May approves reformation of a court-approved equitable distribution agreement based upon an alleged mutual mistake

Posted Sunday, August 4th, 2019 by Gregory Forman
Filed under Equitable Distribution/Property Division, Family Court Procedure, Mediation/Alternative Dispute Resolution, Of Interest to Family Court Litigants, Of Interest to Family Law Attorneys, South Carolina Appellate Decisions, South Carolina Specific

The July 24, 2019 Court of Appeals opinion in May v. May, 428 S.C. 131, 833 S.E.2d 78 (Ct. App. 2019), upheld the family court’s reformation of a court-approved separation agreement based upon the mediator’s scrivener’s error and an alleged mutual mistake. In May, the parties entered a separation agreement drafted by the mediator. In a provision dealing with the marital home, the parties’ agreement read:

The Wife shall refinance or assume the debt on the home to remove the Husband’s name from the indebtedness to Benchmark Mortgage. The Wife shall refinance or assume the debt on the home to remove the Husband’s name from the indebtedness on or before June 7, 2016. The Husband hereby waives and relinquishes any and all interest in the property and the equity therein. The Wife shall be responsible for any and all debts and liabilities associated with this property and shall hold the Husband harmless therefrom.

Should the Wife not refinance or otherwise remove the Husband’s name from the Benchmark Mortgage on or before June 7, 2016, the house shall be placed on the market for sale by June 13, 2016. . . . All net sales proceeds shall be split by the parties on a 50/50 basis.

Husband was represented by counsel at the hearing to approve the agreement; wife was pro se. The family court approved the agreement as drafted. Wife subsequently refinanced the mortgage on the marital home and removed Husband’s name therefrom in the allotted time. However, according to Husband, Husband’s attorney, and the mediator, the parties agreed that if Wife was able to refinance the marital home, she would pay Husband $60,000 as his part of the equity in the home. The separation agreement omitted this provision.

Upon discovering this omission, Husband filed a motion pursuant to Rule 60(a) and (b), SCRCP, to reform the agreement to include the omitted provision, arguing scrivener’s error and mutual mistake. In support of this motion Husband submitted an affidavit from the mediator noting the parties’ intent and noting the mistake in omitting the $60,000 provision from the agreement. The family court did not consider the mediator’s affidavit but found clear and convincing evidence of the mutual mistake. It reformed the agreement to require Wife to pay Husband $60,000 as his share of the equity in the marital home and denied Wife her requested attorney’s fees. Wife appealed.

The Court of Appeals affirmed this reformation and finding of mutual mistake. It allowed consideration of the parties’ intentions in the mediation. In doing so it relied upon the 2018 revision to Rule 8(C)(4), SCADR, which “was revised to specifically address the issue in this case.” That subsection reads “there is no confidentiality attached to information that is disclosed during a mediation: . . .(4) offered for the limited purpose in judicial proceedings of establishing, refuting, approving, voiding, or reforming a settlement agreement reached during a mediation.”

In allowing the family court to consider information about the parties’ intentions to reveal information from the mediation, the Court of Appeals held:

In the instant case, neither Husband’s, nor Husband’s attorney’s, nor the mediator’s affidavits disclosed the substance of the negotiations. Rather, they stated what the parties agreed to as a result of the mediation and that the Agreement as prepared did not contain the agreed-upon terms. The statement of what the parties agreed to at the conclusion of the mediation process, even if it was incorrectly memorialized in the written agreement, is not “information they utilized to reach the settlement,” nor does it reveal documents or material relied upon during or in the course of the mediation. Therefore, Rule 8 as it existed at the time of Husband’s motion did not protect the relevant affidavits. Furthermore, the legislature’s revision to Rule 8 last year makes clear it intended to permit the correction of mediated settlement agreements. Accordingly, the admission of the disputed affidavits was not erroneous.

The Court of Appeals further rejected Wife’s claim that there was no mutual mistake but merely a mistake by Husband:

Wife correctly argues Husband was required to establish a mistake by clear and convincing evidence. The family court indicated it based its finding of mistake on the internal inconsistency in the Agreement—the parties agreed to split the marital home’s equity if sold, but Husband would receive no equity if Wife refinanced the mortgage. This incongruity suggests a mistake. However, in the absence of the affidavits regarding the $60,000 provision, that inconsistency may not rise to the level of clear and convincing evidence. Nevertheless, considering all the information presented to the family court, it is clear the parties agreed to the $60,000 equity payment and it was inadvertently omitted from the Agreement. Wife contends she did not admit to any mistake and therefore a finding of mutual mistake is in error. However, Wife’s affidavit is equivocal and does not deny she consented to the $60,000 equity provision at the time of the drafting of the Agreement.

The Court of Appeals further held that Husband’s negligence in failing to read the agreement he executed did not preclude reformation, citing the case of Jumper v. Queen Mab Lumber Co., 115 S.C. 452, 106 S.E. 473 (1921):

[W]e assert that it would be a monstrous perversion of justice to deny the right of reformation upon the ground that the defendant was negligent in not reading the contract before signing it. It was as much the duty of the plaintiff to read the contract and see that it conformed to the agreement as it was the defendant’s. If the plaintiff read it and discovered the discord and allowed the execution to proceed intending to take advantage of it, he does not assume a position that commends him to a [c]ourt of [e]quity.

[I]f when presented for their signatures [the parties] thought or assumed that no discord existed, their signing would be the result of their co-operative fault; if one of them discovered the discord and remained silent, it would be a fraud upon the other not to call attention to it. In any conceivable event, therefore, reformation would be decreed.

Citations omitted.

Finally the Court of Appeals rejected Wife’s claim that the family court could not consider parol evidence of the parties’ intent, as “the parol evidence rule does not preclude extrinsic evidence in cases involving mistake and reformation.”

While I don’t doubt that, at some point in the mediation, the parties intended that Wife would provide Husband $60,000 if she refinanced the marital home by the deadline, that is not the agreement either party signed and I am not convinced that reformation was the proper remedy for this “mistake.” There is always a gap between the “meeting of the minds” that leads to someone drafting an agreement and the execution of the actual agreement. Sometimes, during that gap, one or both parties changes his or her mind and the agreement never gets executed. At some point in the mediation, Wife agreed to the $60,000 payment but that was not the agreement she signed. It may not have been Husband’s intent to let Wife keep all the equity in the marital home but I’m not sure it was Wife’s clear intent to pay Husband $60,000 for his share of the equity at the time she executed or the court approved this agreement.

Reformation of the agreement was the proper remedy only if Wife rejected the remedy of vacating the entire agreement (or, if equitable distribution wasn’t tied to issues of child support and alimony, vacating the equitable distribution portions of the agreement). The May opinion does not indicate whether Wife was presented, or even requested, this option. It’s an option she should have been allowed.

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