VILLADSEN v. VILLADSEN

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Docket Number

Docket No. 57762.

Attorney(S)

Donald G. Jennings, for plaintiff. Clay F. Olmstead, for defendant.

Judges

PER CURIAM.

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Smart Summary

Factual and Procedural Background

A judgment of divorce between the parties was entered on November 14, 1979, following a property settlement agreement reached prior to the hearing. The defendant moved for rehearing on December 20, 1979, which was granted on January 17, 1980. After an evidentiary hearing and submission of briefs, the trial court granted the defendant's motion to modify the property settlement on December 31, 1980, and filed the amended judgment on January 15, 1981. The plaintiff now appeals by right from that modification.

The original divorce judgment provided that the plaintiff was to receive an 11% interest in the Ferney-Villadsen Insurance Agency, Inc., a Michigan corporation, or alternatively $41,250 in cash if the defendant retained his stock. The defendant owned 42% of the corporation's stock. Both parties approved this provision at the original divorce hearing.

The defendant argued at rehearing that the judgment should be modified due to a mutual mistake regarding the value of the defendant's share in the insurance agency. An evidentiary hearing was held to address this motion.

Testimony revealed discrepancies in the valuation of the corporation's accounts payable and receivable, stemming from different accounting methods used by the corporate accountant and the corporation's bookkeeper. The defendant, who had access to the corporate records, asserted that the value of the agency had been overstated in the original settlement and presented calculations significantly reducing the plaintiff's share value.

The trial court found a mutual mistake of fact concerning the agency's value and modified the judgment accordingly, reducing the plaintiff's share to $17,234.25. The plaintiff moved for rehearing or new trial, which was denied.

Legal Issues Presented

Whether the trial court erred in modifying the property settlement agreement incorporated into the divorce judgment based on an alleged mutual mistake of fact regarding the value of the defendant's stock in the insurance agency.
Whether a property settlement agreement incorporated in a divorce judgment may be modified absent fraud, mistake, or gross inequity.
Whether the defendant's access to corporate records and failure to discover alleged errors prior to settlement precludes relief based on mistake.

Arguments of the Parties

Plaintiff's Arguments

The trial court's decision to modify the property settlement was reversible error.
The defendant failed to prove fraud or newly discovered evidence justifying modification.
The defendant had access to corporate records at all relevant times and was aware or should have been aware of the true value prior to settlement.

Defendant's Arguments

The original property settlement was based on a mutual mistake of fact as to the value of the defendant's share in the insurance agency.
The value used in the original judgment overstated the true value due to inaccurate accounting figures.
The defendant discovered discrepancies after the settlement and sought modification to correct the error.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bickham v Bickham, 113 Mich. App. 408, 317 N.W.2d 642 (1982)	Standard of review for modification of divorce judgments; burden of proof on party seeking modification.	The court reviewed the lower court's modification de novo but gave great consideration to the trial judge's findings, emphasizing the burden on the party seeking modification.
Alexander v Alexander, 103 Mich. App. 263, 303 N.W.2d 202 (1981)	Modification of property settlements requires fraud, mistake, or gross inequity.	Supported the principle that absent such grounds, property settlements should not be modified.
Chisnell v Chisnell, 99 Mich. App. 311, 297 N.W.2d 909 (1980)	Same as above regarding modification standards.	Reinforced the requirement of fraud, mistake, or gross inequity for modification.
Gordon v Warren Planning Urban Renewal Comm, 388 Mich. 82, 199 N.W.2d 465 (1972)	Power of trial court to vacate judgment upon finding mutual mistake of fact.	The court acknowledged the trial court's authority to vacate a judgment based on mutual mistake but distinguished the facts here.
Lark v The Detroit Edison Co, 99 Mich. App. 280, 297 N.W.2d 653 (1980)	No relief for mistake caused by ill-advised or careless decisions of party or counsel.	The court held that defendant's failure to discover the alleged mistake prior to settlement precluded relief.
Harrison v Dewey, 46 Mich. 173, 9 N.W. 152 (1881)	Where parties had access to information at settlement, compromise should not be disturbed.	The court applied this principle to deny modification because defendant had access to the relevant information before settlement.

Court's Reasoning and Analysis

The court began by recognizing that modification of property settlements incorporated into divorce judgments is permitted only upon a showing of fraud, mistake, or gross inequity, with the burden on the party seeking modification. The trial court found a mutual mistake of fact regarding the value of the insurance agency stock.

However, the appellate court emphasized that the defendant had full access to the corporate records at all times and was aware or should have been aware of the alleged discrepancies at the time of the original settlement. The defendant did not allege fraud or newly discovered evidence, and the claimed mistake was based on information available prior to the judgment.

Applying established precedent, the court held that relief cannot be granted when the party seeking modification or counsel made careless decisions or had access to the relevant information before settlement. The court found it inequitable to penalize the plaintiff for the defendant's failure to act diligently.

Therefore, the court reversed the trial court's modification of the judgment, concluding that the original property settlement should stand.

Holding and Implications

The court REVERSED the trial court's order modifying the property settlement incorporated in the divorce judgment.

The direct effect of this decision is that the original property settlement, awarding the plaintiff an 11% interest or $41,250 in cash, remains binding and enforceable. The defendant's attempt to reduce the plaintiff's share based on an alleged mutual mistake of fact was rejected due to the defendant's prior access to the relevant financial information and absence of fraud or newly discovered evidence. No new precedent was established; the decision reinforces the principle that property settlements in divorce judgments are not lightly modified and that parties must exercise due diligence when entering into such agreements.

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VILLADSEN v VILLADSEN

PER CURIAM.

A judgment of divorce between the parties was entered on November 14, 1979. A property settlement agreement had been reached prior to the hearing. Defendant moved for rehearing on December 20, 1979. This motion was granted on January 17, 1980. After a lengthy evidentiary hearing and the filing of briefs by the parties, the trial court granted defendant's motion to modify the property settlement on December 31, 1980. The amended judgment was filed on January 15, 1981. Plaintiff now appeals by right from the modification of the judgment.

The divorce judgment originally provided that plaintiff was to receive from defendant an 11% interest in the Ferney-Villadsen Insurance Agency, Inc., a Michigan corporation, or, in the alternative, if defendant chose to retain his stock, $41,250 in cash. Defendant owned 42% of the stock in the corporation. Both parties expressed their approval of the property settlement containing this provision at the hearing on the divorce judgment.

At the hearing on the defendant's petition for rehearing, defendant argued that the judgment should be modified because of the parties' alleged mutual mistake as to the value of defendant's share of the insurance agency. An evidentiary hearing was held on defendant's motion to modify the judgment on August 29, 1980.

Guy Merskin, a CPA and the accountant for Ferney-Villadsen Insurance Agency, Inc., testified that the gross annual commissions for the agency for fiscal 1978 totaled $155,925 and that corporate profits were $17,938 for that year. He presented a simplified balance sheet for the corporation, which may be summarized as follows:

Assets Liabilities

Cash $32,142 Accounts Payable $52,277 Accounts Receivable, Trade, Notes 51,636 Other Liabilities 18,380 Equipment Minus Depreciation 5,192 Stock 1,000 Retained Earnings 17,363 _______ _______ TOTAL $88,970 $88,970

As accountant for Ferney-Villadsen Insurance Agency, Inc., Merskin merely accepted the figures presented to him. He was not responsible for day-to-day bookkeeping.

Robert Ferney, the second owner and president of Ferney-Villadsen Insurance Agency, Inc., and father of the plaintiff, presented figures which had been prepared by the corporation's bookkeeper. He testified that on August 1, 1979, the amount of accounts payable was actually between $83,000 and $84,000 rather than $52,000 as represented above. This discrepancy was caused by the use of different accounting methods by Guy Merskin and the corporation's regular bookkeeper. He testified that defendant's share of the total value of the business was $162,750.

Defendant testified that he had access to the accounts and records of the Ferney-Villadsen Insurance Agency, Inc., at all times. For purposes of the pre-settlement negotiations, the parties had stipulated that the value of the agency was equal to 2.5 times the value of the gross annual commissions received in the fiscal year 1978. Defendant did not become worried about the state of the business's accounts until negotiations for the property settlement were over. At the time the judgment incorporating the settlement was entered, he had reason to believe that the value of the agency had been overstated. All of the figures used during settlement negotiations were provided by the corporate bookkeeper. Defendant did an independent examination of the corporate books in August, 1979. He discovered, as a result of his examination, that Ferney-Villadsen Insurance Agency, Inc.'s, total accounts payable as of August 1, 1979, were $83,265.07, as Ferney had testified, and accounts receivable were $36,897.44, rather than $51,636, as the accountant had reported. Defendant argued that because these figures differed substantially from those to which the corporate accountant testified, the difference between accounts payable and receivable should be deducted from the value of the agency as calculated under the formula of 2.5 times gross commissions. Plaintiff's share in value of the agency would, according to his calculations, then equal $17,201, rather than $41,250, as provided by the divorce judgment.

Guy Merskin again took the witness stand to respond to defendant's testimony and testified that the figures mentioned by defendant for accounts payable and receivable were irrelevant to the valuation of the agency as a whole as based upon the formula relating to gross annual commissions.

The trial court modified the judgment in an order entered on January 15, 1981, holding that plaintiff's share of the value of the agency was $17,234.25. He found that there had been a mutual mistake of fact as to the value of the agency. The trial judge denied plaintiff's motion for rehearing or new trial.

Plaintiff here argues that the trial court's decision to modify the property settlement was reversible error. We agree.

Lower court orders modifying divorce judgments are reviewed by this Court de novo. Great consideration should be given to the findings of the trial judge. His position should not be reversed unless this Court would have reached a different conclusion had it been in his place. Bickham v Bickham, 113 Mich. App. 408, 412; 317 N.W.2d 642 (1982). Property settlements may not be modified in the absence of fraud, mistake or gross inequity. Alexander v Alexander, 103 Mich. App. 263, 266-267; 303 N.W.2d 202 (1981); Chisnell v Chisnell, 99 Mich. App. 311, 317; 297 N.W.2d 909 (1980). The party seeking modification has the burden of going forward with evidence that will justify the proposed change. Bickham, supra.

GCR 1963, 528.3 provides that relief from a final judgment may be provided in cases of mistake or newly discovered evidence which could with due diligence have been discovered in time for a motion for a new trial. "Mutual mistake is where the parties have a common intention, but it is induced by a common [error]." Black's Law Dictionary (4th ed), p 1153. Once the trial court has found that both parties share a mistaken belief which led to their consent to a settlement, it has the power to vacate the judgment. Gordon v Warren Planning Urban Renewal Comm, 388 Mich. 82, 89; 199 N.W.2d 465 (1972). However, where the party seeking modification or his counsel made "ill-advised or careless decisions", and alleges mistake, no relief can be granted. Lark v The Detroit Edison Co, 99 Mich. App. 280, 283; 297 N.W.2d 653 (1980). If, at the time of the settlement, the parties had access to the information on which the allegations of error or fraud are now based, their compromise should not be disturbed. Harrison v Dewey, 46 Mich. 173, 175-176; 9 N.W. 152 (1881).

Defendant here had full access to the books of the corporation at all times, and even suggested that he was aware of irregularities at the time the property settlement was entered into. Although defendant had no legal duty to examine the accounts, we believe it is inequitable to penalize plaintiff for his failure to do so. Defendant presented no evidence of fraud, and did not allege at the hearing that the facts were newly discovered. We therefore reverse the trial court's decision to modify the judgment.

Discussion of the other issues raised by plaintiff is unnecessary.

Reversed. Plaintiff may tax costs.