Soares v. Freitas

38 Haw. 64, 1948 Haw. LEXIS 32

• Court: Hawaii Supreme Court
• Decided: March 15, 1948
• Docket: No. 2656.
• Status: Published

Opinions

OPINION OF THE COURT BY

LE BARON, J.

(Peters, J., dissenting.)

This is a suit in equity, brought by the petitioner against the respondents, to' cancel a written agreement for the sale of real estate between the petitioner as seller and the respondents as purchasers. It is predicated upon the ground of actual and constructive fraud on the part of the respondents, the petitioner alleging in her petition that she relied upon misrepresentations of the respondents as to the contents of the agreement and was induced to execute it under the influence of the respondents who took advantage of their relationship and proximity to her with knowledge of her advanced age, ill health, minimum education and inexperience in matters of this kind. Issue ivas joined and hearing held. The circuit judge found (1) that a confidential relationship existed between the parties; (2) that the petitioner was of such weakened mind and insufficient education and training that she did not sufficiently understand the legal effect of the agreement or perceive that she was not obtaining from the agreement that which she intended, even though the prolusions were explained to her; (3) that the execution of the agreement constituted a fraud upon her. A decree of cancellation was entered accordingly. The respondents appeal.

The appeal challenges the circuit judge’s findings and presents the question whether the evidence adduced is sufficient as a matter of law to establish fraud warranting invocation of the equitable remedy of cancellation.

It is generally held that the power to cancel a written agreement or contract is the most extraordinary power possessed by a court of equity which may not be exercised except in a clear case and upon strong and convincing evidence. (For collection of authorities see 12 C. J. S. 1060, § 71, n. 78.) This is particularly true where the ground is fraud, proof thereof being required by a preponderance of evidence great enough to repel opposing presumptions of validity of the instrument and fair dealing between the parties. The proof should be of such weight and cogency as to satisfactorily establish the wrongful conduct charged, honesty and fair dealing, as a rule, being presumed. (Sanders v. Rhea, 119 Okla. 208, 249 P. 350; Cloud v. Young, 103 Okla. 65, 229 P. 604.)

As stated in the case of Christian v. Waialua Agricultural Company, Limited, 31 Haw. 817, at page 821, “It has long been the rule of this court that in equity cases, on appeal, while the findings of the circuit judge are given weight and under certain circumstances, especially on pure issues of fact, would be allowed to control, the supreme court nevertheless is authorized and has always exercised its right and duty to weigh the evidence and to make its own findings.’ Godfrey v. Kidwell, 15 Haw. 526, (1904).”

The issue of fraud is one of mixed law and fact. The circuit judge made no findings with respect to actual fraud nor does this court find that the petitioner sustained her burden thereon. There being an absence of proof of misrepresentations, concealment, false pretenses or other manifestations of actual fraud on' the part of the respondents, the field of inquiry as to the sufficiency of evidence is narrowed to constructive fraud.

The constructive fraud upon which the decree of cancellation is predicated is not one apparent from the intrinsic nature and subject of the transaction, but arises, if at all, from the condition and relations of the immediate parties to the transaction. The issue thereon as framed by the pleadings is that of undue influence, upon which the circuit judge made no findings relative to the respondents’ culpability. Hence it is doubly the duty of this court to make its own tliereon. Under that issue the petitioner’s dependent or fiduciary relation to the respondents, her mental and physical weakness, minimum education, lack of independent advice and other conditions and circumstances rendering her peculiarly susceptible and yielding to undue influence are but incidents of it. Undue influence must operate at the time of execution and consists of mental, moral or physical coercion, destructive of free agency, or pressure of whatever character carried to such degree that the party’s free play of judgment, discretion or wishes is overborne. But within this limit there is no objection to argument, persuasion or even influence brought to bear upon a party, provided his mind is able to act and is left free to decide upon the considerations addressed to it, so that the agreement is really his own voluntary act. (See 3 Pomeroy’s Eq. Jur. Fifth Ed. 776, § 951, n. 19 and 20, for collection of authorities. The issue thus pertains to a wrongful subversion or control of the petitioner’s mind by the respondents, not mere preeminence induced by kindness and filial devotion. The issue presupposes not only the petitioner’s ability to understand, but her requisite legal capacity to enter into a binding contract had she been free from undue influence. (See de Souza v. Soares, 21 Haw. 330; Sumner v. Jones, 22 Haw. 391.) Consonant thereto, the evidence does not establish that the petitioner was mentally incompetent or that her mental deterioration was of a degree as to be the equivalent of a lack of capacity, the presumption being that she possessed sufficient reason and intelligence to know the nature of a binding contract and be capable of carrying it out. Involving as it does the overpowering of such faculties of the mind, the issue of undue influence requires scrutiny of the evidence with respect to its sufficiency to prove the wrongful conduct charged in the petition. In doing so the undisputed evidence and state of the record, together with the reasonable inferences to be drawn therefrom, will be considered.

The petitioner is the mother of one of the respondents and mother-in-law of the other. She lived with them in the same cottage and still does, regarding them with warmer affection than she did any of her other children. Harmonious relations prevailed between the parties until several months after the date of execution. At the time of execution the petitioner was approximately sixty years old. Her schooling was meagre and she could read and understand only simple English. Prior thereto and up to the date of execution, she actively carried on the ordinary business of collecting rents, paying taxes, assessments and utility and maintenance charges upon the property. Pour years previous she sold property owned by her and on her own initiative purchased that now under agreement of sale, checked assessments against it without assistance and contracted for the erection upon it of two cottages. In conducting such affairs no evidence was adduced that she reposed particular confidence in either of the respondents or relied upon their advice. Her business experience was more extensive than that of the respondents, who had little or no experience in dealing with real estate, the disparity between the parties of such experience tending to offset the superiority which the respondents had in schooling and degree of mentality. Concededly the petitioner had deteriorated physically and mentally due to a progressive hardening of the arteries and heart trouble, causing bodily fatigue and emotional disturbances of nervousness, agitation and apprehension ■ which were of irregular occurrence and sometimes real but more often dissimulated. No evidence was adduced, however, that such deterioration was incompatible with a reasonable comprehension of business transactions, nor that the petitioner was visibly disturbed emotionally Avhen either dis cussing or executing the agreement, she being moved primarily by a desire to be rid of the responsibilities of ownership because of her physical infirmities.

The agreement constitutes the culminating point of several weeks of interfamily discussion. Its language is simple. It is clear and unambiguous, drawn from notes of the intention of the parties as taken by an adviser of the petitioner’s own choosing. This adviser was head of a business college, who, although not a practicing attorney in the territorial courts of record, was licensed to and did formerly practice in the district court of Honolulu and the United States Coxfrt for the District of Hawaii. No proof was adduced that he misadvised her or incorrectly recorded the notes of intention nor that the attorney of record misread them in preparing the agreement in conformity therewith. Furthermore, the adviser explained the agreement to the parties, provision by provision. The petitioner not only appeared attentive thereto, but read the agreement herself before executing it, intelligently calling attention to the harshness upon the respondents of the provision requiring prompt payments. She also intelligently replied to a question of the adviser that no interest was to be exacted.

It is not contended that the respondents were in possession of facts unknown to petitioner, or that a mistake of fact was made. Neither do the pleadings present any question of mistake of law, nor the evidence that of misapprehension of the law by the petitioner of which either the respondents or the adviser was aware at the time of execution and which they did not rectify. It is true that the petitioner, although having the opportunity, did not seek or obtain independent legal advice, but neither did the respondents, the parties availing themselves in each other’s presence of the same adviser, who testified that their meeting in his office was at the instance of the peti tioner. Nor do the results indicate that the petitioner suffered therefrom, but rather, if anything, the undisputed evidence demonstrates that she was treated more favorably than the others. The respondents came to the office of the adviser with no intention other than to seek at a proffered purchase price an absolute conveyance in fee simple. But the adviser proposed that there be reserved to the petitioner out of the property to be conveyed the use and occupancy of the cottage on the front, and presumably more valuable portion, for her life, with the burden accordingly upon the respondents to pay utility and upkeep charges thereon and the taxes, assessments and all other charges that may legally be imposed upon the entire property. ' By mutual assent this reservation became a part of the agreement without diminution of purchase price. These circumstances rebut any inference of the operation of undue influence at the time of execution and tend to establish that the petitioner acted on her own free will and promptly took advantage of the situation. Furthermore, there is nothing to be found in the relationship of the parties that obviated her duty of inquiry had she entertained the slightest uncertainty as to any term or provision. Not having either exercised that duty or questioned the legal effect of the reservation, the petitioner under the circumstances can not be heard to complain later in equity that she did not do so and that her intention would have been different had she been more competently advised or secured independent legal advice. (See Cummins v. Carter, 17 Haw. 71.) The most that can be said of the petitioner’s uncorroborated testimony is that she subsequently discovered, after harmonious relations with the respondents had been disrupted, that she had not understood at the time of execution what was the limitation of her rights under an unambiguous reservation made for her benefit and mutually agreed upon. Such subjective testimony is not cogent of the wrongdoing charged nor was inequitable conduct on the part of the respondents proved. (See Adkins v. Hoskins, 176 Ark. 565, 3 S. W. [2d] 322.) Mere failure to appreciate the legal effect of a provision openly discussed and mutually determined does not suffice as a ground of cancellation even if it had been averred. (See Holczstein v. Bessemer Trust & Savings Bank, 223 Ala. 271, 136 So. 409; In re Estate of MeIlrath, 276 Ill. App. 408; Crane v. Smith, 243 Mich. 447, 220 N. W. 750; Robinson v. Fairmont Trust Co., 109 W. Va. 152, 153 S. E. 909.) Nor was it established that the respondents obtained an advantage at the expense of the petitioner, no evidence being adduced of the value of the property, subject as it was to the petitioner’s life interest and right of enjoyment. Consistent with the presumption of honesty and fair dealing, the agreement must therefore be deemed to be equitable and mutually beneficial, no question of inadequacy arising.

In Aveighing all the evidence, the opinion of this court is that the petitioner’s case is not a clear one warranting the equitable remedy of cancellation. This opinion is premised upon a finding that there is no strong and conAdncing evidence of either actual or constructive fraud to be found in the entire record and particularly none of undue influence by the respondents or of their fraudulent advantage of any of the petitioner’s infirmities; that neither the condition and relations of the parties, nor the surrounding facts and circumstances of execution, established by the undisputed evidence, tend to repel, but rather are consonant to, the presumptions of validity and fair dealing, demonstrating as the evidence does that the petitioner acted intelligently, understandingly and voluntarily.

No useful purpose would be served by a recital of all the evidence, but it is proper to supply some of the minutiae of the pertinent facts and circumstances, Avhich are: that tlie petitioner told the respondents she had been offered seventeen thousand dollars for the entire lot and improvements, but would give them the first chance to buy; that she was under no financial distress; that the respondents at that time were interested in buying only the rear portion of the lot, the cottage thereon being the one in which they were and now are living with the petitioner; that the respondents offered five thousand dollars for it, and subdivision was attempted so that the parties could enter a contract for the sale of the rear portion at that price; that this plan was thwarted by a legal prohibition against subdivision ; that the petitioner sought counsel of the adviser, who explained and verified the prohibition to her; that discussions for the sale of the rear portion then terminated and those for the sale of the entire lot and its improvements commenced, the respondents offering six thousand dollars; that the petitioner did not reject this offer but when the legal adviser proposed, and the respondents agreed to, the reservation with respect to her life interest and right of enjoyment, she accepted the offer as modified; that the petitioner Avas apparently satisfied with the resultant Avritten agreement until several months after execution Avhen friction of a domestic nature arose between her and the respondents, aggravated by gossip and rumors relayed to her by third parties in disparagement of the agreement and its limitations, and her attitude changed adversely toAvards the respondents; that the petitioner thereafter for the first time stated that she had intended to retain the right to mortgage the front portion and the right to dispose of it upon death; that although the legal effect thereof would be diametrically opposed to that of the reserved use and occupancy of the cottage for her life, as Avell as being incompatible with the sale of the undivided lot, especially of one not legally susceptible to division, and even though the petitioner had not previously dis closed sncli an intention with respect to tlie sale of the entire lot to either the respondents or adviser, she verbally accused the respondents of being “crooks” and demanded that the agreement be reformed; that the petitioner, concededly being “easily agitated” and “a very apprehensive sort of person,” brought suit to cancel the agreement upon the ground of fraud. Such background of the petitioner’s case demonstrates that it would be an injustice upon the respondents to abrogate the agreement and serves to emphasize the absence of grounds for equitable relief. The question presented is therefore answered in the negative.

W. G. TsuMyama for appellants. King & McGregor for appellee.

Decree reversed and the cause remanded beloiv with instructions to dismiss the petition.