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Gabriele v. Gabriele

Court of Appeals of New Mexico

January 3, 2018

JOHNNY A. GABRIELE, Petitioner-Appellant,


          Michael Danoff & Associates, P.C. Michael L. Danoff Albuquerque, NM for Appellant.

          Kamm & McConnell, L.L.C. Terrence R. Kamm Raton, NM for Appellee.



         {1} Husband appeals the district court's division of property that resulted from the parties' dissolution of marriage. Specifically, Husband contends the district court erred by failing to distribute all property and finding that four sole and separate property agreements that Husband signed shortly before Husband filed for divorce were valid. For the reasons discussed below, we affirm in part, reverse in part, and remand for further proceedings.


         {2} Johnny Gabriele (Husband) and Deborrah Gabriele (Wife) were married on February 15, 2006. Husband filed a petition for divorce on July 22, 2013. A trial was held to determine how the marital property would be divided, after which the parties submitted proposed findings of fact and conclusions of law. The district court issued its decision and order in which it granted dissolution of the parties' marriage and distributed the marital property, including real estate, cash, other assets, and liabilities.

         {3} Husband appealed and makes the following claims: (1) the district court erred by concluding that the sole and separate property agreements (SSPAs) that Husband signed were valid, enforceable contracts; (2) the district court erred in its distribution of the parties' marital residence-known as the Francis Home-which Husband had acquired prior to marriage; and (3) the district court failed to address Husband's claimed interests-both separate and community-in various other property, I including a 1955 Chevrolet that Wife had given him as a birthday gift, a property located in Texas (the Texas property), and Wife's income earned during the marriage. We address each of Husband's claims in turn, reserving discussion of more specific facts when pertinent to our legal analysis.

         I. Whether the Four SSPAs Are Valid, Enforceable Contracts

         A. Additional Facts

         {4} In 2007, Wife-who had a background as a nursing home administrator and a Master's degree in business-started an assisted living business called Colfax Senior Care, LLC (CSC), a limited liability company (LLC) in which Wife was the single registered member. CSC purchased a residential property (262 Francis) out of which to operate an assisted living facility for $92, 000. Wife testified that the "start-up money" for CSC came from $50, 000 of her separate savings and a $20, 000 loan from her children. Husband testified that he contributed $29, 000 from his smaller retirement fund for the down payment on 262 Francis and that he participated in the business by helping to remodel and maintain the facility. Wife disputed that Husband contributed any funds to purchase 262 Francis. The district court resolved this dispute in Husband's favor, finding that Husband "contributed approximately $29, 000 of his separate funds to [the] purchase [of 262 Francis]."

         {5} CSC was expanded in 2009-10 in order to meet growing demand in the community, and the business purchased a lot (251 Francis) on which to construct a new, larger facility. Both parties agree that Husband contributed $10, 000 from his retirement savings to purchase 251 Francis and loaned CSC $80, 000 to construct the new facility. CSC took out a $528, 000 bank loan to finance the remainder of the construction project. 262 Francis was sold after 251 Francis opened.

         {6} In July 2012, Wife started making plans to expand the business again, including construction of a new, $1.5 million facility. According to Wife, when she discussed her expansion plans with Husband, he was "adamant that [she] not do it" because he was concerned about "[s]o much liability[, ]" both financial and legal. Wife consulted a business lawyer about forming a new LLC for the expanded business that could be Wife's separate property in order to release Husband from all liability associated with the new business. The lawyer helped Wife "draw up the new LLC" and informed her that she "could create a document" that would put "all the liability, financial, legal" on Wife. Wife testified that Husband was "very pleased that there was ... a way that we could both have what we wanted. It was a good compromise."

         {7} On April 25, 2013, the parties signed four SSPAs. In addition to two SSPAs designating, respectively, the new LLC (Colfax Senior Living, LLC (CSL)) and the property for the new facility (the State Street property) as the separate property of Wife, there were two SSPAs that designated CSC (the existing LLC) and 251 Francis (the existing assisted living facility) as Wife's separate property. The SSPAs provided that Husband "expressly waives, relinquishes, and releases any and all right, title, claim, or interest in and to" both pieces of real property as well as the LLCs' "Membership Interest." After Husband and Wife signed the SSPAs, Wife continued with the development of CSL.[1] She purchased the State Street property in May 2013 for $120, 000 with money from "[her] business" and two bank loans. However, once divorce proceedings commenced in July 2013, Wife decided not to go forward with the expansion project.

         {8} At the time of trial, CSC was under contract for sale for $620, 000. Subsequent to trial, after the sales transaction was completed and CSC's debts were paid off, $257, 461.26 was placed in the registry of the court. Regarding CSL, Wife testified that she believed the plans for the State Street project that she had commissioned were sellable but that she was not aware of anyone who was interested in purchasing the project. She also described CSL's outstanding debts, but the district court did not make any specific findings or conclusions regarding the amount of those debts.

         {9} Husband argued to the district court that he "received no consideration" under the SSPAs, thereby invalidating them, and that Wife "breached her fiduciary duty to [Husband] by her conversion of community property to her sole and separate property." Wife contended that "[t]he consideration for the [SSPAs] was to free [Husband] of all liability and debt associated with the business then and in the future, which was considerable." The district court found that Husband "desired to be relieved of responsibility for existing debt and liability of both companies, and future debt and liability of the businesses and the property" and concluded that "[b]y signing the agreements [Husband] was relieved of responsibility for the debt as well as the liability."[2] As such, the district court awarded Wife, among other things, 251 Francis, the State Street property, CSL and its assets, and CSC-including the entire $257, 461.26 of proceeds from the sale of CSC-all subject to debt thereon.

         B. Analysis

         {10} Husband relies on general principles of contract law and argues that the district court erred in concluding that the SSPAs are valid because (1) they lacked mutual assent, and (2) Wife's promise of releasing Husband from liability was illusory, thus they also lacked valid consideration. Wife relies on the definition of "separate property" contained in NMSA 1978, Section 40-3-8 (1990), to support the validity of the designation of the businesses and properties identified in the SSPAs as Wife's separate property.[3] Neither party has addressed the import of NMSA 1978, Section 40-2-2 (1907), wherein the Legislature statutorily set forth the contract rights of married persons. We begin with the statute. See Hughes v. Hughes, 1981-NMSC-110, ¶ 19, 96 N.M. 719, 634 P.2d 1271 ("In New Mexico, transactions between husbands and wives are governed by Section 40-2-2[.]"); Primus v. Clark, 1944-NMSC-030, ¶ 13, 48 N.M. 240, 149 P.2d 535 (explaining that "[transactions between husband and wife are controlled by the ... statute" and analyzing the challenged agreement within the context of the statute).

         1. Section 40-2-2: Contract Rights of Married Persons

         {11} In New Mexico, "[e]ither husband or wife may enter into any engagement or transaction with the other, or with any other person respecting property, which either might, if unmarried[.]" Section 40-2-2. However, such transactions between spouses are subject to "the general rules of common law which control the actions of persons occupying confidential relations with each other." Id. interpreting this statute, our Supreme Court has held that transactions between spouses in which one spouse "secured a decided advantage over the [other]" are "presumptively fraudulent." Beals v. Ares, 1919-NMSC-067, ¶¶ 73, 82, 90, 25 N.M. 459, 185 P. 780. That is because a husband and wife are fiduciaries upon whom are imposed " 'the obligation of exercising the highest good faith towards [each other] in any dealing between them, and [which] preclude [s each] from obtaining any advantage over [the other] by means of any misrepresentation, concealment, or adverse pressure.'" Id. ¶ 76 (quoting with approval Dolliver v. Dolliver, 30 P. 4, 5 (Cal. 1892) (in bank)); see Primus, 1944-NMSC-030, ¶ 15 (explaining that the statute governing the contract rights of married persons "creates in law a fiduciary relationship between husband and wife"). In such cases, in order to overcome the presumption of fraud, it is the duty of the spouse who has gained the advantage "to show (a) the payment of an adequate consideration, (b) full disclosure by him [or her] as to the rights of the [other] and the value and extent of the community property, and (c) that the [other] had competent and independent advice in conferring the benefits upon [him or her]." Beals, 1919-NMSC-067, ¶ 90. Where the advantaged spouse fails to make this showing, the district court is to "set aside the [agreements] ... in question, to ascertain the value and extent of the community property, . . . and to divide the community property between the parties[.]" Id. ¶93.

         2. Whether Wife Gained a Decided Advantage Over Husband, Thereby Creating a Presumption of Constructive Fraud

         {12} Where one spouse receives grossly inadequate consideration for forfeiting his or her interest in community property, the other spouse is considered to have gained a decided advantage through constructive fraud, [4] rendering the transaction voidable. I See Primus, 1944-NMSC-030, ¶¶ 12, 21, 22 (concluding that there existed a "legal presumption of constructive fraud" where the wife received only $1, 000 from the community estate worth $50, 000); Beals, 1919-NMSC-067, ¶¶ 72, 82 (concluding that the husband had "secured a decided advantage over the wife" where the wife received only $4, 000 and her interest in the subject property was between $35, 000 and $75, 000). Our Supreme Court has also found constructive fraud where one spouse "had and took an advantage in the matters surrounding the conveyance of... property." Trujillo v. Padilla, 1968-NMSC-090, ¶ 6, 79 N.M. 245, 442 P.2d 203. The main question we are concerned with is whether the parties were "bargaining on an equal footing" in satisfaction of their fiduciary duties to one another. Primus, 1944-NMSC-030, ¶¶ 15, 21. Where the evidence indicates they were not, we may find constructive fraud.

         {13} Here, the record indicates that the net value of CSC was $257, 461.26 as reflected by the proceeds placed in the registry of the court following the sale and payment of debts of CSC. Thus, Husband's one-half community interest was approximately $128, 000. Under the SSPAs, Husband received $0 in exchange for conveying his interest to Wife. Even assuming Husband received the non-monetary "consideration" of being relieved of all financial and legal liability by signing the SSPAs-which argument we address below-Husband's considerable forfeiture supports a presumption of constructive fraud. Additionally, we note that prior to asking Husband to sign the SSPAs, Wife had consulted a divorce attorney as well as a business attorney, and it was Wife who drafted and provided Husband with the SSPAs. The record contains no indication that Husband-though he had a chance to review the SSPAs prior to signing them-had independent counsel regarding the agreements. Based on the foregoing facts, along with our statutory authority and legal precedent, we conclude that Wife gained a decided advantage over Husband through the SSPAs. We, therefore, next consider whether Wife met her burden to show (a) provision of adequate consideration, (b) full disclosure to Husband as to his rights and extent of the community property, and (c) that Husband had competent and independent legal advice prior to signing the SSPAs. See Beals, 1919-NMSC-067, ¶90.

         3. Whether Wife Met Her Burden of Proving She Met Her Fiduciary Duties in Entering Into the SSPAs With Husband

         a. Consideration

         {14} In a contract between spouses where one spouse gains a decided advantage over the other, the advantaged spouse bears the burden of proving that adequate consideration was provided to support the contract. See id. "Consideration consists of a promise to do something that a party is under no legal obligation to do or to forbear from doing something he has a legal right to do." Heye v. Am. Golf Corp., 2003-NMCA-138, ¶ 12, 134 N.M. 558, 80 P.3d 495. A promise by one party to release from liability and indemnify or hold harmless the other party against damages sought by a third party may constitute adequate consideration to support a contract. See Nakashima v. State Farm Mut. Auto. Ins. Co., 2007-NMCA-027, ¶ 13, 141 N.M. 239, 153 P.3d 664 ("Adequate consideration is present in a contract where something is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise." (internal quotation marks and citation omitted)). Likewise, promising to assume the debt of another may be valid consideration. See lid; see also Thornton v. Wolf, 2007-132, p. 2 (La.App. 3 Cir. 5/30/07); 958 So.2d 131, 133 ("Assumption of a debt is valid consideration for the transfer of property."). To determine the parties' intent-including as to the consideration provided-we consider "the language employed by them; and where such language is not ambiguous, it is conclusive." Greentree Solid Waste Auth. v. Cty. of Lincoln, 2016-NMCA-005, ¶ 14, 365 P.3d 509 (internal quotation marks and citation omitted). Where the parties' language is unambiguous, we "cannot change [the] language for the benefit of one party to the detriment of another." Nearburg v. Yates Petroleum Corp., 1997-NMCA-069, ¶ 23, 123 N.M. 526, 943 P.2d 560.

         {15} Here, Wife contends that the consideration she provided to support the SSPAs was a promise that Husband would be released from all financial responsibility and legal liability for each of the properties identified in the SSPAs. The district court, apparently relying on Wife's testimony to that effect, agreed, finding that Husband "desired to be relieved of responsibility for existing debt and liability of both companies, and future debt and liability of the businesses and the properties]" and concluding that "[a]s consideration for the [SSPAs, Husband] was relieved of all further financial responsibility and legal liability for the businesses." The problem with this conclusion, however, is that the SSPAs themselves contain no indication of this purported consideration.

         {16} Each of the two SSPAs relating to real property (one for 251 Francis and one for the State Street ...

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