DROEGER v. FRIEDMAN SLOAN ROSS (1990)

This appeal raises the question of whether a spouse may effectively encumber community real property during the marriage to the extent of that spouse's half interest in the realty without the consent of the other spouse.   We conclude that pursuant to Civil Code section 5127¹ , both spouses must consent to the encumbrance on the community realty or it is void in its entirety.

FACTUAL BACKGROUND

In 1982, Joanna Droeger (Droeger) commenced a marital dissolution proceeding against John Droeger (appellant).   Droeger retained respondent Friedman, Sloan & Ross as her counsel in that proceeding.   In October 1986, respondent moved for an order awarding attorneys' fees and costs of over $50,000 pendente lite pursuant to section 4370.   The family law court granted the motion in part, awarding respondent $9,600 for attorneys' fees and costs.   The court reserved consideration of respondent's request for additional attorneys' fees and costs until the time of trial.

On November 3, 1986, Droeger executed a promissory note in the amount of $31,158.66 in favor of respondent to secure payment of attorneys' fees and costs.²  On the same day, Droeger executed a deed of trust on two parcels of the community's real property securing the note.   Appellant did not join in the execution of the note and was given no prior notice of the transaction.

Appellant commenced this action to quiet title to the community realty which is the subject of the deed of trust.   Relying on Mitchell v. American Reserve Ins. Co. (1980) 110 Cal.App.3d 220, 167 Cal.Rptr. 760, respondent demurred to appellant's second amended complaint, claiming that the deed of trust was enforceable against Droeger's one-half interest in the property.   The court sustained the demurrer without leave to amend and entered a judgment of dismissal.

Appellant thereafter brought a motion for reconsideration and to vacate the judgment.   He argued that the Mitchell case was distinguishable and that Droeger's encumbrance of the community realty violated a stipulated order which restrained Droeger and appellant from encumbering any property without prior notice to the opposing party of the proposed disposition and an accounting to the court.   Appellant also contended that the encumbrance violated the court's order which reserved until trial the issue of the extent of the community's liability for attorneys' fees.   The court summarily denied appellant's motion.   This appeal followed.   The dissolution proceeding is being held in abeyance pending resolution of the appeal.

DISCUSSION

I. Section 5127

 Appellant contends that pursuant to section 5127, Droeger's encumbrance on the community real property is void in its entirety.

Section 5127 provides in pertinent part:  “Except as provided in Sections 5110.150 and 5128, either spouse has the management and control of the community real property, ․ but both spouses either personally or by duly authorized agent, must join in executing any instrument by which such community real property or any interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered;  ․”

There is a split of authority in the courts of appeal as to whether a nonconsenting spouse may void the entire encumbrance pursuant to section 5127 or whether the transaction is voidable only as to that spouse's one-half interest in the community real property.  (Compare Mitchell v. American Reserve Ins. Co., supra, 110 Cal.App.3d 220, 223, 167 Cal.Rptr. 760 to Andrade Development Co. v. Martin (1982) 138 Cal.App.3d 330, 334–339, 187 Cal.Rptr. 863.)

In Mitchell, supra, the court held that a nonconsenting spouse could void an encumbrance on the community's real property only to the extent of the spouse's one-half interest in the property.  (Mitchell v. American Reserve Ins. Co., supra, 110 Cal.App.3d at p. 223, 167 Cal.Rptr. 760.)   The court reasoned that because the community is liable for the contracts of either spouse which are made after marriage, the community realty is subject to execution for the debts contracted during marriage.  (Ibid.)  (See, also, Head v. Crawford (1984) 156 Cal.App.3d 11, 17–18, 202 Cal.Rptr. 534 [adopting the Mitchell court's rationale and holding that a husband, after separation from his wife, had the power to encumber his one-half interest in community real property].)

In Andrade, supra, the court rejected the Mitchell court's analysis.   (Andrade Development Co. v. Martin, supra, 138 Cal.App.3d at pp. 336–337, fn. 3, 187 Cal.Rptr. 863.)   The court held that under section 5127, the wife could void a transaction in its entirety where the husband sought to sell community real property without her consent.  (Id. at p. 334, 187 Cal.Rptr. 863.)   The court opined that “[a]ny effort to dispose of this property will adversely affect the spouses' interests.   Disposal of community property or partition of the spouses' interests should be allowed only where the spouse consents or where a court sitting in equity can provide an equitable result as in dissolution or probate proceedings.”  (Ibid.)  The court recognized that “ ‘[o]ur law does not contemplate this means of dividing the community property.   It provides only for division after dissolution of the community by death or divorce, or by transfer by the husband with the wife's consent to a third person or to the wife.’ ”  (Id. at p. 335, 187 Cal.Rptr. 863.)

The Andrade holding was followed in Harper v. Raya (1984) 154 Cal.App.3d 908, 911, 201 Cal.Rptr. 563 where the court held that a spouse's oral agreement to convey a life estate in the community's real property without the other spouse's consent was not enforceable as to a third party who had knowledge of the marriage.

 As in Andrade, supra, “[w]e prefer to favor the rule that protects the spouses from the acts of one mate which defeat the community interests in real property held by them.”  (Andrade Development Co. v. Martin, supra, 138 Cal.App.3d at p. 337, 187 Cal.Rptr. 863.)   This view has also found support in the federal courts.³  In In re Jones (Bkrtcy.C.D.Cal.1985) 51 B.R. 834, 837, 839, the court followed Andrade, supra, noting that section 5127 specifically requires that both spouses join in executing any instrument by which the community's real property is “ ‘sold, conveyed, or encumbered.’ ”   The court concluded that “[h]ad the Legislature intended to allow one spouse to transmute community property into his/her separate property by unilaterally transferring an interest in that property to some third party, it would have so stated.”  (Id. at p. 839.)   At least two commentators have also noted that the Mitchell rule is incorrect.  (See Bassett, Cal. Community Property Law (1988) § 8.03[A](7), pp. 8–41–8–42;  Reppy, Jr., Debt Collection from Married Californians:  Problems Caused by Transmutations, Single–Spouse Management and Invalid Marriage (1981) 18 San Diego L.Rev. 143, 205.)

We are also persuaded that the clear intent of section 5127 was to prevent division of community real property except by agreement, or in the event of death or dissolution of the marriage.   By requiring the joinder of both spouses to effect an encumbrance on the community's real property, section 5127 protects a nonconsenting spouse from an effective partition action by the lienholder.   The Mitchell court would permit a spouse to encumber the community realty without the other spouse's consent, providing the lienholder with the remedy of causing a sale of the one-half interest in the real property in the event of a default by the debtor spouse.   The buyer at that sale would become a tenant in common with the nonconsenting spouse and would be able to force partition and sale of the property under Code of Civil Procedure section 872.010 et seq.  (See Head v. Crawford, supra, 156 Cal.App.3d at pp. 18–19, 202 Cal.Rptr. 534.)   This anomalous result was reached in Head, supra, where the court determined that the husband's encumbrance of his one-half interest in the community's real property, without his wife's consent, was valid.   There, the wife, although awarded that property as her sole and separate property upon dissolution, was subject to the lien, incurred by her husband, against an undivided one-half interest in the real property.  (Ibid.)

While community property is to be divided equally upon dissolution of the marriage in the absence of an agreement between the parties (§ 4800), the court has the discretion in dividing the community estate and may award the community realty to one spouse while awarding the other spouse other assets to effect an equal division of the property.  (§ 4800, subd. (b).)  Section 5127 furthers the parties' interests in the community estate, as set forth in section 4800 et seq., by preventing a spouse during the marriage from making a unilateral transfer of community real property without an agreement from the other spouse.

 In the present case, after the parties had separated, Droeger unilaterally encumbered two parcels of the community's realty.   Appellant had no prior notice of the transaction and did not join in the execution of the deed of trust.   Under section 5127, his consent was required to effect the encumbrance.   Appellant is therefore entitled to void the transaction in its entirety.

II. Respondent's Conduct **

DISPOSITION

The judgment of dismissal is reversed.

FOOTNOTES

1.   All further statutory references are to the Civil Code, unless otherwise specified.

2.   The promissory note is not a part of the record.   The record, however, reflects that the note contains Droeger's promise to pay the principal sum then owing as well as additional attorneys' fees and costs which she incurs.

3.   While we are not bound by lower federal court decisions even on federal questions, we may find them persuasive and entitled to great weight.  (Butler v. Bank of California (1989) 208 Cal.App.3d 640, 644, 256 Cal.Rptr. 144.)

FOOTNOTE.   See footnote *, ante.

PERLEY, Associate Justice.

ANDERSON, P.J., and CHANNELL, J., concur.