Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

تمرين 20

FACTS Harold and Pearl Neugebauer owned a 159- acre farm they called the ''Home Place.'' The farm included a house, garage, granary, machine sheds, barns, silos, and a dairy barn. During their marriage, Harold handled all of the legal and financial affairs of the farm and family. In 1980, Harold died, leaving Pearl as the sole owner of the Home Place and another farm property. Following Harold's death, Lincoln, the youngest of Harold and Pearl's seven children, began farming both properties. Lincoln also lived with his mother on the Home Place. In 1984, Lincoln and Dennis, one of Pearl's other sons, formed L D Farms partnership to manage the farming operation on Pearl's land. L D Farms entered into an oral ten-year lease with Pearl that included an option to purchase the Home Place for $117,000, the appraised value in 1984. In 1985, Pearl moved from the farm to a home in town. In 1989, Lincoln and Dennis dissolved L D Farms without exercising the option to purchase the Home Place. After dissolution of the partnership, Lincoln farmed Pearl's land by himself. He paid annual rent, but Lincoln and Pearl never put their oral farm lease in writing. Pearl trusted Lincoln and left it to him to determine how much rent to pay. Pearl did, however, expect that Lincoln would be ''fair.'' Pearl never took any steps to determine if the $6,320 annual rent Lincoln was paying was fair.
On several occasions from 2004 to 2008, Lincoln privately consulted with an attorney, Keith Goehring, about purchasing the Home Place. On December 3, 2008, Lincoln took Pearl to Goehring's office to discuss the purchase. Pearl, who had only an eighth-grade education, was almost eighty-four years old and was hard of hearing. Although Lincoln and Goehring discussed details of Lincoln's proposed purchase, Pearl said virtually nothing. She later testified that she could not keep up with the conversation and did not understand the terms discussed. A few days later, Pearl and Lincoln executed a contract for deed that had been drafted by Goehring. Goehring had been retained and his fees were paid by Lincoln. Neither Lincoln nor Goehring advised Pearl that Goehring represented only Lincoln, and neither suggested that Pearl could or should retain her own legal counsel. There is no dispute that the fair market value of the Home Place was $697,000 in 2008 when the contract for deed was executed. Under the terms of the contract, Lincoln was to pay Pearl $117,000, the farm's 1984 appraised value. The contract price was to be paid over thirty years by making annual payments of $6,902.98. After executing the contract, Lincoln told Pearl not to tell the rest of her children about the agreement. Pearl later became suspicious that something may have been wrong with the contract. In January 2009, Pearl revealed the contract to the rest of her children, and they explained the contract to her. She began to cry and wanted the contract torn up. Pearl personally and through her children asked Lincoln to tear up the contract. Lincoln refused.
Pearl then brought an action for rescission of the contract on the ground of undue influence. The trial court found that Lincoln had exerted undue influence and rescinded the contract. Lincoln appealed, claiming that the trial court erred in finding that the contract for deed was a product of undue influence.
DECISION Judgment of the trial court is affirmed.
OPINION Zinter, J. The elements [of undue influence] are: (1) a person susceptible to undue influence; (2) another's opportunity to exert undue influence on that person to effect a wrongful purpose; (3) another's disposition to do so for an improper purpose; and (4) a result clearly showing the effects of undue influence. [Citation.] The party alleging undue influence must prove these elements by a preponderance of the evidence. [Citation.]
Susceptibility to Undue Influence Lincoln argues that no evidence supported the court's finding that Pearl was susceptible to undue influence. *** Lincoln contends that in the absence of medical evidence of mental deficits, the court erred in finding that Pearlwas susceptible to undue influence.
Concededly, '''physical and mental weakness is always material upon the question of undue influence.' Obviously, an aged and infirm person with impaired mental faculties would be more susceptible to influence than a mentally alert younger person in good health.'' [Citations.] But this Court has not required medical evidence to prove susceptibility to undue influence. ***
In this case, there was substantial non-medical evidence demonstrating Pearl's susceptibility to undue influence. Pearl had an eighth-grade education, and she lacked experience in business and legal transactions. When she signed the contract for deed, Pearl was almost eighty-four and hard of hearing. Pearl and Dennis testified that she had relied on her deceased husband to take care of all their business and legal matters during their marriage. This dependency continued after Harold's death. Pearl testified that, with the exception of her checking account and monthly expenses, she often asked her children for help with business and financial affairs, which she did not understand. *** We also note that Lincoln admitted Pearl had some mental impairment. He told [Pearl's daughter] Cheryl that Pearl was ''slipping,'' meaning that Pearl would say something and a few minutes later repeat herself because she had forgotten what she had said. ***
Opportunity to Exert Undue Influence Lincoln contends that the court's finding of opportunity to exert undue influence was erroneous because Lincoln and Pearl had no confidential relationship and Pearl had the ability to seek independent advice between the two meetings with Goehring, but chose not to do so. ***
In this case, Pearl testified that Lincoln was her son and someone with whom she had previously lived for many years: someone she trusted to ''do right.'' Lincoln conceded that on the date Pearl signed the contract, he knew Pearl trusted him and had confidence that he would treat her fairly in his business dealings with her. This type of trust and confidence by a mother in her son was sufficient to prove opportunity.
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Disposition to Exert Undue Influence The court's finding that Lincoln had a disposition to exert undue influence for an improper purpose was also supported. Lincoln had substantial experience in farmland transactions and real estate appreciation. He collaborated with an attorney a number of times over four years to purchase the farm and draft the necessary documents. Yet Lincoln did not have the farm appraised as he had previously done when farming the property with his brother. Instead, Lincoln set the price at a value for which it had appraised twenty-four years earlier, a price that was one-sixth of its then current value. He also took no steps to ensure that his elderly mother understood the contract terms, including the fact that considering her age and the thirty-year amortization, she would likely never receive a substantial portion of the payments. Finally, neither Lincoln nor his attorney advised Pearl to seek legal representation. ***
Lincoln's conduct after execution of the contract was also relevant to show disposition to exercise undue influence at the time the contract was executed. [Citation.] After this contract for deed was executed, Lincoln instructed Pearl not to tell her other children about the contract. ***
The court finally observed that Lincoln historically took advantage of Pearl by paying her less than fair market rent under the oral lease. ***
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Result Showing Effects of Undue Influence Finally, we see no clear error in the court finding a result clearly showing the effects of undue influence. By executing the contract for deed, Pearl sold her property for $580,000 less than its value. Not only was the contract price of $117,000 substantially below the market value of $697,000, the thirty-year payment term would have required Pearl to live to 114 years-of-age to receive the payments.
INTERPRETATION Undue influence is the unfair persuasion of a person by a party in a dominant position based upon a confidential relationship.
ETHICAL QUESTION Who was harmed by Lincoln's action? Explain.
CRITICAL THINKING QUESTION Should the courts get involved in land transactions between family members? Explain.