Arch, Ltd. v. Yu, 17417

• Decision Date: 21 December 1988
• Docket Number: No. 17417,17417
• Parties: ARCH, LTD. and H. Sam Archuleta, Plaintiffs-Appellees, v. Daniel T. YU, Defendant-Appellant.
• Court: New Mexico Supreme Court

Page 911

766 P.2d 911

108 N.M. 67

ARCH, LTD. and H. Sam Archuleta, Plaintiffs-Appellees, v. Daniel T. YU, Defendant-Appellant.

No. 17417.

Supreme Court of New Mexico.

Dec. 21, 1988.

Rehearing Denied Jan. 23, 1989.

[108 N.M. 68] Coors & Ginsburg, Henry G. Coors, Albuquerque, for defendant-appellant.

Rhodes & Salmon, P.C., Mark M. Rhodes, Albuquerque, for plaintiffs-appellees.

OPINION

RANSOM, Justice.

Plaintiff Arch, Ltd. (Arch) and its general partner, H. Sam Archuleta, brought suit against defendant Daniel T. Yu for damages arising from the breach of a real estate exchange agreement. Following a bench trial, the district court awarded judgment in favor of Arch in the principal amount of $114,851.40 for actual and consequential damages. We reverse.

On January 15, 1985, by written contract, Yu agreed to the exchange of two office buildings owned by Archuleta ¹ for the price of $800,000 to be paid to Arch by delivering $700,000 in cash at closing and transfering title to a house and two lots that had a combined equity value of $100,000. Also included was a leaseback provision in which Archuleta and Company, P.C., a nonparty to this suit, "agree[d] to leaseback after closing" space in one of the office buildings. On February 25, the parties executed an addendum to the agreement that provided for equal sharing of all expenses attributable to new leases entered into between February 14 and April 15, the closing date, so long as the parties jointly agreed upon the terms of each prospective lease. The closing date was subsequently extended by mutual agreement after the closing agent discovered that the mortgage on Yu's house was not assumable as previously represented. Archuleta subsequently obtained financing to cover the remainder due on the house mortgage and notified Yu that he was ready to close.

The trial court found that on April 22, 1985, Arch, through its agent Archuleta, performed on its obligation under the agreement, executed all documents, and transferred title in the office buildings to Yu. The court further found that, after Yu refused to perform under the agreement, Arch made a written demand for Yu to close on May 2. The court concluded that Yu failed to perform his obligations under the agreement. The actual damages awarded Arch represented the difference between the contract price ($800,000) and the market value of the office buildings at the time the closing was to have occurred ($700,000). Further, a portion of the consequential damages was to compensate Archuleta and Company, P.C., for additional lease expenses ($10,800) it incurred as a result of Yu's failure to close the transaction. Costs and post-judgment interest were also awarded.

On appeal, Yu raises the following issues: (1) whether substantial evidence supports a finding that the house and two lots were owned by Yu as separate property; (2) if the Court determines the house and two lots to be community property, whether the exchange agreement is void in its entirety under NMSA 1978, Section 40-3-13 (Repl.Pamp.1986), negating an action on the contract for damages, or is divisible leaving that portion supported by valid consideration enforceable; (3) whether the addendum to the exchange agreement is enforceable; (4) whether there was substantial evidence to support the finding that Yu's failure to close the transaction denied Archuleta and Company, P.C., an opportunity to lease office space in one of the subject buildings and (5) regardless, whether the court erred in awarding consequential damages in favor of Archuleta and Company, P.C., because it was not a party to the suit.

At trial, Yu raised the affirmative defense under Section 40-3-13 which requires that both spouses join in a contract to convey community real property. See Hannah v. Tennant, 92 N.M. 444, 589 P.2d 1035 (1979). InHannah, this Court held that "a contract for the sale of an interest in community real property, which has not been signed by both husband and wife, is unenforceable, void and of no effect, absent a validly executed and recorded power of attorney." Id. at 446, 589 P.2d at 1037 (emphasis in original). It is undisputed that Yu's wife, Bernice, did not sign either the exchange agreement or the addendum. On appeal, Yu maintains that there is no substantial evidence to support a finding that the property in question was his separate property.

Initially, we note that Yu neither raised this affirmative defense in his pleadings nor moved to conform his pleadings to the evidence under SCRA 1986, 1-015(B). Citing United Nuclear Corp. v. General Atomic Co., 93 N.M. 105, 597 P.2d 290, cert. denied, 444 U.S. 911, 100 S.Ct. 222, 62 L.Ed.2d 145 (1979), Arch maintains that Yu's failure to plead this affirmative defense constitutes its waiver. However, the issue was raised by Yu at trial, litigated without objection by Arch, and ruled upon by the court. Consequently, any issue of waiver is not before us on appeal. See Terrill v. Western Am. Life Ins. Co., 85 N.M. 456, 513 P.2d 390 (1973).

Under Hannah, Yu had the burden of proving the property at issue was community property. See Otero v. Buslee, 695 F.2d 1244 (10th Cir.1982). Yu introduced into evidence a warranty deed for the house and a warranty deed for the two lots that conveyed title to Mr. and Mrs. Yu. Under Section 40-3-12, property acquired during marriage by either husband or wife, or both, is presumed to be community property. Marquez v. Marquez, 85 N.M. 470, 513 P.2d 713 (1973). Because this evidence established the affirmative defense prima facie, Yu shifted the burden to Arch to rebut the presumption that the house and two lots were held as community property. See Otero, 695 F.2d at 1249 n. 4.

Arch asserts, however, that under Otero Yu did not establish that the property in question is community property by simply introducing warranty deeds conveying title to Yu and his wife years prior to the execution of the real estate exchange agreement. Arch maintains that Yu had the burden to demonstrate that no power of attorney had been recorded or to produce a title search establishing that, at the time of closing, record title to the real estate was held as community property.

Arch's reliance on Otero is misplaced. In Otero, the purchasers, the Buslees, breached a contract to purchase real estate from Otero. In defense, the Buslees claimed that the contract was void under Section 40-3-13 because Otero did not have a valid power of attorney from his wife to convey the jointly-owned property. The court ruled that to make a prima facie showing of this affirmative defense, lack of power of attorney, the Buslees had to offer some evidence that there was no properly recorded power of attorney; but they offered no evidence suggesting that there was none. Here, Yu's introduction of the warranty deeds was sufficient to establish prima facie that the real estate was held as community property.

Therefore, the issue to be resolved on appeal is whether substantial evidence exists to support a finding that Arch overcame the community property presumption. Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Toltec Int'l, Inc. v. Village of Ruidoso, 95 N.M. 82, 84, 619 P.2d 186, 188 (1980). The litigant asserting the separate character of property has the burden of establishing separate ownership by a preponderance of the evidence. Nichols v. Nichols, 98 N.M. 322, 327, 648 P.2d 780, 785 (1982).

We do not believe there is substantial evidence to support Arch's burden. Arch first points to Yu's admission in his answer to both the original complaint and the amended complaint that he owned the property in question, which he did. Yu's failure to qualify in his pleadings that his spouse held a community interest in the property is now immaterial. At trial, Yu raised his affirmative defense which was litigated without objection. Consequently, the pleadings are deemed amended under SCRA 1986, 1-015(B). See Aguayo v. Village of Chama, 79 N.M. 729, 449 P.2d 331 (1969).

Other evidence presented by Arch was testimony that during the contract negotiations Yu represented to Archuleta that the property was owned solely by Yu and that Yu's wife had no community interest in it. Also, Yu testified that he provided only one signature...