551 S.W.3d 119
Tex.2018Background
- Rebecca and James Dondero signed a premarital Agreement before marrying in 2005 that (among other things) eliminated a community estate, treated property acquired in marriage as separate, and promised Rebecca periodic support plus a $5 million lump-sum under §13(h) upon divorce.
- §31 of the Agreement contained a no-contest/forfeiture clause: a party who seeks to invalidate the Agreement or recover property "in a manner at variance with" the Agreement incurs attorney fees and, if Becky does so, forfeits the §13(h) cash payment.
- James filed for divorce in 2011; Rebecca filed counterclaims including breach and repeatedly sought rescission of the Agreement (at times as an alternative remedy), and moved for summary judgment seeking rescission as a matter of law.
- The trial court and later the court of appeals held Rebecca’s attempts to rescind or to secure property under community-law rules were attempts to recover property "in a manner at variance with" the Agreement and thus triggered forfeiture of the lump-sum; the courts rejected Rebecca’s defenses (including good-faith justification) and granted James declaratory relief.
- The Texas Supreme Court affirmed: Rebecca’s persistent pursuit of rescission and community-property distribution contradicted the Agreement’s terms and thereby forfeited her contractual right to the $5 million payment.
Issues
| Issue | Plaintiff's Argument (Rebecca) | Defendant's Argument (James) | Held |
|---|---|---|---|
| Whether seeking rescission as a remedy triggers the Agreement’s no-contest/forfeiture clause | Rebecca argued her rescission request was an alternative remedy for James’s breach and did not constitute seeking to recover property at variance with the Agreement | James argued any attempt to invalidate the Agreement or to recover property under community-law rules falls within §31 and forfeits the lump-sum | Court held Rebecca’s unsuccessful pursuit of rescission and alternate recovery did trigger §31 and forfeited the §13(h) payment |
| Whether a good-faith or "just-cause" exception excuses violating the no-contest clause | Rebecca urged a good-faith exception because she reasonably believed James breached the Agreement | James argued no such exception exists in the Agreement and the trial court found no breach; parties could have negotiated exceptions but did not | Court refused to create a judicial good-faith exception and declined to find just cause based on an unappealed adverse finding on breach |
| Whether rescission is an available remedy for premarital agreements under the Family Code | Rebecca asserted rescission is a common-law equitable remedy for repudiation or material breach | James and concurring opinion noted Family Code §4.006 enumerates exclusive defenses to enforcement of premarital agreements and may foreclose rescission as a mechanism to avoid such agreements | Court did not decide statutory exclusivity but held the facts independently triggered forfeiture; concurrence highlighted that rescission would nullify the Agreement if granted, so an unsuccessful rescission risks forfeiture |
| Whether the contract should be construed to avoid forfeiture | Rebecca invoked rule favoring avoiding forfeitures | James pointed to the clear, unambiguous forfeiture language the parties freely agreed to | Court enforced the express forfeiture clause, noting freedom of contract and that this is not the type of disfavored forfeiture the rule aims to avoid |
Key Cases Cited
- Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445 (Tex. 2015) (standard: de novo review of declaratory judgment on traditional summary judgment)
- MCI Telecomms. Corp. v. Texas Utilities Electric Co., 995 S.W.2d 647 (Tex. 1999) (interpretation of unambiguous contracts is a question of law)
- URI, Inc. v. Kleberg County, 543 S.W.3d 755 (Tex. 2018) (objective manifestations control in ascertaining contractual intent)
- Dynegy Midstream Servs. v. Apache Corp., 294 S.W.3d 164 (Tex. 2009) (contractual terms given plain and ordinary meaning)
- Beck v. Beck, 814 S.W.2d 745 (Tex. 1991) (premarital agreements treated as contracts and generally enforced)
- Fortis Benefits v. Cantu, 234 S.W.3d 642 (Tex. 2007) (equity yields to valid contractually prescribed remedies absent violation of law or public policy)
- Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768 (Tex. 2009) (forfeitures are disfavored but contracts are construed to reflect parties’ clear agreement)
- Tenneco Inc. v. Enterprise Products Co., 925 S.W.2d 640 (Tex. 1996) (courts will not rewrite agreements to insert terms parties could have bargained for)