86

In

good conscience as to be presumptively fraudulent. one of the cases, the court set aside a series of deeds which charged sums, advanced by a money lender at exorbitant interest, on the borrower's estates, which were ample security, and which deeds contained unusual and oppressive clauses, such as authorizing a sale without notice, and empowering the lender to pay off existing charges, carrying interest at six per cent, and to charge twenty per cent thereon, it appearing to the court that these harsh provisions were inserted by the fraud and deceit of the money lender without the knowledge of the borrower, the latter being unprotected by proper professional advice. 37 Finally it is said that a court of equity will not relieve a vendee from a forfeiture on failure to make one of the payments of the purchase price of land, where the effect of such relief would be to enforce a hard and unconscionable bargain, or where the consideration to be paid by the vendee is grossly inadequate.38

§ 172. Inadequacy Combined with Fraud or Imposition. It is generally true that mere inadequacy in the price or consideration of a contract, unaccompanied by other inequitable circumstances, is not in itself a sufficient ground for canceling a contract or conveyance. And if the parties, being in the situation and having the ability to do so, have exercised their own independent judgment as to the value of the subject-matter, courts of equity will not interfere. Yet where the accompanying incidents are inequitable and show bad faith, such as misrepresentation, concealment, undue advantage taken of ignorance or misplaced confidence, or the like, such circumstances, combined with great inadequacy of price or consideration, may easily induce a court to grant affirmative relief by decreeing a rescission or cancellation, or at the least by throwing the burden of proof up

36 Sime v. Norris, 8 Phila. (Pa.) 84; Howley v. Cook, 8 Ir. Eq. 571; Aylesford v. Morris, L. R. 8 Ch. App. 484; Moore v. McKay, 1 Beatty Ch. 282; Eslava v. Lepretre, 21 Ala. 504, 56 Am. Dec. 266; Culbertson v. Lennon, 4 Minn. 51 (Gil. 26); Banker v. Brent, 4 Minn. 521 (Gil. 408); Bidwell v. Whitney, 4 Minn. 76 (Gil. 45).

87 Howley v. Cook, 8 Ir. Eq. 571.

88 Missouri River, Ft. S. & G. R. Co. v. Brickley, 21 Kan. 275.

89

on the party seeking to enforce or claim the benefit of the transaction, to show that the other acted voluntarily, deliberately, and with full knowledge of the nature and effects of his acts, even though such circumstances would not constitute an absolute and necessary ground for equitable interposition. As otherwise expressed, it may be said that while inadequacy of consideration is not of itself generally sufficient to avoid an executed conveyance, yet it should always induce a close scrutiny of the circumstances attending the transaction.10 Thus, great inadequacy of consideration will justify the granting of relief by a court of equity, where it further appears that the grantor in a conveyance had no knowledge of the nature and value of the property which he was conveying away, while the grantee had full knowledge of these facts, and neglected his duty to inform the grantor, or that an ignorant man was tricked into parting with his property at very much less than its real value,2 or that the grantor could not read or speak the English language, did not understand the contract, and did not know that it was a conveyance of his property, or that the party claiming under the contract or seeking to benefit by it made false representations as to value with intent to secure the property for an inadequate price, or that, having undertaken to explain the circumstances, he failed to make a full disclosure of the material facts, or procured a deed for an insignificant consideration by making use of both misrepresentations and fraudulent concealments. In one of the cases on this point, one who was a director and the active manager of a corporation and who owned most of its stock

41

44

43

46

89 Storthz v. Williams, 86 Ark. 460, 111 S. W. 804; Derby V. Donahoe, 208 Mo. 684, 106 S. W. 632; Hodges v. Wilson, 165 N. C. 323, 81 S. E. 340; Morrison v. Smith, 130 Ill. 304, 23 N. E. 241; Flanigan v. Skelly, 89 App. Div. 108, 85 N. Y. Supp. 4; Reed V. Rudman, 5 Ind. 409; Kirby v. Arnold (Ala.) 68 South. 17; McPhaul v. Walters, 167 N. C. 182, 83 S. E. 321.

40 McHarry v. Irvin's Ex'r, 85 Ky. 322, 3 S. W. 374, 4 S. W. 800. 41 Tribou v. Tribou, 96 Me. 305, 52 Atl. 795. 42 Woodard v. Fitzpatrick, 9 Dana (Ky.) 117. 43 Shea v. Teufert, 207 Ill. 222, 69 N. E. 872.

44 Stack v. Nolte, 29 Wash. 188, 69 Pac. 753.

45 Smith v. Woodson, 29 Ky. Law Rep. 316, 92 S. W. 980.

46 Armstrong v. Randall, 93 Neb. 722, 141 N. W. 829.

alarmed a fellow director, who owned most of the remaining stock, by false statements as to the financial condition of the company, with intent to induce him to part with his holdings at a grossly inadequate price, and procured from him a contract to sell for such price, payable partly in cash, partly in notes made or indorsed by the managing director, and partly in stock of a corporation organized by the latter for the purpose of acquiring the assets of the other company. The contract also constituted the manager attorney in fact to carry out the transaction, and in consummating the contract he secretly took title to the stock himself. It was held that these facts showed such a case of fraud and deceit as to entitle the seller to relief against the buyer, aside from any question as to the relations between the parties at the time of the transaction.*"

Persons who occupy a position of trust or confidence towards others are held in equity to a very strict measure of candor and integrity in their dealings with them, and if property passes between them for a markedly inadequate price, it is regarded as a highly suspicious circumstance and one which will justify a very severe scrutiny of all the attending circumstances. And if, in addition to the inadequacy of consideration, it shall be found that there has been any fraud or misrepresentation, or any advantage taken of the trust and confidence reposed, equity will not hesitate to give relief.48 But in other cases, the fact that the expressed consideration in a deed is one dollar will not cast a suspicion of fraud upon the transaction, since the true consideration may be shown by parol. And it should be remembered that a person has no claim to the favorable consideration of a court of equity who acted deliberately and intelligently in the transaction complained of, and was active in bringing it about, and urged it upon the other par

47 George v. Ford, 36 App. D. C. 315.

48 Coffee v. Ruffin, 4 Cold. (Tenn.) 487; Davis v. Yancy, 31 Ky. Law Rep. 1155, 104 S. W. 697. But a sale will not be set aside for fraud merely because the purchaser got the best of the bargain, and the seller was his grandmother. Cornish v. Johns, 74 Ark. 231, 85 S. W. 764.

49 Van Sickle v. Harmeyer, 172 Ill. App. 218.

ty, although, from poor judgment or lack of information, he failed to secure an adequate price.50

§ 173. Same; Duress; Undue Influence; Mental Weakness.-Inadequacy of consideration, when coupled with circumstances which show that the party complaining was acting under duress, oppression, or at the command of the other, will be regarded as a fraud upon him and will entitle him to relief in equity.51 But the duress must be exerted by, or originate with, the party seeking to benefit by the contract. For instance, a person who is under arrest on a criminal charge, and who gives an extravagantly high consideration to another to bail him out, cannot ordinarily be released from his bargain without some proof of fraud or imposition other than that arising merely from his situation.52 Subject to this qualification, duress sufficient to avoid a contract, when combined with inadequacy of consideration, may consist in the use of threats, when the relative situation of the parties is such that they would be likely to have great weight or to inspire real fear." For similar reasons, the fact that a contract or a transfer of property was extorted from a person by the exercise of a sinister and controlling influence over him by another, together with the fact of the inadequacy of the consideration. given, will justify the interference of a court of equity.54 Such influence may arise from youth and inexperience on the one side and the exercise of parental authority on the other, or simply from the ascendency of an active and dominant mind over ignorance, trust, and dependence.5

55

It is also a rule that a conveyance or transfer of property, made by a person mentally weak, or of such feeble intelligence that he is incompetent to transact any business requiring good judgment and forethought, though perhaps

50 Kirschner v. Kirschner, 113 Mo. 290, 20 S. W. 791.

51 Holmes v. Fresh, 9 Mo. 201.

52 Knobb v. Lindsay, 5 Ohio, 468.

53 Walker v. Shepard, 210 Ill. 100, 71 N. E. 422; Wickland v. Wickland, 19 Cal. App. 559, 126 Pac. 507.

54 Hart v. Hart, 57 N. J. Eq. 543, 42 Atl. 153; Curtice v. Dixon, 74 N. H. 386, 68 Atl. 587; Birdsong v. Birdsong, 2 Head (Tenn.) 289. 55 Coile v. Hudgins, 109 Tenn. 217, 70 S. W. 56.

56 George v. Richardson, Gilmer (Va.) 230.

not entirely insane, and which was procured by taking advantage of such mental weakness, and is founded upon a grossly inadequate consideration, will be regarded as fraudulent, and will be vacated or canceled upon equitable terms.57 To say the very least, circumstances such as these will raise a strong suspicion, and will cast upon the party against whom relief is demanded the burden of proving that the transaction was entirely fair.58 Nor is it necessary that the mental weakness of the party defrauded should be of a permanent or totally disabling character. Relief has been given in a case where the injured party was rendered temporarily incapable of managing his business by an attack of nervous prostration," and where he was at the time under the influence of alcoholic intoxication.60

In one state it is provided by law that great inadequacy of consideration, joined with great disparity of mental ability, may justify setting aside a contract; and under this rule, a deed may be vacated for such cause without proof of fraud or the exercise of undue influence.1 And independently of such statutory enactments, it has been held that where a treaty respecting important interests is conducted between two persons of unequal powers, one having a naturally unsound judgment, rendered still weaker by a long-continued habit of intoxication, and the other enterprising, keen, and sagacious in business, and where the weaker mind trusts the stronger, and that influence is increased by pecuniary embarrassment on the one side and wealth on the. other, and results in the contract exhibiting great inadequacy of consideration, it is a case where equity

57 Walling v. Thomas, 133 Ala. 426, 31 South. 982; Clark v. Lopez, 75 Miss. 932, 23 South. 648, 957; Cadwallader v. West, 48 Mo. 483; Bennett v. Bennett, 65 Neb. 432, 91 N. W. 409, 96 N. W. 994; Buffalow v. Buffalow, 22 N. C. 241; Hoeh v. Hoeh, 197 Pa. 387, 47 Atl. 351; Kester v. Bahr, 1 Kulp (Pa.) 262. See Doughty v. Doughty, 7 N. J. Eq. 643; Grimminger v. Alderton (N. J. Ch.) 96 Atl. 80.

58 Goodbar v. Lidikey, 136 Ind. 1, 35 N. E. 691, 43 Am. St. Rep. 296; Yount v. Yount, 144 Ind. 133, 43 N. E. 136.

59 Ashby v. Yetter, 79 N. J. Eq. 196, 81 Atl. 730.

60 Wells v. Houston, 23 Tex. Civ. App. 629, 57 S. W. 584. And see, infra, §§ 277-281.

61 Pye v. Pye, 133 Ga. 246, 65 S. E. 424.