Hale v. Hale

WEANT, Judge. Edwin and Sheila Hale were married in 1966. At the time, they had very little property. They separated briefly in 1975, but resumed the marriage.

In May, 1983, Mrs. Hale discovered that her husband was having an affair. He took her to Loch Raven Reservoir and told her he desired a legal separation. She indicated that she did not want the marriage to dissolve. Nevertheless, she agreed to the separation.

The couple agreed to have Henry Belsky draw up a separation agreement. Belsky had been the family attorney and friend to the Hales for several years. He also represented Mr. Hale’s substantial business interests. On May 20, Mrs. Hale went to London on a long-awaited garden club trip.

Upon her return, she met with Belsky to discuss the agreement on June 1. On June 2, both Mr. and Mrs. Hale met with Belsky to discuss the agreement. On June 3 the agreement was signed. Among other things, the agreement provided Mrs. Hale the use of a car owned by her husband’s primary business interest, Port East Transfer, Inc. (Port East).

In October of 1983, the car, a Mercedes, needed substantial repairs. The Hales agreed that it was not worth fixing. Mrs. Hale asked that it be replaced by a new Mercedes. Mr. Hale declined, but agreed to have Port East buy a $17,000 Toyota for her use.

Belsky prepared a letter-agreement to effectuate the substitution of the Toyota for the Mercedes. He had Mrs. Hale sign the agreement, which also stated that the parties were “ratifying and affirming all of the other provisions” of the separation agreement. During the fall of 1983, Mrs. Hale received benefits under the contract. Although separated from her husband, she testified that she still had hopes of reconciliation.

These hopes disappeared when Mr. Hale asked her if he could borrow her luggage to take his girlfriend on a trip to Mexico. ⁵⁶¹ Shortly after that, one of Mrs. Hale’s friends convinced her to meet with another attorney. After receiving independent counsel, Mrs. Hale promptly sought rescission of the separation agreement and offered to return the parties to their original positions. Mr. Hale resisted rescission. Mrs. Hale then filed the present action against her husband in the Circuit Court for Baltimore County seeking rescission of the contract and damages for fraud and negligent misrepresentation.

(In Hale v. Hale, 66 Md.App. 228 , 503 A.2d 271 , cert. denied, 306 Md. 118 , 507 A.2d 631 (1986), we held that Mrs. Hale could maintain this action separately from a divorce action.) The case was tried before the court without a jury. The trial court ordered the agreement rescinded. The court also found the existence of fraud, but declined to award compensatory or punitive damages. The court dismissed Mrs. Hale’s claim for damages based on negligent misrepresentation because it had found that there was fraud.

Finally, the court declined to award Mrs. Hale attorneys’ fees. Mr. Hale appeals the trial court’s decision to rescind the separation agreement. Mrs. Hale cross-appeals the court’s refusal to award her damages and attorney’s fees. Mr. Hale’s Appeal The trial court rescinded the separation agreement for several reasons, which were stated in an oral opinion.

The first ground for rescission was that the agreement was unconscionable. This finding was based on the distribution of the parties’ assets provided in the agreement. The court found as a fact that immediately prior to the agreement, Mr. Hale had assets worth $4.99 million while Mrs. Hale’s assets totaled $215,000. Mr. Hale’s annual salary was approximately $300,000.

Mrs. Hale, as secretary/treasurer of Port East, received a salary of $10,400 per year. The judge determined the value of the assets passing to Mrs. Hale under the agreement to be $142,500. The judge felt that this, being roughly four percent of Mr. Hale’s assets, was unconscionable. ⁵⁶² He then determined that alimony of $40,200 per year provided by the agreement did not alter that conclusion. He noted that Mrs. Hale was forfeiting her salary at Port East ($10,400), which had essentially been an allowance because Mrs. Hale’s only duties were to sign papers, which were often brought to the Hales’ house for her to sign.

Thus, her net income increase under the agreement was only $29,800 per year. Given Mr. Hale’s salary of $300,000, the trial court viewed the alimony provision as insignificant. In reaching its conclusions about the value of the agreement’s benefits for Mrs. Hale, the court gave little weight to benefits which would be enjoyed by Mrs. Hale in the future because of the following provision in the agreement: This agreement has been prepared to reflect the current financial situation and other circumstances of the parties. In the event that Husband’s financial situation shall alter adversely and the parties are unable to agree to a modification of the terms of this and subsequent agreements, the terms of this Agreement and subsequent agreements shall be subject to modification and order of the Court.

(Belsky did not insert any provisions for modification in the agreement in the event that Mr. Hale’s financial situation improved or Mrs. Hale’s deteriorated.) Mr. Hale contended that his net worth at the time of the agreement was roughly $2,000,000, rather than $5,000,000. He also placed a value of $770,000 on the benefits accruing to his wife under the agreement. The second reason offered by the trial court for rescinding the agreement was that Mr. Hale obtained the agreement by abusing a confidential relationship between himself and Mrs. Hale. Because of this, Mr. Hale had the burden of proving that the terms of the agreement were fair.

He failed to meet this burden. The court’s third reason for rescinding the agreement was fraud. The court found that Mr. Hale knew Mrs. Hale’s primary desire was reconciliation. Mr. Hale then ⁵⁶³ told her that he would not consider reconciliation until the agreement was signed.

But, the court found, Mr. Hale really had no intention of seriously considering reconciliation. The fourth reason advanced by the court for rescission was duress. The court did not elaborate on this finding, although it noted that, during the months of May and June of 1983, Mrs. Hale was suffering from emotional problems, having trouble eating and sleeping, and had an ulcer. The final ground for rescission relied on by the court was that Mr. Hale and Mr. Belsky exercised undue influence over Mrs. Hale, causing her to sign an agreement she really did not understand.

Mr. Hale argued that even if the agreement was rescindable when signed, Mrs. Hale was estopped from doing so by subsequent ratification. He urged two theories of ratification: Mrs. Hale’s acceptance of benefits under the agreement and the letter-agreement substituting the Toyota for the Mercedes, which expressly ratified the initial agreement. The trial court rejected both theories. Mr. Hale presents three issues on appeal (which we have renumbered): 1.

Whether the Court’s determination that Mr. Hale breached a confidential relationship with his wife and that the Agreement was a product of fraud was insufficient in law and clearly erroneous when Mrs. Hale participated in developing aspects of the Agreement and decided to sign the Agreement in the hope of reconciling with her husband. 2. Whether the Court’s determination that the Separation Agreement was unconscionable was insufficient in law and clearly erroneous when Mrs. Hale received the following: $42,000.00 [sic, $40,200] in alimony per year; a guaranteed minimum of $300,000.00 from the sale of the family home; life insurance on the life of Mr. Hale in the amount of $500,000.00; and other significant benefits for herself and the parties’ son. ⁵⁶⁴ 3. Whether the Court’s determination that Mrs. Hale did not ratify the Separation Agreement when she signed an Addendum to the Agreement for additional benefits five months later, was insufficient in law and clearly erroneous. 1. and 2. We will consider Mr. Hale’s first two arguments together.

He argues that all of the reasons offered by the trial court for rescinding the agreement are insufficient as a matter of law and that they are based on clearly erroneous findings of fact. (Although his first question presented does not specifically mention duress or undue influence, the corresponding argument in his brief does challenge those findings.) For the reasons that follow, we hold that the grounds relied on by the court were legally sufficient to justify rescission and that they are supported by the evidence. Confidential Relationship “[T]he question of whether a confidential relationship exists between husband and wife [is] a question of fact. Among the various factors to be considered in determining whether a confidential relationship exists are the age, mental condition, education, business experience, state of health, and degree of dependence of the spouse in question.” Bell v. Bell, 38 Md.App. 10, 14 , 379 A.2d 419 (1977), cert. denied, 282 Md. 729 (1978).

The trial court found that Mr. Hale was the dominant party in a confidential relationship with his wife. In reviewing this, as well as the trial court’s other findings, “we must first assume the truth of all the evidence and of all the favorable inferences fairly deducible therefrom tending to support the factual conclusions reached by the [trial judge].” McClellan v. McClellan, 52 Md.App. 525, 530 , 451 A.2d 334 (1982), cert. denied, 295 Md. 283 (1983) (citations omitted). Md. Rule 1086. The trial court’s oral opinion does not mention the ages of the parties.

It notes that, although Mrs. Hale had one year of community college education, her business experience ⁵⁶⁵ was very limited. Her role as bookkeeper for Port East was ministerial. As secretary/treasurer, she merely signed whatever papers her husband told her to sign. For a short period at the inception of Port East, she attempted to run the business while her husband continued in his regular job at another firm.

She was so overwhelmed by the responsibility that she moved out of the home for two weeks. Mr. Hale recognized her inability to run the company and hired someone else to do it. From that point on, Mrs. Hale had no part in the management of Port East. She managed the household, but did so with the budget her husband provided her.

In fact, prior to the 1983 separation, she never even had her own bank account. She had signed some of Mr. Hale’s notes as a guarantor. She did so, not based on her own business judgment, but because Mr. Hale had told her to. The court found that Mrs. Hale was generally aware of her husband’s wealth and property—she knew that they lived well—but found that she was not sufficiently informed for the purpose of making the “ultimate decision” to sign the agreement.

The court also found that she was not well physically at the time the agreement was promulgated. The revelation of her husband’s infidelity and the separation had caused her great emotional distress. She had difficulty eating and sleeping and developed an ulcer. Finally, the court concluded that she did, in fact, repose trust in her husband, as she always had, to take care of her and Ed, Jr., the Hales’ only child.

The court felt that Mr. Hale was aware of her trust in him, that he intended for her to trust him, and that he used this trust to “extract” the agreement from her. Because these findings are supported by Mrs. Hale’s testimony, as well as other credible evidence, we cannot conclude that they are clearly erroneous. Mr. Hale contends that it could not be reasonable for his wife to repose trust in him “in the inherently adverse ⁵⁶⁶ context of separation negotiations.” In order for Mrs. Hale to establish a confidential relationship, she “must prove that she justifiably assumed that her husband would only act in a manner consistent with [her] welfare.” McClellan, supra, 52 Md.App. at 531, 451 A.2d 334 . Here, the trial court noted that throughout May and June of 1983, the Hales continued having sexual relations.

In fact, they had sexual relations only an hour before signing the agreement. Mrs. Hale also testified that her husband told her the reason he needed to separate from her was that he felt guilt because of his numerous extramarital affairs. When he informed her of his desire for a separation at Loch Raven Reservoir, he told her that he would take care of her and Ed, Jr. Under these circumstances, we cannot say that the trial court was clearly erroneous in concluding that Mrs. Hale’s reliance on her husband was justified. The evidence does not paint a picture, in early June of 1983, of the typical adversarial marital break-up.

Mr. Hale also contends that Mrs. Hale played an active role in negotiating the agreement and that her independent, “even distrustful” participation in framing the agreement is inconsistent with the finding of a confidential relationship. He relies on McClellan, supra, for this proposition. But in McClellan , the trial court had found that the wife, who alleged the confidential relationship, had participated in negotiations, had understood the agreement, and had not been subservient to her husband’s will. Id. at 531-32 , 451 A.2d 334 .

In the case at bar, the trial court concluded that Mrs. Hale’s participation in forming the agreement was minimal. While she did make a few suggestions, most of her input resulted from suggestions made to her by Henry Belsky, whom she thought was acting as her attorney. Further, the court found that she did not understand the agreement. As late as June 1, she did not comprehend that it was a final agreement.

The court found that her meetings with Belsky were short. And the court specifically rejected Belsky’s testimony that he had discussed the agreement line by line with her prior to having ⁵⁶⁷ her sign it. (The agreement was 15 pages and the signing meeting lasted only 30-45 minutes.) Again, throughout the marriage, Mrs. Hale had been subservient to the will of Mr. Hale. These findings are supported by the evidence and distinguish the case from McClellan .

Once the existence of a confidential relationship is established, the dominant party has the burden of proving that the agreement is fair in all respects. Blum v. Blum, 59 Md.App. 584, 595 , 477 A.2d 289 (1984). The trial court did not merely find that Mr. Hale failed to meet his burden of proof as the dominant party: it found that the agreement was unconscionable. Mr. Hale contends that the trial court’s findings regarding his net worth and the value of his wife’s benefits under the contract are clearly erroneous.

Mr. Hale argues that his net worth in June of 1983 was just under $2,000,-000. The trial court found it to be just under $5,000,000. Mr. Hale’s three principal assets are Port East, a real estate interest at Pulaski Highway, and a real estate interest at Clinton Street. He contends that the appropriate value of Port East in June of 1983 was $1,329,700.

Mr. Hale’s business appraiser, Gunther Boris, testified that he reached this figure by multiplying the adjusted book value—$1,294,-728—by 1.58 and discounting the product by 35%. Boris testified that 1.58 was the appropriate multiplier to use for a trucking company like Port East and that the 35% discount was primarily to account for the fact that Port East was not a publicly held corporation. In preparing financial statements to obtain bank loans, however, Mr. Hale had used a book value multiplier of 3.0 to determine the fair market value of Port East. He testified that industry practice was to use a multiplier of 6.0, but that he used 3.0 because Port East was not publicly owned.

Boris and Mr. Hale’s accountant both testified that a multiplier of 3.0 was too high. The owner of property is presumed to be familiar with its value so that his opinion of its value is admissible as evidence. Cofflin v. State, 230 Md. 139, 142-43 , 186 ⁵⁶⁸ A.2d 216 (1962). Even though Mr. Hale contended at trial that his recent valuations were based on a multiplier that was too high, as the owner of Port East, those valuations were competent evidence of its value.

We cannot say that the trial judge was clearly erroneous in choosing the multiplier Mr. Hale used over that of his expert witnesses at trial. The court thus could have multiplied book value of Port East by 3.0 and applied a discount of less than 35%, since Mr. Hale’s multiplier of 3.0 had already been adjusted to reflect the fact Port East was not publicly owned. Therefore, the court’s value of $2,900,000 for Port East was not clearly erroneous. Mr. Hale’s real estate appraiser testified that the Pulaski Highway property had a value (net of mortgage) of $435,-200 and that the Clinton Street property had a value (net of mortgage) of $397,500.

Mrs. Hale’s expert testified that the net values were $1,100,000 and $718,000 respectively. The court accepted Mrs. Hale’s expert’s values and we cannot say that this was clearly erroneous. With these values for Mr. Hale’s