Should Legal Documents Be Read and Understood?

This issue was addressed in the recent case of Eskra v. Grace wherein Brandy L. Eskra (Brandy) filed a probate petition seeking to be appointed the personal representative of her late husband’s estate.

The trial court denied her petition based on a premarital agreement (Agreement) that waived Brandy’s interests in her husband’s separate property, and the court appointed his parents (respondents) co-administrators of the estate.

In a prior appeal this court held Brandy was entitled to introduce extrinsic evidence in support of her argument that she and her late husband mistakenly believed the Agreement would apply only in the event of divorce, rather than upon death.

On remand, the trial court found that the mistake was a unilateral mistake on Brandy’s part and that she was not entitled to rescission. Brandy again appealed.

The appellate court affirmed the trial court's ruling.

Because Brandy failed to read the Agreement and to meet with her attorney to discuss it before signing it, she bore the risk of her mistake and was not entitled to rescission. 

Scott died intestate (i.e., without a will or trust) in an accident in March 2018.

The day before Brandy and Scott married, they executed the Agreement.

The trial court concluded, and the parties do not dispute, that the language of the Agreement effectively terminated any rights Brandy had in Scott’s estate, should he predecease her.

If the agreement was valid and enforceable, Scott’s minor daughter from a prior marriage would inherit Scott’s estate by way of intestate succession.

If the agreement was not valid or enforceable, then Brandy and Scott’s minor daughter would share in Scott’s estate.

The Agreement provided that the parties desire that all property owned by either of them be preserved as the separate property of each party. All property acquired by either party by gift or inheritance during their marriage, or by earnings, will be entirely his or her separate property.

The Agreement specified that the parties intended to occupy Scott’s home, that any payments made by Brandy toward that property would become Scott’s separate property, and that Brandy would not be reimbursed for any such payments in the event of the parties’ separation or divorce, or upon the death of either party.

The Agreement stated that both parties were represented by independent counsel, and it included a standard integration clause stating that it contained the entire understanding and agreement of the parties.

After Scott died in 2018, Brandy petitioned to be appointed personal representative to administer his estate.

Scott’s parents, respondents Steve Eskra and Catherine Grace, filed a competing petition for appointment as personal representatives.

The court found the Agreement was voluntary and enforceable. The court denied Brandy’s petition and granted the competing petition of Scott's parents, appointing the parents as co-administrators of the estate.

On May 1, 2015, Brandy and Scott went to the attorney's office to sign the Agreement.

Neither Brandy nor Scott reviewed the Agreement before they signed it.

Following the close of evidence and argument, the trial court found the doctrine of mutual mistake did not apply because Scott was not mistaken when he signed the Agreement.

The court relied on the attorney's testimony that the Agreement reflected Scott’s intentions and the testimony of other witnesses that Scott wanted his estate to go solely to his daughter.

As to unilateral mistake, the trial court found that Brandy established that Brandy did not want the Agreement to apply in the event of Scott’s death, but the court held Brandy’s unilateral mistake did not justify rescission of the Agreement because there was insufficient evidence that Scott encouraged or fostered Brandy’s mistaken belief.

Further, the court determined Brandy “bears the risk of her mistake” because she did not act “with reasonable care” when she failed to read the Agreement or consult with her attorney after it was revised.

A party may rescind a contract if the party’s consent was given by mistake.

The grounds for rescission are stated in Civil Code section 1689. One such ground exists when consent to a contract is given by "mistake." The term "mistake" in Civil Code section 1689, however, is a legal term with a legal meaning. The type of "mistake" that will support rescission is defined in Civil Code section 1577 ("mistake of fact") and Civil Code section 1578 ("mistake of law").

Section 1577 provides, “Mistake of fact is a mistake, not caused by the neglect of a legal duty on the part of the person making the mistake, and consisting in: 1. An unconscious ignorance or forgetfulness of a fact past or present, material to the contract; or, 2. Belief in the present existence of a thing material to the contract, which does not exist, or in the past existence of such a thing, which has not existed.”

Section 1578 provides, “Mistake of law constitutes a mistake, within the meaning of this Article, only when it arises from: 1. A misapprehension of the law by all parties, all supposing that they knew and understood it, and all making substantially the same mistake as to the law; or, 2. A misapprehension of the law by one party, of which the others are aware at the time of contracting, but which they do not rectify.”

A mistake of law is when a person knows the facts as they really are, but has a mistaken belief as to the legal consequences of those facts.

Misinterpretation of a contract is a mistake of law.

In the present case, Brandy claims she was mistaken as to the content of the Agreement, because she believed it had been amended to remove all provisions making it applicable in the event of death.

Brandy’s mistake claim is that she did not know the facts as they really were, not that she had a mistaken belief as to the legal consequences of the real facts.

Therefore, although misinterpretation of a contract is a mistake of law, the trial court properly analyzed the rescission claim as being based on a unilateral mistake of fact as to whether the Agreement had been amended in accordance with Brandy’s wishes.

It is well established that ordinary negligence does not constitute neglect of a legal duty within the meaning of Civil Code section 1577.

A necessary prerequisite for obtaining rescission of a contract based on unilateral mistake of fact is that the party seeking rescission did not bear the risk of the mistake.

A unilateral mistake of fact renders an agreement voidable where the mistake was known to and encouraged or fostered by the other party.

The critical question in the present case was whether Brandy’s failure to read the Agreement and meet with the attorney regarding the changes to the Agreement constituted neglect of a legal duty within the meaning of Civil Code section 1577.

The California Supreme Court has previously addressed whether the failure to read a contract constitutes such neglect and concluded under the circumstances, the failure of plaintiff to recognize that the release included a discharge of liability for personal injuries had been held to be attributable to his own neglect

It is well established, in the absence of fraud, overreaching or excusable neglect, that one who signs an instrument may not avoid the impact of its terms on the ground that he failed to read the instrument before signing it.

Failure to make reasonable inquiry to ascertain or effort to understand the meaning and content of the contract upon which one relies constitutes neglect of a legal duty such as will preclude recovery for unilateral mistake of fact.

Absent some credible evidence showing consent was obtained through fraud or compulsion, a party who has signed an agreement with the capacity of reading and understanding its contents will be bound by its contents.

The failure to read a contract constitutes failure to act in good faith and in accordance with reasonable standards of fair dealing within the meaning of that section.

Generally, a party who assents to a writing is presumed to know its contents and cannot escape being bound by its terms merely by contending that the party did not read them; the party’s assent is deemed to cover unknown as well as known terms.

Brandy suggested Scott had a heightened disclosure obligation due to their intimate relationship. But parties negotiating a premarital agreement are not presumed to be in a confidential relationship that would give rise to fiduciary duties owed between spouses or to the presumption of undue influence when a transaction benefits one of the parties.

On the contrary, it is evident that the Uniform Premarital Agreement Act was intended to enhance the enforceability of premarital agreements, a goal that would be undermined by presuming the existence of a confidential or fiduciary relationship.

Even considering the nature of her relationship with Scott, Brandy bore the risk of her mistake because she not only failed to read the Agreement, but she also failed to attend the meeting with the attorney that was scheduled for the purpose of reviewing the revised Agreement before Brandy signed it.

Family Code section 1615, subdivision (c)(2)(B), provides that, for agreements executed after January 1, 2020, the party against whom enforcement is sought must have seven days between the time that party was first presented with the final agreement and the time the agreement was signed, regardless of whether the party is represented by legal counsel.

LESSONS:

1.         A mistake of law is when a person knows the facts as they really are, but has a mistaken belief as to the legal consequences of those facts, and misinterpretation of a contract is a mistake of law.

2.         A necessary prerequisite for obtaining rescission of a contract based on unilateral mistake of fact is that the party seeking rescission did not bear the risk of the mistake.

3.         A unilateral mistake of fact renders an agreement voidable where the mistake was known to and encouraged or fostered by the other party.

4.         The failure to read a contract constitutes failure to act in good faith and in accordance with reasonable standards of fair dealing within the meaning of that section.

5.         This case illustrates the need for parties to read and understand the content of their agreements, and to obtain legal counsel as to the contents and effect of the agreement.