Here's a nice tale for Friday 13.

Daily Development for Friday, July 13, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri

DEEDS; VALIDITY; MISTAKE: Although an owner of land may be competent to sign a deed, the owner’s diminished capacity may be taken into account in determining whether the owner made a unilateral mistake in understanding the compensation to be paid.  Further, in any event, a court of equity will set aside the deed for inadequate compensation. 

Landers v. Sgouros, 2007 Westlaw 1575879 ((Mo. App. 6/7/07)

The case is somewhat involved, but provides an interesting insight into judicial treatment of a transaction that equity suggested should be undone, concerns about consistency in legal treatment of land transactions suggested should be decided the transaction should be undone on the narrowest possible grounds. 

Landers, and 85 year old widow, owned an interest in certain property including some pasture and timber land - a total of 370 acres.  She leased the pasture land for $2400 per year.

Through the transactions described here, Landers sold her entire interest in this property to Sgouros for $500.  Although Sgouros was a stranger to Landers, another party, Johnson, a 20 year neighbor and alleged friend of Landers intermediated in the transaction and even drove Landers to the closing.  There was no evidence at trial that Johnson received anything from Sgouros for his assistance, and Johnson maintained that he was just helping his neighbor and new acquaintance Sgouros get together on a deal.

The evidence showed that Landers first contacted Johnson about possibility of selling her interest in the property to him for a price of $150,000.  He responded that he was not interested in buying, but he introduced her to Sgouros, who was interested.

Sgouros produced a contract for sale of the land for $150,000 and Johnson accompanied the parties to a bank, where Mr. Landers executed the contract.  Ms. Landers believed that she would be paid at that time, but she was not.  The attorney prepared contract provided for a title examination and a separate closing thereafter.  Upon examination of title, Sgouros determined that it was probable that Landers owned only a life estate in the property and arguably a one half undivided fee interest in about a third of it.  Sgouros then instructed his attorney to draw up an amendment to the contract providing that he would pay $500 for Lander’s interest.  Johnson put the amendment in Lander’s mailbox and she signed it.  Later, Johnson drove Landers to a closing, at which Landers executed a deed and received a check for $500. 

Landers, although 85, was not incompetent, and knew that she was selling her land.  She understood the uncertainty of title, and the reasons for it (she and her late husband had transferred an interest to some relatives and later sought to get it back.)  She testified that she believed that was to receive a payment of $44,000 for her interests, in light of the title problem.  She also testified that she received $1000 at the closing, but it appears that she did not. Further, no document that provided for payment of $44,000, or for an installment payment arrangement at all. 

Shortly thereafter, after terminating the pasture agreement, Sgouros sold the hay on the land for $600 and sold the timber on a portion of the land, receiving an initial payment of $3950, under a contract that would ultimately pay him around $30,000. 

Later, when Landers sought to challenge the deed, the trial court set it aside based on her demonstrated lack of competency at the hearings and  the undue influence of Johnson, who had, the court concluded a “quasi-confidential” relationship with Landers as her neighbor and friend.

The appeals court, however, concluded that there was inadequate evidence of incompetence at the time of the transaction.   Landers had not been declared incompetent and the court’s observation of Landers occurred almost a year after the transactions in question.  There was evidence that she felt that she had been swindled and that she believed the land was worth more than she received, but the appeals court concluded that, contrary to supporting a claim of incompetency, this evidence in fact showed that she was aware of what she was doing.

At to the issue of undue influence, the court admitted that diminished capacity is relevant in determining whether there has been undue influence, but that there still was no showing here that such influence existed:

“[W]hile there was evidence from which the trial court could possibly conclude there was, as the trial court terms it, a "quasi-confidential relationship" between Mr. Johnson and Mrs. Landers, it is clear that a "confidential relationship . . . alone is not enough to raise a presumption of undue influence . . . ." [citation omitted]. Further, there is even less evidence creating an inference that there was a confidential relationship, a quasi-confidential relationship, or a fiduciary relationship between Mr. Sgouros and Mrs. Landers. Based on the foregoing we are persuaded, under the applicable standard of review, that "[t]here was no evidence demonstrating the actual exercise of undue influence, only that from which a suspicion of its exercise, or the opportunity to do so, could have been said to exist . . . .”

So far, it looked like the “wrong side” would win.  Right?  But the appeals court was up to the challenge.  The editor can hardly state the steps of the analysis more succinctly than the appeals court (omitting the citations.)

“Although "inadequacy of consideration is insufficient to warrant relief in the absence of other inequitable incidents, when a person is induced to part with an item of value for little or no consideration, 'equity will seize upon the slightest circumstance of fraud, duress, or mistake for the purpose of administering justice in the particular case.'". . . In ouur analysis of the facts we are guided by principles of equity, real estate and contract law.

‘[W]here a grantor has been induced to execute a deed conveying something of value for little or no consideration, equity will grant cancellation if the conveyance was the product of fraud, duress or mistake.’ We also note that "equity entertains jurisdiction to set aside a land conveyance to aid a party otherwise unable to obtain relief.’ . . . "Parol evidence is admissible to show the actual consideration for the deed.’ '[C]ontractual provisions as to consideration to be paid by the purchaser are ordinarily not merged in the deed, and accordingly, evidence is admissible to show what consideration is to be paid although a deed has been accepted . . . .'  Tested by these principles, it is our view that Mrs. Landers was confused and mistaken as to the consideration she was to receive for the conveyances pursuant to the Amendment to the Contract.

‘A unilateral mistake occurs when only one party has an erroneous belief as to the facts.’ . . . We recognize, of course, that [i]n this situation courts show a lack of sympathy for a claim that one party did not understand the consequences of an act and, in general, courts are very reluctant to allow one party or his representative to avoid a document or agreement for a mistake that was not shared by the other. . . .

‘Although traditionally there has been reluctance to allow a unilateral mistake to avoid an agreement, this strict view has, in limited instances been softened, and a limited right of avoidance has been recognized." . . . ‘It has been stated that there may be relief by way of rescission for such a mistake when the other party knows of the mistake or it is so obvious that it should have been known.’ ‘Recently, there has been a tendency to permit avoidance for a unilateral mistake when enforcement would be unconscionable and relief would impose no substantial hardship on the other party.’ . . . .Indeed, "[t]he Restatement [2nd of Contracts - Sec. 153] recognizes that relief may be given for a unilateral mistake when (a) the effect of the mistake is such that enforcement would be 'unconscionable' or (b) the other party had reason to know of the mistake.’ . . . . ‘While the distinction between a mistake of fact and a mistake of law is often blurred, it is generally recognized that the re can be no relief for a mistake of 'law.'

Here, while the evidence may support the proposition that Mrs. Landers made a mistake in law, the evidence also supports the proposition that she made a mistake in fact when she signed the Amendment which set out that she was to convey her interest in the Farm for $500.00. We agree with the trial court's conclusion that she believed the $500.00 she received at closing was a down payment on the total purchase price of $44,000.00.”

Comment 1: Yes, yes, it is somewhat difficult to argue that a competent person would sign a contract to sell for $500 and believe that she was agreeing to sell for $44,000, especially when the figure $44,000 did not appear anywhere in any agreement.  But, as indicated, there was abundant evidence of injustice.  The woman sold her interest in the farm for $500 even though she was receiving $2400 per year for the pasture rights alone.  (The pasture payment belong entirely to her as a life tenant).  The fact of her age, her obvious state of confusion less than a year later, and the injustice of the price led the court to conclude “enough’s enough.”  

Further, it was difficult to argue that the buyer wasn’t aware of the inequities here, since the buyer quickly capitalized on his good deal by recovering the sale price in the sale of the existing hay on the property and attempted to sell the timber rights for a good deal more.  In addition, the buyer thought that he was buying not only the timber rights but probably an undivided one half interest in 120 acres as well.  The buyer arranged with Landers to sign two deeds so that he could maintain his case on the fee interest.

Comment 2: Courts have to have discretion to make things right in individual transactions when they “smell a rat.”  But it is important for them to select very narrow, fact based, grounds, that will not create uncertainty in the general run of transactions, and further to insure that parties relying in good faith on apparently appropriate deals are not undone when special facts exist that are unknown to them.  Here, the defendants should have known that their deal was suspect.  And the egregious difference between price and value, the special circumstances of a 85 year old widow of weak competency, even though she was not wholly incompetent, and the “personal escort” provided by her arguably disinterested neighbor all combined to create special circumstances that differentiate this case from regular transactions, and the well being of the law is secure. 

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