come behind expenses of administration and funeral expenses, and (3) may come in behind allowances, although this is uncertain. This is certainly inconsistent with the Texas law, which, among other inconsistencies, would place allowances ahead of administration expenses. Do claims of Federal agencies that are in the commercial lending business, such as the SBA and the FHA constitute claims of United States? A good argument that they do not can be based upon the 1979 United States Supreme Court decision of United States v. Kimbell Foods, Inc PREFERRED DEBT AND LIEN HOLDERS. A secured creditor who by election or by operation of law has his claim classified and approved as a preferred debt and lien has a super priority over all other claims, but only to the extent of the value of the security. Such a creditor will forfeit his right to any deficiency Administration Expenses attributable to the Preservation of Property Subject to A PREFERRED DEBT AND LIEN. If a creditor elects preferred debt and lien treatment, the creditor generally comes ahead of all debts and expenses, including administration expenses, to the extent of the value of the security. But what if the administration expense was incurred to protect the security? Expenses that are directly attributable to preserving and maintaining the property subject to a preferred debt and lien may be paid out of U.S.C.A Hammond v. Carthage Sulphite Pulp and Paper Co., 34 F. 2d 155 (D.C. N.Y., 1928); U.S. v. Weisburn, 48 F. Supp. 393 (D.C. Pa. 1943). 16 Rev. Rul Schwartz v. Commissioner, 560 F.2d 311 (8th Cir. 1977). 18 Federal Reserve Bank of Dallas v. Smylie, 134 S.W.2d 838 (Tex. Civ. App.-Amarillo 1939, no writ). 19 United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59 L. Ed. 2d 711 (1979). 20 Tex. Prob. Code 306(d), second clause. Wyatt v. Morse, 129 Tex. 199, 102 S.W.2d 396 (1937); and Gross Nat'l Bank of San Antonio v. Merchant, 459 S.W.2d 483 (Tex. Civ. App.-San Antonio 1970, no writ). -7-

21 the proceeds of sale of the security. 21 C. SPECIAL PROBLEMS OF SECURED CREDITORS. Secured creditors are generally in a stronger position before the death of the debtor than afterwards. Before death, a creditor will generally have the right to foreclose upon his security and sue on the deficiency, if there is any, without being forced to make any special elections or submit claims in a special form or deal with 90 day statutes of limitations. After death, the secured creditor must subordinate his claim to claims of administration, if the creditor hopes to be able to recover the amount by which the debt exceeds the value of the security. If not very careful, the secured creditor may find that by inaction or by otherwise failing to properly elect, the law has made an election for her and she is restricted in her recovery to the value of the property securing the debt. 1. ELECTION Prob. Code was extensively rewritten by the 74th Legislature, effective January 1, 1996, and was amended again by the 75th Legislature, effective September 1, It now reads in full as follows: Sec Method of Handling Secured Claims for Money (a) Specifications of Claim. When a secured claim for money against an estate is presented, the claimant shall specify therein, in addition to all other matters required to be specified in claims: (1) Whether it is desired to have the claim allowed and approved as a matured secured claim to be paid in due course of administration, in which event it shall be so paid if allowed and approved; or (2) Whether it is desired to have the claim allowed, approved, and fixed as a preferred debt and lien against the specific property securing the indebtedness and paid according to the terms of the contract which secured the lien, in which event it shall be so allowed and approved if it is a valid lien; provided, however, that the personal representative may pay said claim prior to maturity if it is for the best interest of the estate to do so. (b) Time for Specification of Secured Claim. Within six months after the date letters are granted, or within four months after the date notice is received under Section 295 of this code, whichever is later, the secured creditor may present the creditor's claim and shall specify whether the claim is to be allowed and approved under Paragraph (1) or (2) of Subsection (a) of this section. If a 21 San Antonio Savings Association v. Beaudry, 769 S.W.2d 277 (Tex. Civ. App. Dallas 1989, writ den.). -8-

22 secured claim is not presented within the time prescribed by this subsection or if the claim is presented without specifying how the claim is to be paid, it shall be treated as a claim to be paid in accordance with Paragraph (2) of Subsection (a) hereof. (c) Matured Secured Claims. If a claim has been allowed and approved as a matured secured claim under Paragraph (1) of Subsection (a) of this section, the claim shall be paid in due course of administration and the secured creditor is not entitled to exercise any other remedies in a manner that prevents the preferential payment of claims and allowances described by Paragraphs (1) through (3) of Section 320(a) of this code. (d) Approved Claim as Preferred Lien Against Property. When an indebtedness has been allowed and approved under Paragraph (2) of Subsection (a) hereof, no further claim shall be made against other assets of the estate by reason thereof, but the same thereafter shall remain a preferred lien against the property securing same, and the property shall remain security for the debt in any distribution or sale thereof prior to final maturity and payment of the debt. (e) Payment of Maturities on Preferred Debt and Lien Claims. If property securing a claim allowed, approved, and fixed under Paragraph (2) of Subsection (a) hereof is not sold or distributed within six months from the date letters are granted, the representative of the estate shall promptly pay all maturities which have accrued on the debt according to the terms thereof, and shall perform all the terms of any contract securing same. If the representative defaults in such payment or performance, on application of the claimholder, the court shall: (1) require the sale of said property subject to the unmatured part of such debt and apply the proceeds of the sale to the liquidation of the maturities; (2) require the sale of the property free of the lien and apply the proceeds to the payment of the whole debt; or (3) authorize foreclosure by the claimholder by Subsections (f) through (k) of this section. (f) Foreclosure of Preferred Liens. An application by a claimholder under Subsection (e) of this section to foreclose the claimholder's lien or security interest on property securing a claim that has been allowed, approved, and fixed under Paragraph (2) of Subsection (a) of this section shall be supported by affidavit of the claimholder that: (1) describes the property or part of the property to be sold by foreclosure; -9-

23 debt; (2) describes the amounts of the claimholder's outstanding (3) describes the maturities that have accrued on the debt according to the terms of the debt; (4) describes any other debts secured by a mortgage, lien, or security interest against the property that are known by the claimholder; (5) contains a statement that the claimholder has no knowledge of the existence of any debts secured by the property other than those described by the application; and (6) requests permission for the claimholder to foreclose the claimholder's mortgage, lien, or security interest. (g) Citation. On the filing of an application, the clerk shall issue citation by personal service to the personal representative and to any person described by the application as having other debts secured by a mortgage, lien, or security interest against the property and by posting to any other person interested in the estate. The citation must require the person to appear and show cause why foreclosure should or should not be permitted. (h) Setting of Hearing on Application. When an application is filed, the clerk shall immediately notify the judge. The judge shall schedule in writing a date for a hearing on the application. The judge may, by entry on the docket or otherwise, continue the hearing for a reasonable time to allow an interested person to obtain an appraisal or other evidence concerning the fair market value of the property that is the subject of the application. If the interested person requests an unreasonable time for a continuance, the person must show good cause for the continuance. (i) Hearing. (1) At the hearing, if the court finds that there is a default in payment or performance under the contract that secures the payment of the claim, the court shall (A) require the sale of the property subject to the unmatured part of the debt and apply the proceeds of the sale to the liquidation of the maturities; (B) require the sale of the property free of the lien and apply the proceeds to the payment of the whole debt; or (C) authorize foreclosure by the claimholder as provided by Subsection (f) of this section. -10-

24 (2) When the court grants a claimholder the right of foreclosure, the court shall authorize the claimholder to foreclose the claimholder's mortgage, lien, or security interest in accordance with the provisions of the document creating the mortgage, lien, or security interest or in any other manner allowed by law. In the discretion of the court and based on the evidence presented at the hearing, the court may fix a minimum price for the property to be sold by foreclosure that does not exceed the fair market value of the property. If the court fixes a minimum price, the property may not be sold at the foreclosure sale for a lower price. (j) Appeal. Any person interested in the estate may appeal an order issued under Subsection (i)(1)(c) of this section. (k) Unsuccessful Foreclosure. If a foreclosure sale authorized under this section is conducted and the property is not sold because no bid at the sale met the minimum price set by the court, the claimholder may file another application under Subsection (f) of this section. The court may, in the court's discretion, eliminate or modify the minimum price requirement and grant permission for another foreclosure sale. [Emphasis added.] Subsections (e), (f), (i), and (j) amended by SB 506, enacted June 20, 1997, effective September 1, See note following Section 5A regarding effective date of SB 506. a. Matured Secured Claims. If a claim is properly presented and an election duly made within 6 months 22 after the original grant of letters (or four months after notice, if later), a secured creditor may have the claim classified as a matured secured Class 3 claim to be paid in due course of administration 23 ; otherwise the creditor is not entitled to any deficiency should the security prove inadequate. 24 As a Class 3 claim, a matured secured claim will be subordinate to funeral expenses and expenses of last illness up to $15,000 and to administration expenses. The claim will be superior to all other claims, however, including family allowances, up to the extent of the security. If there is any deficiency, it will be treated as a Class 7 unsecured claim. Although the issue is not entirely free from doubt, a matured secured claim is, by definition, matured, and the due date of the debt is 22 Tex. Prob. Code 306(b) 23 Tex. Prob. Code 298(a) and 306(a)(1). 24 Tex. Prob. Code 306(d), second clause. Wyatt v. Morse, 129 Tex. 199, 102 S.W.2d 396 (1937); and Gross Nat'l Bank of San Antonio v. Merchant, 459 S.W.2d 483 (Tex. Civ. App.-San Antonio 1970, no writ). -11-

25 therefore presumably accelerated. 25 But there is not necessarily a right to accelerate a long term unsecured class 7 debt or a preferred secured claim! b. Preferred Debt And Lien. A secured creditor may have his claim approved as a preferred debt and lien against the specific property securing the indebtedness, to be paid according to the terms of the contract. 26 A creditor who has elected (or who is deemed to have elected) preferred debt and lien treatment will have a super priority over everyone, but only to the extent of the value of his security. He will forfeit any deficiency, whether or not the estate is solvent. 27 The preferred debt and lien secured creditor cannot accelerate the due date of his debt. However, the personal representative may elect to pay the claim prior to maturity if it is in the best interest of the estate to do so (e)&(f) now provide elaborate provisions governing the remedies of the preferred debt and lien holder in the event of default. Although a preferred debt and lien claim ordinarily comes ahead of administration expenses, administration expenses incurred directly for the preservation of the property subject to the lien are probably deductible against the proceeds. c. Failure To Elect Matured Secured Status. Section 306(b) is explicit that a secured claim will be classified as a preferred debt and lien (which can be satisfied only against the property securing the lien) unless the creditor affirmatively elects to have the claim classified as a matured secured claim within six months after the date letters are granted or within four months after the date notice is received under Section 295 of this code, whichever is later. In other words, if the secured creditor either (a) fails to present his claim within 6 months from the issuance of letters, or within four months from the date the 295 notice was received (if later), or (b) fails to affirmatively elect (within that time) matured secured status, the Probate Code will 25 Woodward and Smith, Probate and Decedents' Estates, 18 TEXAS PRACTICE (1971) 916; Furguson v. Mounts, 281 S.W. 616 (Tex. Civ. App.-1926, writ dism'd); Burke v. Guilford Mortgage Co., 161 S.W.2d 574 (Tex. Civ. App.-1942, writ ref'd wom); and Wyatt v. Morse, 129 Tex. 199, 102 S.W.2d 396, 398 (1937). 26 Tex. Prob. Code 306(a)(2). 27 Tex. Prob. Code 306(d), second clause. Wyatt v. Morse, 129 Tex. 199, 102 S.W.2d 396 (1937); and Gross Nat'l Bank of San Antonio v. Merchant, 459 S.W.2d 483 (Tex. Civ. App.-San Antonio 1970, no writ). 28 Tex. Prob. Code 306(a)(2). -12-

26 make the preferred debt and lien election for him. 29 See the discussion of Cessna Finance Corp. v. Morrison, 667 S.W.2d 580 (Tex. App.- Houston [1st Dist.] 1984, no writ), infra. To be contrasted with the Cessna case, is Dallas Joint-Stock Land Bank v. Maxey, 112 S.W.2d 305 (Tex. Civ. App.-Dallas 1937, no writ) where administration expenses were charged against the security when it was sold, despite the failure of the secured creditor to affirmatively elect matured secured status. Note, however, that Maxey was decided prior to the amendment to the Probate Code 306(b), effective 1996, that now mandates preferred debt and lien treatment if the claimant fails to specify how the claim is to be paid. d. Secured Creditors Under an Independent Administrations. Historically, there were no Probate Code procedures for presenting a claim to an independent executor. 30 However, the secured creditor has always had the same option to have his claim treated as a matured secured claim, as in the case of a dependent administration. Until 1996, there was some controversy about whether or not the distinctions described in Probate Code 306 between matured secured claims and preferred debts and liens (and the time periods that can determine the distinction) applied in an independent administration. Two cases, Joffrion and Cox, held that Probate Code 306, as it then existed, did not apply to an independent administration. 31 Contrary to Joffrion and Cox, and subsequently to them,texas Commerce Bank, N.A. v. Geary, 32 held that old 306 does apply to independenet administrations, and that the 1995 change in the law was intended to clarify prior law. In 1995, however, Probate Code 146 was extensively rewritten. In 1997 it was slightly modifed. The statute now explicitly provides procedures applicable to secured claims in an independent administration: (b) Secured Claims for Money. Within six months after the date letters are granted or within four months after the date notice is received under Section 295, whichever is later, a creditor with a claim for money secured by real or personal property of the estate 29 Tex. Prob. Code 306(b). 30 Bunting v. Pearson, 430 S.W.2d 470 (Tex. 1978). 31 Joffrion v. Texas Bank of Tatum, 780 S.W.2d 451 (Tex. App.-Austin 1989, writ granted) and Texas Commerce Bank-Austin, N.A. v. Estate of George Cox, Deceased, 783 S.W.2d 16 (Tex. App.-Texarkana 1989, writ denied). Cf., Gibraltar Mortgage and Loan Corporation v. Lerman, 346 S.W.2d 487, 488 (Tex. App.-Waco 1961, no writ). 32 Texas Commerce Bank, N.A. v. Geary, 1996 Tex. App. LEXIS 4126, Docket No CV (Tex. App. Dallas Dallas [5th Dist.] 1996, n.w.h. to date). -13-

27 must give notice to the independent executor 33 of the creditor's election to have the creditor's claim approved as a matured secured claim to be paid in due course of administration. If the election is not made, the claim is a preferred debt and lien against the specific property securing the indebtedness and shall be paid according to the terms of the contract that secured the lien, and the claim may not be asserted against other assets of the estate. The independent executor may pay the claim before the claim matures if paying the claim before maturity is in the best interest of the estate. 34 [Emphasis added.] Note that 146 applies exclusively to independent administrations. Compare to 294 and TRAPS AND PITFALLS FOR THE SECURED CREDITOR. There is no better example of the fate that can befall a secured creditor than that presented in the fact pattern of Cessna Finance Corp. v. Morrison, 667 S.W.2d 580 (Tex. App.-Houston [1st Dist.] 1984, no writ). In this case, Cessna Finance Corp. had financed the purchase of an airplane. The plane crashed in South America while engaged in business about which we can only speculate. There was no insurance covering the crash. The creditor presented his $214,000 claim as a secured claim, but did not affirmatively elect to have the claim classified as a matured secured claim. The administrator rejected the claim, and took the position that the failure to affirmatively elect matured secured claim treatment meant that the debt would be classified as a preferred debt and lien as a matter of law. The Probate Court and the Court of Appeals agreed. This meant that the creditor's sole remedy was to go to South America to recover the pieces of the airplane that were scattered throughout the jungle. (To add insult to injury, the administrator counterclaimed for usury and received a judgment in excess of $100,000. The usury judgment was reversed on appeal, to show that life really is fair after all.) This case should be a warning to everyone. As illustrated by the Cessna case, the secured creditor can be placed in a position far inferior to the general creditor if the value of his security is insufficient to cover the debt. Care should therefore be taken to ensure that preferred debt and lien treatment does not come as a surprise. Consider the general security interest that is often given to a depository bank, under which the bank will have the right to set off against the proceeds in a checking or other account any debt otherwise owed by the account holder. 35 *A 33 In 1997 the phrase by certified or registered mail was deleted at this point from the statute. 34 Tex. Prob. Code 146(b). 35 See Black v. Gray, 280 S.W. 573 (Comm'n. App. 1926); Smalley v. Trammel, 11 Tex. 10; and Mitchell v. Rucker, 22 Tex. 66 (1958). -14-

28 1992 Texas Supreme Court case, relying in part on Prob. Code 449, held that bank that is both a creditor and a debtor of a decedent s estate has the equitable right to set off the assets of the estate against the decedent s debts without following the claims procedures of the Texas Probate Code. 36 There are probably many situations where a general creditor may, by operation of law or otherwise, be a secured creditor to some extent. As indicated, if a creditor is a secured creditor, the creditor will have to affirmatively elect, in the proper form and within the statutory time periods, matured status, or the creditor may find that his security, inadequate though it may be, will be all to which he is entitled. It is perhaps worth remembering in this context that if a creditor somehow fails to perfect his claim against the estate, he may still proceed against the surviving spouse, if any, if the claim is a community debt for which the spouse is liable under other rules of law PRE-DEATH JUDGMENT LIEN CREDITOR. Is the pre-death judgment lien creditor a secured creditor? Generally, a judgment creditor must present his claim in the same manner as any other creditor, and may not simply execute on the estate. 38 Furthermore, it has been stated that a money judgment does not give the judgment creditor a secured lien against specific property of the debtor. 39 However, if the judgment has been abstracted against a specific piece of real property, there is an argument that the claim should be treated as secured. 40 There is authority for a contrary rule if the property was homestead. 41 If this is a secured claim, must the judgment creditor elect to have the claim treated as either a matured secured or preferred debt and lien? If preferred debt and lien treatment is elected or applies by default, how can the claimant be paid according to the terms of the contract which secured the lien as required by Prob. 36 Bandy v. First State Bank, 1992 WL (Tex. 1992) (not yet reported?). Real Estate, Probate and Trust Law Newsletter, July 1992, Vol. 30, No See Albiar v. Arguello, 612 S.W.2d 219 (Tex. Civ. App.-Eastland 1980, no writ). 38 Harms v. Ehlers, 179 S.W.2d 582 (Tex. Civ. App.-Austin 1944, writ ref'd); Long v. Castaneda, 475 S.W.2d 578 (Tex. Civ. App.-Corpus Christi 1971, writ ref'd n.r.e.); Dent v. A. Harris & Co., 255 S.W. 221 (Tex. Civ. App. 1923, no writ), and First National Bank v. Cone, 170 S.W.2d 782 (Tex. Civ. App.- Fort Worth 1943, writ ref'd). 39 Flournoy Drilling Company v. Walker, 750 S.W.2d 911 (Tex. App.-Corpus Christi 1988, writ denied). 40 Kiolbassa v. Raley, 23 S.W. 253 (Tex. Civ. App. 1892); First National Bank v. Cone, 170 S.W.2d 782 (Tex. Civ. App.- Fort Worth 1943, writ ref'd). 41 Harms v. Ehlers, 179 S.W.2d 582 (Tex. Civ. App.-Austin 1944, writ ref'd). -15-