Balogh v. Balogh.

*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Electronically Filed
Supreme Court
SCWC-11-0001074
07-AUG-2014
01:55 PM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---o0o---
SANDRA C.J. BALOGH, Respondent/Plaintiff-Appellant,
vs.
DONALD RAYMOND BALOGH, Petitioner/Defendant-Appellee.
SCWC-11-0001074
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-11-0001074; FC-D NO. 10-1-0149)
AUGUST 7, 2014
RECKTENWALD, C.J., NAKAYAMA, MCKENNA, JJ., AND
CIRCUIT JUDGE CHAN, IN PLACE OF ACOBA, J., RECUSED,
WITH POLLACK, J., CONCURRING AND DISSENTING SEPARATELY
OPINION OF THE COURT BY RECKTENWALD, C.J.
We consider whether various documents signed by a
husband and wife should control the division and distribution of
their marital partnership property upon divorce. Donald Raymond
Balogh (Ray) and Sandra C.J. Balogh (Sandra)1 married in New
1
Because both parties in this case share the same surname, we refer
to them by their first names, i.e., Ray and Sandra.
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Jersey in 1981. After moving to Oahu in 2003, the couple began
constructing a home on a vacant lot they had purchased (Kahalakua
property or the property). The parties held title to the
property as tenants by the entirety.
On October 6, 2008, following a period of tension
between Ray and Sandra, they each signed a handwritten document
stating that if they separated, Sandra would receive seventy-five
percent of the profit from the sale of the property, the contents
of their home (excluding Ray’s tools and clothes), and all of
their vehicles. A few weeks later, on October 24, 2008, the
parties signed a typewritten Memorandum of Understanding (MOU)
stating that upon separation or divorce, Sandra would receive
seventy-five percent of the proceeds from the sale of the
property, the contents of their home (excluding Ray’s tools and
building equipment), all of their vehicles, and $100,000 from Ray
in lieu of alimony and court proceedings.
After a period of continued tension between Ray and
Sandra, Ray agreed to move out of the couple’s home on August 15,
2009. On September 1, 2009, Ray signed a quitclaim deed
transferring his entire interest in the property to Sandra for
ten dollars and “other valuable consideration.”
In January 2010, Sandra filed a complaint for divorce
in the Family Court of the First Circuit. Notwithstanding the
quitclaim deed and two agreements, the family court awarded Ray
and Sandra each a one-half interest in the property, which it
-2-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
valued at $1.6 million at the time of divorce.2 The family court
concluded that it would be unconscionable to enforce the
quitclaim deed and that all three agreements were unenforceable
because Ray acted under duress and coercion when he signed them.
Sandra appealed, and the Intermediate Court of Appeals
vacated in part the family court’s divorce decree and its
findings of fact and conclusions of law, and remanded for further
proceedings. The ICA concluded that both the quitclaim deed and
MOU were enforceable. The ICA explained that the quitclaim deed
was not unconscionable and that Ray executed both the deed and
the MOU voluntarily. The ICA also concluded that the deed
superseded the MOU only to the extent it modified the disposition
of the Kahalakua property, and therefore remanded to the family
court to determine whether Ray owed Sandra an additional $100,000
pursuant to the MOU.
In his application, Ray presents two questions:
(1) whether the ICA erred in vacating the family court’s decision
that the postmarital agreements and the quitclaim deed were
unenforceable because they were unconscionable; and (2) whether
the ICA erred in vacating the family court’s decision that the
postmarital agreements and quitclaim deed were unenforceable
because they were entered into involuntarily.
As a threshold matter, we hold that the quitclaim deed
2
The Honorable Paul T. Murakami presided.
-3-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
does not constitute a separation agreement that alters the
parties’ rights to an equitable division of their marital
partnership property, such that Sandra should receive the entire
value of the Kahalakua property. The ICA therefore erred in
concluding that the quitclaim deed was an enforceable separation
agreement.
Because the quitclaim deed did not affect the
disposition of the couple’s marital partnership property upon
divorce, we must also consider whether the MOU is enforceable.
We hold that the MOU is enforceable because it is not
unconscionable and was entered into voluntarily. Because we
conclude that the MOU is enforceable, we do not consider the
October 6, 2008 handwritten agreement. The ICA’s judgment is
therefore vacated, the family court’s divorce decree and findings
of fact and conclusions of law are vacated in part, and we remand
this case to the family court for further proceedings consistent
with this opinion.
I. Background
The following factual background is taken from the
record on appeal and the family court’s findings of fact and
conclusions of law.3
3
On appeal, Sandra challenged only two of the family court’s
factual findings. Specifically, Sandra challenged finding of fact 48 to the
extent it stated that “Sandra told Ray he should leave,” and finding of fact
53, which stated the following: “After discussions with Sandra, Ray thought
the Quitclaim deed would protect the home from potential lawsuits, but title
would be transferred back to joint ownership when thing[s] returned to
(continued...)
-4-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
A. Factual background
Ray and Sandra married in 1981 in New Jersey. At the
time of the marriage, Sandra owned two properties in Monmouth
County, New Jersey. Sandra sold the first property in 1982 for
$89,000. The second property was a vacant lot which Sandra had
purchased for $28,750 (Wall Township property). At the time of
the marriage, Ray owned one property which he sold shortly
thereafter for $40,000. According to Ray, after he and Sandra
married, they built a home on the Wall Township property.
Ray and Sandra are both well educated. Ray has a
bachelor of science and a master’s degree in electrical
engineering. Sandra has a bachelor of science in biological
science and a master’s degree in education and student personal
services. While living in New Jersey, Ray worked as a contractor
for various companies. Before retiring in 2002, Sandra worked as
a high school guidance counselor for more than twenty-five years.
While Ray and Sandra were living in New Jersey, they
regularly vacationed in Hawai#i. In 2002, Ray and Sandra
purchased the Kahalakua property, which was a vacant lot on O#ahu
on Kahalakua Street, for $280,000. Ray and Sandra took out a
home-equity loan on the Wall Township property to pay for the
3
(...continued)
normal.” All of the family court’s remaining findings of fact are binding on
this court. See Bremer v. Weeks, 104 Hawai#i 43, 63, 85 P.3d 150, 170 (2004)
(“[F]indings of fact that are not challenged on appeal are binding on the
appellate court.” (quotation marks, ellipsis, and citation omitted)).
-5-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Kahalakua property. Ray and Sandra held title to the Kahalakua
property as tenants by the entirety.
In 2003, Ray and Sandra decided to move to Hawai#i so
that Sandra could care for her elderly parents. The couple sold
the Wall Township property for $545,000.
Soon after arriving in Hawai#i, Ray and Sandra hired a
contractor to build a home on the Kahalakua property for
$595,000. The couple used the proceeds from the sale of the Wall
Township property, as well as approximately $350,000 Ray had
inherited and money from their joint savings, to help pay for the
Kahalakua property and the construction of the home on the
property.
Construction on the property began in 2004 and the home
was supposed to be completed within two years. There were
problems with the construction process from the start. The
builder showed up only sporadically and eventually walked off the
project without completing the work. In 2006, the builder placed
a mechanic’s lien on the property, even though there was a list
of approximately 150 incomplete items.
The homeowner’s association then sought to assess Ray
and Sandra a penalty totaling $350,000 because the house had not
been completed within the prescribed two-year period. The couple
sued the homeowner’s association, and the parties agreed on a
reduced penalty of $5,000 with an additional two-year period to
complete construction of the home.
-6-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
In order to complete the home, Ray and Sandra paid a
total of $60,000 to six additional subcontractors, but the home
was still not completed. About six months after the original
builder had walked off the job, Ray and Sandra were able to move
into the house.
During this time, Sandra was working as a part-time
secretary, and Ray was working for Northrop Grumman. Sandra
coordinated the work of most of the subcontractors, and Ray
worked on the house when he was home from work. For example, Ray
finished the kitchen.
Tension arose between Ray and Sandra after Ray began
going outside their home without clothes on. Ray’s behavior
resulted in complaints from neighbors and a visit to the couple’s
home by the police. Sandra also suspected that Ray was having an
affair because he had lost weight, was working out, and was well
tanned. Sandra also observed Ray giving other women what she
described as “lecherous looks.”
Ray stopped working in July 2008, after his contract
with Northrop Grumman had expired and he was unable to find
additional work. At the time of his retirement, Ray was earning
between $115,000 and $120,000 per year. Following his
retirement, Ray continued to work on the house.
After months of arguing and still questioning Ray’s
fidelity, Sandra told Ray that if he was serious about being
committed to the marriage, that they should “write something up.”
-7-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
On October 6, 2008, Ray wrote an agreement, as dictated by
Sandra, that provided the following:
If Sandy and Ray Balogh are to separate from each
other their assets are to be divided as such:
I Donald Raymond Balogh agree that my wife Sandra C.
Balogh will receive:
1. ¾ or 75% of the profits of the sale of [] Kahalakua
St.
2. The entire contents of the house excluding Ray’s
tools and clothes
3. All vehicles at time of separation[.]
Both Ray and Sandra signed the agreement. Sandra was
not thinking about divorce when she asked Ray to sign this
agreement; instead, Sandra thought that Ray was committing to
saving their marriage. Ray acknowledged that he had agreed to
the terms of the agreement, and Sandra testified that she did not
threaten Ray to get him to sign the agreement. According to Ray,
he was not in his right mind when he signed the agreement, but
nevertheless signed the agreement to show his good faith and
commitment to save the marriage. Ray thought that if he did not
sign the agreement, his and Sandra’s relationship would further
degrade and he would be thrown out of the house.
Sandra, however, remained suspicious of Ray’s fidelity.
Just over two weeks after they had signed the first agreement,
Ray and Sandra executed the MOU in front of a notary. The MOU
provided the following:
This Agreement between Donald Balogh and Sandra Balogh
will be implemented if they are to separate and/or
divorce from each other.
-8-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Their assets will be divided as follows:
1. In regards to the contents of the house at []
Kahalakua St., Honolulu, HI []: Donald Balogh (Ray)
will receive his tools and building equipment. Sandra
Balogh (Sandy) will receive the entire contents of the
house, furniture, appliances, electronics
(televisions, etc.)
2. In regards to vehicles: Sandy will receive the
vehicles.
3. In regards to the proceeds of the house, due to a
sale: Sandy will receive 75% of the sale proceeds and
Ray will receive 25% of the proceeds.
4. In regards to compensation: Ray agrees to pay
$100,000.00 to Sandy in lieu of Alimony and court
proceedings.
Again, both Ray and Sandra signed the agreement.
Sandra testified that the MOU was intended as an inducement for
Ray to work on the marriage because if Ray was “going to sign
something like that, which gives [Sandra] quite a bit, then [Ray]
must [have been] serious about working on the marriage.” Sandra
testified that she added the additional term requiring Ray to pay
her $100,000 to obtain further commitment from Ray to their
marriage and to “see how serious he was.” Ray acknowledged that
he agreed to the terms of the MOU, and Sandra testified that she
did not threaten Ray before he signed the MOU. Because Ray
signed the MOU, Sandra thought that Ray would tell her the truth
and stop his inappropriate behavior. Ray signed the MOU in a
“desperate attempt to hold the marriage together.”
In November 2008, an attorney representing the
homeowner’s association mailed a letter to Ray and Sandra. The
letter stated that a number of individuals had complained about
-9-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Ray’s behavior. In January 2009, a second letter was mailed to
Ray and Sandra. This letter detailed another incident involving
Ray and demanded that Ray cease and desist. Ray hid both of
these letters from Sandra. Ray’s behavior, however, did not
stop.
In June 2009, Ray and Sandra were walking on the
Makapu#u Trail when police stopped Ray to question him about
exposing his buttocks. The following month, Ray and Sandra were
at Ala Moana shopping center when security officers again stopped
the couple to question Ray about exposing his buttocks. Ray was
issued a trespass warning, banning him from the shopping center
for one year. Following both incidents, Ray told Sandra that he
had not exposed himself.
Ray sent a written request to Ala Moana, asking that
the one-year ban be lifted, but on August 10, 2009, that request
was denied. Upon receiving the letter denying Ray’s request,
Sandra wanted to contact a lawyer because she believed Ray that
he had done nothing wrong. Ray then admitted to exposing his
buttocks at Ala Moana. Sandra was shocked. Ray agreed to move
out of the couple’s home the following day.
Ray testified that by that point, the marriage had
“melted down,” the anxiety and friction were constant, and there
was “just so much tension in the house,” that he “decided that
it’d be best that [he] leave.” Before Ray left, Sandra asked him
to call their relatives to tell them what was happening. While
-10-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Ray was speaking to his sister on the telephone, Sandra heard Ray
mention the possibility of divorce and she got upset. Sandra
then told Ray, “I need security, Ray, I need security, I need you
to sign the house over to me.” Ray agreed to do so, and Sandra
said that she would make the necessary arrangements. Ray moved
out of the couple’s home on August 15, 2009.
On September 1, 2009, Ray and Sandra met to execute a
quitclaim deed, in which Ray granted his interest in the
Kahalakua property to Sandra in exchange for ten dollars and
“other valuable consideration.” According to Ray, he thought the
deed was only a “temporary agreement,” that would protect the
home from potential lawsuits, and that title would eventually be
transferred back to joint ownership. Ray testified that he
signed the deed in an effort to save the marriage and that he
signed the document “in a panic.”
On September 24, 2009, Ray and Sandra met with Dr.
Renee Robinson for marriage counseling. Dr. Robinson referred
Ray to a specialist on obsessive-compulsive behavior. Ray saw
the specialist three times, who recommended ways for Ray to deal
with his behavior.
B. Family court proceedings
Ray and Sandra attempted to execute an uncontested
divorce, which failed because Ray refused to sign the divorce
documents. On January 14, 2010, Sandra filed a Complaint for
Divorce. Following a trial, the family court rendered an oral
-11-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
decision. As relevant here, the family court stated the
following:
The Court considered what it thought to be the
appropriate motivations and reasonings of the parties.
What was clear to the Court is that at the time the
documents were done, both were focused –- both husband
and wife were focused on I think, in their own words,
saving the marriage. That was the primary motivation
for the documents. At some point those actions --
what may have been intent became actions. A quitclaim
was signed. But it is unclear as to what the
motivations of both parties were, and that’s why,
again, you folks went to trial. Based on the relevant
case law, the Court finds that this would be an
inequitable provision to hold both parties to.
Court’s going to rule as follows:
With regard to the marital property, which is
the Kahala home, the Court is going to basically award
Mr. Balogh a one half interest. That one half
interest may be satisfied either by way of a sale of
the property, in which case the net proceeds are cut
in half, or Mrs. Balogh may buy out Mr. Balogh.
The Court’s going to set the buy-out price --
I’m sorry, the value of the property at 1.6 based on
the relevant testimony. Again, the Court comes to
that number based on what was presented in court. I
know there’s conflicting testimony, but that’s the
price the Court’s going to -- or the –- the value the
Court will set. Again, if it comes to an actual sale,
it may be more, it may be less. For purposes of a
buy-out, the Court will set it at 1.6. So basically
it’s 800,000, if it’s a buy-out.
On December 2, 2011, the family court issued the
divorce decree. The decree provided the following:
a. The Court finds that it is inequitable to enforce
the agreements entered into by the parties on October
6, 2008, October 24, 2008, and September 1, 2009, as
to the real property located at [] Kahalakua Street,
Honolulu, Hawaii (marital residence).
b. The gross value of said property is $1,600,000.00.
c. Said property shall be sold in a commercially
reasonable manner. From the proceeds of the sale, the
realtor commissions, escrow fees, and costs of sale
shall be paid. Thereafter, the net proceeds shall be
divided equally between the parties.
d. Either party may buy-out the other party.
-12-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
e. The foregoing provisions shall be enforced upon the
expiration of 90 days from the effective date of this
Decree.
f. The parties [are] to cooperate on resolving the
mechanics lien.
On February 15, 2012, the family court issued its
findings of fact and conclusions of law. As relevant here, the
family court made the following conclusions of law:
K. To enforce the parties’ agreement or the Quitclaim
Deed is to award Sandra with a marital asset worth
$1,600,000. In doing so, Sandra would be receiving
more than 85% of the marital estate.
L. In addition, Ray contributed $350,000 of his
inheritance and $40,000 of his premarital asset[s] to
the marital partnership, for which he is not receiving
a credit. Sandra contributed $89,000 of her
premarital asset[s] to the marital partnership for
which she is not receiving a credit.
M. If Ray received credit for his $390,000 capital
contribution, Ray’s share of the retirement/securities
accounts would just be sufficient to repay him his
capital contribution. He would in essence receive 0%
of the marital estate if Sandra is awarded the Kahala
Kua property.
N. After thirty years of marriage, the Court concludes
it would be unconscionable to award Sandra the Kahala
Kua property by enforcing the Quitclaim Deed. Kuroda
v. Kuroda, 87 Haw. 419, 958 P.2d 541 (Haw. App. 1998);
and Lewis v. Lewis, 69 Haw. 497, 748 P.2d 1362 (1988).
O. Further, after considering their testimony, the
Court finds that the parties were motivated to save
the marriage when they signed the various agreements.
When Ray signed the Quitclaim Deed, Ray was protecting
their marital home from potential lawsuits and had no
intent of permanently transferring his interest to
Sandra. Neither party intended their marriage to
result in a divorce and to divide their marital estate
accordingly.
P. The Court finds Ray was suffering from extreme
distress as a result of the ongoing construction of
their Kahala Kua residence, the contractor’s walk-off
and lawsuit in 2006, the penalties assessed by the
[homeowner’s association] and parties’ lawsuit against
[the homeowner’s association], his high security
clearance job which also required twenty-four
hour/seven days on call one week a month, the
continuing issues with the subcontractors, and his
uncontrollable obsessive behavior that escalated from
-13-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
his backyard nudity to public display, his shame and
embarrassment, his fear of being discovered, and the
constant argument with Sandra about his inappropriate
behavior. At the same time, Sandra suspected him of
infidelity which further exacerbated the marital
relationship and escalated the tension and the
friction in their home. Ray was thus under duress
and coercion when he signed the agreements. Prell v.
Silverstein, 114 Haw. 286, 162 P.3d 2 (Haw. App.
2007).
Q. Therefore, the Court concludes that the parties’
agreements on October 6, 2008, October 24,2008, and
September 1, 2009, are not enforceable.
R. Accordingly, each party shall be awarded
fifty-percent (50%) interest in their Kahala Kua
property. The parties may sell said property and
divide the net sales proceeds equally or Sandra may
buyout Ray’s interest for the amount of Eight Hundred
Thousand and No/l00 Dollars ($800,000.00). Said
provision shall take place within 90 days of the
effective date of the Divorce Decree.
C. ICA proceedings and proceedings in this court
On December 20, 2011, Sandra timely filed a notice of
appeal. In her amended opening brief — and as relevant here —
Sandra argued that the agreements and the quitclaim deed were not
unconscionable, Ray was not under duress when he signed each
agreement and the deed, and in signing the three documents, Ray
did not intend to protect the Kahalakua property from the claims
of third parties. Sandra argued, therefore, that the agreements
and the deed were enforceable.
The ICA agreed with Sandra that the family court erred
with regard to the agreements’ enforceability. The ICA first
concluded that the quitclaim deed was not unconscionable. The
ICA noted that “nothing in the record indicates unfair surprise,”
and that “this is not an exceptional case where the agreement was
so one-sided that it is unconscionable even without a showing of
-14-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
unfair surprise.” The ICA explained that “[t]he fact that
[Ray’s] (perhaps shortsighted) decision to quitclaim his interest
to [Sandra] ultimately turned out to be a bad one from his
perspective is irrelevant and does not warrant invalidating the
quitclaim deed.”
The ICA further concluded that Ray “freely and
voluntarily entered into the agreements.” Specifically, the ICA
noted that both Ray and Sandra were well educated, and that
“there is nothing in the record showing that [Sandra] used
threats or any other improper methods of persuasion.” The ICA
also rejected Ray’s argument that he never intended to convey his
interest in the Kahalakua property. The ICA explained that Ray’s
statements regarding intent “were inadmissible for purposes of
contradicting the deed’s clear language, under which he granted
his interest in the [Kahalakua property] to [Sandra] as tenant in
severalty.” The ICA further explained that because the deed was
unambiguous, extrinsic evidence of the facts and circumstances
surrounding the execution of the deed was not “competent to
contradict, defeat, modify or otherwise vary the meaning or legal
effect of the deed.” (Internal quotation marks and citation
omitted). The ICA concluded, therefore, that the “Family Court
erred in failing to classify the [Kahalakua property] as
[Sandra’s] separate property pursuant to the plain language of
the deed.”
In a concurring opinion, Judge Foley stated that
-15-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
unconscionability encompasses two basic principles: one-
sidedness and unfair surprise, and indicated that both must be
present in order for the doctrine to apply. Specifically, Judge
Foley noted that, even assuming the quitclaim deed was one-sided,
“nothing in the record indicates unfair surprise.”
The ICA entered its judgment on appeal on October 3,
2013, and, on December 2, 2013, Ray timely filed an application
for writ of certiorari. In his application for writ of
certiorari, Ray presents two questions:
1. Whether the ICA erred in vacating the Family
Court’s decision that postmarital agreements
were unenforceable because they were
unconscionable.
2. Whether the ICA erred in vacating the Family
Court’s decision that postmarital agreements
were unenforceable because they were
involuntary.
II. Standards of Review
A. Construction of contract
“[T]he construction and legal effect to be given a
contract is a question of law freely reviewable by an appellate
court.” Brown v. KFC Nat’l Mgmt. Co., 82 Hawai#i 226, 239, 921
P.2d 146, 159 (1996). Unconscionability is a question of law
this court reviews de novo. See, e.g., HRS § 490:2-302(1)
(2008). “Whether particular circumstances are sufficient to
constitute . . . duress is a question of law, although the
existence of those circumstances is a question of fact.” Gruver
v. Midas Int’l Corp., 925 F.2d 280, 282 (9th Cir. 1991) (citing
-16-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Oregon law on economic duress).
B. Findings of Fact and Conclusions of Law
The family court’s findings of fact are reviewed under
the clearly erroneous standard. Kakinami v. Kakinami, 127
Hawai#i 126, 136, 276 P.3d 695, 706 (2012) (citation omitted). A
finding of fact is clearly erroneous when “(1) the record lacks
substantial evidence to support the finding, or (2) despite
substantial evidence in support of the finding, the appellate
court is nonetheless left with a definite and firm conviction
that a mistake has been made.” Id. “‘Substantial evidence’ is
credible evidence which is of sufficient quality and probative
value to enable a person of reasonable caution to support a
conclusion.” Id.The family court’s conclusions of law are reviewed de
novo. Id.III. Discussion
At the outset, we must decide whether the quitclaim
deed in fact constituted a separation agreement that altered the
parties’ rights to an equitable division of the couple’s marital
partnership property, such that Sandra must receive the entire
value of the Kahalakua property pursuant to the deed. For the
reasons set forth below, the answer to this threshold question is
no. Accordingly, the ICA erred in concluding that the quitclaim
deed was an enforceable separation agreement.
-17-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Because the quitclaim deed did not affect the
disposition of the parties’ property upon divorce, we must also
decide whether the MOU is enforceable. For the reasons set forth
below, the MOU is enforceable because it is not unconscionable
and Ray entered into the agreement voluntarily. Because we
conclude that the MOU is enforceable, we do not consider the
enforceability of the October 6, 2008 handwritten agreement.
A. The quitclaim deed was not an agreement to alter the
division of Ray and Sandra’s marital partnership property
“In Hawai#i, there is no fixed rule for determining the
amount of property to be awarded each spouse in a divorce action
other than as set forth HRS § 580–47.” Kakinami, 127 Hawai#i at
136-37, 276 P.3d at 706-06 (brackets and internal quotation marks
omitted) (quoting Tougas v. Tougas, 76 Hawai#i 19, 26, 868 P.2d
437, 444 (1994)). Pursuant to HRS § 580-47(a), the family court
has broad discretion to divide the estate of divorcing parties in
a “just and equitable” manner. HRS § 580-47(a) (Supp. 2011); see
also Kakinami, 127 Hawai#i at 137, 276 P.3d at 706. This court
has adopted the “partnership model of marriage” to guide the
family court in its exercise of this discretion. Kakinami, 127
Hawai#i at 137, 276 P.3d at 706 (citing Gussin v. Gussin, 73 Haw.
470, 486, 836 P.2d 484, 492 (1992)). Pursuant to the partnership
model, “the family court can utilize the following five
categories of net market values (NMVs) as guidance in divorce
cases”:
-18-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Category 1. The [NMV], plus or minus, of all property
separately owned by one spouse on the date of marriage
(DOM) but excluding the NMV attributable to property
that is subsequently legally gifted by the owner to
the other spouse, to both spouses, or to a third
party.
Category 2. The increase in the NMV of all property
whose NMV on the DOM is included in category 1 and
that the owner separately owns continuously from the
DOM to the DOCOEPOT [date of the conclusion of the
evidentiary part of the trial.]
Category 3. The date-of-acquisition NMV, plus or
minus, of property separately acquired by gift or
inheritance during the marriage but excluding the NMV
attributable to property that is subsequently legally
gifted by the owner to the other spouse, to both
spouses, or to a third party.
Category 4. The increase in the NMV of all property
whose NMV on the date of acquisition during the
marriage is included in category 3 and that the owner
separately owns continuously from the date of
acquisition to the DOCOEPOT.
Category 5. The difference between the NMVs, plus or
minus, of all property owned by one or both of the
spouses on the DOCOEPOT minus the NMVs, plus or minus,
includable in categories 1, 2, 3, and 4.
Id. at 137-38, 276 P.3d at 706-07 (brackets in original).
These NMVs generally determine the division of marital
partnership property upon divorce. However, spouses may
expressly contract for a different division of marital
partnership property, and the family court must enforce all valid
and enforceable agreements with regard to marital property
division.4 See HRS § 572-22 (2006) (“All contracts made between
4
Spouses may contract regarding marital property rights in
premarital, postmarital, or settlement agreements. Premarital or prenuptial
agreements are entered into before marriage. See, e.g., Prell v. Silverstein,
114 Hawai#i 286, 287-88, 162 P.3d 2, 3-4 (App. 2007). Postmarital or
postnuptial agreements are entered into after marriage. See, e.g., Chen v.
Hoeflinger, 127 Hawai#i 346, 352, 279 P.3d 11, 17 (App. 2012). Settlement
agreements are entered into after separation or in anticipation of immediate
separation. See, e.g., Bienvenue v. Bienvenue, 102 Hawai#i 59, 61, 72 P.3d
531, 533 (App. 2003).
-19-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
spouses . . . not otherwise invalid because of any other law,
shall be valid.”); Epp v. Epp, 80 Hawai#i 79, 87, 905 P.2d 54, 62
(App. 1995). In addition, spouses may exclude certain assets
from the marital partnership entirely, thereby segregating those
assets as marital separate property. Marital separate property
includes:
a. All property that was excluded from the marital
partnership by an agreement in conformity with the
Hawai#i Uniform Premarital Agreement Act (HUPAA), HRS
chapter 572D (Supp. 1992);
b. All property that was excluded from the marital
partnership by a valid contract; and
c. All property that (1) was acquired by the
spouse-owner during the marriage by gift or
inheritance, (2) was expressly classified by the
donee/heir-spouse-owner as his or her separate
property, and (3) after acquisition, was maintained by
itself and/or sources other than one or both of the
spouses and funded by sources other than marital
partnership income or property.
Kakinami, 127 Hawai#i at 138-39, 276 P.3d at 707-08 (brackets and
ellipsis omitted) (emphasis added).
In the instant case, the quitclaim deed does not
constitute either an express agreement to deviate from the
partnership model of marital property division, or a valid
contract converting the Kahalakua property into marital separate
property.5 Although the deed stated that Ray “remise[d],
release[d] and forever quitclaim[ed]” his interest in the
property to Sandra, nothing on the face of the deed indicates
5
The other two means of converting marital partnership property
into marital separate property — an agreement pursuant to the HUPAA or the
special treatment of a gift or inheritance — are not implicated in the instant
case.
-20-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
that it was intended to alter Ray’s right to an equitable
division of the property upon divorce, or to convert the property
to marital separate property. Thus, although the language of the
deed effectuated a change in who held title to the property, it
was not, standing alone, sufficient to remove the property from
the marital partnership. See Reithbrock v. Lange, 128 Hawai#i 1,
16 n.9, 282 P.3d 543, 558 n.9 (2012) (noting that awarding
property solely on the basis of which spouse holds title would
conflict with the partnership model of property division).
Accordingly, this court must look to the circumstances
surrounding the quitclaim deed to determine whether it was
intended to alter the disposition of the Kahalakua property.6
According to Ray, he signed the deed to protect the property from
lawsuits, and he and Sandra intended to eventually “restore the
title to joint ownership.” However, according to Sandra, Ray
signed the quitclaim deed because she told him, “I need
security.” Sandra further testified that, pursuant to the deed,
she “gave up” the $100,000 due to her under the MOU in exchange
for receiving the entire Kahalakua property.
The family court credited Ray’s explanation for the
6
Thus, the ICA erred in concluding that “[Ray’s] statements
regarding intent were inadmissible for purposes of contradicting the deed’s
clear language.” Although the deed was unambiguous with respect to the
transfer of title, it was ambiguous with respect to whether it was intended to
alter the division of the property upon the parties’ divorce. Accordingly,
the ICA was incorrect in stating that “[t]he Family Court erred in failing to
classify the Property as [Sandra’s] separate property pursuant to the plain
language of the deed.”
-21-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
quitclaim deed, finding that, “[a]fter discussions with Sandra,
Ray thought the Quitclaim deed would protect the home from
potential lawsuits, but title would be transferred back to joint
ownership when things returned to normal.” Although Sandra
challenged this finding on appeal, it is supported by substantial
evidence in the form of Ray’s testimony. In re Doe, 95 Hawai#i
183, 190, 20 P.3d 616, 623 (2001) (“[I]t is well-settled that an
appellate court will not pass upon issues dependent upon the
credibility of witnesses and the weight of the evidence; this is
the province of the trier of fact.” (internal quotation marks and
brackets omitted)). Accordingly, the family court’s finding is
not clearly erroneous, and it is therefore binding on this court.
Based on the family court’s finding, the parties did
not intend the quitclaim deed to alter the disposition of their
marital partnership property upon their divorce. Accordingly,
the quitclaim deed did not bar the family court from equitably
dividing the Kahalakua property. Thus, this court need not
determine whether the quitclaim deed was unconscionable or agreed
to under duress.7
7
In general, a deed is not a contract. See, e.g., Brown v. Brown,
501 So. 2d 24, 26 n.1 (Fla. Dist. Ct. App. 1986) (“As distinguished from
covenants of warranty, et cetera, which are often in a deed but which are not
essential to its character, a deed is not a contract. A deed does something
(conveys land) as distinguished from promising to do something.”).
Nevertheless, to the extent the parties here treat the quitclaim deed as a
contract, it is well settled that “there must be a meeting of the minds on all
essential elements or terms in order to create a binding contract.” Moss v.
Am. Int’l Adjustment Co., 86 Hawai#i 59, 63, 947 P.2d 371, 375 (1997)
(internal quotations marks and citation omitted). Because Ray thought that
the deed would protect the property from lawsuits and that title would
(continued...)
-22-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
We next must determine whether either of the parties’
other two agreements are enforceable. In her appeal to the ICA,
Sandra described the October 6, 2008 agreement, the MOU, and the
quitclaim deed as a “series of agreements for their divorce,” and
maintained that each of the agreements was enforceable. However,
Sandra also argued that, even if the family court’s findings and
conclusions regarding the quitclaim deed are affirmed, the
October 6, 2008 agreement and subsequent MOU should nonetheless
be enforced. Consistent with this view, Sandra continues to
argue in this court that all three agreements are enforceable.
Accordingly, we next consider whether the MOU is enforceable.
B. In general, a postmarital agreement is unconscionable if it
is impermissibly one-sided and is the result of unfair
surprise
As stated, the family court must enforce all valid and
enforceable postmarital and separation agreements. See Epp, 80
Hawai#i at 87, 905 P.2d at 62. A postmarital or separation
agreement is enforceable if the agreement is “not unconscionable
and has been voluntarily entered into by the parties with the
knowledge of the financial situation of the [other] spouse.” See
Lewis v. Lewis, 69 Haw. 497, 501, 748 P.2d 1362, 1366 (1988); see
also Chen v. Hoeflinger, 127 Hawai#i 346, 356-57, 279 P.3d 11,
7
(...continued)
eventually be restored to joint ownership, and Sandra thought that Ray signed
the deed in order to provide her with “security,” there plainly was no meeting
of the minds with respect to the effect of the deed.
-23-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
21-22 (App. 2012).8 Ray argues that the ICA applied the wrong
legal standard for determining unconscionability. For the
reasons set forth below, Ray’s argument is without merit.
Unconscionability encompasses two principles: one-
sidedness and unfair surprise. Lewis, 69 Haw. at 502, 748 P.2d
1366. One-sidedness (i.e., substantive unconscionability) means
that the agreement “leaves a post-divorce economic situation that
is unjustly disproportionate.” Id. Unfair surprise (i.e.,
procedural unconscionability) means that “one party did not have
full and adequate knowledge of the other party’s financial
condition when the [marital] agreement was executed.” Id. A
contract that is merely “inequitable” is not unenforceable.9 Id.
at 500, 748 P.2d at 1366. The unconscionability of an agreement
regarding the division of property is evaluated at the time the
8
Some jurisdictions have concluded that postmarital agreements are
subject to greater scrutiny than premarital agreements because of the nature
of the marital relationship. See, e.g., Bedrick v. Bedrick, 17 A.3d 17, 27
(Conn. 2011) (“This leads us to conclude that postnuptial agreements require
stricter scrutiny than prenuptial agreements.”). The dissent adopts such a
view, arguing that “transactions between spouses should be subject to the
general rules governing fiduciary relationships,” and that “an agreement that
[is] not in accordance with fiduciary standards should be presumptively
involuntary and unenforceable.” Dissent at 28-29. Neither the family court
nor the ICA concluded that a heightened standard should be applied in
evaluating postmarital agreements, and neither party has argued that this
court should apply such a standard. We therefore do not consider whether
postmarital agreements should be subject to greater scrutiny than premarital
agreements.
9
Although the family court stated in the divorce decree that it
would be “inequitable to enforce the agreements entered into by the parties,”
the family court’s findings of fact and conclusions of law indicate that the
family court concluded that “it would be unconscionable to award Sandra the
Kahala Kua property by enforcing the Quitclaim Deed,” not merely
“inequitable.” The family court therefore applied the correct legal standard
in determining whether the deed was unconscionable.
-24-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
agreement was executed. See id. at 507, 748 P.2d at 1369.
Generally, “[a] determination of unconscionability
. . . requires a showing that the contract was both procedurally
and substantively unconscionable when made,” but there may be
“exceptional cases where a provision of the contract is so
outrageous as to warrant holding it unenforceable on the ground
of substantive unconscionability alone.” Gillman v. Chase
Manhattan Bank, N.A., 534 N.E.2d 824, 828-29 (N.Y. 1988); see
also Adler v. Fred Lind Manor, 103 P.3d 773, 782 (Wash. 2004) (en
banc) (“individual contractual provisions may be so one-sided and
harsh as to render them substantively unconscionable despite the
fact that the circumstances surrounding the parties’ agreement to
the contract do not support a finding of procedural
unconscionability”); Maxwell v. Fidelity Fin. Servs., Inc., 907
P.2d 51, 59 (Ariz. 1995) (concluding under state statute that “a
claim of unconscionability can be established with a showing of
substantive unconscionability alone”). Although some courts have
concluded that “[t]o be unenforceable, a contract must be both
procedurally and substantively unconscionable,” see, e.g., Marin
Storage & Trucking, Inc. v. Benco Contracting and Eng’g, Inc.,
107 Cal. App. 4th 1042, 1052 (Cal. Ct. App. 2001), most
authorities have recognized that, in at least some cases,
substantive unconscionability, without more, can render an
agreement unenforceable, see Restatement (Second) of Contracts
§ 208 cmt. c (1981) (“Theoretically it is possible for a contract
-25-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
to be oppressive taken as a whole, even though there is no
weakness in the bargaining process and no single term which is in
itself unconscionable.”); 7 Joseph M. Perillo, Corbin on
Contracts § 29.1 at 377 (revised ed. 2002) (“Some cases hold that
the defense of unconscionability cannot be invoked unless the
contract or clause is both procedurally and substantively
unconscionable, but there is no basis in the text of [Uniform
Commercial Code §2-302] for such a conclusion.” (footnotes
omitted)). Indeed, the courts of this state have recognized
that, under certain circumstances, an impermissibly one-sided
agreement may be unconscionable even if there is no unfair
surprise.
For example, in Kuroda v. Kuroda, 87 Hawai#i 419, 428
(App. 1998), the court held that a postnuptial agreement was
unconscionable where it awarded the wife all personal and real
property held in common, implicitly allowed the wife to keep her
personal property including her accounts, required the husband to
pay the wife one half of his net income from every source until
either spouse passed away, and required the husband to pay all
attorney’s fees and costs associated with the separation and
divorce. The Kuroda court reached this conclusion without
considering whether there was unfair surprise. Thus, although
under Hawai#i law “two basic principles are encompassed within
the concept of unconscionability, one-sidedness and unfair
surprise,” Lewis, 69 Hawai#i at 502, 748 P.2d at 1366, in certain
-26-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
circumstances, one-sidedness alone can render an agreement
unconscionable, see Kuroda, 87 Hawai#i at 428, 958 P.2d at 550.
Here, the ICA applied the correct legal standard in its
memorandum opinion. Specifically, the majority stated that
“there need not be both one-sidedness and unfair surprise in
reaching a determination that a marital agreement is
unconscionable.” The ICA concluded, however, that the quitclaim
deed was not “so outrageously oppressive as to be unconscionable
in the absence of unfair surprise.”
Ray nevertheless argues that instead of applying the
well settled law, “the ICA held that a marital agreement is only
enforceable if there is both one-sidedness and unfair surprise.”
Ray’s description of the ICA’s analysis does not accurately
characterize the approach taken by that court. The ICA did not
hold that one-sidedness, without more, would never be enough to
find an agreement unconscionable. Instead, the ICA concluded
that the deed was not so “one-sided that it is unconscionable
even without a showing of unfair surprise.” Thus, the ICA
plainly applied the correct legal standard in considering the
validity of the deed.
Ray also appears to argue that this legal standard is
overly narrow. According to Ray, “a marital agreement is
unenforceable if it is one-sided,” and unconscionability in the
context of marital agreements does not require a showing of
unfair surprise. Put another way, Ray appears to argue that a
-27-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
marital agreement need not be exceptionally one-sided in order to
be unconscionable. Ray further argues that requiring a showing
of unfair surprise is absurd in the context of postmarital
agreements because spouses “are in an obvious[ly] better position
to be knowledgeable about their spouse’s financial condition.”
Ray’s arguments are without merit. First, Ray does not
cite to any cases invalidating a postmarital agreement solely on
the basis of that agreement being somewhat one-sided.10
Furthermore, parties may have legitimate reasons for entering
into a somewhat one-sided postmarital agreement, and may do so
knowingly and voluntarily. Permitting the family court to
invalidate such agreements without requiring a showing of
extraordinary one-sidedness would frustrate the purpose of HRS
§ 572-22, which permits spouses to enter into enforceable
contracts with each other.
Accordingly, the ICA applied the correct legal standard
in evaluating unconscionability.
10
Ray cited two cases involving unconscionability in divorce
actions. The first, In re Marriage of Thomas, 199 S.W.3d 847, 860 (Mo. App.
2006), does not support Ray’s argument because the court there noted that
parties are bound to the provisions of a pre-nuptial agreement “only if the
agreement was conscionable and fairly made,” i.e., both substantively and
procedurally conscionable. Id. at 852 (emphasis added). Additionally, the
court emphasized a similar standard of one-sidedness as that articulated by
the ICA: “An agreement is unconscionable when the inequality is so strong,
gross, and manifest that it must be impossible to state it to one with common
sense without producing an exclamation at the inequality of it.” Id.(internal quotation marks and citation omitted). Similarly, in the second
case, In re Marriage of Manzo, 659 P.2d 669, 671 (Colo. 1983), the court
considered both whether the agreement was procured through “overreaching,
fraud, concealment of assets, or sharp dealing,” and whether it was
substantively “fair, just and reasonable.” Id. at 675.
-28-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
C. The MOU is not unconscionable
Ray argues that the marital agreements were one-sided
and therefore unconscionable.11 In her response to this court,
Sandra agrees that it would be one-sided to award the Kahalakua
property to her in its entirety pursuant to the deed. Sandra
argues, however, that the MOU is not “unjustly disproportionate”
because Ray would receive 25% of the proceeds of the sale of the
property, in addition to any cash accounts and retirement
benefits awarded by the family court. (Citing Chen, 127 Hawai#i
at 357, 279 P.3d at 22).
Although the family court did not address whether the
MOU is unconscionable, this court may nonetheless reach the issue
because unconscionability is a question of law, reviewable de
novo. See, e.g., HRS § 490:2-302(1). For the reasons set forth
below, the MOU is not unconscionable with respect to the division
of the Kahalakua property, nor is it unconscionable to the extent
it required Ray to pay Sandra $100,000 in lieu of alimony.12 The
MOU is therefore an enforceable marital agreement with regard to
these clauses.
Again, the terms of the MOU were as follows:
11
Nothing in the record suggests that Ray was surprised by the terms
of the MOU, and Ray did not argue otherwise in his answering brief or
application. The only issue, therefore, is whether the MOU was so
impermissibly one-sided that it is unconscionable.
12
Although the MOU also addressed Ray’s tools and building
equipment, the contents of the house, and the couple’s vehicles, the
disposition of those items is not being disputed by the parties.
-29-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
This Agreement between Donald Balogh and Sandra Balogh
will be implemented if they are to separate and/or
divorce from each other.
Their assets will be divided as follows:
. . . .
3. In regards to the proceeds of the house, due to a
sale: Sandy will receive 75% of the sale proceeds and
Ray will receive 25% of the proceeds.
4. In regards to compensation: Ray agrees to pay
$100,000.00 to Sandy in lieu of Alimony and court
proceedings.
Even if the allocation of the entire Kahalakua property
to Sandra pursuant to the quitclaim deed could be characterized
as so one-sided as to have been unconscionable, the 75%/25% split
set forth in the MOU and the requirement that Ray pay $100,000 in
lieu of alimony are not. First, in addition to his share of the
Kahalakua property, Ray was entitled to an equitable share of the
couple’s other major assets, which totaled $760,000.13 Second,
although Ray will receive a lesser share of the proceeds under
the MOU than he would under the family court’s 50%/50% division
of the property, such imbalance was the express purpose of the
MOU. As the family court found, “Sandra believed Ray would tell
her the truth and stop his inappropriate behavior by signing the
MOU. Ray signed it in his desperate attempt to hold the marriage
together.” It is unlikely that the MOU would have been construed
as demonstrative of Ray’s commitment to the marriage had it
13
The record does not indicate the exact values of Ray’s and
Sandra’s respective shares of their other assets. Based on the family court’s
calculations, however, it appears that Ray and Sandra each received about half
of the other assets.
-30-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
provided for the same division of property Ray was likely to
receive in the family court under an equitable division upon
divorce. Moreover, as noted above, “unless the agreement rises
to the level of unconscionability, a merely ‘inequitable’
contract is not unenforceable under contract law.” Lewis, 69
Haw. at 500, 748 P.2d at 1365-66. Accordingly, the 75%/25%
division of the Kahalakua property and the $100,000 payment set
forth in the MOU are not unconscionable.
D. The MOU was entered into voluntarily
Ray also argues that the ICA erred in vacating the
family court’s decision because he did not enter into each of the
marital agreements voluntarily. For the reasons set forth below,
Ray executed the MOU voluntarily.14
“Involuntariness is shown by evidence of ‘duress,
coercion, undue influence, or any other circumstance indicating
lack of free will or voluntariness.’” Chen, 127 Hawai#i at 357,
279 P.3d at 22 (quoting Prell, 114 Hawai#i at 298, 162 P.3d at
14). Here, the family court concluded that Ray was “under duress
and coercion when he signed the agreements” because of the
ongoing construction of the Kahalakua home, the contractor
walking off and the resulting mechanic’s lien, the penalties
assessed by the homeowner’s association and the resulting
14
For the reasons stated above, this court need not address whether
the quitclaim deed was voluntarily executed. Moreover, because we conclude
that the MOU is enforceable, we do not consider the voluntariness of the
October 6, 2008 agreement.
-31-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
litigation, the demands of Ray’s job, the continuing issues with
subcontractors, and Ray’s uncontrollable obsessive behavior. The
family court’s factual findings, however, are not sufficient to
support a conclusion that Ray signed the agreements under either
duress or coercion.15
Duress is defined as “a threat of harm made to compel a
person to do something against his or her will or judgment;
[especially], a wrongful threat made by one person to compel a
manifestation of seeming assent by another person to a
transaction without real volition.” Black’s Law Dictionary 614
(10th ed. 2014). It is well established that an agreement is
voidable due to duress when “a party’s manifestation of assent is
induced by an improper threat by the other party that leaves the
victim no reasonable alternative.” Standard Fin. Co., Ltd. v.
Ellis, 3 Haw. App. 614, 621, 657 P.2d 1056, 1061 (1983)
(quotation marks and citation omitted); see also Restatement
(Second) of Contracts § 175(1) (“If a party’s manifestation of
assent is induced by an improper threat by the other party that
leaves the victim no reasonable alternative, the contract is
voidable by the victim.”).16
15
It appears that the family court used the terms duress and
coercion interchangeably, i.e., there is nothing in the Findings of Fact and
Conclusions of Law to indicate that the court viewed them as legally distinct
terms. We address each doctrine separately.
16
Section 175(2) of the Restatement concerns improper threats made
by a third party to induce the recipient to enter into a contract. However,
Ray does not contend, and the record does not suggest, that any third party
threatened Ray to enter into the agreements.
-32-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
A threat of divorce does not constitute an improper
threat since the party making it has the legal right to seek a
divorce. See Kam Chin Chun Ming v. Kam Hee Ho, 45 Haw. 521, 558,
371 P.2d 379, 402 (1962) (it is not duress for a party to
“threaten to do what they had a legal right to do”); see also
Rubenstein v. Sela, 672 P.2d 492, 494 (Ariz. Ct. App. 1983)
(concluding that husband’s threat to leave the marriage did not
constitute duress because he had a right to leave the marriage);
Autin v. Autin, 617 So.2d 229, 233 (La. Ct. App. 1993) (holding
that “a threat of doing a lawful act or a threat of exercising a
right does not constitute duress”).
However, a threat of exposure of publicly embarrassing
information can be the basis of a claim of duress. See
Restatement (Second) of Contracts § 176(2) (“A threat is improper
if the resulting exchange is not on fair terms, and . . . the
threatened act would harm the recipient and would not
significantly benefit the party making the threat”); id. cmt. f
(“A typical example is a threat to make public embarrassing
information concerning the recipient unless he makes a proposed
contract.”).
The record here does not support a finding that Ray’s
assent to the MOU was induced by an improper threat by Sandra and
that he had no reasonable alternative to signing that agreement.
There was conflicting testimony regarding whether Sandra had
threatened Ray in order to get him to sign any of the documents.
-33-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
Sandra repeatedly testified that she did not threaten Ray in
connection with the two agreements and the deed. Ray testified
at one point that Sandra had told him that if he did not sign,
she would tell family members about his behavior and that she
would “go public” with that information.17
In its findings of fact and conclusions of law,
however, the trial court did not find that Sandra had threatened
Ray. Rather, it simply identified a number of factors that
contributed to Ray’s “extreme distress,” ranging from problems
with the construction to “his uncontrollable obsessive behavior
that escalated from his backyard nudity to public display, his
shame and embarrassment, his fear of being discovered, and the
constant argument with Sandra about his inappropriate behavior.”
Moreover, Ray failed to establish that he had no reasonable
alternative to signing the MOU. Ray could have declined to sign
the MOU but still attempted to resolve his issues with Sandra in
17
At another point Ray appeared to deny that Sandra had threatened
him. However, this testimony was subject to an objection that was sustained
by the court:
Q. So was it –- was there a -– threat of divorce
or exposure to others--
A. No.
Q. –or --
MR. HIOKI: Objection, leading, Your Honor.
THE COURT: Getting there. Sustained.
Rephrase the question.
(Emphasis added).
Sandra argues that because the answer was not stricken from the
record, it is in evidence. Even assuming arguendo that Ray’s response can be
considered, the fact remains that there was conflicting testimony on this
issue, and the family court implicitly resolved those conflicts in Sandra’s
favor when it declined to find that she had threatened Ray.
-34-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
an effort to save the marriage. In sum, because the family court
did not make a finding that Sandra had improperly threatened Ray,
and since Ray had a reasonable alternative to signing the MOU,
the record does not support the family court’s conclusion that
Ray signed that agreement under duress.
The record also does not support a conclusion that the
MOU was the result of coercion. Coercion is defined as
“[c]ompulsion of a free agent by physical, moral, or economic
force or threat of physical force.” Black’s Law Dictionary 315
(10th ed. 2014). “Coercion sufficient to avoid a contract need
not . . . consist of physical force or threats of it. Social or
economic pressure illegally or immorally applied may be
sufficient.” Billouris v. Billouris, 852 N.E.2d 687, 693 (Mass.
App. Ct. 2006). For all the reasons set forth above, the record
does not support a conclusion that Sandra employed physical,
moral, or economic force to obtain Ray’s assent.
Although the family court found Ray was under stress
due to a variety of factors, those factors do not establish
either duress or coercion. Moreover, Ray cannot rely on those
factors to establish that he lacked mental capacity when he
signed the agreements, since he had specifically agreed prior to
trial that he was “not claiming lack of mental capacity as to any
issue herein.” Ray therefore executed the MOU voluntarily.
In sum, the record does not support the family court’s
conclusion that Ray’s assent to the MOU was the product of duress
-35-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
and coercion. The dissent does not dispute that analysis, but
rather suggests that the family court did not intend to rely
specifically on those doctrines, as opposed to other potential
grounds for finding that Ray’s assent was involuntary. See
Dissent at 10-24. Respectfully, the family court’s Conclusion of
Law P quite specifically refers to “duress and coercion” as the
basis for invalidating the agreement, and the court’s
accompanying citation to the Prell case implies that its reliance
on those two doctrines was intentional.
In any event, we respectfully disagree with the
dissent’s contention that Ray did not enter into the MOU
voluntarily because his “mental state was extremely vulnerable”,
he was unduly influenced, and “other circumstances” demonstrate
involuntariness. Dissent at 15, 22-24, 17-22. First, to the
extent the dissent suggests that Ray’s “mental state” deprived
him of the capacity to contract, Ray explicitly agreed prior to
trial that he was not claiming a lack of mental capacity.
Second, the record does not establish that Ray was
unduly influenced. Undue influence is “[t]he improper use of
power or trust in a way that deprives a person of free will and
substitute’s another’s objective.” Black’s Law Dictionary 1760
(10th ed. 2014); Cvitanovich-Dubie v. Dubie, 125 Hawai#i 128,
160, 254 P.3d 439, 471 (2011). As a threshold matter, the family
court did not find that Sandra exerted undue influence over Ray,
and Ray does not argue otherwise in this court. Moreover, the
-36-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
record does not support a conclusion that Sandra either attempted
to impose or actually imposed improper influence on Ray.
Finally, there are no “other circumstances” indicating
a lack of free will on Ray’s part. The dissent asserts that Ray
was motivated by saving the marriage and that Ray believed he had
no other choice but to sign the agreements. Dissent at 21. The
facts of this case, however, do not support a conclusion that Ray
executed the MOU involuntarily. As noted above, Ray was well
educated, with a bachelor’s and master’s degree in electrical
engineering, and he held a high-level security clearance. There
is no suggestion in the record that Ray was unaware of what he
was doing, nor do the facts otherwise support a conclusion that
the MOU was the result of a lack of free will. In fact, Ray
expressly testified that he agreed to all of the terms of the
MOU. While Ray was under stress from a number of sources, that
stress is not sufficient to establish that the MOU was not
entered into voluntarily.
The dissent also asserts that the MOU is voidable for a
lack of consideration. Dissent at 29. The family court,
however, made no findings or conclusions relating to the adequacy
of consideration, and Ray has made no argument in this regard to
this court. Thus we do not consider the issue.
We therefore vacate the family court’s conclusions of
law N, P (in part), Q, and R. We vacate conclusion of law N
because the family court treated the quitclaim deed as a
-37-
*** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***
separation agreement. We vacate conclusion of law P to the
extent the family court concluded that Ray signed the agreements
under duress and coercion. We vacate conclusion of law Q because
the family court concluded that the parties’ agreements were
unenforceable. Finally, we vacate conclusion of law R because it
awarded Ray and Sandra each a fifty-percent interest in the
Kahalakua property.
IV. Conclusion
For the foregoing reasons, the ICA’s judgment is
vacated, the family court’s divorce decree is vacated, and the
family court’s findings of fact and conclusions of law are
affirmed in part and vacated in part. The case is remanded to
the family court for further proceedings consistent with this
opinion.
Rebecca A. Copeland /s/ Mark E. Recktenwald
for petitioner
/s/ Paula A. Nakayama
Stephen T. Hioki
for respondent /s/ Sabrina S. McKenna
/s/ Derrick H.M. Chan
-38-