Opinions, Dec. 13, 2016: Receivers, Forfeiture, and Enforceable Language

This morning the First District Court of Appeals released a published opinion in Perry v. Perry, No. 01-16-00156-CV which concerns appointing a receiver to sell the marital residence where the underlying decree lacked enforceable language to do so. I found the opinion somewhat confusing and wonder if I am missing something (always a likely bet).

William and Vickie were divorced in 2012. Their decree included two provisions about their house: one typed in the body of the decree and one handwritten by the parties. The typed portion read:

The Court ORDERS that the Husband is awarded (gets) the [House], and the Wife is divested of (doesn’t get) any interest, title or claim she may have to the [House].

Wife IS ORDERED to sign any deeds or documents needed to transfer [the House] to the Husband. Husband is responsible for preparing the documents.

The handwritten portion read:

William Perry agrees to grant Vickie Perry 50% of the profit of the [sale] of the currently community property of [the House.]

If you’re like me, your Slavin meter went off in your head.

Several years later William filed a pro se enforcement petition, alleging Vickie violated the decree by failing to sign a deed transferring her interest in the house to him. William requested the trial court order Vickie to transfer her interest in the house to him because her failure to convey her interest was preventing him from selling the house.

Vickie counterclaimed for a clarifying order, requesting the trial court determine the parties’ rights and duties under the order and clarify any ambiguity in the division of the house. Vickie alleged that William had told her that he was going to sell the house but was not going to give her one half of the profits.

Vickie also requested the trial court appoint a receiver to sell the house, alleging the house was at risk of being foreclosed, but did not present any evidence in support of this allegation. William did not file a response to the motion.

The trial court held two hearings. At the first, William, still pro se, told the court he opposed a receiver because the house was not in danger of being foreclosed. The trial court suggested the parties prepare an agreed order requiring the proceeds of the sale to be paid into an escrow account until the parties or the court could determine how they should be distributed. The record does not indicate William agreed to such an order.

At the second hearing, William, now represented by counsel, objected to the appointment of a receiver because appointing a receiver would improperly modify the decree because the decree did not order William to sell the house. The trial court stated that appointing a receiver would benefit both parties and recalled that at the first hearing William agreed to sell the house. The Court of Appeals emphasized that, in fact, there is no evidence of this in the record (but it should be pointed out that it was William who originally brought the enforcement suit requesting the trial court order Vickie to sign conveyance documents because her failure to do so was preventing him from selling the house; so while William may not have agreed on the record to sell the house at the hearings, his pleadings evidently expressed a desire to do so).

After the second hearing, the trial court signed an order appointing a receiver and ordering the receiver to “take charge and possession” of the house if William failed to sell it by a date certain. If he had failed do so, the order authorized the receiver to “manage, control, and dispose” of the house as he saw fit “in his sole discretion… upon terms and conditions determined by him.”

William appealed and, in three issues, argued the trial court abused its discretion by entering the receivership order because: 1) neither the receiver nor Vickie were required to post a bond; 2) the order improperly modified the decree’s division; and 3) a receivership to sell the house is not a remedy available under CPRC 64.001. However, William did not assert his first and third issues in the trial court so the Court of Appeals did not consider them.

On appeal, Vickie argued that William failed to preserve his second issue because he did not object to the appointment of a receiver in the trial court. The Court of Appeals found otherwise, pointing to William stating at both hearings that he objected to the appointment of the receiver because he said the house was not at risk for foreclosure.

Under CPRC 64.001, a trial court may appoint a receiver under six different circumstances, including cases “in which a receiver may be appointed under the rules of equity.” The Court of Appeals cited case law which says a receiver should not be appointed if another remedy exists.

William argued that the receivership order improperly modified the decree because the decree does not require or order him to sell the house; it merely provides that if, in his discretion, he sells the house, Vickie gets half the proceeds. Vickie responded by arguing that William’s agreement in the decree to give her half the proceeds “directly implies” that the house must be sold.

Applying contract law, the Court of Appeals found that the decree awards the house to William and divests Vickie of her interest in it, save the 50% proceeds of sale. “But the provisions do not specify by when or for how much the House must be sold.” Under the rules of contract construction, when construing an agreement to avoid forfeiture, the court may “imply terms that can reasonably be implied.” The outcome of the case turns on the Court of Appeal’s use of this concept. To my mind, there is a question as to whether there was any risk of forfeiture, as William and Vickie presented conflicting stories on whether or not the house was at risk for foreclosure. Indeed, the Court of Appeals specifically noted that Vickie did not present evidence in support of this allegation. Nonetheless, the Court of Appeals evidently concluded there was some risk of forfeiture, perhaps in an effort to preserve as much of the trial court’s order as possible.

Thus, if a divorce decree orders that property be sold, but fails to specify a price, “the law presumes that the parties . . . intended a reasonable price.” Seabourne v. Seabourne, 493 S.W.3d 222, 230 n.9 (Tex. App.—Texarkana 2016, no pet.). Likewise, if the decree fails to specify a time for performance, “the law implies a reasonable time . . . .” Noyes v. Noyes, No. 04–08–00627–CV, 2009 WL 2520972, at *4 (Tex. App.—San Antonio Aug. 12, 2009, no pet.) (mem. op.) (holding that divorce decree that did not specify date by which husband was required to sell house required husband to sell house “within a reasonable amount of time”).

Because the decree does not provide a date by when or for how much the house must be sold, “the law provides these two missing terms: The House must be sold at a reasonable time and for a reasonable price,” the Court of Appeals concluded. In other words, William is right that the decree does not specifically order him to sell the house, but the handwritten provision regarding the split of the proceeds contemplates a sale which is evidently enough to justify the court supplying missing material terms in the name of avoiding forfeiture.

Turning to the receivership order issued by the trial court, the Court of Appeals approved the appointment of the receiver, but did not approve the language which permitted the receiver to sell the house “in his sole discretion… upon terms and conditions determined by him…” Rather, the Court of Appeals held, it should have ordered the receiver to sell the house at a reasonable time for a reasonable price. As such, the Court of Appeals held the receivership order improperly modified the decree, sustained William’s second issue, and remanded.

As mentioned above, the Court of Appeals employed the “risk of forfeiture” contract interpretation maxim to read terms into the decree that were not there. The Court of Appeals also stated that Vickie failed to present evidence that indicated the house was at risk of foreclosure and William specifically disputed this. Thus under this opinion it would appear that a party requesting a receiver would not need to present evidence of a forfeiture to summon the court’s ability to supply material terms to sell the property.  This strikes me as a strange outcome.


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