The Timely Challenge of Fraud

Wooten v. Wooten, 867 S.E.2d 767 (N.C. Ct. App. 2022)

Wooten v. Wooten came before the North Carolina Court of Appeals on Defendant Husband’s appeal of the trial court’s Summary Judgment ordering specific performance by both parties.

FACTS: The parties married in 1997 and divorced in 2016. When they divorced, they signed a Separation Agreement that stated that Defendant Husband would pay Plaintiff Wife $4000 per month and put $8500 per year into the children’s 529 educational savings plans.

Defendant Husband stopped paying in April 2019 and alleged that he had no obligation to pay because a) Plaintiff Wife had breached the agreement by failing to distribute savings bonds to their oldest child and failing to use the 529 account for that child’s educational expenses, and b) Plaintiff Wife had committed fraud by failing to fully disclose her income when the agreement was signed, so the contract wasn’t valid.

The trial court granted Plaintiff Wife’s Motion for Summary Judgment and ordered both parties to specifically perform their obligations under the contract.

ISSUE: Did Plaintiff Wife’s failure to fully disclose her income at the signing of the Separation Agreement justify recission of the Agreement by Defendant Husband after Defendant Husband failed to challenge the Agreement in a reasonable time?

FINDING: No

REASONING:  To overturn a finding of Summary Judgment, Defendant Husband would have had to prove that there was a triable issue of fact that the trial court should have heard. In his pleadings and response to Plaintiff Wife’s Motion for Summary Judgment, Defendant Husband did not make specific allegations of Plaintiff Wife’s alleged fraud, just general allegations.

Even if there were specific facts alleging fraud, Defendant Husband ratified the contract by continuing to accept and retain the benefits of the contract after he knew about Plaintiff Wife’s income and not acting to rescind the contract within a reasonable time.

DISCUSSION:  The lesson of Wooten v. Wooten is to take legal action as soon as you know you might have a claim. Defendant Husband may have had a case for fraud if he could show that Plaintiff Wife’s failure to disclose her income at the time of signing was material and Plaintiff Wife intended that Defendant would rely and act on that misrepresentation. He gave up this case by waiting an unreasonable time to challenge the contract and by ratifying the contract. In the process, he cost himself thousands of dollars.

This case is also a reminder that ratification can validate a contract even if it was invalid when it was signed. If you suspect that your separation agreement may be invalid, be sure you consult with a family law attorney BEFORE you accept any further benefits under the contract, or you may accidentally ratify the contract without meaning to.