Court Opinion

ID: 8197763
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:21:17.003595+00
Date Added: 2024-06-11T16:40:48.991770
License: Public Domain

Fowler, J.
(dissenting). The case is in equity for rescission of an executed contract for exchange of lands. It is and long has been an accepted branch of equity jurisdiction to grant relief of rescission for inadequacy of consideration when such inadequacy is so gross as to shock the conscience of the court and furnish satisfactory and decisive evidence of fraud. The basis of the relief in such case is fraud. 2 Pomeroy, Eq. Jur. (4th ed.) p. 1939, § 927. It is true that if there is nothing but mere inadequacy of consideration the case must be extreme in order to justify relief, but where the inadequacy is accompanied by other inequitable incidents the relief is readily granted. 2 id. p. 1940, § 928. It is just as correct to say that where the parties stand on equal footing and each acts knowingly and intentionally, mere inadequacy of consideration, unaccompanied by other inequitable incidents, is not a sufficient ground for granting the relief. 2 id. p. 1935, § 926. But there is a clear distinction between the situations wherein equity does and does not exercise its jurisdiction, and it is ordinarily not difficult to decide which side of the line a given case falls and it is not difficult in the instant case. The mere statement of these principles justifies them and renders the citation of adju*194dicated cases to support them entirely unnecessary. A multitude of cases is cited in the text of Pomeroy in their support. Among these is Graffam v. Burgess, 117 U. S. 181, 6 Sup. Ct. 686. It is there said (pp. 191, 192) :
“The rule has become almost universal that a sale will not be set aside for inadequacy of price, unless the inadequacy be so great as to shock the conscience, or unless there be additional circumstances against its fairness.”
And the conclusion from the authorities there cited is drawn—
. . . “that, if the inadequacy of price is so gross as to shock the conscience, or if, in addition to gross inadequacy, the purchaser has been guilty of any unfairness, or has taken any undue advantage, or if the owner of the property, or party interested in it, has been for any other reason misled or surprised, then the sale will be regarded as fraudulent and void. . . . Great inadequacy requires only slight circumstances of unfairness in the conduct of the party benefited by the sale to raise the presumption of fraud.”
The rule relied on in support of the judgment of the trial court is stated in 10 Ruling Case Law, p. 328, as follows:
“Mere inadequacy of price, or rather inequality in the bargain, is not, per se, a ground to avoid a bargain, in equity, but equity will interfere if the inadequacy is such as to demonstrate some gross imposition, or undue influence, or, to use an expressive phrase, shock the conscience.”
In the case of Hough’s Adm’rs v. Hunt, 2 Ohio, 506, a transaction was rescinded where the plaintiff, who was in necessity of procuring a loan of $2,000, applied to the defendant, and in order to procure the money was induced to purchase a tract of land at twice its value and give a mortgage thereon and his other land for the purchase price and the amount of the loan. In a note to this case in 15 Am. Dec. 569, the rule is stated as follows:
“It is well settled, both in England and in this country, that mere inadequacy of price, or any other inequality- in *195the bargain, is not per se a ground of rescission unless the inadequacy is so manifestly gross that a court of equity will infer from that fact alone that there was imposition or oppression in the transaction amounting to evidence of fraud.”
The note quotes from Juzan v. Toulmin, 9 Ala. 662:
“Where, however, the inadequacy is such as to demonstrate some gross imposition or undue influence, or, to use an expressive phrase, shock the conscience, and amount in itself to conclusive and decisive evidence of fraud, equity ought to interfere. And gross inadequacy of price, when connected with suspicious circumstances, or peculiar relations between the parties, affords a vehement presumption of fraud.”
The rule is thus stated in Eyre v. Potter, 15 How. (56 U. S.) 42, 60:
“There may be such an unconscionableness or inadequacy in a bargain as to demonstrate some gross imposition or some undue influence; and in such cases courts of equity ought to interfere, upon satisfactory ground of fraud; but then, such unconscionableness or such inadequacy should be made out as would, to use an expressive phrase, shock the conscience and amount in itself to conclusive and decisive evidence of fraud.”
In Marker v. Van Gerpen, 39 S. Dak. 648, 166 N. W. 151, 153, decided in 1918, it is stated:
“The decision of the trial court could rest alone, without the consideration of any other fact found, upon the rule of law that, while mere inadequacy of consideration or inequality in a bargain is not, per se, a ground for rescission thereof, equity will grant relief if the inadequacy is such as to demonstrate a gross imposition — in other words, is such as to shock the conscience of the court.”
The rule is distinctly a rule of equity jurisprudence. Equity jurisdiction arose to avoid the rigor of the rules of the common law. The prayer of the conventional bill in equity began with the clause: “For as much, therefore, as *196your orator is without remedy by the strict rules of the common law.” Much of the apparent differences in the decisions respecting relief for inadequacy of consideration arises from the fact that some of the cases are at law and others are in equity. While it is true that under the Code there is only one form of civil action, the different remedies still obtain formerly administered at law and in equity and the rules applied in the two jurisdictions are still applicable.
Considering this action as one formerly cognizable in equity and applying the rules applicable to the equitable action for rescission, the propriety of the application of the remedy of rescission is apparent.
We have here a great deal more than mere inadequacy of consideration. The parties here did not stand upon an equal footing. The bank, or its representative, knew the value of the farm lands which it exchanged. The plaintiffs did not know and were not in a position to know or judge of the value of these lands. In forming their judgment they relied on the false and fraudulent representations of others, who were their own agents, it is true, and of whose representations it does not appear the representatives of the bank had actual knowledge. But the bank representative did have notice of facts which should have made and doubtless did make him aware that the plaintiffs were placing a highly exaggerated valuation upon the farm property, and must at least have suspected that representations as to that value had been made by the plaintiffs’ faithless agent, actuated thereto by his own selfish interest through the commission he was to receive from the plaintiffs in case an exchange should be effected. The defendant by paying to this agent $500 to apply as part payment of his commission aided him in his perpetration of the fraud upon the plaintiffs. The trial court found, accepting the highest value placed by the witnesses on the farm property and the lowest value placed upon the city property, that the equity in the farm property was *197$3,000 and that in the city property was $14,229. Surely this difference, the inadequacy of the consideration received by the plaintiffs, was so gross as to shock the conscience of anybody who has a conscience. The bank, it is true, did not know the value of the city property was 'as great as testified to by the witnesses upon the trial, but it had the property appraised by an appraiser of a local building and loan association, who presumably placed his appraisal upon a conservative basis, and this appraisal valued the equity in the Chicago property at about $7,500. This was two and a half times the highest value placed by any witness upon the farm property, and was notice to the bank that it was taking advantage of the plaintiffs’ ignorance and simplicity. Under the Roman law and civil law by arbitrary rule a price less than one-half the value, where a gift or bounty was not intended, entitled the buyer as matter of right to rescission or payment of the difference between the fair value and the price paid. 2 Pomeroy, Eq. Jur. (4th ed.) p. 1942. No arbitrary rule exists under our legal system, but the arbitrary rule under the civil law illustrates that, on purely ethical principles, inadequacy of consideration to the extent stated, in and of itself, by common understanding, renders a transaction unconscionable. Such difference in the Hough Case, supra, was considered sufficient, with^other facts not more persuasive than those here present, to entitle the plaintiff to rescission. The defendant bank under the situation involved, in retaining the benefits accruing to it from the transaction after it had knowledge of the fraud perpetrated by plaintiffs’ agent, must in common honesty be held to have adopted the conduct of plaintiffs’ agent in perpetrating that fraud. As matter of principle, in seeking to avail itself of the agent’s fraud for its own benefit, the defendant makes the agent’s acts its own and the agent’s fraud its own, just as much as it would have done had the agent been its own. That the person making the fraudulent representations was *198the agent of the plaintiffs made them, not for the benefit of the defendant but for the purpose of benefiting himself through receipt of the commission he would receive for making the sale, does not save the transaction. New York Life Ins. Co. v. Fletcher, 117 U. S. 519, 6 Sup. Ct. 837. It may be conceded, without affecting the propriety of the relief granted in this case, that standing alone fraudulent representations inducing a sale made by one not an agent of the seller, where the seller does not know that they were made, does not void the sale, for here we have much more than that, and enough to bring the case within the rule of equity stated. It may be said further that, notwithstanding the absence of a finding of the trial judge that the cashier knew of the fraudulent representations, he expressly found that “the bank knew or ought to have known that Skala and Pudelka as agents and advisors of the plaintiffs had been unfaithful to their trusts.” In actions at law to recover damages for fraud it has long been the rule of this court that a defendant is as responsible for what he ought to have known as for what he actually knew. It would be strange indeed if one should be held to a less strict rule in equity than at law.
The well recognized general principles of equity jurisprudence above stated seem to me to require affirmance of the judgment of the trial court. We have a case of an utterly unconscionable inadequacy of consideration coupled with such other inequitable incidents as to compel the equitable relief of rescission. The parties were not dealing on an equal basis. The plaintiffs were utterly ignorant of farms and farm land values. They were simple and gullible people. The mother was unable to speak or understand English. The bank’s representative knew the value of its farm and refrained from correcting plaintiffs in that respect although he must have known they were placing an exagger*199ated value upon it. The defendant bank not only paid the faithless agent of the plaintiffs $500 of the commission the plaintiffs had agreed to pay him, but so nearly stripped the plaintiffs that they were able to pay only $200 of the remaining $500. The bank took a chattel mortgage back on the personal property sold, well knowing, as it must have known, that the plaintiffs would never be able to work out from under the chattel mortgage and the mortgage against the farm, and that the deal would ultimately result in making them penniless and burdened with debt besides. This was oppression. That the cashier of the bank knew he had cheated the plaintiffs may well be inferred from his lulling the plaintiffs into the belief that he would take up with others interested in the bank the matter of deeding back the mother’s property and giving the son a smaller farm in exchange for the one conveyed to him. The cashier represented to the plaintiffs that the farm conveyed to them was a good farm and would produce good crops, while the evidence shows the fact to be otherwise. These facts, in addition to the gross inadequacy of consideration, seem to me to compel the inference of fraud. From the statement in the majority opinion referring to, the Restatement of the Law of Agency, I infer that had the representations made by Skala and Pudelka been made by one who represented that he was the agent of the bank, although he was not, and the bank had known nothing of the representations before closing the deal but had learned of them thereafter and attempted to hold its ill-gotten gains after so learning, this would constitute a fraud entitling the plaintiffs to rescission. I am unable to perceive any reason which renders the case stated a fraud but exempts the instant case. The plaintiffs had less cause to suspect the falseness of the statements of their own agents than they would have had to suspect those of one believed to be the agent of the defendant bank. If the courts have *200heretofore so drawn the line, it seems to me that this court, in the interest of honesty and fair dealing, should not hesitate to step beyond it to include the instant case and others like it. Reason exists for granting relief in this case at least equal to that which exists in the other. The doctrine “Let the buyer beware” of course still obtains, although the rigor of the ancient rule is much relaxed, but alongside it should be laid another to be applied as rigidly as the former — “Let the seller beware also.”
I think the judgment of the circuit court should be affirmed.
I am authorized to state that Mr. Justice Wicichem joins me in this dissent.