Foreclosure. Duress does not void mortgage unless it was signed under immediate threat of imminent physical harm, but mortgage may be voidable if, as a result of improper threat, signor had “no reasonable alternative.” Defense is available against assignee of mortgagge with constructive notice.

EverBank v. Marini, 2015 VT 131 [filed 10/16/2015]

EATON, J. This is an appeal from an order granting summary judgment in favor of defendant Caroline Marini on plaintiff EverBank’s complaint for foreclosure on grounds Caroline signed mortgage under the threat of physical violence. On appeal, EverBank argues the trial court erred in concluding that the mortgage was void as to Caroline because she was not physically compelled to sign the mortgage documentation, and that the trial court erred in concluding that the bona fide purchaser doctrine was not available to EverBank. We reverse on the issue of whether the mortgage is void, and direct the trial court to enter judgment for EverBank on that issue. We remand for trial the issues of whether the mortgage is voidable and, if so, whether it is enforceable because it was ratified by Caroline, but affirm the trial court’s decision that the bona fide purchaser doctrine is not available to EverBank. 

There are two forms of duress —duress by physical compulsion, which renders an agreement void, and duress by improper threat, which results in an agreement that is voidable by the victim. Under Vermont law, improper conduct sufficient to render a contract void, as opposed to voidable, must consist of either the actual application of physical force that is sufficient to, and does, cause a victim to appear to assent to the execution of a document, or the threat of immediate application of physical force sufficient to place a person in the position of the signer in actual, reasonable, and imminent fear of death or serious personal injury.

On the evening prior to Caroline signing the mortgage paperwork, Gary removed a pair of large scissors from the knife drawer and waved them back and forth. This scared Caroline and, in an attempt to protect her children, she told Gary that she would sign the mortgage documents if he would leave the children alone, which she did the following day in front of a notary public. When the notary asked Caroline if her signature was her free act and deed, she replied, “it is what it is.”

Nothing in the record reveals any evidence of a threat of imminent physical violence upon Caroline such that she reasonably feared loss of life or serious physical injury at the time she signed the document in front of an independent person. Accordingly,we reverse the trial court’s decision that the mortgage was void. 

To constitute improper conduct such that an agreement can be held voidable, there must be both an inducement by an “improper threat” and the victim must have no “reasonable alternative” but to succumb. Construing the record in favor of EverBank as we must we also conclude that the undisputed facts do not establish as a matter of law that Caroline was without a reasonable alternative.  We therefore remand the matter of whether the mortgage is voidable to the trial court.

The trial court also concluded that EverBank was not a bona fide purchaser. We agree. It is undisputed that EverBank acquired its interest in the mortgage seven months after Caroline raised the duress claim in her answer. EverBank cannot now argue that was a bona fide purchaser when it had constructive, if not actual, notice of this defect. See 9A V.S.A. § 3- 305(a)(1) (holder of a negotiable instrument is not “holder in due course” where holder took instrument with notice that party had duress defense). We affirm the trial court’s conclusion and he that the bona-fide-purchaser doctrine is not available to EverBank should Caroline prove her duress claim.