193 Va. 735 (1952)

LUCY S. JACKSONv.BENJAMIN J. SEYMOUR.

Record No. 3912.

Supreme Court of Virginia.

June 16, 1952.

M. C. Dortch and L. J. Hammack, for the appellant.

Present, Hudgins, C.J., and Eggleston, Buchanan, Miller and Whittle, JJ.

1. Mere failure of consideration or want of consideration will not ordinarily invalidate an executed contract, but whereinadequacy of price is such as to shock its conscience equity is alert to seize upon the slightest circumstance indicative offraud, either actual or constructive.
2. Gross inadequacy of consideration which indicates a constructive fraud exists when there is an inequality so strong,gross and manifest that it must be impossible to state it to a man of common sense without producing an exclamation at theinequality of it.
3. Constructive fraud is a breach of legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the lawdeclares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure publicinterests. Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud.
4. Appellant, a widow, in need of funds sold for $275 a tract of land to her brother, appellee, who handled her businessaffairs and in whose advice and judgment she had the utmost confidence. A short while after the sale appellee discoveredthat there was valuable timber on the tract which he cut and marketed at approximately ten times what he had paid for theproperty. About two and one-half years later appellant discovered about the timber, and she then offered to restore thepurchase price and rescind the transaction, which appellee rejected. Appellant then filed her bill for rescission of the deedand the bill prayed that appellee be required to account for the money received from the timber and for general relief on thegrounds of fraud. The trial court held that the evidence adduced failed to sustain the charge of actual fraud and dismissedthe bill. Appellee contended that relief could not be granted on constructive fraud as the relief granted must conform to thecase made out in the bill. This contention was without merit for although there was no specific allegation in the bill that thecircumstances under which appellee acquired the property amounted to constructive fraud, such an allegation would havebeen merely the conclusion of the pleader which flowed from the facts alleged.
5. Under the facts of headnote 4, the trial court treated the allegations of the original bill as sufficiently broad to cover a caseof constructive fraud, but held that the evidence was insufficient to warrant relief on that ground. This was error for theappellant was entitled to a decree rescinding the conveyance and restoring the parties to the status quo in so far aspracticable.

Appeal from a decree of the Circuit Court of Brunswick county. Hon. J. J. Temple, judge presiding. The opinion states thecase.

A. S. Harrison, Jr., for the appellee.

EGGLESTON

EGGLESTON, J., delivered the opinion of the court.

In May, 1950, Lucy S. Jackson filed her bill of complaint in the court below praying for rescission of a deed dated February18, 1947, and recorded the next day, whereby she had conveyed to her brother, Benjamin J. Seymour, a tract of thirty-oneacres of land in Brunswick county. In substance she alleged that she had been induced by her brother to convey the land tohim for the sum of $275, through his representations to her that it was "of no value except for a pasture" and that thatamount was "a good price therefor;" that relying upon the representations of her brother, in whom she reposed completeconfidence with respect to his management of her property and business affairs, and being unfamiliar with the land andunaware that there was merchantable timber growing thereon, she had conveyed it to him at that price; that about two andone-half years later she discovered for the first time that at the time of the execution and delivery of the deed there was onthe land considerable merchantable timber, of the stumpage value of from $3,200 to $5,000, and that subsequent to hisacquisition of the land her brother had cut and sold the timber at a price unknown to her, but with considerable profit tohimself. 737*737

She further alleged that the statements and representations made to her by her brother, through which she had beeninduced to sell him the land, were "false and were fraudulently made;" that she had offered to restore to him the amount ofthe purchase price which he had paid for the property, with interest, upon the condition that he would rescind thetransaction, and that he had rejected this offer.

The prayer of the bill was that the deed be canceled and that the defendant be required to account to her for all moneyswhich he may have realized from the sale of the timber taken from the land. There was also a prayer for general relief.

In his answer the defendant admitted having purchased the property from the plaintiff for the stated sum of $275, but deniedthat he had made any representations to her that that was the fair value of the land or that it "had no value except for apasture." He alleged that he had purchased the property from her at her urgent request and for her accommodation, andthat at the time he had no knowledge "of the existence of merchantable timber upon said land."

The answer further denied all charges of fraud or misrepresentations. The defendant admitted that since he had acquiredthe property he had cut and marketed from this and an adjoining tract of land 148,055 feet of timber, from which he hadrealized the sum of $2,353.42. He denied the plaintiff's right to have the deed rescinded or to have an accounting by him ofthe amounts received from the sale of the timber taken from the land.

After the issues had thus been made up the court heard the evidence ore tenus. On the issue of actual fraud, alleged in thebill and denied in the answer, the evidence on behalf of the parties tended to support their respective allegations. Inasmuchas the trial court's findings of fact are binding on us the evidence will be summarized from the viewpoint most favorable tothe defendant.

Since 1931 Mrs. Jackson had been the owner of a farm of 166 acres in Brunswick county which adjoined lands owned byher brother, Benjamin J. Seymour, the defendant. After the death of her husband (the date of which is not shown in therecord) Mrs. Jackson sought and obtained the assistance of her brother, who is a successful farmer and business man, inrenting the farm for her. He rented the tillable portions of the farm, 738*738 collected the rents, and made settlements with herwhich she never questioned. Up to the time of the transaction with which we are concerned they were devoted to each otherand she had, as she says, "the utmost confidence in him."

• 1946 Tazewell Wilkins approached Seymour about the purchase of a tract of Seymour's land containing 30.46 acres for apasture. He also wanted to buy the adjoining tract of 31 acres, which was a part of the land owned by Mrs. Jackson.Seymour told Wilkins that while he was willing to take $275 for his (Seymour's) land, he did not own the 31-acre tract andsuggested that Wilkins see Mrs. Jackson about buying it. While Seymour also conveyed this information to Mrs. Jacksonthe record discloses no negotiations betwen Wilkins and Mrs. Jackson for the purchase of her land.
• February, 1947, Mrs. Jackson approached her brother, saying that she was in need of funds and was anxious to sell the31-acre tract in which Wilkins had shown interest. Seymour did not want to buy the property, but because of his sister'sneed for money he agreed to purchase it at $275, which was the price which had been mentioned in his negotiations withWilkins. The brother was then unaware that there was valuable timber on the land and contemplated using it for a pasture.Seymour gave his sister a check for $275 and she signed a receipt therefor. On the next day Mrs. Jackson executed anddelivered a deed conveying the property to her brother. The deed was prepared by a local attorney at Seymour's requestand expense.
• short while after Seymour had acquired the property it came to his attention that some trees had been cut from the tract.Upon investigation he discovered for the first time that there was valuable timber on the land.

The evidence does not disclose the exact quantity and value of this timber. It shows that in 1948 Seymour cut from the landwhich he had purchased from his sister and from adjoining lands owned by him, 148,055 feet of lumber and that the greaterportion of this came from the Jackson tract. This timber had a stumpage value of approximately $20 per 1,000 feet.

The land in controversy is located in an isolated section and it is undisputed that Mrs. Jackson had never been on it andknew nothing of its character. While Seymour had hunted in the vicinity and been within sight of the property he had neveractually been on the land. To use his own words, "I was positive 739*739 that it was just naked land" and worth $8 or $9 anacre. Thus, neither vendor nor vendee knew that there was valuable timber growing on the land.

On cross-examination Seymour admitted that the presence of timber on the land "was not within the contemplation" of himand his sister at the time the sale was consummated. He testified that if he had known of this timber he would not havebought the property from her for $275.

After Mrs. Jackson discovered that her brother had cut and marketed valuable timber from the land she demanded anaccounting from him of the profits derived therefrom. When this demand was refused the present litigation followed.

Upon the conclusion of the evidence the lower court dictated from the bench an opinion holding that the plaintiff'sallegations of actual fraud had not been sustained by the evidence and that consequently she was not entitled to rescissionof the deed on that ground. It took under advisement whether under the allegations of the bill the plaintiff was entitled torelief on the ground of constructive fraud because of the "confidential relationship" of the parties and the "gross inadequacyin price."

While the court had the matter under consideration the plaintiff tendered an amendment to her bill which in substancecharged that she was unfamiliar with the character of the land, was unaware that there was any merchantable timber on it,that she had sold it "under an honest and material mistake of fact with reference to the subject matter of the contract," andthat to permit the deed to stand "would operate as a fraud" upon her rights.

There was no allegation that the vendee, as disclosed by his own testimony, was likewise mistaken as to the existence oftimber on the land at the time the sale was consummated. Thus the amendment fell short of alleging a mutual mistake ofthe parties with reference to the subject matter of the contract.

About sixty days after the amendment had been tendered the lower court rejected it on the ground that it had been"tendered too late under the peculiar circumstances" of the case. It further held that since the plaintiff had grounded hercase on actual fraud, and since the evidence adduced by her had failed to sustain that charge or make out a case within thescope of the bill, she was not entitled to the relief prayed for. From a decree 740*740 embodying this holding and dismissing herbill the plaintiff has appealed.

Under our view of the case it is unnecessary that we deal with the assignment that the lower court erred in rejecting theamendment to the bill. We are of opinion that under the evidence, viewed in the light of the trial court's determination of theissues of fact favorable to the defendant, the plaintiff is entitled to equitable relief on the ground of constructive fraud, andthat such relief is within the scope of the allegations of the original bill of complaint.

The undisputed evidence shows that shortly after the defendant had acquired this tract of land from his sister for the sum of$275, he cut and marketed therefrom timber valued at approximately ten times what he had paid for the property. A merestatement of the matter shows the gross and shocking inadequacy of the price paid.

This is not the ordinary case in which the parties dealt at arm's length and the shrewd trader was entitled to the fruits of hisbargain. The parties were brother and sister. He was a successful business man and she a widow in need of money andforced by circumstances, according to the defendant's own testimony, to sell a part of the lands which she had inherited.Because of their friendly and intimate relations she entrusted to him and he assumed the management and renting of aportion of this very land. He engaged tenants for such of the land as could be cultivated and collected the rents. Sheaccepted his settlements without question.

Moreover, it is undisputed that neither of the parties knew of the timber on the land and we have from the defendant's ownlips the admission that as it turned out "afterwards" he had paid a grossly inadequate price for the property and that hewould not have bought it from her for the small amount paid if he had then known of the true situation.

To hold that under these circumstances the plaintiff is without remedy would be a reproach to the law. Nor do we think that acourt of equity is so impotent.

The controlling principles were thus stated in Planters Nat. Bank Heflin Co., 166 Va. 166, 173, 174, 184 S.E. 216, 219: "* * *Mere failure of consideration or want of consideration will not ordinarily invalidate an executed contract. The owner of thehistoric estate of 'Blackacre' can give it away, and 741*741 he can sell it for a peppercorn. Courts, though they have long arms,cannot relieve one of the consequences of a contract merely because it was unwise. They are not guardians in general tothe people at large, but where inadequacy of price is such as to shock their conscience equity is alert to seize upon theslightest circumstance indicative of fraud, either actual or constructive." See also, Texas Co. Northup, 154 Va. 428, 153 S.E.659; 9 Am. Jur., Cancelation of Instruments, | 24, p. 370 ff.

• Texas Co. Northup, supra, we quoted with approval this definition by Lord Thurlow of the gross inadequacy ofconsideration as indicating constructive fraud: "'An inequality so strong, gross and manifest that it must be impossible tostate it to a man of common sense without producing an exclamation at the inequality of it,' * * * Gwynne Heaton,"
• Bro.Ch. 1, 9; 28 Rep. 949." (154 Va., at page 443.)"

Clearly the inadequacy of consideration here meets that definition.

• addition to the gross inadequacy of consideration we have the confidential relation of the parties, the pecuniary distressof the vendor, and the mutual mistake of the parties as to the subject matter of the contract. Unquestionably, we think, topermit the transaction to stand would result in constructive fraud upon the rights of the plaintiff. Hence, she is entitled torelief in equity.
• grant a rescission of the deed, under the circumstances here, does no violence to the principle that the relief grantedmust conform to the case made out in the bill of complaint. While the bill alleges actual fraud, it also contains allegations ofthese constituent elements of constructive fraud: The confidential relation of the parties; the reliance by the plaintiff upon theadvice and judgment of the defendant in her business affairs; the gross inadequacy of the price paid; her offer to restore thepurchase price and rescind the transaction, and his rejection of the offer.
• Moore Gregory, 146 Va. 504, 131 S.E. 692, we quoted with approval this definition of constructive fraud as written in 26Corpus Juris, Fraud, | 4, p. 1061 (now found in 37 C.J.S., Fraud, | 2-c, pp. 211, 212): "'Constructive fraud is a breach oflegal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law declares fraudulent because of itstendency to deceive others, to violate public or private confidence,742*742to injure public interests. Neither actualdishonesty of purpose nor intent to deceive is an essential element of constructive fraud. An intent to deceive is an essentialelement of actual fraud. The presence or absence of such an intent distinguishes actual fraud from constructive fraud.'" (146Va., at page 523.)
• the same case we said: "Constructive fraud may be inferred from the intrinsic nature and subject of the bargain itself."(146 Va., at page 527.)
• is true that there is no specific allegation in the bill here that the circumstances under which the defendant acquired theproperty amounted to constructive fraud, but such allegation would have been merely the conclusion of the pleader whichnecessarily flows from the facts alleged. See Hull Watts, 95 Va. 10, 13, 27 S.E. 829; Southeast Lumber Export Co. Friend,
• Va. 863, 868, 869, 164 S.E. 372.

Moreover, in its written opinion rejecting the amendment to the bill the trial court treated the allegations of the original bill assufficiently broad to cover a case of constructive fraud and held that the evidence adduced was insufficient to warrant therelief prayed for on that ground. It said: "If it be conceded that the complainant's bill sufficiently states a case for relief ongrounds other than actual fraud as charged therein, or that the amendment petitioned for should be allowed and, if allowed,would state a case for such relief, the relief contended for in either event would not be warranted by the evidence."

We are, therefore, of opinion that the lower court should have entered a decree granting the plaintiff's prayer for a rescissionof the conveyance and restoring the parties to the status quo in so far as practicable. By way of incidental relief the plaintiffis entitled to recover of the defendant the fair stumpage value of the timber removed by the latter from the land, [1] withinterest from the date of such removal, and the fair rental value of the property during the time the defendant was inpossession. [2] The defendant is entitled to a return of the purchase price paid by him, with interest from the date that theplaintiff offered to rescind the transaction, [3] and taxes paid by him on the land [4] since the date of the conveyance, withinterest.

The decree appealed from is reversed and the cause remanded for further proceedings in conformity with the views hereexpressed.

Reversed and remanded.

[1] 12 C.J.S., Cancellation, etc., | 79, p. 1091.

[2] 12 C.J.S., Cancellation, etc., | 79, pp. 1089, 1090; Irick Fulton, 3 Gratt. (44 Va.) 193, 196.

[3] Lee Laprade, 106 Va. 594, 601, 56 S.E. 719, 117 Am.St.Rep. 1021, 10 Ann.Cas. 303; Irick Fulton, supra.

[4] 12 C.J.S., Cancellation, etc., | 83, pp. 1098, 1099. 743*743

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Questions:

Jackson v. Seymour

After reviewing the case, answer the following questions.

1. Who is the Appellant? Who represents the Appellant's interest?

1. Who is the Appelle in this matter? Who represents the Appelle?

1. Which Court is hearing the case? Who is the presiding judge in this matter?

1. What is ore tenus rule?

1. What are the seven ways in which a lack of a meeting of the minds may interfere with the legal enforcement of an agreement?

1. What is the Principle of law/ Rule of law in this case?

1. What is the Court's decision/outcome in this case?

1. Do you agree with the outcome? Why or why not?

1. What impact do you think the relationship between the parties had on the Court's decision?

1. What do you think the Court's decision would be today? And why? Provide at least one other example where an unconscionable contract is, or can be common or has occurred.