Opinion ID: 2777589
Heading Depth: 1
Heading Rank: 3

Heading: October 2011 Stipulated Order and Basis for Default Entry

Text: ¶ 32. Under the terms of the October 2011 stipulated order, foreclosure sales were stayed for one year during which defendants were given control over the properties. The stipulated order provides that if defendants fail to make scheduled payments, the bank can file a notice of default and “[t]he Court shall determine whether a default occurred and this shall be the only issue to be determined.” Defendants do not challenge the fact that they failed to make payments; rather, they claim that the terms of the October 2011 stipulated order are not enforceable because that agreement was a product of fiduciary abuse and made under duress. [8] ¶ 33. Even accepting defendants’ allegations at face value, we conclude that defendants have failed to provide grounds for invalidating the stipulated order. Certainly, where fraud or misrepresentation induces entry into a contract, “the deceived party may seek the remedy of being excused from the contract through rescission, or [may seek] the damages occasioned by the fraud.” Negyessy v. Strong , 136 Vt. 193, 194, 388 A.2d 383, 385 (1978) (per curiam). That power is lost, however, if the party knows of the mistake and affirms the contract even with knowledge of the misconduct or misrepresentation. The Restatement (Second) of Contracts provides: (1) The power of a party to avoid a contract for incapacity, duress , undue influence or abuse of a fiduciary relation is lost if, after the circumstances that made the contract voidable have ceased to exist, [the party] manifests to the other party [an] intention to affirm it or acts with respect to anything that [the party] has received in a manner inconsistent with disaffirmance. (2) The power of a party to avoid a contract for mistake or misrepresentation is lost if after [the party] knows or has reason to know of the mistake or of the misrepresentation if it is non-fraudulent or knows of the misrepresentation if it is fraudulent, [the party] manifests to the other party [an] intention to affirm it or acts with respect to anything that [the party] has received in a manner inconsistent with disaffirmance. Restatement (Second) of Contracts § 380 (emphases added). [9] ¶ 34. Here, the record reflects that defendants had a basis for making claims of impropriety and fraud by the receiver and the bank’s loan officer prior to entering the October 2011 stipulated order. The allegedly fraudulent actions could not have induced their entry into the contract because defendants had already flagged the actions in court well before negotiating the October 2011 stipulated order. Having entered into the contract well aware of the alleged fraud, defendants retained no power to avoid the contract based on those allegations. ¶ 35. To the extent that defendants’ claims relate to alleged misrepresentations by the bank as to the condition of the properties as of October 2011, as opposed to the bank’s role in the alleged fraudulent conduct of the receivership, defendants have likewise forfeited their ability to challenge the agreement. By taking possession of the properties and managing them pursuant to the October 2011 stipulated order, defendants thereby affirmed the contract. Defendants then failed to assert any impropriety, sitting on their claims for well over a year after they were undeniably in a position to assess the properties firsthand. ¶ 36. Defendants assert that their knowledge of the misconduct does not remove their ability to invalidate the October 2011 stipulated order because the bank was a fiduciary of defendants and its abuse of that position through the receiver’s actions meant that any contract had to be approved by the court as fair. See Restatement (Second) of Contracts § 173 (explaining that contract between fiduciary and beneficiary is voidable by beneficiary unless it is fair and parties “assent with full understanding of their legal rights and of all relevant facts”). There is no merit to this argument because any fiduciary duties the bank may have had at one time to defendants in this case were terminated prior to the parties’ October 2011 stipulation. A borrower-lender relationship is insufficient in itself to create a fiduciary relationship. See McGee v. Vt. Fed. Bank, FSB , 169 Vt. 529, 530, 726 A.2d 42, 44 (1999) (mem.) (holding in response to claim that bank breached fiduciary duty by failing to disclose to mortgagors that insurance required by bank had lapsed, that “record revealed nothing but a debtor-creditor relationship between the parties” and fiduciary relationship was not born of such an arrangement). A fiduciary relationship results when the relationship between the parties “ripen[s] into one in which defendants [are] dependent on, and reposed trust and confidence in, [the bank] in the conduct of their affairs.” Capital Impact Corp. v. Munro , 162 Vt. 6, 10, 642 A.2d 1175, 1177 (1992). At the time of the October 2011 stipulation, defendants had been involved in litigation with the bank for a year and a half. The close relationship of trust and confidence necessary to establish a fiduciary relationship did not exist between the parties. ¶ 37. In short, by entering into the contract, and accepting its benefits for well over a year despite their knowledge of the alleged abuse of fiduciary duty and duress, defendants forfeited any ability to avoid the contract on those bases. ¶ 38. Finally, defendants argue that they should have an opportunity to prove that their lack of performance under the October 2011 stipulated order was excused by failures on the part of the bank. The alleged misrepresentations and breaches of the agreement by the bank that defendants contend excuse their performance are the same ones noted above—the alleged fraudulent collusion with the receiver and the alleged misrepresentations concerning the condition of the properties at the time of the October 2011 stipulated order. As explained above, the alleged fraud was known to defendants before they entered into the October 2011 stipulation; it cannot constitute a failure by the bank to perform under the agreement that excuses defendants’ default. Likewise, the bank’s alleged misrepresentations concerning the condition of the properties before defendants entered into the October 2011 stipulation might have provided a basis for avoiding the contract if not for defendants’ subsequent affirmation of the contract, but they do not constitute a failure by the bank to perform its duties under the contract and therefore cannot excuse defendants’ lack of performance. Affirmed . FOR THE COURT: