Opinions, May 21, 2015

The Fourteenth Court of Appeals released its published opinion in Philips v. McNease, No. 14-14-00161-CV (Tex.App.–Houston [14th Dist.] May 21, 2015) today which, if anything,  presents a cautionary tale about signing lifelong contracts.

John and Gail divorced in 1998. Their decree incorporated the terms of a written agreement which stated John would provide Gail with “contractual alimony” of $1,500/month for the rest of Gail’s life, even if John predeceased her. Just to cut to the chase: It’s enforceable.

In 2002, John sought to modify the terms of the contractual alimony which he described as “maintenance and support” under Chapter 8 of the Family Code because there had been a material and substantial change since the divorce; namely, John’s fortunes had fallen and Gail’s had risen.  John also sought termination of the contractual alimony, alleging it contravened the terms of statutory maintenance, lacked consideration, and was void for unconscionability. Gail responded that the trial court lacked jurisdiction, the petition was an impermissible collateral attack on the decree and that the modification was precluded by res judicata and collateral estoppel. In 2003, the trial court denied Gail’s arguments and found there had been a material and substantial change and lowered John’s payments from $1,500 to $1,250/month, but denied his request to terminate the contractual alimony.

In 2012, John filed another petition to modify asserting what the Court of Appeals characterizes as two broad grounds for relief: the so-called “Family Code Claim” under Chapter 8 for modification because his fortunes had fallen yet further; and what the Court of Appeals characterizes as the “Contract Claim,”  in which John argued the terms of the decree should be set aside under several contract theories. Gail filed a plea to the jurisdiction (arguing the trial court had no authority to act under the Family Code because the Family Code applies to court-ordered maintenance, not contractual alimony) and motion for summary judgment on traditional and no-evidence grounds (arguing: 1) there was no evidence to support any theory under the Contract Claim; and 2) each theory except frustration of purpose was barred by res judicata; and 3) alternatively, each theory failed as a matter of law) but did not seek summary judgment on the Family Code Claim. In 2013, the trial court granted Gail’s motions for summary judgment and signed a final judgment which dismissed John’s motion to modify in its entirety and included a Mother Hubbard clause denying all relief not specifically granted.

On appeal, the Court of Appeals found that the final judgment was overbroad and thus erroneous because it denied the Family Code Claim despite the fact that Gail’s motions for summary judgment did not address it at all. In other words, the judgment granted relief beyond the scope of the pleadings. As such, the Family Code Claim was remanded to the trial court.

As for the Contract Claim, the Court of Appeals addressed each theory in turn. The court affirmed the trial court’s granting of no evidence summary judgment for John’s “frustration of purpose” or impossibility theory.

The court also found that John’s unconscionability and lack of consideration theories were barred by res judicata because he asserted them in the first modification proceeding to no avail. Res judicata also barred his other theories–undue influence, duress, extrinsic fraud, and mistake of fact–because he could have asserted them in the first modification but failed to do so.

Finally, the Court of Appeals rejected John’s arguments the contractual alimony violated public policy because the obligation was “perpetual.” The Court of Appeals held John had been free to negotiate different terms during the divorce. “A deal is a deal, and we will enforce John’s contractual obligation to the fullest extent that the law of contracts will allow.”

As the case returns to trial court, John’s remaining Family Code Claim will require him to establish the material and substantial change he previously asserted.

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