Celebrity Divorce Update

It’s hard to believe an entire month got away from me without a blog posting. I realized it when I saw this article in Forbes magazine, describing the top 10 most expensive celebrity divorces. Paul McCartney’s settlement may eventually eclipse them all, but for now, the biggest losers are Neil Diamond and Michael Jordan, each of whom paid more than $150 million! Anyway, the winter freeze has begun to thaw and I will be posting more frequently in the coming weeks. Stay tuned for more substantive articles, but in the meantime, check out the celebrity divorces.

Does a Breach of a Prenuptial Agreement Create a Right of Rescission? Part II

At last! the conclusion of the story. Here is the law of other states, which like Pennsylvania, hold that a breach of a prenuptial agreement does not render the entire contract void if there has been partial performance of other covenants and the breach does not render the entire contract illusory.

Other States

Brees v. Cramer, 322 Md. 214, 586 A.2d 1284 (1991). Widow of a decedent sought to be appointed as administrator of decedent’s estate (and to receive a widow’s share of the intestate decedent’s estate), alleging that the decedent’s breach of a contractual provision to name widow as beneficiary of his life insurance policies rendered the separation agreement invalid, including mutual waivers of the parties’ testamentary rights. Widow argued that her waiver of testamentary rights was conditional upon decedent’s obligation to name her as beneficiary of his life insurance. The Maryland Supreme Court noted that the widow could not argue that the alleged condition was an express condition. Rather, the widow argued that it was a constructive condition implied by law, as described in Restatement (2d) of Contracts § 237. The Maryland Supreme Court disagreed.

“First, breach of a covenant in a prenuptial or separation agreement does not, ipso facto, excuse performance of another covenant by the other party. See Schnepfe v. Schnepfe, 124 Md. 330, 92 A. 891 (1914) (wife’s breach of prenuptial agreement, by deserting husband, does not relieve husband’s estate of liability under husband’s promise to bequeath a specific sum of money to wife). And see D. Thomas, Maryland Divorce and Separation Law, at 4-25 (MICPEL 4th ed. 1987) (“Where one breaches a provision in a marital settlement agreement which is not dependent upon other provisions, enforcement of the other provisions is unaffected”). Thus, a clearer expression of the intent of the parties than appears in this instrument is required before concluding that the parties to the Agreement intended the waiver of rights in Earl’s probate estate to be dependent on insurance for Joy’s benefit.

“Reinforcing this conclusion is the express severability provision quoted above. Joy argues that the severability clause applies only if a provision “is held to be void or unenforceable,” an event which has not occurred here. Dependency of Joy’s waiver on the performance of Earl’s promise to insure is inconsistent with the provision that, in effect, Joy’s waiver would be operative despite the invalidity or unenforceability of Earl’s promise.

* * *

“The absence of interdependency between the covenants to insure and the waiver means that the materiality of the assumed breach by Earl must be measured against the whole of his promises in the Agreement.

“The circuit court found nineteen considerations given by Earl, excluding that pertaining to the $34,000 life insurance benefits. Among these are Earl’s fulfilled promises to live apart from Joy and to act as sole custodian of Michael. Aspects of these performances are not quantifiable in monetary terms. Clearly they are not insignificant performances in the couple’s “Agreement for Settlement of Marriage, Custody of Child, and Property.” Moreover, it was uncontested that Earl performed his obligation to name Michael as the beneficiary of at least $17,000 of life insurance. In fact he provided even more than the additional $83,000 benefits to Michael included as an option in the Agreement. This is also consideration moving to Joy. See McClellan v. McClellan, 52 Md.App. 525, 534-35, 451 A.2d 334, 340 (1982), cert. denied, 295 Md. 283, cert. denied, 462 U.S. 1135, 103 S.Ct. 3119, 77 L.Ed.2d 1372 (1983). On the other hand, breach of a covenant to maintain life insurance in a specific amount of money ordinarily can be remedied by a money judgment. It is not necessary, in order to give Joy adequate relief from the assumed breach, to strike down waivers valid when made. Thus, the circuit court did not err in finding that the nature of Earl’s assumed breach, weighed against Earl’s performance of other agreed considerations, did not produce a material breach of a constructive condition of substantial performance of the Agreement as a whole.

“Joy contends that the circuit court did not make the required determination of materiality because it viewed materiality as bearing on rescission of the contract. The circuit court concluded that the violation, if any, of the covenant to insure was only a partial, and not a total, “failure of consideration.” The terminology “failure of consideration” describes the same legal doctrine which more currently is described as the constructive condition of substantial performance. See 3A A. Corbin, Corbin on Contracts § 658 (1960); 6 S. Williston, Law of Contracts § 814 (Jaeger 3d ed. 1962); Restatement (Second) of Contracts § 237, comment a (1981). Accordingly, the trial court applied the operative legal principle in its decision, and it applied that principle correctly to the facts of this case.”

Thus, finding substantial performance by the decedent of most of the covenants of the separation agreement, the Maryland Supreme Court refused to rescind the entire contract as requested by the widow.

Garrett v. Garrett, 637 So.2d 1276 (Ala.Civ.App.1994). Wife argued, in the context of a divorce action, that the parties’ prenuptial agreement was invalidated by husband’s breach of two contractual provisions:(1) a promise to purchase or build a jointly-titled residence; and (2) a promise to place $5,000.00 into a bank account in wife’s name. The trial court upheld the validity of the prenuptial agreement, and the appellate court affirmed, holding that “[m]arriage alone may furnish sufficient consideration for a prenuptial agreement.” Id. at 1378, citing Woolwine v. Woolwine, 519 So.2d 1347 (Ala.Civ.App.1987). The appellate court also noted the husband had substantially performed under the contract by constructing a home (which was not placed into joint names because the parties separated before it was completed) and placing $5,000.00 into an account for the wife. Notably, the prenuptial agreement held that the failure of husband to place $5,000.00 into an account for wife would be considered a material breach of contract, rendering the agreement null and void. There was a dispute as to how and why the funds in that account were spent, and the trial court ordered husband to reimburse wife in the amount of $3,500.00. That portion of the trial court’s decision was sustained on appeal under an abuse of discretion standard.

Shepherd v. Shepherd, 876 P.2d 429 (Utah.App.1994). In a divorce action, the husband argued that the parties’ prenuptial agreement was void because the wife had breached a promise to convey title to her premarital home into joint names if the parties resided there for more than six months following their date of marriage. The parties resided in that home for thirteen years before their separation. No conveyance into joint names was made. The trial court held that the breach did not avoid the entire contract, since the wife was willing to cure the breach, the husband had enjoyed the use of the home throughout the marriage, and the parties had acted as though the home were jointly titled by pledging the home as security for a joint mortgage loan to repay the husband’s debts.

Dutton v. Marshall, 729 So.2d 860 (Ala.Civ.App.1998); LeMaster v. Dutton, 694 So.2d 1360 (Ala.Civ.App.1997). Upon the death of the husband, his widow contested the validity of their prenuptial agreement, which the decedent had breached by failing to buy her a house and car. The trial court held the agreement invalid due to a lack of full and fair disclosure, as well as an alleged breach by the decedent. In LeMaster, the appellate court reversed and remanded to determine the nature and effect of the alleged breach. On remand, the trial court was directed to consider whether the alleged breach might constitute a failure of consideration and whether adequate remedies were available at law.

“Second, we would like to address the widow’s defense of failure of consideration. Generally, the term “failure of consideration” is described as “the neglect, refusal and failure of one of the contracting parties to do, perform, or furnish, after making and entering into the contract, the consideration in substance and in fact agreed on.” 17 C.J.S. Contracts § 129 (1963). In addition, a failure of consideration is “predicated on the happening of events which materially change the rights of the parties, which events were not within their contemplation at the time of the execution of the contract.” Id.

“Typically, a total failure of consideration is used as an excuse for nonperformance of a contract. 17A Am.Jur.2d Contracts § 670 (1991). In this particular case, although she does not specify whether the failure of consideration she alleges is total or partial, the widow cannot allege a total failure because she and Mr. Dutton were married, and marriage itself is sufficient consideration for an antenuptial agreement. See Woolwine v. Woolwine, 519 So.2d 1347, 1349 (Ala.Civ.App.1987). However, where an agreement recites additional consideration for a relinquishment of property rights, as does this agreement, and that recited consideration totally fails, some authority exists for the proposition that the party asserting the defense of failure of consideration may be released from the agreement and may assert those property rights. 41 Am.Jur.2d Husband and Wife § 293 (1968). The antenuptial agreement at issue here recited additional consideration in the form of a house and a car to be purchased for the widow; according to the evidence in the record, the widow has at least received physical possession of a car. If that fact is true, then the enumerated consideration has not totally failed, and the widow cannot be released from the agreement.

In effect, a failure of consideration is the failure to perform a promise contained in the agreement, and it is much like a breach. 17A Am.Jur.2d Contracts § 670 (1991). Because “a partial failure of consideration [also] imports a breach of contract,” 17A Am.Jur.2d Contracts § 671 (1991), the widow can proceed with her action for breach of the antenuptial agreement. The trial court should apply traditional rules of contract law in determining whether Mr. Dutton breached the antenuptial agreement, whether the administratrix has any defenses to the breach, and whether the widow should receive damages as a result of the breach.

“A breach of contract is defined as a “failure, without legal excuse, to perform any promise which forms the whole or part of a contract.” Black’s Law Dictionary 188 (6th ed. 1990); see also 17A Am.Jur.2d Contracts § 716 (1991). To establish that a breach of contract occurred, a “claimant must prove: (1) the existence of a valid contract binding the parties in the action, (2) [her] own performance under the contract, (3) the defendant’s nonperformance, and (4) damage[ ].” Southern Medical Health Systems, Inc. v. Vaughn, 669 So.2d 98, 99 (Ala.1995) (citations omitted). Because we have determined that the antenuptial agreement between Mr. Dutton and his widow is valid and enforceable, the first prong of this test is already satisfied. On remand, the trial court should consider whether the widow (a) has proven her own performance under the contract, (b) has shown that Mr. Dutton failed to perform his obligations under the contract, and (c) has demonstrated damage or harm as a result of the failure of performance.

“If the widow proves on remand that Mr. Dutton breached the antenuptial agreement, the trial court may award damages. The rule in Alabama is that damages for breach of contract “should return the injured party to the position [she] would have been in had the contract been fully performed.” Garrett v. Sun Plaza Development Co., 580 So.2d 1317, 1320 (Ala.1991) (citations omitted). In no event, however, should the injured party be placed in a better position than she would have been had the contract been performed. Id. (citation omitted).

“Accordingly, the judgment of the trial court is reversed and this cause is remanded for additional proceedings on whether Mr. Dutton’s failure to purchase a house and a car for the widow resulted in a breach of the antenuptial agreement and, if so, whether the widow is entitled to damages as a result of that breach.”

The trial court on remand found that the agreement had been breached and awarded damages to the widow in the amount of $29,000.00. The widow appealed, again arguing that there was a total failure of consideration, and the appellate court again rejected that argument.

Estate of Johnson, 202 Kan. 684, 203 Kan. 262, 452 P.2d 286 (1969). In their prenuptial agreement, the decedent agreed to make a new will granting ¼ of his estate to his wife if she should survive him. The decedent breached the contract by failing to make a new will before his death five years later. Upon his death, the widow filed an election against the decedent’s will to take 1/3 of his estate and 160 acres of the decedent’s land where the parties had established a homestead. The executor of the will petitioned to set aside the widow’s election, which was denied by the probate court. The executor appealed to the district court, which reversed the probate court’s decision. The widow appealed to the appellate court, arguing that the prenuptial agreement was void and unenforceable due to the decedent’s breach of his promise to make a new will. The widow relied on her hearing testimony that she was told, at the time of signing the agreement, that the prenuptial agreement would not be valid unless a new will were made by her husband. The widow also relied on an earlier Kansas precedent, in which it was held that the prenuptial agreement and the will constitute one contract, and when a husband fails to provide by will that which he agreed, the prenuptial agreement must fail. The Kansas appellate court distinguished that case, because in that case the disputed prenuptial agreement made no provision for the dependent spouse and was a result of the husband’s misrepresentations to her. The Kansas appellate court, in this case, held that the decedent’s breach of a prenuptial agreement did not give rise to a right of rescission.

“Hazel, in effect, seeks to rescind the antenuptial agreement because of Charles’ purported breach of its terms. But the right to rescind a contract is extreme and does not necessarily arise from every breach. To warrant rescission, the breach must be material and the failure to perform so substantial as to defeat the object of the parties in making the agreement. A breach which goes to only a part of the consideration, which is incidental and subordinate to the main purpose of a contract, does not warrant a rescission. (Baron v. Lyman, 136 Kan. 842, 18 P.2d 137; 17 Am.Jur.2d, Contracts s 504; 17A C.J.S. Contracts s 422(1); Corbin on Contracts s 1104.)

“In respect to the right of a party to rescind an antenuptial agreement, we find the following statement from 41 Am.Jur.2d, Husband and Wife s 293, which was quoted in substantial part in In re Estate of Ward, supra:”

‘The general rule is that where parties enter into an antenuptial agreement, each must perform the terms and conditions of that agreement before he or she can claim the benefits to be derived therefrom. However, the rule that equity will not compel a rescission where there had been partial performance has been applied to a marriage settlement where the marriage has occurred but the claim is made that other considerations, such as to be a kind and dutiful spouse, to use property for the joint benefit of the spouses, and to take care of the other spouse in old age, have not been complied with. It has been ruled that since marriage is a consideration that cannot be restored, covenants in a marriage settlement or agreement are independent, and failure of their performance by one party does not defeat his or her right to performance by the other, if the former is willing and can perform or the latter has a right to damages for the breach, * * *.’

“(Also, see, 41 Am.Jur.2d, Husband and Wife s 310.)

“One of our early cases, Gordon v. Munn, 87 Kan. 624, 125 P. 1, rehearing denied 88 Kan. 72, 127 P. 764, while factually not on all fours, is strongly indicative of the reluctance of courts to rescind or deny specific performance of an antenuptial agreement in the absence of fraud or other equitable considerations. There, an antenuptial contract provided by its terms that the prospective wife waived all right, title, interest and inheritance in property of her intended husband in consideration for his agreeing to convey to her by deed two pieces of real estate to be her sole property. The husband failed to execute the deed as promised. This court held that under the circumstances, where there was no deceit or fraud, the agreement vested equitable title to the real estate in the wife, and the failure of the husband to execute the conveyance did not prevent the enforcement of the agreement.

“Similarly, in In re Estate of Ward, supra, the parties had executed an antenuptial agreement providing that the intended husband was to purchase a home for his future wife to live in for the rest of her life in the event he predeceased her. The husband died eighty-three days after the marriage and before a home could be purchased. The widow requested that she be permitted to take under the law, and sought to set aside the antenuptial contract for various reasons, including its execution had been obtained by fraud, and that the decedent had failed to comply with the provisions regarding the purchase of a home. The court held there was no proof of fraud, the contract was not void for lack of consideration, and that the decedent’s failure to fulfill his promise to buy a home during his lifetime, standing alone, was insufficient to invalidate the contract or render it unenforceable.

“For cases from other jurisdictions holding that in the absence of fraud a wife is not entitled to rescind an antenuptial agreement, although the husband has failed to perform a covenant thereof, see, Wellington v. Rugg, 243 Mass. 30, 136 N.E. 831; Cantor v. Cantor (Ohio Prob.), 174 N.E.2d 304; In re Eisner’s Will, 15 Misc.2d 361, 181 N.Y.S.2d 327.”

The Kansas Supreme Court in Johnson held that the decedent’s failure to make a new will did not constitute a substantial or fundamental breach going to the very heart of the agreement. Since the widow could receive the substantial benefit of her bargain, there was insufficient cause to void the entire agreement. The widow also claimed that the executor’s sale of the land subject to her life estate (homestead rights) depressed the sale price, thereby impairing the value of her ¼ share under the prenuptial agreement. This, she argued, was another breach of the agreement rendering it void. The appellate court noted that the widow could have waived her life estate, which would have removed the alleged impairment to the sale of the land. Having failed to do so, she could not complain that the purposes of the agreement were defeated by the decedent or his estate.

Estate of Gillilan v. Estate of Gillilan, 406 N.E.2d 981 (Ind.App. 1980). Wife’s estate sued Husband’s estate for breach of a prenuptial agreement which required husband to make a will granting his wife the entire net income of his estate for the remainder of her lifetime. Instead, Husband left his wife a life estate in his tangible personal property, an annual sum certain from a charitable remainder trust, the net income from another charitable remainder trust, an annual percentage distribution from a residuary trust, and the net income from her husband’s estate during the interim period until the other trusts were fully funded. Wife’s estate argued that husband’s failure to make a will in compliance with the prenuptial agreement constituted an offer to rescind the prenuptial agreement, which offer the wife had accepted by electing her statutory share of his estate upon his death. Husband’s estate admitted that there was a partial breach of the prenuptial agreement, but opposed rescission of the agreement, denying that the husband had expressed an intention not to be bound by the prenuptial agreement. The trial court enforced the prenuptial agreement, holding there were no grounds for rescission. On appeal, the appellate court examined an earlier Indiana precedent in which a husband had contracted by prenuptial agreement to grant his wife a life estate in real property. During their marriage, the husband and wife sold and conveyed the land in which the wife was to have her life estate. Upon the husband’s death, his children sued for partition of other property owned by their father at his death, and the wife sought a one-third share, claiming that the prenuptial agreement had been breached. The appellate court in that ancient case refused to find the prenuptial agreement unenforceable, holding that the parties had partially performed the prenuptial agreement and that the breaching party by his action had neither made it impossible to cure the breach nor clearly expressed an intention to abandon the contract. The Indiana court also examined the Ohio court’s prior decision in Cantor, infra, where it was held that a non-breaching party could rescind the contract only if the breach was so material as to constitute a complete failure of consideration.

“Our courts in dealing with contract cases outside of the antenuptial agreement context have similarly recognized a principle of substantial breach which produces a rescission in such cases. See, e. g., Smeekens v. Bertrand, (1974) 262 Ind. 50, 311 N.E.2d 431, where the Court citing 17 Am.Jur.2d Contracts s 504, supra and s 502, observes, in the context of a land contract where the vendor covenants to deliver property in return for the vendee’s periodic payments, “(i)f the vendor, for one reason or another, wrongfully withholds possession of such premises from a non-defaulting vendee, he has failed to supply to the vendee the very thing for which the vendee contracted. (emphasis in original)” Id. at 56, 311 N.E.2d at 435. The Court stated there may thus be a rescission where one party “materially breached” a contract so as to produce a “complete failure of consideration.” Id.”

In the end, the Gillillan court held that there was substantial performance of the agreement by the decedent, and any breach could be remedied. On these grounds, the appellate court affirmed the summary judgment in favor of the husband’s estate.

Cantor v. Cantor, 174 N.E.2d 304 (Ohio.Prob.1959). When the decedent’s estate in this case sought to enforce a prenuptial agreement signed by the decedent’s widow, the widow claimed that the agreement was void due to fraud and failure to make reasonable provision, that the decedent had breached the agreement by failing to make a will leaving $15,000.00 to her as agreed, and that the parties had mutually rescinded the agreement prior to the decedent’s death. The trial court held, and the appellate court affirmed, that the widow’s fraud and mutual rescission defenses were waived and barred by the Dead Man’s Statute. Therefore, the widow proceeded on the claim that the decedent had breached the agreement. The appellate court first examined precedent by which it was held that the marriage itself was partial consideration for the prenuptial agreement. The court also noted that the covenants of the prenuptial agreement, particularly the parties’ mutual waivers of testamentary rights, were independent promises, not conditional upon each other. Still, the court did not rely heavily upon either of these principles in reaching its decision to enforce the agreement. Instead, the appellate court held that there was substantial performance of the prenuptial agreement, and since there was sufficient money in the decedent’s estate to cure the breach, the breach did not warrant rescission of the entire contract.

“In Dickson v. Wolin, 1934, 18 Ohio Law Abst. 107, on page 108, the Court of Appeals of Summit County states:”

‘It is an elementary rule of contracts that upon a material breach of a contract by one party thereto, the other contracting party may, at his option, elect to rescind the contract, or continue it in force and sue for damages for the breach.’

“The court further states on pages 108 and 109:”

‘In other words, the conduct of the parties, as shown by the evidence, was such that, in our opinion, a mutual abandonment of the contract may be properly implied.

‘The general rule is that, in the absence of fraud or mistake, one of the parties to a contract cannot rescind or withdraw from its performance without the consent of the other party; but where one party’s failure to perform is of such a nature as to clearly indicate an intention not to further be bound by the contract and to justify the inference that he repudiates or abandons it, such defaulter is presumed to consent to the termination of the contract if the other party so elects, and in that event such other party may maintain an action in equity to rescind the contract.’

“In other words, not every breach of a contract warrants rescission and such is the rule in this country.”

“In 12 Am.Jur., Contracts, Section 440, page 1020, it is stated:”

‘It is not every breach of a contract or failure exactly to perform-certainly not every partial failure to perform-that entitles the other party to rescind. A breach which goes to only a part of the consideration, is incidental and subordinate to the main purpose of the contract, and may be compensated in damages does not warrant a rescission of the contract; the injured party is still bound to perform his part of the agreement, and his only remedy for the breach consists of the damages he has suffered therefrom.’

“In 12 Am.Jur., Contracts, Section 343, page 901, it is stated:”

‘Ordinarily, however, not every breach of a contract will authorize the other party to abandon the contract and to refuse further performance. Ordinarily, the right to claim a discharge of the whole contract depends, not on whether the act constituting the breach was inconsistent with the terms of the contract, but upon whether it was inconsistent with an intention to be further bound by its terms or upon whether the breach was such as to defeat the purpose of the contract. The circumstances attending a breach of contract, the intention with which it was committed, and its effect upon the other party and upon the general object sought to be accomplished by the contract must be considered in determining whether or not the breach will operate as a discharge.’

Doster v. Doster, 853 So.2d 147 (Miss.App.2003). Husband sought rescission of a prenuptial agreement when the parties divorced one year following their marriage. In their prenuptial agreement, Husband had promised to contribute the down payment toward the purchase of a new home, and Wife agreed to make the monthly mortgage loan payments. The agreement further provided that upon death or divorce, the home would be sold, and Wife would receive the first $25,000 of the sales proceeds. After the parties’ separation, Husband argued that Wife had breached her promise to make the mortgage loan payments and had fraudulently induced him to promise her the first $25,000 of sales proceeds by misrepresenting to him that her former husband’s retirement survivor benefit would be terminated as a result of their marriage. The trial court noted that Wife had stopped paying the mortgage loan after separation when she lost her job. The trial court refused to rescind the premarital agreement, awarding the wife her $25,000 from the sales proceeds but deducting $8,600 in mortgage loan payments that she had failed to make after losing her job. The appellate court affirmed.

“The termination of a contract is an ‘extreme’ remedy that should be ‘sparsely granted’…. Termination is permitted only for a material breach. A breach is material when there ‘is a failure to perform a substantial part of the contract or one or more of its essential terms or conditions, or if there is such a breach as substantially defeats its purpose,’ or when ‘the breach of the contract is such that upon a reasonable construction of the contract, it is shown that the parties considered the breach as vital to the existence of the contract….’”

UHS-Qualicare, Inc. v. Gulf Coast Cmty. Hosp., Inc., 525 So.2d 746, 756 (Miss.1987) (citations omitted).