Marriage of Manzo, In re

• Decision Date: 28 February 1983
• Docket Number: No. 81SC25,81SC25
• Citation: 659 P.2d 669
• Parties: In re the MARRIAGE OF Renate MANZO, Petitioner, and Lawrence D. Manzo, Respondent.
• Court: Colorado Supreme Court

Page 669

659 P.2d 669

In re the MARRIAGE OF Renate MANZO, Petitioner and Lawrence D. Manzo, Respondent.

No. 81SC25.

Supreme Court of Colorado En Banc.

Feb. 28, 1983.

Jim Travis Tice, Littleton, for petitioner.

Brian Maguire, Littleton, for respondent.

DUBOFSKY, Justice.

We granted certiorari to review the court of appeals' unpublished opinion, In re the Marriage of Manzo, No. 80CA0216, November 28, 1980, affirming a decision by the Denver district court in a dissolution of marriage action to set aside a separation agreement for division of marital property. The district court determined that the agreement, measured by a fair, just and reasonable standard, resulted in a property division which was unconscionable under Colorado's Uniform Dissolution of Marriage Act, sections 14-10-101, et seq., C.R.S.1973 (1982 Supp.). Because we believe that the division here was fair, just, and reasonable, we reverse.

Renate Manzo (the wife) filed a petition for dissolution of marriage on April 13, 1979. On February 21, 1979, she and Lawrence D. Manzo (the husband) had signed a separation agreement to the effect that she would set the price for and sell their home in Parker. The agreement provided that the wife would receive the first $60,000 of net proceeds from the sale of the house, after deducting the realtor's commission and other expenses of sale (including the balance due on the first deed of trust which at the time of the hearing was slightly more than $37,000), and the husband would receive any excess of the net proceeds over $60,000. The husband was not represented by counsel at the time he signed the agreement.

At the hearing on permanent orders on January 14, 1980, the wife testified that the house was listed for a price of $129,000. When the house did not sell, the listing was lowered to $119,000, and the wife testified that she expected the house eventually would sell for between $100,000 and $110,000. She also testified that she and her husband had determined that she should receive the first $60,000 of the net proceeds from the sale of the house in order for her to purchase a condominium with a down payment sufficiently high to keep monthly payments within her resources. Her gross monthly income at the time of the hearing was $800; her husband's gross monthly income was $1800.

The husband sought to set aside the separation agreement on the basis that when he signed it he thought the home in Parker would sell for between $140,000 and $150,000. He claimed that his unilateral mistake of fact resulted in an agreement which could give him as little as five to ten percent of the net proceeds from the sale of the house when he had intended to receive forty to fifty percent of the net proceeds. Therefore, he requested that the court set aside the agreement on the basis that the property division was not fair, just or reasonable.

The order entered by the district court gave custody of the parties' two teen-age children to the wife, required the husband to provide child support of $125 per month per child, found that the parties had waived maintenance, and ordered that when the house was sold the net proceeds be divided sixty percent to the wife and forty percent to the husband, taking into account that the separation agreement provided the wife with no maintenance. The court set aside the parties' property settlement agreement on the basis that the husband's receipt of $10,000 compared to the wife's receipt of $60,000 was not fair, just and reasonable.

The court of appeals affirmed, ruling that the district court applied the proper standard for reviewing a separation agreement before it is incorporated into a decree of dissolution and that the record supported the district court's finding that the agreement was not fair, just and reasonable. We granted certiorari to consider whether section 14-10-112(2) permits a district court to set aside as unconscionable a separation agreement property disposition provision which the court deems not fair, just and reasonable when the court does not find that the provision was procured by overreaching, concealment of assets, or sharp dealing not consistent with the obligation of marital partners to deal fairly with each other. Although we now determine that the court may set aside a separation agreement property disposition provision without first finding that the provision was improperly procured, in this case we overturn the district court's decision to set aside the provision because, when viewed in light of the totality of the economic circumstances resulting from the agreement, we believe the provision was fair, just and reasonable.

I.

Prior to its incorporation in a dissolution decree a separation agreement is a contract between the parties to a marriage. In re Marriage of Deines, 44 Colo.App. 98, 608 P.2d 375 (1980). The purpose of the separation agreement is "to enable divorcing parties to reach an amicable out-of-court settlement of their claims to the property of the other...." Newman v. Newman, 653 P.2d 728, 733 (Colo.1982). However, before a separation agreement concerning property is incorporated in the dissolution decree, it is subject to review by the district court under section 14-10-112(2) for unconscionability. Section 14-10-112(2) provides:

In a proceeding for dissolution of marriage ... the terms of the separation agreement, except the terms providing for the custody, support, and visitation of children, are binding upon the court unless it finds, after considering the economic circumstances of the parties and any other relevant evidence produced by the parties, ... that the separation agreement is unconscionable.

This section was adopted verbatim from the Uniform Marriage and Divorce Act (UMDA) ¹, § 306. The Commissioners' Note to UMDA § 306 describes the purpose of the section and the meaning of unconscionable:

An important aspect of the effort to reduce the adversary trappings of marital dissolution is the attempt, made by Section 306, to encourage the parties to reach an amicable disposition of the financial and other incidents of their marriage....

Subsection (b) undergirds the freedom allowed the parties by making clear that the terms of the agreement respecting maintenance and property disposition are binding upon the court unless those terms are found to be unconscionable. The standard of unconscionability is used in commercial law, where its meaning includes protection against one-sidedness, oppression, or unfair surprise (see § 2-302, Uniform Commercial Code), and in contract law, Scott v. U.S., 12 Wall (U.S.) 443 (1870) ("contract ... unreasonable and unconscionable but not void for fraud"); .... In the context of negotiations between spouses as to the financial incidents of their marriage, the standard includes protection against overreaching, concealment of assets, and sharp dealing not consistent with the obligations of marital partners to deal fairly with each other.

In order to determine whether the agreement is unconscionable, the court may look to the economic circumstances of the parties resulting from the agreement, and any other relevant evidence such as the conditions under which the agreement was made, including the knowledge of the other party. If the court finds the agreement not unconscionable, its terms respecting property division and maintenance may not be altered by the court at the hearing.

(Emphasis added.) 9A Uniform Laws Annotated, UMDA § 306, at 136-137 (Master edition 1979).

The wife here urges that we follow either the standard for unconscionability in the Commissioners' Note (emphasized above) or the standard for an unconscionable contract under the Colorado Uniform Commercial Code, section 4-2-302, C.R.S.1973. The Official Comment to section 4-2-302 describes the basic test of unconscionability as:

... whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.... The principle is one of the prevention of oppression and unfair surprise [citation omitted] and not of disturbance of allocation of risks because of superior bargaining power....

We note that traditionally a contract may not be rescinded because one party has made a unilateral mistake as to value unless the other party knew or had reason to know of the error. J. Calamari and J. Perillo, Contracts § 9-27 at 306 (2d Ed.1977). ²

The wife argues that the case law relied upon by the court of appeals in developing the fair, just and reasonable standard cannot be harmonized with the purposes of section 14-10-112(2) and the meaning of unconscionable as set forth in the Commissioners' Note, and that the General Assembly intended, by its adoption of section 14-10-112(2), to reverse earlier case law. The Colorado appellate decisions considering the meaning of unconscionable in section 14-10-112(2) have not relied on either the Commissioners' suggested language or the commercial definition of unconscionability. Instead, the court of appeals has defined an unconscionable separation agreement provision for property disposition as one which is not fair, just and reasonable. In re Marriage of Carney, 631 P.2d 1173 (Colo.App.1981); In re Marriage of Wigner, 40 Colo.App. 253, 572 P.2d 495 (1977). ³ In Wigner the court of appeals specifically rejected the need to find overreaching, inequality of bargaining power or other elements of fraud before setting aside a property settlement agreement as unconscionable prior to its incorporation in a dissolution decree. ⁴ The court of appeals in Wigner relied on cases which pre-dated the adoption of section 14-10-112--Hobbs v. Hobbs, 72 Colo. 190, 210 P. 398 (1922), Hill v. Hill, 70 Colo. 47, 197 P. 236 (1921), and Daniels v. Daniels, 9 Colo. 133, 10 P. 657 (1886)--and which were decided at a time when separation...