Michele Marie Wernecke, Individually and as Parent, Guardian and/or Next Friend of Joew, a Minor and Joshua Edward Wernecke v. W-Bar Ranches, Ltd., E&M Ranches, Ltd, and 3jkc Investments, Ltd.

Citation: Not availableDocket: 13-12-00782-CV

Court: Court of Appeals of Texas; October 3, 2013; Texas; State Appellate Court

Original Court Document: View Document

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An appeal was filed in the Thirteenth District Court of Texas by Michele Marie Wernecke, both individually and as the guardian of her son Joshua Edward Wernecke, against W-Bar Ranches, Ltd., E&M Ranches, Ltd., and 3JKC Investments, Ltd. The appeal arises from a summary judgment in a declaratory action where the partnerships sought to rescind partnership agreements naming Joshua as a limited partner, citing unilateral mistake. The trial court ruled in favor of the partnerships, prompting the appeal from the Werneckes.

Michele and Edward Wernecke were married and had five children, including Joshua, born in 2000. Edward created the partnerships over a decade, intending to protect family land and agricultural operations. During their divorce in 2010, it was discovered that Joshua is not Edward’s biological child, leading Edward to amend the partnership agreements to remove Michele and Joshua as partners. Following this, the Werneckes demanded fair value for Joshua’s interest in the partnerships, referencing Texas Business Organizations Code regarding a withdrawing limited partner’s rights. In response, the partnerships sought a declaration of rescission regarding the agreements involving Joshua, leading to the current legal proceedings where the Werneckes denied the partnerships’ claims and filed counterclaims. The court affirmed the summary judgment in favor of the partnerships.

Partnerships filed a motion for summary judgment claiming unilateral mistake, asserting Edward mistakenly believed Joshua was his biological son when he included him as a limited partner. Edward's affidavit indicated he was shocked to learn of the truth after Michele's 2010 divorce filing. The partnerships argued that the agreements must be rescinded regarding Joshua, resulting in him and Michele receiving nothing from their counterclaims. In response, appellants contended that there was a factual dispute concerning the materiality of Joshua's inclusion as a partner, referencing case law requiring a material feature for equitable rescission due to unilateral mistake. They highlighted other non-biological children of Edward listed as limited partners in the agreements, supporting their defenses of waiver and estoppel. The trial court granted the partnerships’ motion, rescinding the agreements as to Joshua and denying any claims from Joshua and Michele. Their subsequent motion for reconsideration was denied, leading to an appeal.

The standard of review for a traditional motion for summary judgment requires the movant to prove no genuine issue of material fact exists, shifting the burden to the non-movant to present evidence of a fact issue. The appellate review is de novo, considering evidence favorably towards the non-movant. For defenses like unilateral mistake, the movant must conclusively prove each essential element, which is met if reasonable people cannot differ in their conclusions from the evidence. A contract may be set aside for unilateral mistake if the mistake is significant, relates to a material feature, occurs despite ordinary care, and does not unfairly prejudice the other party beyond losing the bargain.

Appellants reference the 1973 Texas Supreme Court case Johnson v. Snell, which requires that a party claiming unilateral mistake demonstrate that the mistake was known to or induced by the other party. However, this document argues against this requirement, citing that a unilateral mistake not induced by the other party generally does not warrant relief, as stated in Morris v. Millers Mutual Fire Insurance Co. of Texas. The court emphasizes that equitable relief may still be granted for unilateral mistakes when the appropriate conditions are met, aligning with the ruling in James T. Taylor, Son. Therefore, it concludes that proving the other party's knowledge or inducement of the mistake is not necessary; instead, the relevant elements from James T. Taylor, Son must be established.

In analyzing the partnerships’ entitlement to summary judgment based on unilateral mistake, it is stated that Edward mistakenly included Joshua as a limited partner due to a belief that he was his child. This mistake would result in significant consequences, potentially disinheriting Edward’s biological children and grandchildren. The partnerships argue that enforcing the agreements with a non-family member contradicts Edward's intentions, as the agreements explicitly aim to preserve the property for family heirs. Evidence supporting this position includes the partnership agreements, which highlight the intent to maintain the properties for the benefit of Edward’s family.

The purpose of the partnership agreements is to maintain the ranch as a single operation for future generations without dividing the properties, allowing only direct descendants of Edward and Michele to become limited partners. Edward's affidavit indicates the intent to pass his property to his biological children and heirs. An affidavit from Edward’s brother-in-law reveals that Edward believed all children in the household were his biological children until suspicions arose during Michele's divorce proceedings in 2010, leading to paternity tests that confirmed one child, Joshua, was not his biological offspring, which shocked him.

The partnerships established their entitlement to summary judgment based on unilateral mistake, demonstrating that enforcing the agreement would be unconscionable. While appellants argued that Edward's affidavit was conclusory and not competent evidence, the court determined that summary judgment could be upheld on other evidence. A unilateral mistake, when known to the other party, is treated as a mutual mistake, which can lead to rescission without proving unconscionability. The elements of mutual mistake include: 1) a mutual mistake of fact; 2) held by both parties; and 3) materially affecting the agreement. However, no evidence showed that Michele knew Joshua's true parentage at the time of the agreements, and mutual mistake was not argued by the partnerships in their motion. Therefore, the court could not affirm the summary judgment on mutual mistake grounds, as issues not presented to the trial court cannot be considered on appeal.

Unconscionability is characterized as 'shockingly unfair or unjust,' though Texas courts lack a precise legal definition for the term. Factors in determining unconscionability aim to prevent oppression and unfair surprise, with contracts deemed unconscionable if grossly one-sided. The partnership agreements indicate that retaining Joshua as a partner would effectively disinherit Edward’s true heirs from part of his estate, granting a non-heir rights to partnership property. This situation supports the conclusion that enforcing the agreements would be unconscionable. Furthermore, the agreements specify that only 'direct descendants' of Edward and Michele are eligible as limited partners, making the identity of limited partners a significant provision.

Evidence indicates that Edward believed all children in his household were biological, and his shock upon discovering Joshua was not aligns with the criteria for a unilateral mistake. The partnerships demonstrated that setting aside the agreements would not prejudice the appellants, aside from losing the bargain. Michele and Joshua did not dispute the unconscionability of the contract enforcement or the nature of Edward's mistake but contested the materiality of the unilateral mistake. They argued that naming non-biological children as limited partners, including Michele and Edward himself, raises a fact issue on whether Edward’s mistake was material. However, this argument is rejected, as it does not conflict with the partnerships' goal of preserving their ranch properties and does not create a fact issue regarding the materiality of limited partner identities in the agreements.

Edward's designation of himself and Michele as partners does not demonstrate an intentional waiver of rights, which counters the appellants' argument for waiver based on Jernigan v. Langley. The appellants claim a material fact issue exists due to judicial admissions by two children, Jonathan and Katie Wernecke, asserting that the partnerships were not established for their benefit. They filed a petition in their parents' divorce, alleging breaches of fiduciary duty related to the use of their property and royalties to settle community debts. Appellants argue these claims indicate the biological child requirement in the partnership agreements is immaterial. However, the court disagrees, noting that even assuming the allegations are true, they do not affect the materiality of the limited partners' identities as essential to the contract. While the appellants dispute Edward's intention regarding limited partners, they concede the partnerships' purpose was to preserve inherited property for specific individuals. Consequently, they did not provide evidence to challenge the element of materiality or raise a fact issue regarding unilateral mistake. The trial court's summary judgment in favor of the partnerships is affirmed.