English v. Sanchez

796 P.2d 236, 110 N.M. 343

• Court: New Mexico Supreme Court
• Decided: June 27, 1990
• Docket: 18123
• Status: Published

Opinions

OPINION

RANSOM, Justice.

Donald H. English appeals a summary judgment in favor of Steve and Lillian Sanchez whom English sued for the balance owing on a real estate contract. On February 22, 1982, the Sanchezes had contracted to buy from English about fifty acres of undeveloped land in Taos County, New Mexico. They paid $5,000 down and thereafter made monthly payments against the initial principal balance of $14,000. The contract was adjudged void because English’s wife Emma did not join as required by NMSA 1978, Section 40-3-13(A). New Mexico Community Property Act of 1973, NMSA 1978, §§ 40-3-6 to 40-3-17 (Repl.Pamp.1989). Section 40-3-13(A) provides that “Any transfer, conveyance, mortgage or lease or contract to transfer, convey, mortgage or lease any interest in the community real property * * * attempted to be made by either spouse alone in violation of the provisions of this section shall be void and of no effect * * *.” The district court also awarded the Sanchezes a judgment of $16,596.14 on their counterclaim for installment payments made to English over a six-year period. We reverse and remand for trial.

When the parties entered into the contract, no deeds were prepared to be held in escrow, and, in fact, the legal title to the property was in the name of Dixon Enterprises, Inc., a New Mexico corporation. Three days later, Dixon Enterprises executed a warranty deed giving title to San Juan Enterprises, Inc., another New Mexico corporation owned by Donald and Emma English. This deed was not recorded until August 1985. Later, in 1986, San Juan Enterprises insured its interest in the property by taking out a title insurance policy.

In February 1988, six years after entering into the sales contract, the Sanchezes defaulted on their payments. On March 2, English, for himself individually, and as president of San Juan Enterprises, unilaterally executed an addendum agreement to the real estate contract changing the name of the seller from Donald H. English to San Juan Enterprises, Inc. On March 10, in apparent contradiction of the previous week’s action, San Juan Enterprises transferred title in the land to English by a warranty deed recorded on March 18. The next day, English, as “Owner on [the] Real Estate Contract dated February 22, 1982,” sent a letter, through his attorney, demanding payment from the Sanchezes of all sums in arrears. English later brought this suit in his name only, to collect the entire unpaid principal balance, plus accrued interest, a total of $12,330.09. No issue has been raised on appeal regarding the March 2 addendum.

In their answer, the Sanchezes raised as a defense the failure of Emma to join with her husband in the contract for sale. They also filed their counterclaim to rescind the contract (to declare it void) and recover all payments to date, $16,596.14. In opposition to summary judgment, English claimed the real estate was his separate property, never had been community property, and that the doctrine of after-acquired title applied to vest legal title in himself sufficient for all purposes in connection with the real estate contract. In support of his claim he attached a written agreement between himself and Emma designating the fifty acres as his separate property, together with affidavits from both husband and wife stating that Emma had no interest in the real estate. These documents were executed on September 9, 1988, three months after suit was filed.

The district court concluded that English had “failed to show in any way that the property to be acquired and sold under the subject Real Estate Contract would be anything but community property.” The court found the contract to be void, granted the Sanchezes’ summary judgment motion, and ordered repayment of the $16,596.14 plus costs.

On appeal, English raises the following issues: (1) whether there is a genuine issue of fact that the real estate was not community property; (2) whether the application of certain equitable principles or other exceptions are available to avoid the application of Section 40-3-13(A); and (3) whether the doctrine of after-acquired title prevents the contract from being void.

The chain of title to this property and its relation to the time the real estate contract was executed are important factors in the resolution of the questions raised in this appeal. As mentioned, English did not have title to the property at the time he executed the contract of sale. However, a person may enter into a valid contract to sell real estate to which he has no title, provided he is able to carry through with the transaction after the final payment is made or tendered. Clark v. Ingle, 58 N.M. 136, 266 P.2d 672 (1954).

Until March 10, 1988, title to the property was in the names of Dixon Enterprises and San Juan Enterprises. The latter corporation was wholly owned by Donald and Emma English. Still, San Juan Enterprises, acting through its officers, could execute valid real estate contracts or deeds to corporate real estate without the restrictions placed upon the sale of community real property. See Phillips v. Wagner, 470 So.2d 262 (La.Ct.App.) (where marital community owns shares of stock in a closely held corporation, the corporation and not the community owns the corporate real estate assets), cert. denied, 474 So.2d 948 (1985); Boothe Fin. Corp. v. Loretto Block, Inc., 97 N.M. 496, 641 P.2d 527 (Ct.App.1982) (a corporation and its shareholders are separate entities even when one shareholder owns all of the stock); see also Dotson v. Grice, 98 N.M. 207, 647 P.2d 409 (1982) (community real property contributed to a partnership is treated as an asset of the partnership and is not subject to statutory joinder requirement for its conveyance).

English, for reasons not clear in the record, nonetheless chose to enter into the original contract of sale as an individual; and he claims in this suit to be individually entitled to the seller’s rights under the contract. Consequently, we begin our analysis of the issues by first deciding whether, at the moment when San Juan Enterprises transferred title to English, (1) the property necessarily became a community asset and, if so, (2) whether an otherwise valid existing contract for its sale in which both spouses had not joined was then void for all purposes under Section 40-3-13(A).

Under existing case law, we are of the opinion that the asset should be held to have become community real property when the title passed to Donald English on March 18, 1988. It is well settled that property takes its distinctive legal title, either as community property or as separate property, at the time it is acquired, and is fixed by the manner of its acquisition. Bustos v. Bustos, 100 N.M. 556, 673 P.2d 1289 (1983); Nichols v. Nichols, 98 N.M. 322, 648 P.2d 780 (1982).

Under our statutes, community property is defined by exclusion. All property acquired by either spouse during marriage that is not the separate property of one spouse, as defined in Section 40-3-8(A) & (B), is community property. See NMSA 1978, § 40-3-8. Separate property may be proved, and the presumption of community property under Section 40-3-12(A) overcome, only through showing, by a preponderance of the evidence, that the property was acquired under one of the subsections of Section 40-3-8.¹ C & L Lumber & Supply, Inc. v. Texas Am. Bank, 110 N.M. 291, 795 P.2d 502 (1990); Arch, Ltd. v. Yu, 108 N.M. 67, 766 P.2d 911 (1988).

English presented no evidence that he acquired the property with his separate funds, or through gift, bequest, devise or descent. At the time he took title to the property, there was no written agreement between the spouses designating it under Section 4Q-3-8(A)(5) as his separate estate. Since property takes its status as either separate or community at the very time it is acquired, we must conclude it was acquired as an asset of the marital community when title passed to English.

Having said this, however, we still must decide if an otherwise valid and fully enforceable real estate sales contract, executed by a single spouse, is rendered wholly void under Section 40-3-13(A) because the asset later was acquired by the community. We think not. We agree that the contract was void as to after-acquired community property, but hold it was valid as to the after-acquired real estate when it was transmuted and owned by the seller as his separate estate. We believe this result comports with both the letter and the spirit of the joinder statute, and in reaching this decision we overrule no previous cases. Rather, the result we reach today reflects a decision to confine the “wholly void” interpretation and application of Section 40-3-13(A) to existing factual precedents.

A requirement that both spouses join in the execution of certain transactions has been a familiar part of our community property system since it was enacted in 1907. See 1907 N.M.Laws, ch. 37. The requirement initially encompassed only the homestead but later was expanded to deeds and mortgages affecting all community real estate. See 1915 N.M.Laws, ch. 84, § 1. The requirement was rigidly enforced and was predicated upon the possible need to protect the wife’s interest in community property from her husband’s otherwise almost exclusive control. See Treadwell v. Henderson, 58 N.M. 230, 241, 269 P.2d 1108, 1116 (1954) (Sadler, J., dissenting).

In Jenkins v. Huntsinger, 46 N.M. 168, 125 P.2d 327 (1942), this Court decided that the words “void and of no effect,” as used in the joinder statute in effect at that time, would be construed as rendering any attempted conveyance in violation of the statute as a nullity, as against the construction that the statute should be construed as meaning “voidable” only. Jenkins, 46 N.M. at 171-72, 125 P.2d at 329. The Jenkins court rejected the applicability of the doctrines of reformation, after-acquired title and estoppel stating “any effort to breathe life into an instrument for which there was never any authority for its making [and which] the statute condemns in advance as a nullity * * * ought to be, as it is, wholly unavailing.” Id. at 178, 125 P.2d at 333.

Essentially, the Jenkins court treated such an instrument as being tainted with illegality, contrary to a general public policy and therefore void for all intents from its inception. This rather extreme view of the meaning of the joinder statute was reaffirmed shortly thereafter in McGrail v. Fields, 53 N.M. 158, 203 P.2d 1000 (1949) (stating that even if the Court were doubtful of its earlier decision they would not disturb it as it had become a “rule of property”).

The joinder statute remained essentially unchanged until after passage of the New Mexico Equal Rights Amendment in 1972. This amendment to Article II, Section 18 of the state constitution mandated equality of rights under the law irrespective of sex and necessitated immediate change in the law in order to provide both spouses with equal powers of management and control over community property. See Bingaman, The Effects of an Equal Rights Amendment on the New Mexico System of Community Property: Problems of Characterization, Management and Control, 3 N.M.L.Rev. 11 (1973). Towards this end, the Community Property Act of 1973 retained the joinder requirement for the execution of deeds and mortgages and broadened its scope to include leases and contracts to convey community real property. Thus, the present joinder statute can be said to reflect both the earlier desire to protect the financial interests of the non-joining spouse as well as a desire to force societal change and coerce married couples to consult on certain major transactions affecting the community.

The new joinder statute carried forward the “void and no effect” language of its predecessor. See 1973 N.M.Laws, ch. 320, § 8. According to Professor Bingaman the statute was drafted to preserve the holdings of the earlier decisions in Jenkins and McGrail. Bingaman at 31. However, while the New Mexico Legislature might be viewed as continuing to embrace and even expand the application of a nullity doctrine, it is worth pointing out that every other community property jurisdiction has moved in just the opposite direction. No other community property state continues to use the term “void” in its statutes nor takes the view that a spouse is incapable of ratifying an invalid transfer of real property. See Ariz.Rev.Stat.Ann. § 25-214 (1976) (added 1973); Cal.Civ.Code § 5127 (West 1983 & Supp.1990) (amended 1987); Idaho Code § 32-912 (1983) (amended 1974); La. Civ.Code Ann. art. 2347 (West 1985); Nev. Rev.Stat. § 123.230 (1987); Tex.Fam.Code Ann. § 5.22 (Vernon 1975) (amended 1974); Wash.Rev.Code § 26.16.030 (1989) (amended 1981).

Our decisions since the passage of the Community Property Act of 1973 have continued to follow our earlier precedents and have found all contracts to convey community real property not joined by both spouses “void and of no effect,” absent a validly executed and recorded power of attorney. See Hannah v. Tennant, 92 N.M. 444, 589 P.2d 1035 (1979); see also Arch, Ltd. v. Yu, 108 N.M. 67, 766 P.2d 911 (1988); Sims v. Craig, 96 N.M. 33, 627 P.2d 875 (1981). And, since the addition to the joinder statute in 1973 of “contracts” to convey, we seemingly have overruled, sub silentio, our previous decisions that allowed a breach of contract action, by either the vendor or the vendee, when a real estate purchase agreement lacked execution by the seller’s spouse, a requirement under our previous decisions for granting specific performance to the vendee. Compare Viramontes v. Fox, 65 N.M. 275, 335 P.2d 1071 (1959) and Conley v. Davidson, 35 N.M. 173, 291 P. 489 (1930) with Sims and Hannah. We even have allowed the joinder statute to be raised as an affirmative defense by the vendees to such a contract, against the spouses, and have rejected the claim that a defective conveyance might be cured by the ratification by the nonjoining spouse. See Hannah, 92 N.M. at 445, 589 P.2d at 1036.

Under these circumstances, we believe that the proper initiative for a departure from these precedents lies with the legislature rather than this Court. This Court has recognized that decisions involving a rule of property affecting title to real estate should be overruled only for the most compelling reasons.² E.g., Duncan v. Brown, 18 N.M. 579, 139 P. 140 (1914); see also State ex rel. Bliss v. Dority, 55 N.M. 12, 225 P.2d 1007 (1950); In re Lewis’ Will, 41 N.M. 522, 71 P.2d 1032 (1937). However, we feel no compulsion to expand the application of a nullity or wholly-void doctrine beyond its present limits, in this case to a contract for sale of land that was fully enforceable and valid at the time of its execution. At that time the contract did not attempt to convey an interest in community real property. The validity of the contract was only thrown into question by the claim that when English acquired title to the property, six years later, the asset assumed the legal status of community property.

Since 1973, the legislature has provided that spouses are free to designate separate property by written agreement. Section 40-3-8(A)(5). The issue of the contract’s validity might have been avoided had Emma English designated the property as her husband’s separate estate by means of a written agreement executed contemporaneously with the San Juan Enterprises deed. Here, however, the written agreement designating the fifty acres as separate property was executed well after the acquisition of title from San Juan Enterprises, and subsequent to the motion for summary judgment by the Sanchezes. As stated above, conclusiveness of the community property presumption is fixed by traditional case law at the time of acquisition. In the absence of any material question of fact as to its validity, the agreement nonetheless is determinative of the question of transmutation.

We need not decide whether such a post hoc agreement, standing alone, avoids the prohibition of the joinder statute. Our pri- or decisions would indicate it should not do so. We hold simply that a sales contract, valid at the time of execution, is valid as to after-acquired separate property, once transmuted by written agreement between the spouses. The fact that the property was held for an interim as an asset of the community may have rendered the contract void for purposes of selling community property, but the interim holding of the property by the community need not void the contract for the purpose of selling separate property that is acquired through transmutation.

The transmutation alleged by English in response to the motion for summary judgment occurred prior to the adjudication of that motion. The affidavits and written agreement, therefore, raised a material issue of fact as to whether English had cured any deficiency in the original complaint and was entitled to a trial on the merits of a valid claim for relief. When a pleading is defective in its statement of a claim for relief a court may allow the filing of. supplemental pleadings, alleging material facts occurring after the original was filed, in order to correct the original insufficiency. See SCRA 1986, 1-015(E); Amar v. Garnier Enterprises, Inc., 41 F.R.D. 211 (1966). Similarly, a party may présent these facts to the court in the form of affidavits in support of, or in response to, a motion for summary judgment. See, e.g., Electric Supply Co. v. United States Fidelity & Guar. Co., 79 N.M. 722, 449 P.2d 324 (1969).

The order of summary judgment is reversed, and the case is remanded for further proceedings consistent with this opinion.

IT IS SO ORDERED.

SOSA, C.J., and BACA, J., concur. MONTGOMERY, J., specially concurs. WILSON, J., concurs in special concurrence.

1 . The statute provides, in part, that separate property consists of property brought to the marriage by either spouse or acquired during marriage by gift, bequest, devise or descent, together with its rents, issues and profits. Section 40-3-8. Additionally, spouses may designate separate property by written agreement. Id. As long as identity can be traced, separate property retains its legal characteristics. See Nichols v. Nichols, 98 N.M. 322, 648 P.2d 780 (1982).

2 . Contrary to the suggestion in Justice Montgomery’s special concurrence, Hannah and C & L Lumber are not anomalies. There are other cases in which this Court has allowed the joinder issue to be raised by parties that might be characterized as "strangers to the marital relationship." For example, the Jenkins Court rejected a construction of the joinder statute to mean that noncompliance rendered the instrument "voidable,” i.e., voidable at the election of one of the spouses. Implicit in the court’s decision was recognition that strangers to the marital relationship might raise the issue. This is exactly what happened in Jenkins. The suit was between two parties, Jenkins and Huntsinger, each of whom had received a deed to certain real estate from a Mr. Roberts. Jenkins had received his deed when Roberts was a married man. Huntsinger had received his deed six years later when Roberts, now divorced, owned the property in fee simple. Both parties were grantees of Roberts and neither can be said to have represented the interests of the previous martial community. Huntsinger raised the joinder issue and the deed received by Jenkins was declared wholly void. Cf. Mounsey v. Stahl, 62 N.M. 135, 306 P.2d 258 (1956) (joinder issue raised by party who purchased mineral deed from man many years after the same man, then married, had conveyed the mineral interest to another individual; earlier conveyance held void).