English v. Sanchez

• Decision Date: 27 June 1990
• Docket Number: No. 18123,18123
• Citation: 110 N.M. 343,1990 NMSC 64,796 P.2d 236
• Parties: Donald H. ENGLISH, Plaintiff-Appellant, v. Steve SANCHEZ and Lillian Sanchez, Defendants-Appellees.
• Court: New Mexico Supreme Court

Page 236

796 P.2d 236

110 N.M. 343

Donald H. ENGLISH, Plaintiff-Appellant, v. Steve SANCHEZ and Lillian Sanchez, Defendants-Appellees.

No. 18123.

Supreme Court of New Mexico.

June 27, 1990.

[110 NM 343] Singer, Smith & Williams, Mary E. Stewart, Albuquerque, for plaintiff-appellant.

[110 NM 344] R. Russell Rager, Albuquerque, for defendants-appellees.

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, Secs. 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 ex ceptions 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, Sec. 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 40-3-8(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, Sec. 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...