C.L. Randolph v. Virginia Henley Randolph

IN THE SUPREME COURT OF TENNESSEE
AT KNOXVILLE FILED
September 9, 1996
Cecil Crowson, Jr.
Appellate C ourt Clerk
FOR PUBLICATION
Filed: September 9, 1996
C.L. RANDOLPH, )
)
Plaintiff/Appellee, ) BRADLEY GENERAL SESSIONS
)
)
Vs. ) HON. M. DREW ROBINSON,
) SPECIAL JUDGE
)
VIRGINIA HENLEY RANDOLPH, )
)
Defendant/Appellant. ) No. 03-S-01-9510-CV-00119
For Appellant: For Appellee:
Roger E. Jenne James F. Logan, Jr.
JENNE, SCOTT & BRYANT LOGAN, THOMPSON, MILLER,
Cleveland, Tennessee BILBO, THOMPSON & FISHER, P.C.
Cleveland, Tennessee
OPINION
REVERSED AND REMANDED;
TRIAL COURT JUDGMENT REINSTATED. ANDERSON, J.
We granted this appeal to clarify the statutory standard by which the
validity of antenuptial agreements should be judged. The trial court in this case
held the antenuptial agreement invalid, finding the wife did not “knowledgeably”
sign the agreement, as required by statute1. The Court of Appeals, in a split
decision, reversed, finding the totality of the circumstances established that the
wife possessed sufficient knowledge of the husband’s business affairs and
financial status at the time she signed the agreement to meet the statutory
requirement of "knowledgeably" executing the agreement and that the
agreement was therefore enforceable.
We interpret the statutory requirement that an antenuptial agreement is
enforceable only if entered into "knowledgeably" to mean that the spouse
seeking to enforce an antenuptial agreement must prove, by a preponderance of
the evidence, either that a full and fair disclosure of the nature, extent and value
of his or her holdings was provided to the spouse seeking to avoid the
agreement, or that disclosure was unnecessary because the spouse seeking to
avoid the agreement had independent knowledge of the full nature, extent, and
value of the proponent spouse’s holdings.
Applying this standard, we have carefully reviewed the record in this case
and conclude that the evidence does not preponderate against the trial court’s
finding that the wife did not "knowledgeably" sign the antenuptial agreement.
1
"Notwithstanding any other provision of law to the contrary, . . . any antenuptial or
prenuptial agreement entered into by spous es concerning property owned by either spouse before
the marriage which is the subject of such agreement shall be binding upon any court having
jurisdiction over such spouses and/or such agreement if such agreement is determined in the
disc retion of the cour t to ha ve be en en tered into by s uch spou ses free ly, kno wled gea bly and in
good faith and without the exertion of duress or undue influence u pon either spouse. The term s
of such agreement shall be enforceable by all remedies available for enforcement of contract
terms. " Tenn. Cod e Ann. § 36-3-501 (1991 Repl.).
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Accordingly, the Court of Appeals’ judgment is reversed and the judgment of the
trial court is reinstated.
BACKGROUND
In 1983, Virginia Perry Randolph contacted C.L. Randolph, a successful
real estate businessman, about renting a place to live. They began dating, and
in August of 1983, Virginia and her 13-year-old son moved into C.L.’s residence.
A little over one year later, in September, 1984, they were married. C.L.
Randolph, age 52, had been previously married five times and Virginia Perry
Randolph, age 46, had been married once before. On the day before their
marriage, the parties entered into an antenuptial agreement prepared by C.L.’s
lawyer. The agreement provided, in part, that in the event of divorce or death,
each party released all marital rights in the separate property of the other. 2 Also,
in the event of divorce, the agreement provided that the division of marital
property was to be based upon the amount each party invested in the property. 3
At the time the agreement was executed, Virginia owned virtually no assets,
except personal belongings, while C.L. had substantial real estate holdings that
2
The agreement provides specifically that “Perry forever waives, releases, and
relinquishes any and all claims to or rights or interest in, statutory, equitable or otherwise, to the
separate property of Randolph owned by him prior to the marriage and to any property acquired
after the date of the marriage which is acquired with the proceeds or income from property owned
prior to the marriage or is traceable to property acquired prior to the marriage. This waiver and
release includes but is not limited to any claims with respect to dower rights, widow’s allowance,
homestead, year’s support, marital share, right to dissent from valid will, any statutory exempt
property, or any other claim which she might acquire with respect to said property as the wife,
widow, heir at law, next of kin, or distributee of Randolph.”
3
This provision in its entirety requires that “[i]n the event a division must be made of the
parties’ marital property, the marital property shall be divided based upon the amount invested by
each of the parties. The parties may prove their investment based upon their records of income,
purcha ses, an d paym ents.”
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were valued in 1986, at approximately $800,000. In 1983, when the parties were
living together, C.L. had a net worth of between $500,000 and $600,000.
Almost from the beginning of their marriage, the parties experienced
difficulties, including mental and physical abuse, and adultery on the part of C.L..
In addition, the parties had substantial health problems, both before and during
the marriage, which exacerbated the stress. Divorce actions were filed on at
least two prior occasions during the ten-year marriage. The present action
began when, in November of 1993, the parties again separated and C.L. filed for
divorce, asking that the antenuptial agreement be enforced. Virginia counter-
claimed, asserting that the agreement was the result of fraud, duress, coercion,
undue influence, and misrepresentation.
At trial, Virginia testified that she had never seen the antenuptial
agreement until the day she signed it, which was one day before the parties were
married. Virginia admitted she reviewed the agreement on the drive to the
attorney’s office, but claimed that no one explained it to her. Because she was
responsible for a minor child and suffering from breast cancer at the time the
agreement was executed, Virginia said her only choices had been to sign the
agreement or be kicked out of the residence she and her son had shared with
C.L. for the previous year. As to her knowledge of property covered by the
agreement, Virginia admitted that she knew about some of C.L.’s property
holdings, but she insisted that she was not aware of, nor did anyone disclose to
her, the full extent and value of his assets and holdings.
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Virginia was not represented by counsel when she signed the agreement.
However, George McCoin, C.L.’s attorney who drafted the antenuptial
agreement, was present when it was executed and testified that it is his normal
practice to explain such agreements to both parties to insure a mutual
understanding of the terms. McCoin, however, could not specifically recall
following that practice with Virginia. In addition, McCoin acknowledged that he
did not provide Virginia with a copy of C.L.’s financial statement prior to
execution of the agreement, nor discuss the specific dollar value of C.L’s
holdings with her, but instead only discussed C.L.’s assets in general terms.
Likewise, C.L. admitted that he never advised Virginia of his net worth,
which in 1983 was between $500,000 and $600,000. He asserted, however, that
she was aware of the nature of his holdings since they had lived together for
more than one year before the agreement was signed, and she had
accompanied him to many of his properties to collect rent. In addition, C.L.
testified that Virginia had reviewed the agreement prior to signing it and had
made suggestions for changes, including a provision relating to a watch.
Although Virginia conceded she read that provision before signing the
agreement, she denied that the provision was included on her suggestion.
Based on the foregoing proof, the trial court found that both parties had
contributed to the breakup of the marriage and awarded the divorce to each.
Although rejecting the defendant’s claim that the agreement was procured by
fraud, duress, coercion, undue influence, and misrepresentation, the trial court
concluded that the antenuptial agreement was invalid. In so holding, the trial
court stated as follows:
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The concern of the Court goes to the “knowledgeably” requirement
in the statute. The failure to prove this requirement in the Court’s
opinion would create an inceptual impediment to the contract. The
defendant has the burden of proof in this regard. The particular
contract in question indicates that “each party has sought and
obtained independent counsel regarding this matter.” This is
simply not the case according to all the proof. Mr. McCoin
represented Mr. Randolph in the transaction. He did not remember
going over the agreement with each at the time of signature. He
was not required under his duties to go over the agreement with
Mrs. Randolph. Proof of independent counsel would have
overcome the “knowledgeably” requirement. The Court is of the
opinion that Mrs. Randolph probably did not have the means nor
perhaps the wherewithal to secure independent counsel to advise
her of the consequences of the arrangement she was about to
enter into. It was incumbent upon Mr. Randolph to assist in this
regard due to the prior relationship between the parties and the
obvious bargaining disparity. Mr. Randolph was a learned
businessman very shrewd in his dealings. Mrs. Randolph did not
possess similar tools nor abilities. The agreement states an untrue
fact on the issue of independent counsel. This is a fatal flaw to the
Court under the facts set out above. For this reason the Court
finds that the antenuptial agreement is void and therefore sets it
aside.
Upon finding the agreement void and unenforceable, the trial court awarded
Virginia the following:
(a) $3,705, representing her one-half interest in the household
property purchased after the marriage;
(b) $41,500, representing her interest in the other marital
property;
(c) $125,000, as alimony in-solido; and
(d) $3,000, in attorneys fees.
C.L. appealed, and in a split decision, the Court of Appeals concluded that
the evidence preponderated against the trial court’s decision as to Virginia’s
knowledge when she signed the agreement. The Court of Appeals determined
that neither independent counsel nor a financial statement is absolutely
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necessary to satisfy the “knowledgeably” requirement of the statute.
Accordingly, the Court of Appeals reversed the judgment of the trial court with
respect to the validity of the antenuptial agreement, the division of marital
property, and the award of alimony.
Thereafter, we granted permission to appeal to consider the knowledge
required to sustain the validity of an antenuptial agreement. We review the
findings of fact by the trial court de novo upon the record of the trial court,
accompanied by a presumption of the correctness of the findings, unless the
preponderance of the evidence is otherwise. Tenn. R. App. P. 13(d). Because
the trial judge is in a better position to weigh and evaluate the credibility of the
witnesses who testify orally, we give great weight to the trial judge’s findings on
issues involving credibility of witnesses. Gillock v. Board of Professional
Responsibility, 656 S.W.2d 365, 367 (Tenn. 1983).
KNOWLEDGE
It is now well settled in Tennessee that public policy allows the
enforcement of antenuptial agreements if certain prerequisites are satisfied. For
example, Tenn. Code Ann. § 36-3-501(1991 Repl.) provides that "if such
agreement is determined in the discretion of the court to have been entered into
by such spouses freely, knowledgeably and in good faith and without the
exertion of duress or undue influence upon either spouse," it is enforceable.
Thus, under the statute, such agreements are enforceable if entered into
freely, knowledgeably, and in good faith, without the exertion of duress or undue
influence. Since both the trial court and the Court of Appeals rejected the wife’s
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claim that the agreement was procured by fraud, duress, coercion, undue
influence, and misrepresentation, the only issue in this appeal is whether the
agreement was entered into “knowledgeably.”
The wife contends that the agreement was not entered into
knowledgeably since the husband did not make a full and fair disclosure of the
nature, extent, and value of his assets, and she had no independent knowledge
of that information. On the other hand, the husband argues that disclosure was
not necessary in this case, since the wife had gained knowledge of his holdings
as a result of their relationship prior to marriage.
These contentions arise from interpretations of prior Tennessee decisions
rendered both before and after enactment of the above statute. Prior to the
statute, at common law, the rule governing the disclosure required to validate
antenuptial agreements was announced by the Court of Appeals in Baker v.
Baker, 24 Tenn. App. 220, 142 S.W.2d 737 (1940). In that case, Mrs. Baker
brought suit to set aside an antenuptial contract by which she had waived her
statutory right to share in the estate of her deceased husband. She claimed that
when the agreement was signed, she did not know her husband was a wealthy
man. She asserted that her husband had a duty to disclose that information
since the parties were engaged and therefore in a confidential relationship when
the agreement was executed.
The Baker court agreed and stated the rule as follows:
The rule supported by the weight of authority may be stated thus:
An engagement to marry creates a confidential relation between
the contracting parties and an antenuptial contract entered into
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after the engagement and during its pendency must be attended by
the utmost good faith; if the provision for the prospective wife is, in
the light of surrounding circumstances, wholly disproportionate to
the means of her future husband and to what she would receive
under the law, the burden rests on those claiming the validity of the
contract to show that there was a full disclosure of the nature,
extent and value of the intended husband’s property, or that she
had full knowledge thereof without such disclosure, and that she,
with this knowledge, voluntarily entered into the antenuptial
settlement.
It should be noted that under this rule the contract is not
invalidated merely because the portion fixed for the bride is small
or disproportionate, for, if fully informed and advised, the intended
wife may be entirely satisfied with the provision made for her, and,
if she then voluntarily enters into the contract she is bound by its
terms.
Id. at 745-46 (citations omitted).
This Court first addressed the disclosure issue following adoption of Tenn.
Code Ann. § 36-3-501(1991 Repl.) in Kahn v. Kahn, 756 S.W.2d 685 (Tenn.
1988). In that case, the parties met at a restaurant, where the prospective wife
worked as a waitress and the prospective husband was a patron. The husband
was a relatively wealthy businessman, while the wife owned virtually no assets.
The prenuptial agreement was the suggestion of the husband and was prepared
by the husband’s lawyer. The agreement involved the release of all marital
rights in the separate property of each spouse, but required the husband to
provide the wife, in the event of divorce, a two-bedroom house or condominium
for as long as she resided therein or until she remarried. Id., at 686. As in the
present case, the agreement in Kahn was signed one day before the parties
were married, and the wife did not have the assistance of independent counsel.
However, there, as here, the parties had lived together for more than one year
prior to their marriage.
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Mrs. Kahn testified that she was not made fully aware of the extent of Mr.
Kahn’s financial dealings before executing the agreement, but she conceded that
she knew approximately a year and a half before signing the agreement that he
was worth “millions of dollars” and “was making around $360,000 a year from all
his investments.” Id. at 690. In addition, Mr. Kahn testified that he informed her
prior to signing the prenuptial agreement that his net worth was between eight
and nine million dollars. Id.
In determining the validity of the agreement, this Court discussed the rule
announced by Baker, and compared it to the requirements of the statute, stating
as follows:
A comparison of the requirements of the statute and the Baker rule
reveals that the statute makes no reference to the requirement in
Baker that where the provision for wife in an antenuptial agreement
is wholly disproportionate to the husband’s wealth, a full disclosure
of the nature, extent and value of husband’s property is required to
sustain the validity of the agreement. Of course, numerous factual
scenarios could occur in which the failure to make a full disclosure
of assets, liabilities and values would breach the statutory
requirement that the contract was entered into freely,
knowledgeably and in good faith. However, in this case it is not
necessary that we resolve the apparent conflict between the
Baker rule and the statute because we find that the antenuptial
agreement between these parties fully complies with the tests
imposed in either of those rules.
Id. at 694 (emphasis added).
Applying the rules announced in Baker, the Kahn court specifically held
“the antenuptial agreement valid because the wife had full knowledge of the
nature, extent and value of the intended husband’s property at the time she
executed the agreement, making full disclosure at that time unnecessary.” Id. at
696. The record in Kahn reflected that Mrs. Kahn was aware of every valuable
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asset Mr. Kahn owned at the time she signed the agreement, and Mr. Kahn did
not underestimate the value of any asset.
Initially, this case requires that we resolve the issue left open in Kahn --
whether the statute abrogated the rule announced in Baker requiring proof of full
disclosure or independent knowledge to validate an antenuptial agreement. It is
instructive to note that the rule announced in Baker remains the prevailing view
throughout the country. See generally Judith T. Younger, Perspectives on
Antenuptial Agreements: An Update, 8 J. Am. Acad. Matrim. Law. 1 (1992)
(hereafter “Perspectives at ____.”). Moreover, unlike the court in Kahn, we do
not perceive a conflict between the rule announced in Baker and the statute
providing for enforcement of antenuptial agreements entered into
“knowledgeably.” As we interpret the knowledge element of the statute, the
spouse seeking to enforce an antenuptial agreement must prove, by a
preponderance of the evidence, either that a full and fair disclosure of the nature,
extent, and value of his or her holdings was provided to the spouse seeking to
avoid the agreement, or that disclosure was unnecessary because the spouse
seeking to avoid the agreement had independent knowledge of the full nature,
extent, and value of the proponent spouse’s holdings. Under the statute,
disclosure or full knowledge is required in all cases, not just those which involve
an agreement in which the provision for one spouse is wholly disproportionate to
the means of the other spouse.
At least three principles support our interpretation of the rule. First, as
was recognized in both Baker and Kahn, an agreement to marry gives rise to a
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confidential relationship.4 As a result, the parties to an antenuptial agreement do
not deal at arms’ length and must exercise candor and good faith in all matters
bearing upon the contract.5
Secondly, parties to an antenuptial agreement are very often ill-matched
in terms of bargaining power. As one court put it, “candor compels us to raise to
a conscious level the fact that, as in this case, prenuptial agreements will almost
always be entered into between people with property or an income potential to
protect on one side and people who are impecunious on the other.” Gant v.
Gant, 329 S.E.2d 106, 114 (W. Va. 1985). Thus, a rule requiring full disclosure
or independent knowledge serves to level the bargaining field for the party in the
weaker position.
Finally, unlike other private commercial contracts, the State has an
interest and is a party to every marriage. Gant, 329 S.E.2d at 114. In the
absence of antenuptial agreements, state laws govern the division of marital
property and the awarding of alimony in the event of divorce. Often, antenuptial
agreements alter the rights parties otherwise would have under those state laws.
Consequently, it is altogether appropriate that parties entering into antenuptial
agreements do so with knowledge of the holdings to which they are waiving any
claim under state law. Fletcher, 628 N.E.2d at 1347.
4
See also Newman v. Newman , 653 P.2d 728, 732 (Colo. 19 82); Burtoff v. Burtoff, 418
A.2d 10 85, 1089 (D.C. Ap p. 1980) ; Del V ecc hio v. D el Ve cch io, 143 So. 2d 17, 21 (Fla. 1962);
Frey v. Frey, 471 A.2d 705, 711 (Md. 19 84); Fletcher v. Fletcher, 628 N.E.2d 13 43, 1 346 (Oh io
1994); Kosik v. George, 452 P.2d 560, 563 (Or. 196 9); Button v. Button, 388 N.W.2d 546, 550
(Wis. 1986 ).
5
Burtoff, 418 A.2d at 1089; Del V ecc hio, 143 So . 2d at 21; Simeone v. Simeone, 581 A.2d
162, 167 (Pa. 199 0).
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As we view the statute, knowledge is simply an element that must be
proven to establish the existence of a valid contract. Ordinarily, the burden of
proving the existence of a valid contract is upon the person relying on the
contract. In the context of antenuptial agreements, the same is true. The
proponent has the burden of establishing the existence and terms of the
agreement, as would be the situation in any other contractual setting. Lebeck v.
Lebeck, 881 P.2d 727, 733 (N.M. App. 1994).
The extent of what constitutes “full and fair” disclosure varies from case to
case depending upon a number of factors, including the relative sophistication of
the parties, the apparent fairness or unfairness of the substantive terms of the
agreement, and any other circumstance unique to the litigants and their specific
situation. Perspectives at 25. While disclosure need not reveal precisely every
asset owned by an individual spouse, at a minimum, full and fair disclosure
requires that each contracting party be given a clear idea of the nature, extent,
and value of the other party’s property and resources. Id. Though not required,
a fairly simple and effective method of proving disclosure is to attach a net worth
schedule of assets, liabilities, and income to the agreement itself. See, e.g.,
Pajak v. Pajak, 385 S.E.2d 384, 388 (W. Va. 1989); Hartz v. Hartz, 234 A.2d
865, 871, n. 3 (Md. 1967) (“The careful practitioner has often caused to be
prepared an itemization of the property covered by the agreement with appraised
values and caused it to be made part of the agreement.”).
In the absence of full and fair disclosure, an antenuptial agreement will
still be enforced if the spouse seeking to avoid the agreement had independent
knowledge of the full nature, extent, and value of the other spouse’s property
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and holdings. Of course, the particular facts and circumstances of each case
govern, to a great degree, the determination of knowledge. Some factors
relevant to the assessment include, but are not limited to, the parties’ respective
sophistication and experience in business affairs, the duration of the relationship
prior to the execution of the agreement, the time of the signing of the agreement
in relation to the time of the wedding, and the parties’ representation by, or
opportunity to consult with, independent counsel. Perspectives at 18; see, e.g.,
Norris v. Norris, 419 A.2d 982, 985 (D.C. App. 1980); Del Vecchio, 143 So. 2d at
21; Simeone, 581 A.2d at 167.
Though representation by independent counsel may be the best evidence
that a party has entered into an antenuptial agreement voluntarily and
knowledgeably, no state makes consultation with independent counsel an
absolute requirement for validity. Perspectives at 18. Some states, however,
require that each party have the opportunity to consult with legal counsel of his
or her own choice, but do not require actual consultation for the agreement to be
upheld. See, e.g., Gant, 329 S.E.2d at 116. Finally, some states hold that the
presence or absence of independent counsel is just another factor to be
considered when determining if the agreement was entered into knowledgeably.
Perspectives at 22; see, e.g., Ex Parte Walters, 580 So. 2d 1352, 1354 (Ala.
1991); Matter of Benker‘s Estate, 331 N.W.2d 193, 198 (Mich. 1982). It is in this
last category that Tennessee is found. Kahn, 756 S.W.2d at 695.
Applying the foregoing rules to the facts of this case, it is clear that the
husband failed to prove the existence of a valid agreement. There is no claim in
this case that full and fair disclosure was provided to the wife. Instead, the
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husband claimed that the wife had full knowledge of the nature, extent, and
value of his holdings at the time she signed the agreement. The record,
however, does not support that claim. Although the wife resided with the
husband for about a year before their marriage, he did not at anytime reveal to
her the extent or value of his holdings. She was aware only of the nature of his
business -- that he conducted a real estate business. Although their relationship
was of a fair duration, she testified that she had only general knowledge of his
holdings. Her testimony was corroborated by her husband and his attorney.
From the record it appears the only business of which she had specific
knowledge was a losing concern. Though specific appraisal values are not
required to sustain the validity of an antenuptial agreement, knowledge of the
proponent spouse’s overall net worth is necessary. In terms of the comparative
sophistication and business experience of the parties, the record clearly supports
the trial court’s conclusion that “Mr. Randolph was a learned businessman very
shrewd in his dealings.” The wife, in contrast, possessed no prior business
experience or knowledge. Moreover, the agreement at issue was executed one
day before the parties were married. The wife was presented with the
agreement on the way to the attorney’s office, at a time when she was in ill
health. She had no opportunity to personally study the agreement or to seek
advice from her own attorney or others close to her.
As we emphasized in Kahn, supra, consultation with independent counsel
is not required and is merely one factor relevant to the assessment of
knowledge, and to the extent the trial court’s decision can be read to require
such consultation, it is not approved. We have analyzed the record applying the
foregoing rules and conclude that the evidence does not preponderate against
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the trial court’s finding that Virginia Randolph did not enter into the agreement
knowledgeably. Accordingly, the antenuptial agreement is unenforceable.
CONCLUSION
Because we conclude that the evidence does not preponderate against
the trial court's finding that Virginia Randolph did not knowledgeably enter into
this antenuptial agreement, the Court of Appeals’ judgment is reversed. The
judgment of the trial court is reinstated and this cause is remanded for further
proceedings consistent with this decision, including assessment of attorney fees
on appeal. Costs of this appeal are taxed to the plaintiff, C.L. Randolph, for
which execution may issue if necessary.
_______________________________
RILEY ANDERSON, JUSTICE
CONCUR:
Birch, C.J.
Drowota, Reid, and White, JJ.
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