Bilateral Mistake
When Steven Simkin divorced Laura Blank, they agreed to split their assets equally, without specifically mentioning any stock accounts. They owned an account with Bernard L. Madoff Investment Securities estimated to be worth $5.4 million. Simkin kept the account and paid Blank more than $6.5 million, including $2.7 million to offset the amount that they believed were in the account. Two years after the divorce agreement was signed, Simkin learned that the account actually contained no funds due to its manager’s fraud.
1. Steven and Laura
did
have a contract.
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2. The contract was related to their
divorce
.
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3. Under the contract, they agreed to split their assets
equally, regardless of marital income
.
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4. This contract
has
all of the four required elements of a contract: agreement, capacity, consideration, and legality.
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5. When the parties learned that the Madoff account was worthless, who might want to get out of this contract?
Steven
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6.
Steven
would want to get out of this contract because
Steven
kept the worthless account and paid
Laura
cash for one-half of the supposed value.
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7. If a court does not enforce the contract between Steven and Laura, it is because of a lack of
voluntary consent
.
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8. If the parties had a voluntary consent problem, it was
a bilateral mistake
.
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9. The divorce settlement agreement
did not
explicitly mention the Madoff account.
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10. The divorce settlement agreement
did not
explicitly mention the equal split of stock shares in the Madoff account.
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11. Therefore, the finding that the Madoff account was nonexistent two years after the divorce agreement
does not
amount to a material mistake of fact.
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12. A court
would not
likely rescind this agreement due to bilateral mistake.
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13. Laura
would not
have to return the money she received under the agreement.
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In this case, the argument underpinning Simkin’s mutual mistake claim, that the Madoff account was “nonexistent” when the parties executed their settlement agreement in June 2006, did not amount to a “material” mistake of fact. The premise of Simkin’s argument was that the parties mistakenly believed that they had an investment account with Bernard Madoff when, in fact, no account ever existed. In Simkin’s view, this case was no different from one in which parties are under a misimpression that they own a piece of real or personal property, but later discover that they never obtained rightful ownership, such that a distribution would not have been possible at the time of the agreement. But the court found that this analogy did not apply. Simkin did not dispute that, until the Ponzi scheme began to unravel more than two years after the property division was completed, and it would have been possible for him to redeem all or part of the investment. The court found this situation was similar to a marital asset that unexpectedly lost value after dissolution of a marriage. The risk falls with the party who holds the asset after dissolution. That risk is not the basis of a claim of mutual mistake.
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