Fraud or Bad Faith Management of Community Property

CC 2354 Liability for fraud or bad faith
A spouse is liable for any loss or damage caused by fraud or bad faith in the management of the community property.
CC 2354: Explanation
CC 2354 is an exception to the general bar to inter-spousal suits. You can sue the spouse during marriage in this article for fraud or bad faith in management of community property.
Domain
Only applies to community property, but does not apply after community has terminated.
CC 2374 A
It allowed the spouse to get a judgment declaring separate property regime when community property is threatened to be diminished by the “fraud, fault, neglect, or incompetence of the other spouse.” Fraud for 2354 purposes is not the same thing as fraud, neglect or incompetence. Just making a bad business decision is not enough here! You need intent to deceive the other spouse. Need some subjective evidence of bad intent to screw spouse. This won’t be easy to prove.
What about Bad faith under 2354?
Bad Faith: not in 2354. Obligations CC 1997: comment (c): bad faith is an intentional and malicious failure to perform. Intentional means purposefully entering into transaction or doing nothing. Malicious: you wanted to hurt someone. It sounds a lot like fraud, but common sense tells you it must be something different. Many scholars say that this is a problem.
Difference b/t fraud and bad faith
Fraud requires intent to deceive, and bad faith requires intent to injure. Fraud is a little worse.
On Exam
Analyze bad faith and fraud on exam! What is clear is that for both, we are looking for a SUBJECTIVE INTENTION. FOCUS ON MOTIVATION OF SPOUSE.
If proving SUBJECTIVE INTENT what facts need to provided…
Plaintiff bears the burden of proof,must prove SUBJECTIVE INTENT. Some proof might include; circumstance surrounding buyer in sale case, price (sell for much less than the value) but not always about price.
Aymond case
Not bad faith management, b/c he was trying to live. Bad business decision. Necessitous circumstance and not enough to show bad faith.
Landry Case:
Just b/c you do not tell your spouse does not constitute bad faith or fraud, need more facts.
Thigpen/Auger Cases
timing of transaction is essential; specifically, if separation was imminent at time of transaction this is usually enough. Was the transaction a secret? Also, look at the price at which the item/property was sold and to whom it was sold (i.e. family member)
Remedy: Damages
Under 2354, we measure damages according to Thigpen and Auger:
½ difference b/t value and sale price. Value: 5k (appraisal is evidence of this); 1k is sale price = 4k community loss. A’s damages are 2k. This takes into account the loss profit of which A has been deprived. A is awarded ½ of the community loss.
Remedy: Annulling the transaction
CC 2354 does not expressly authorize it, but what about obligations when a creditor can set aside an act in fraud of his rights? Revocatory or Oblique actions! AWAY!
CC 2036 (Revocatory Action) and CC 2044 (Oblique Action)
Both allow an obligee to annul a transaction that caused or increased the debtor’s insolvency. These articles allow for a situation in which a creditor can annul a transaction of a third party when it made him unable to pay. BUT do these obligations articles apply here in the mat. Regimes context? Both articles and general obligations law make it necessary that you must be a creditor.
General Rule about revocatory actions and oblique actions
revocatory and oblique action are NOT available in the matrimonial regimes context, b/c they require you to be a creditor.
Reimbursement
only way this can happen is if a spouse has separate funds and uses those funds to do something for the community. Then one spouse may be creditor.(Although, no case that says this is certain, but may be possible)
CC 2026 – Absolute Simulation
Intended effect of K is nothing so it has no effect to third party. Ex. A phony sale to escape creditors.
In Mat. Regimes context, a simulation of one spouse would have no effect and would remain community property.
General Rule for Absolute Simulation
Damages, but there is a potential for getting property recognized as community if simulation is proven.