Gallagher, D. v. Gallagher, D.

J-S35001-19
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
DEBORAH GALLAGHER N/K/A : IN THE SUPERIOR COURT OF
DEBORAH A. GATTONE : PENNSYLVANIA
:
:
v. :
:
:
DOUGLAS GALLAGHER :
: No. 3087 EDA 2018
Appellant :
Appeal from the Order Entered September 26, 2018
In the Court of Common Pleas of Montgomery County Civil Division at
No(s): 2015-25149
BEFORE: OLSON, J., STABILE, J., and STRASSBURGER*, J.
MEMORANDUM BY OLSON, J.: Filed: June 18, 2020
Appellant, Douglas Gallagher (Husband), appeals from the order
entered on September 26, 2018, enforcing a property settlement agreement
between Husband and Deborah Gallagher, n/k/a Deborah A. Gattone (Wife).
We affirm.
We briefly summarize the facts and procedural history of this case as
follows. Husband and Wife married in 1990. Wife filed for divorce in
September 2015. The parties entered into a property settlement agreement
on August 4, 2016. Relevant to the current appeal, paragraph five of the
property settlement agreement provides as follows:
Husband agrees that Wife shall receive fifty percent (50%) of the
value of [Husband’s] Johnson and Johnson [s]tock. Such amount
is equal to $75,886.00. Husband shall effectuate the transfer
within forty-five days from the execution of this agreement.
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* Retired Senior Judge assigned to the Superior Court.
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Property Settlement Agreement, 8/4/2016, at 9-10, ¶ 5. The total value of
Husband’s stock was based upon a Johnson and Johnson account statement
from December 2015, which at the time the parties entered into the
settlement agreement, was accessible to both parties. On January 11, 2017,
the trial court issued a divorce decree incorporating the August 4, 2016
property settlement agreement. On July 24, 2017, Wife filed a motion to
enforce the August 4, 2016 property settlement agreement averring, inter
alia, that she had yet to receive her share of Husband’s Johnson and Johnson
stock.
The trial court held a hearing on Wife’s motion to enforce on August 8,
2018. Therein, counsel for Wife stated that in October 2017, one year after
the parties entered the property settlement agreement, Husband claimed for
the first time that his Johnson and Johnson stock was actually worth
approximately $27,000.00. N.T., 8/8/2018, at 8. As a result, the parties
agreed in October 2017 that Husband would provide Wife authorization to
obtain Husband’s stock information directly from Johnson and Johnson. Id.
at 8-9. In May 2018, the parties discovered that the actual total of Husband’s
Johnson and Johnson stock was $27,701.95. Id. at 12. Wife argued that she
materially relied upon the agreed valuation of Husband’s stock in executing
the property settlement agreement. Accordingly, she requested that the trial
court enforce the plain language of the agreement by awarding her
$75,886.00. Id. at 12-13. Husband argued that the parties were mutually
mistaken and, therefore, Wife was only entitled to half of the actual value of
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his Johnson and Johnson stock, or approximately $13,000.00. Id. at 47-52.
On September 26, 2018, the trial court agreed with Wife and ordered Husband
to transfer $75,866.00 to Wife within 30 days. Husband’s timely appeal
resulted.1
On appeal, Husband presents the following issue for our review:
Did the trial court err, as a matter of law, or otherwise abuse its
discretion, when it granted [Wife’s] motion to enforce settlement
agreement; ordering [Husband] to compensate [Wife] in the
amount of $75,886.00, for the value of corporate stock that both
[Wife] and [Husband] mistakenly believed [Husband] to possess
at the time that the marital settlement agreement was executed?
Appellant’s Brief at 4.
Our standard of review is as follows:
When interpreting a marital settlement agreement, the trial court
is the sole determiner of facts and absent an abuse of discretion,
we will not usurp the trial court's fact-finding function. On appeal
from an order interpreting a marital settlement agreement, we
must decide whether the trial court committed an error of law or
abused its discretion.
Judicial discretion requires action in conformity with law on facts
and circumstances before the trial court after hearing and due
consideration. Such discretion is not absolute, but must constitute
the exercises of sound discretion. This is especially so where, as
here, there is law to apply. On appeal, a trial court's decision will
generally not be reversed unless there appears to have been an
abuse of discretion or a fundamental error in applying correct
principles of law. An abuse of discretion or failure to exercise
sound discretion is not merely an error of judgment. But if, in
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1 Husband filed a notice of appeal on October 19, 2018. On October 25, 2018,
the trial court ordered Husband to file a concise statement of errors
complained of on appeal pursuant to Pa.R.A.P. 1925(b). Husband complied
timely on November 8, 2018. The trial court subsequently issued an opinion
pursuant to Pa.R.A.P. 1925(a) on January 3, 2019.
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reaching a conclusion, law is overridden or misapplied, or the
judgment exercised is manifestly unreasonable or lacking in
reason, discretion must be held to have been abused.
Because contract interpretation is a question of law, this Court is
not bound by the trial court's interpretation. Our standard of
review over questions of law is de novo and to the extent
necessary, the scope of our review is plenary as the appellate
court may review the entire record in making its decision.
However, we are bound by the trial court’s credibility
determinations.
* * *
Marital settlement agreements are private undertakings between
two parties, each having responded to the ‘give and take’ of
negotiations and bargained consideration. A marital [] agreement
incorporated but not merged into the divorce decree survives the
decree and is enforceable at law or equity.
A settlement agreement between spouses is governed by the law
of contracts unless the agreement provides otherwise. The terms
of a marital settlement agreement cannot be modified by a court
in the absence of a specific provision in the agreement providing
for judicial modification.
Established Pennsylvania law states:
When interpreting the language of a contract, the intention
of the parties is a paramount consideration. In determining
the intent of the parties to a written agreement, the court
looks to what they have clearly expressed, for the law does
not assume that the language was chosen carelessly. When
interpreting agreements containing clear and unambiguous
terms, we need only examine the writing itself to give effect
to the parties' intent.
In other words, the intent of the parties is generally the writing
itself.
Stamerro v. Stamerro, 889 A.2d 1251, 1257–1258 (Pa. Super. 2005)
(internal citations, quotations, original brackets, and footnote omitted).
Moreover, this Court previously determined:
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Pennsylvania courts regularly employ the Restatement (Second)
of Contracts when resolving contract disputes. The doctrine of
mutual mistake of fact serves as a defense to the formation of a
contract and occurs when the parties to the contract have an
erroneous belief as to a basic assumption of the contract at the
time of formation which will have a material effect on the agreed
exchange as to either party. A mutual mistake occurs when the
written instrument fails to set forth the true agreement of the
parties. The language of the instrument should be interpreted in
light of the subject matter, the apparent object or purpose of the
parties and the conditions existing when it was executed.
The Restatement (Second) of Contracts § 152 provides:
§ 152. When Mistake Of Both Parties Makes A Contract
Voidable
(1) Where a mistake of both parties at the time a contract
was made as to a basic assumption on which the contract
was made has a material effect on the agreed exchange of
performances, the contract is voidable by the adversely
affected party unless he bears the risk of the mistake
under the rule stated in § 154.
(2) In determining whether the mistake has a material effect
on the agreed exchange of performances, account is taken
of any relief by way of reformation, restitution, or otherwise.
Restatement (Second) of Contracts § 152 (1981).
Hart v. Arnold, 884 A.2d 316, 333–334 (Pa. Super. 2005) (internal
quotations, footnote, brackets, original emphasis, and case citations omitted)
(emphasis added).
In this case, the trial court determined:
The parties mutually [determined] the total value of Husband’s
Johnson and Johnson stock [prior to executing their property
settlement agreement] based upon an account statement
provided by Husband and titled, “Summary of J&J Stock as of
December 31, 2015.” A copy of [this document] was admitted
into evidence as exhibit “W-4” at the parties’ August 8, 2018
hearing before the [trial] court. Exhibit “W-4” lists the closing
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balance of the “J&J Stock Fund” as of December 31, 2015 as
$151,771.24. In addition, the statement lists the closing balance
of the “J&J Stock Contribution” as of December 31, 2015 as
$27,967.20.
Husband and Wife testified [at the August 8, 2018 hearing] that
they each believed that the marital value of the Johnson and
Johnson stock was $151,722.00 and that Wife’s 50% share was
$75,886.00. In accordance with section 201(1) and [s]ection
203(b) and (c) of the Second Restatement of Contracts, by placing
the exact value of Wife’s share of Johnson and Johnson stock in
their August 4, 2016 [p]roperty [s]ettlement [a]greement, the
amount of Johnson and Johnson stock Wife was to receive was an
unambiguous term of the contract created by the parties’ August
4, 2016 [p]roperty [s]ettlement [a]greement.
Trial Court Opinion, 1/3/2019, at 4.
Upon review of the record, we agree that the parties were mutually
mistaken as to the actual value of Husband’s Johnson and Johnson stock. Both
parties readily concede that they mistook the value of the stock when they
entered into the marital settlement agreement. See Wife’s Petition for Special
Relief, 6/4/2018, at ¶ 19 (Wife avers that she learned the actual value of
Husband’s Johnson and Johnson stock during a conference call with parties’
counsel in May of 2018); see also Husband’s Brief at 14-15 (“it is clear from
the evidence […] that the [p]arties and their respective counsel were all
mistaken in their belief that [Husband’s] Johnson and Johnson stock had a
value of $151,771.24 at the time that they entered into the [m]arital
[s]ettlement [a]greement[.]”). The contractual mistake was the result of an
erroneous basic assumption and had a material effect on the agreed exchange
of the performance by both parties. Thus, as there is no dispute that both
Husband and Wife incorrectly interpreted Husband’s 2015 account statement
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from Johnson and Johnson, the trial court next examined who bore the risk of
that mutual mistake.
This Court has stated:
[A] contract [based upon mutual mistake] is voidable by the
adversely affected party if three conditions are met. First, the
mistake must relate to a “basic assumption on which the contract
was made.” Second, the party seeking avoidance must show that
the mistake has a material effect on the agreed exchange of
performances. Third, the mistake must not be one as to which
the party seeking relief bears the risk. The parol evidence rule
does not preclude the use of prior or contemporaneous
agreements or negotiations to establish that the parties were
mistaken. However, since mistakes are the exception rather than
the rule, the trier of the facts should examine the evidence with
particular care when a party attempts to avoid liability by proving
mistake.
* * *
A contract entered into under a mutual misconception as to an
essential element of fact may be rescinded or reformed upon the
discovery of the mistake if (1) the misconception entered into the
contemplation of both parties as a condition of assent, and (2) the
parties can be placed in their former position regarding the subject
matter of the contract. In other words, mutual mistake occurs
when a fact in existence at the time of the formation of the
contract, but unknown to both parties, will materially affect the
parties' performance of the contract.
Section 154 of the Restatement (Second) of Contracts provides:
§ 154. When A Party Bears The Risk Of A Mistake
A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties,
or
(b) he is aware, at the time the contract is made, that
he has only limited knowledge with respect to the
facts to which the mistake relates but treats his
limited knowledge as sufficient, or
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(c) the risk is allocated to him by the court on the ground
that it is reasonable in the circumstances to do so.
Restatement (Second) of Contracts § 154 (1981). The rule stated
in this Section determines whether a party bears the risk of a
mistake for purposes of Sections 152 and 153. Id. at Comment:
a. Rationale. Even though a mistaken party does not bear the risk
of a mistake, he may be barred from avoidance if the mistake was
the result of his failure to act in good faith and in accordance with
reasonable standards of fair dealing.
A contract made under a mutual mistake as to an essential fact
which formed the inducement to it, may be rescinded on discovery
of the mistake, if the parties can be placed in their former position
with reference to the subject-matter of it.
Hart, 884 A.2d at 333–334 (case citations and original emphasis omitted;
emphasis supplied).
Here, the trial court determined:
[A] comparison of the facts of this case to the elements of the
[d]octrine of [m]utual [m]istake reveals that when applied to the
facts of the instant case, [Husband bore the risk of the mistake
pursuant to Restatement (Second) of Contracts §§ 152 and 154].
The parties relied on the benefit documentation from Husband in
order to determine the value of the Johnson and Johnson stock,
and the mistake has a material effect on the agreed exchange of
performances. However, Husband, as the adversely affected
party, bears the risk of the mistake because he [promised to
convey] Johnson and Johnson stock to Wife in the amount of
$75,866.00. Husband should not be permitted to hide behind the
[d]octrine of [m]utual [m]istake to avoid his obligations under the
parties’ August 4, 2016 [p]roperty [s]ettlement [a]greement.
Finally, [] Husband has worked at Johnson and Johnson for over
twenty (20) years. The argument and notion that Husband is not
precisely aware of the precise total value of his Johnson and
Johnson stock, including the number of shares owned by Husband
and the proper way to read his account statement is not credible
and preposterous. If Husband was unsure of any of the above, it
was negligent of Husband not to inquire further with Johnson and
Johnson company officials as to the precise value of his stock prior
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to stating the amount in his signed August 4, 2016 [p]roperty
[s]ettlement [a]greement. In issuing its order of September 26,
2018, the [trial] court was attempting to make Wife whole due to
Husband’s alleged ignorance of the value and ownership of his
Johnson and Johnson stock.
Trial Court Opinion, 1/3/2019, at 5.
Based upon our standard of review, and the applicable principles of
contract law, we agree with the trial court’s conclusion that Husband bore the
risk of the parties’ mutual mistake.2 Here, Wife sought to compel Husband to
transfer her agreed upon share of his Johnson and Johnson stock valued at
$75,886.00, as specifically set forth in the parties’ settlement agreement. In
response, Husband requested that the trial court reform the parties’ property
settlement agreement to reflect the later discovered value of his actual stock,
or approximately $27,000.00. Therefore, Husband is the adversely affected
party and, under settled Pennsylvania law, he may void the express terms of
the parties’ agreement only if three conditions are met: (1) the mistake is a
basic assumption on which the contract was made; (2) the mistake had a
material effect on the agreed exchange of performances; and, (3) the mistake
must not be one as to which the party seeking relief bears the risk. There is
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2 We note that, in his appellate brief, Husband does not address the trial
court’s analysis and assessment that he bore the risk of the mistake. In fact,
he does not set forth any law pertaining to the issue or explain how the trial
court erred in its application of the governing principles of contract
interpretation to the facts established by the record. In the absence of cogent
argument explaining how the trial court committed legal error or relied upon
facts that were not demonstrated by the evidence, we fail to perceive how
Husband has come forward with a viable claim that the trial court abused its
discretion. Moreover, we note that the learned dissent fails to address this
portion of the discussion.
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no dispute that the parties’ mistake was a basic assumption that had a
material effect on mutual performance. Thus, the only issue is whether the
mistake was, or was not, one as to which Husband, as the party seeking relief,
bore the risk. To determine whether Husband bore the risk, we look to § 154
of the Restatement (Second) of Contracts. Here, there was no allocation of
risk by the parties or the trial court, so our analysis focusses on whether
Husband was aware, at the time he entered the contract, that he had limited
knowledge as to the value of his stock which he was willing to treat as
sufficient.
In this case, the record supports the trial court’s conclusion that, at the
time the parties entered into the property settlement agreement, Husband
knew he had limited knowledge with respect to the facts regarding his Johnson
and Johnson stock, but treated his limited knowledge as sufficient. 3 At the
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3 Husband’s testimony establishes that he did nothing to acquire knowledge
about his Johnson and Johnson stock despite available informational
resources. There is no dispute that Husband received quarterly benefits
statements from Johnson and Johnson. N.T., 8/8/2018, at 22. Wife testified
that she would leave the statements on a counter for Husband to review. Id.
Husband also had on-line access to his statements and knew how to review
his statements electronically. Id. Husband testified that he assumed he was
receiving benefits statements for 27 years, but at the time he entered the
settlement agreement he “had no idea what the values were” for his stock.
Id. at 28; see also id. at 37. When asked whether he thought his 2015
Johnson and Johnson account statement, upon which the parties relied,
appeared to be “too high” or was “out of the ordinary,” Husband responded,
“I wouldn’t know either way.” Id. at 37. Husband further admitted that he
“didn’t research the numbers.” Id. at 45. Moreover, Husband did not provide
additional evidence or explain how the account value of $151,771.24 was
derived or what it comprised. Husband testified that his December 2015
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time he entered the parties’ agreement, Husband had been employed at
Johnson and Johnson for 27 years. The trial court thus reasonably inferred
that Husband was aware of Johnson and Johnson resources and personnel
who could confirm the precise value of his stock prior to entering into the
settlement agreement. Husband, however, did not avail himself of these
resources and, instead, elected to enter the settlement agreement despite
known deficiencies in his knowledge. More specifically, the trial court
concluded it was “preposterous” and “not credible” that Husband was not
precisely aware of the actual value of his stock account at the time he entered
into the settlement agreement.4 The trial court had the opportunity to view
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benefits statement was “confusing” and suggested “accounts were
intermingled.” Id. at 43. When the trial court asked for clarification, Husband
stated:
That hundred and fifty-[one] came from the -- it was two accounts
added together, and then it was separated out again and re-put
on. So that stock was separate, but yet it was still added into the
other number.
Id. Based upon the record before us, there is still no clear indication what the
sum of $151,771.24 represents.
4 Contrary to the contentions made by the learned dissent, the trial court did
not infer that Husband was “an expert on the value of Johnson and Johnson
stock” or “someone with special knowledge of the stock’s valuation.”
Dissenting Memorandum at 4. The trial court, instead, stated that if Husband
were unsure of the value of his account, he could further inquire with Johnson
and Johnson company officials to determine the precise value of his stock.
Trial Court Opinion, 1/3/2019, at 5. The trial court’s decision did not hold
Husband to an expert standard. Rather, it determined that Husband had
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Husband and Wife testify and we cannot second-guess its credibility
determinations.5 Thus, we agree with the trial court that Husband knew he
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limited knowledge of the value of his own assets, but could have obtained a
precise value from his employer.
5 The dissent misapprehends the doctrine of mutual mistake. The dissent
opines “[t]here is no indication that Wife asked for any additional information
to supplement what was provided to her by Husband [and] it appears she was
satisfied with utilizing the [2015] account statement as the sole means to
determining the value of the stock.” Dissenting Memorandum at 4. Whatever
Wife did, or did not do, is not legally relevant since she is not seeking
reformation of the parties’ written agreement. The dissent would fault Wife
for not double-checking the balance of Husband’s stock account prior to
entering the settlement agreement. See id. at 5 (“both parties simply
interpreted the account statement incorrectly”). As such, the dissent would
allow contract reformation merely based upon an undisputed mutual mistake.
See id. (“the doctrine of mutual mistake applies and the trial court erred in
enforcing the settlement agreement.”). We respectfully disagree. Wife is not
seeking reformation of the contract and, therefore, she cannot bear the risk
of the parties’ mutual mistake. The dissent does not address the issue of who
bore the risk of the mutual mistake. Instead, the dissent would allow equitable
contract reformation anytime there is a mutual mistake. Contract reformation
based upon mutual mistake is not as simple as the dissent suggests. See
Dissenting Memorandum at 5. (“[O]ur law provides for contract reformation
to rectify any purported prejudice suffered.” citing Zurich Am. Ins. Co. v.
O'Hanlon, 968 A.2d 765, 770 (Pa. Super. 2009) (“Mutual mistake will afford
a basis for reforming a contract.”)). This Court has stated:
Normally, a court will not reform a written contract so as to make
a contract for the parties that they did not make between
themselves. That is why a traditional reformation remedy in
Pennsylvania is employed only to make the written contract
document correspond to the understanding of the parties.
Accordingly, any effort to craft a remedy [] must be guided by the
need to adhere to the parties' original agreement to the maximum
extent possible, and not to substitute terms to which the parties
never consented.
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lacked understanding regarding the actual value of his stock at the time of the
contract, but proceeded with execution nevertheless. By relying upon the sum
certain amount of $75,886.00 in the settlement agreement, Husband was
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Murray v. Willistown Twp., 169 A.3d 84, 94 (Pa. Super. 2017) (internal
citations, brackets, and quotations omitted). The Murray Court further
explained:
Mutual mistake regarding an essential term of a contract may
provide a basis for the contract's rescission if (1) the mistake
relates to an essential fact which formed the inducement to the
contract, and (2) the parties can be placed in their former position
with reference to the subject-matter of the contract.
Alternatively, if the same conditions are met, courts can reform a
contract entered under mutual mistake.
We most commonly have allowed reformation of mistaken
contract provisions in cases of scriveners' errors, where the
parties' writing mistakenly failed to record their agreed-upon
intentions.
Id. at 90–91. Here, there was no scrivener’s error. The marital settlement
agreement memorialized the parties’ intent at the time they entered into the
contract. We recognize that a “remedy akin to reformation may be available
in some situations other than drafting errors” when “justice requires.” Id. at
91 (citation omitted). However, we have determined generally that justice
requires reformation only when a contract provision cannot be performed due
to impracticability, frustration, or deals with specific performance. Id. Here,
there are no special circumstances which would allow for contract reformation.
Regardless, as discussed at length above and never addressed by the dissent,
Husband (as the party seeking relief) bore the risk of mutual mistake because
the trial court found that, at the time the marital settlement agreement was
executed, he was aware that he possessed only limited knowledge with
respect to the facts to which the mistake related but treated his limited
knowledge as sufficient. As the record supports these findings, we cannot
agree that contract reformation constitutes an available or appropriate
remedy. Based upon our deferential standard of review and the established
law pertaining to mutual mistake, the trial court’s decision was proper.
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satisfied with utilizing the 2015 statement of his Johnson and Johnson account
even though he knew he did not consult company resources that could verify
an accurate account value.6 Husband could have contracted to limit Wife’s
receipt to 50% of his Johnson and Johnson stock without reference to an
actual dollar amount. Instead, he relied solely upon the information set forth
in his 2015 account statement, which he concedes he did not understand. The
record supports the trial court’s findings and we will not usurp the trial court’s
credibility determinations.
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6 Upon review of the certified record, both parties agreed that the only
information relied upon prior to entering the settlement agreement was
Husband’s 2015 Johnson and Johnson account statement. The parties entered
into the settlement agreement on August 4, 2016. Husband admitted that
once the parties separated, Wife did not have access to Husband’s financial
statements anymore. N.T., 8/8/2018, at 34 and 42. Johnson and Johnson
would not speak with Wife or Wife’s counsel without Husband. Id. at 39. It
was not until May 17, 2018, almost 21 months after the August 4, 2016
settlement agreement that counsel for Wife learned the actual account value.
See Husband’s Brief at 6 (“On or about May 17, 2018, [Wife’s] counsel
confirmed that the [p]arties had been mistaken[.]”); see also Wife’s Petition
for Special Relief, 6/4/2018, at ¶ 19 (“During the call with Johnson and
Johnson, Wife’s counsel learned that the current value of Husband’s Johnson
& Johnson [stock] was approximately $27,000.00.”). There was ample
evidence that Husband had access to benefits consultation at Johnson and
Johnson that Wife did not. In fact, Husband had to provide wife with
authorization in October 2017 to obtain Husband’s stock information directly
from Johnson and Johnson. N.T., 8/8/2018, at 8-9. Thus, we reject the
dissent’s suggestion that there was “no indication that Husband had special
and exclusive access to inside company information[.]” Dissenting
Memorandum at 5. The trial court found that the information which led to the
discovery of the mistake was available to Husband anytime through Johnson
and Johnson, his employer for 27 years. Husband could have obtained the
information before entering the settlement agreement but he instead entered
the agreement with a willingness to treat his deficient knowledge as sufficient.
Because he did so, Pennsylvania contract law precludes us from granting him
relief for his ill-informed choice.
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In sum, there is no dispute that the parties were mutually mistaken, but
as the party seeking contract reformation, Husband bore the risk of the
mistake because he treated his limited understanding of his Johnson and
Johnson stock as sufficient when he executed the parties’ marital settlement
agreement. Accordingly, we discern no abuse of discretion or error of law in
enforcing the property settlement agreement and ordering Husband to
transfer $75,886.00 to Wife.
Order affirmed.
Judge Stabile joins.
Judge Strassburger files a Dissenting Memorandum.
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