Porreco v. Porreco

OPINION ANNOUNCING THE JUDGMENT OF THE COURT

Justice NEWMAN.

In this case we must decide whether a misstatement by one party to a prenuptial agreement of the assets of the other party constitutes fraud such that the prenuptial agreement is voidable. We find that there is no justifiable reliance by the party claiming fraud with respect to this representation and, accordingly, we reverse the Superior Court on that issue. We also' remand this case to the Superior Court to review the determination by the trial court that a confidential relationship existed between the parties.

FACTUAL AND PROCEDURAL BACKGROUND

Appellant Louis Porreco (“Louis”) was forty-five years old, and previously married, when he met Appellee Susan Porreco (“Susan”), who was seventeen years old, in high school, living with her parents, and working part-time at a ski shop. The parties dated for over two years, during which time Louis provided Susan with an apartment, an automobile, insurance, a weekly allowance, access to one of his credit cards as a secondary card holder, and a gas charge account at his car dealership’s fueling station.

When the parties engaged to be married, Louis presented Susan with an engagement ring. The parties dispute whether Susan knew at the time Louis gave her the ring that it was not a genuine diamond but, instead, a cubic zirconium. The trial court credited Susan’s testimony that she believed the engagement ring contained a real diamond and did not discover that it was fake until the parties separated many years later. However, prior to giving her the engagement ring, Louis had given Susan other rings that contained genuine stones.¹

In July of 1984, Louis presented Susan with the first draft of a prenuptial agreement. Louis did not discuss the agreement with Susan, other than to say that it was a standard agreement with the provisions left blank, and that Susan should seek legal counsel. This first draft of the agreement made no provision for Susan, other than that she was to retain her separate property in the event of a divorce. Louis later presented Susan with a second version of the agreement, which provided that, in the event of divorce, Susan was to receive $3,500.00 for each year of marriage in lieu of alimony, alimony pendente lite, and spousal support. Also pursuant to this agreement, Louis would provide Susan with an automobile and health insurance for one year. In all other respects, the agreement provided that the parties would retain their separate property, including all increase in value thereof.

Prior to the execution of the final version of the agreement, Louis prepared, in his own handwriting, a personal financial statement that listed Susan’s assets. Included in this list was an entry for the engagement ring, with the value listed at $21,000.00. Although the financial statement described the ring as an engagement ring, it did not state that the ring contained a diamond, or any other kind of stone. The final version of the agreement contained a typed personal financial statement of Susan’s assets, which also stated a value of $21,000.00 for the engagement ring. Based on this financial statement, the net worth of Susan’s assets appeared to be $46,592.00.² Louis’ personal financial statement — the accuracy of which is not in dispute — listed his net worth at $3,317,666.00. Susan testified that she understood that, as a consequence of signing the prenuptial agreement, she would only receive, in the event of a divorce, the lump sum payment of $3,500.00 per year of marriage, an automobile, insurance, and whatever individual assets she possessed. An attorney reviewed the agreement on Susan’s behalf, although he conducted no negotiations for her.

When the parties separated more than ten years later, Susan took the ring to a jeweler in South Carolina, who informed her that it was not a diamond. Subsequently in the divorce proceedings, Susan filed a Petition for Special Relief to set aside the prenuptial agreement. Susan alleged three grounds for invalidation of the prenuptial agreement: (1) that Louis fraudulently induced her to enter the prenuptial agreement by misrepresenting the value of the ring; (2) that Louis breached a confidential relationship with her; and, (3) that Louis violated his duty, pursuant to our decision in Simeone v. Simeone, 525 Pa. 392, 581 A.2d 162 (1990), of a full and fair disclosure.

The trial court invalidated the prenuptial agreement. The court concluded that a confidential relationship existed between Louis and Susan, due to the difference in the parties’ age, sophistication, wealth and status, and Susan’s dependence on Louis for her material and social well-being. Louis breached this confidential relationship, according to the trial court, by having a prenuptial agreement drafted that was lopsided in his favor. Additionally, the court found that Louis misrepresented the nature and value of the ring in order to induce Susan to sign the prenuptial agreement, which she signed in reliance on Louis’ representation as to the ring’s value, and that this misrepresentation was material to her decision to sign the agreement. The court found credible Susan’s testimony that if she knew that Louis had given her a fake ring and lied about it, she would not have signed the prenuptial agreement and “would not have married the man.” Finally, the court declined to address Susan’s claim that Louis violated his duty to provide her with a full and fair disclosure, pursuant to Simeone.

The Superior Court affirmed³ in a 2-1 unpublished decision. The majority determined that Susan had proven, by dear and convincing evidence, that Louis fraudulently induced her to enter the prenuptial agreement by misrepresenting the value of the ring. Because the majority agreed with the trial court that the prenuptial agreement was voidable due to Louis’ fraud, they did not address the merits of the determination by the trial court that Louis breached a confidential relationship with Susan. Judge Kelly dissented. In Judge Kelly’s view, the remedy of invalidating the entire prenuptial agreement was too harsh. Instead, Judge Kelly would have required Louis to pay Susan $21,000.00 to compensate her for the value of the ring as stated in the prenuptial agreement, but would otherwise have enforced the agreement.

DISCUSSION

We begin our analysis with a recitation of the standard of our review of an appeal from the decision of a court sitting in equity. We are bound by the facts found by the court, when supported by competent evidence in the record. Kepple v. Fairman Drilling Co., 532 Pa. 304, 312, 615 A.2d 1298, 1302 (1992). “However, no such deference is mandated for conclusions of law, and we are at liberty to review such conclusions.” Id. (citing Presbytery of Beaver-Butler of United Presbyterian Church v. Middlesex Presbyterian Church, 507 Pa. 255, 266, 489 A.2d 1317, 1323 (1985)).

The starting point for assessing the merit of any challenge to the validity of a prenuptial agreement is our decision in Simeone. In that opinion, we reevaluated our criteria for enforcing prenuptial agreements and rejected the .paternalistic assumption in our caselaw that courts must scrutinize these agreements and refuse to enforce those that failed to make a reasonable provision for the other spouse. As we stated in Simeone, “[s]uch decisions rested upon a belief that spouses are of unequal status and that women are not knowledgeable enough to understand the nature of contracts that they enter.” Simeone, 525 Pa. at 399, 581 A.2d at 165. Instead, we placed prenuptial agreements on the same general footing as other contracts, to be enforced pursuant to the well-settled principles of contract law: “[p]renuptial agreements are contracts, and, as such, should be evaluated under the same criteria as are applicable to other types of contracts.” Id. at 400, 581 A.2d at 165.

In reorienting our standards for enforcing prenuptial agreements to the traditional principles of contract law, however, we did not lose sight of the fact that parties to these agreements do not necessarily deal with each other at arm’s length. Accordingly, we reaffirmed “the longstanding principle that a full and fair disclosure of the financial positions of the parties is required.” Id. at 402, 581 A.2d at 167. “Absent this disclosure, a material misrepresentation in the inducement for entering a prenuptial agreement may be asserted.” Id. (citing Hillegass’ Estate, 431 Pa. 144, 152-53, 244 A.2d 672, 676-77 (1968)). Thus, despite the prevailing theme in Simeone that the provisions of prenuptial agreements should be subject to no greater scrutiny than ordinary business contracts, we nevertheless continued the principle from our previous decisions that these agreements will only be enforced where the parties make a “full and fair” disclosure. In addition to preserving this vestige of our common-law caution towards the enforcement of prenuptial agreements, we affirmed that these agreements may be invalidated when fraudulently procured. “If an agreement provides that full disclosure has been made, a presumption of full disclosure arises. If a spouse attempts to rebut this presumption through an assertion of fraud or misrepresentation then this presumption can be rebutted if it is proven by clear and convincing evidence.” Simeone, 525 Pa. at 403, 581 A.2d at 167 (citing Hillegass’, 431 Pa. at 152-53, 244 A.2d at 676-77). Thus, in Simeone, we recognized two alternate bases for invalidating a prenuptial agreement: (1) any ground for voiding a contract under the common law (such as fraud); and (2) where a party fails to make “full and fair” disclosure of his or her own assets prior to entering the agreement.

Presently, we are not asked to decide the extent of the “full and fair” disclosure rule of Simeone; neither the trial court nor the Superior Court relied on this rule to invalidate the prenuptial agreement. Rather, we must consider whether the trial court properly concluded that Louis fraudulently induced Susan to sign the prenuptial agreement by misrepresenting the value of the engagement ring on the list of her individual assets, which he prepared as part of the prenuptial agreement.

The elements of fraudulent misrepresentation are well settled. In order to void a contract due to a fraudulent misrepresentation, the party alleging fraud must prove, by clear and convincing evidence: (1) a representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) resulting injury proximately caused by the reliance. Bortz v. Noon, 556 Pa. 489, 499, 729 A.2d 555, 560 (1999); Gibbs v. Ernst, 538 Pa. 193, 207, 647 A.2d 882, 889 (1994). All of these elements must be present to warrant the extreme sanction of voiding the contract.

To be justifiable, reliance upon the representation of another must be reasonable. See In re Allegheny International, Inc., 954 F.2d 167, 178 (3d Cir.1992) (applying Pennsylvania law). See also Restatement (Second) of Contracts § 164, Comment “d” (“A misrepresentation, even if relied upon, has no legal effect unless the recipient’s reliance on it is justified.”). While the nature of the relationship between the parties⁴ may affect the reasonableness of one’s reliance, we hesitate to find reliance justified where the party claiming reliance had an adequate opportunity to verify the allegedly fraudulent statements. As aptly stated by the United States District Court for the Eastern District of Pennsylvania in explaining Pennsylvania law:

Whether reliance on an alleged misrepresentation is justified depends on whether the recipient knew or should have known that the information supplied was false. Scaife Co. v. Rockwell-Standard Corp., 446 Pa. 280, 285 A.2d 451 (1971) (citing Emery v. Third National Bank, 308 Pa. 504, 162 A. 281 (1932)). Where the means of obtaining the information in question were not equal, the representations of the person believed to possess superior information may be relied upon. Siskin v. Cohen, 363 Pa. 580, 70 A.2d 293, 295 (1950).

Fort Washington Resources, Inc. v. Tannen, 858 F.Supp. 455, 460 (E.D.Pa.1994). Additionally, in Moore v. Steinman Hardware Co., 319 Pa. 430, 179 A. 565 (1935), a case in which the plaintiff alleged fraud in connection with the sale of corporate stock, we stated, “[i]t has many times been pointed out that a buyer or seller is not entitled to rely on such statements where he has an equal opportunity to ascertain the facts affecting the value of the thing to be sold.” Id. at 433, 179 A. at 566. Since Simeone, we have moved towards treating parties to a prenuptial agreement the same as parties to other contracts, with the attendant duties of investigation and due care for their bargain. We will, accordingly, judge the reasonableness of a party’s reliance by the same standards.

In the present case, although we are bound by the factual conclusions of the trial court,⁵ we cannot agree that Susan’s alleged reliance on Louis’ misrepresentation of the value of the ring on the schedule of her assets was justifiable. Susan had possession of the ring and was not impeded from doing what she ultimately did when the parties separated: obtain an appraisal of the ring.⁶ She had sufficient opportunity to inform herself fully of the nature and extent of her own assets, rather than rely on Louis’ statements concerning the valuation of her holdings. We find her failure to do this simple investigation to be unreasonable. Although we do not excuse Louis’ actions, we will not sanction the avoidance of an entire prenuptial agreement — the consequences of which Susan admittedly understood — on the basis of fraud in these circumstances.

Because the Superior Court never reviewed the determination by the trial court that a confidential relationship existed between Louis and Susan, however, we will reverse and remand for consideration of that issue.

Chief Justice ZAPPALA, Justice CAPPY and Justice CASTILLE file a concurring opinion. Justice SAYLOR files a dissenting opinion in which Justice NIGRO joins. Justice EAKIN files a dissenting opinion.

1 . Indeed, the appraisals of ladies’ jewelry prepared by Schiffman Jewelers for Louis prior to his marriage to Susan indicate: a ladies' 18 karat yellow gold, green and black jade necklace, valued at $7,000; a ladies’ yellow gold tourmaline, peridot and diamond ring, consisting of eight diamonds, eight tourmalines, and eight peridots, with a value of $2,500; a ladies' 18 karat white gold dinner ring with diamonds, valued at $10,000, and; a ladies’ sapphire and diamond ring in a yellow gold mounting worth $13,000. R.R. at 51a-53a (appraisals submitted as exhibits not at trial, but at the deposition of Judah Samet, 5/28/98). The total appraised value of this jewelry was $32,500.

Louis’ generosity did not end at the altar, either. These same appraisals showed jewelry acquired subsequent to the marriage as follows: a ladies' 14 karat yellow gold modern cuff-style bangle bracelet worth $12,500; a ladies’ 14 karat yellow gold diamond collar, valued at $7,500; a ladies’ 14 karat yellow gold amethyst and diamond pearl enhancer, appraised at $2,000; a ladies’ 18 karat yellow gold sapphire and diamond ring with 12 baguette diamonds, worth $17,000; a ladies' 14 karat yellow gold sapphire and diamond bracelet, valued at $7,500, and; a pair of 14 karat gold diamond earrings worth $3,500. The total appraised value of this jewelry was $50,000.

2 . The record suggests, however, that the value of all of Susan's assets, excluding the disputed engagement ring but including all other appraised ladies’ jewelry, had a net worth of $38,622. For reasons not explained in the record, not all of the appraised ladies’ jewelry itemized in note 1, supra, appears on the schedule of assets for Susan.

3 . Initially, the Superior Court quashed Louis' appeal as interlocutory; however, we vacated the Superior Court's quash order and remanded for consideration of Louis’ appeal.

4 . As we discuss, infra, the Superior Court did not review the ruling of the trial court that there was a confidential relationship between Louis and Susan. We will not review that issue presently, but remand for the Superior Court to address this question in light of our standards for determining when contracting parties enjoy a confidential relationship. Cf. Frowen v. Blank, 493 Pa. 137, 144, 425 A.2d 412, 416 (1981) (“Rescinding a contract because of fraud calls into play one set of criteria; rescission based on the breach of a confidential relationship is another proposition.”).

5 . Because the trial court accepted as credible the testimony of Susan that had she known that Louis misrepresented the value of the ring, she would not have entered the prenuptial agreement and "would not have married the man,” we are bound by the trial court's findings that this misrepresentation was material to Susan’s participation in the agreement and that she relied on it. We note, however, that Susan undermined her supposed reliance on anything listed in her schedule of assets when she testified as follows: "Q: In your mind, you had agreed that you were going to sign this document no matter what it said? A: Yes.” R.R. at 165a. Susan later retreated from this statement and asserted that she would not have signed an agreement that "included lies.” Although this inconsistency in her testimony casts some doubt on Susan’s assertions as to the importance of the schedule of assets to her decision to enter the prenuptial agreement, nevertheless we need not examine this question in detail because of our holding that her reliance was not reasonable.

6 . Susan did not own the ring at that time, as our decision in Lindh v. Sumían, 560 Pa. 1, 742 A.2d 643 (1999), makes clear that an engagement ring is a conditional gift, which does not vest in the donee until the marriage occurs. Our holding in Lindh, however, does not alter our conclusion that Susan could have had the ring appraised rather than rely on Louis’ assertions of its value.