Friendly Ice Cream Corp. v. Beckner

Facts

FRIENDLY ICE CREAM CORP. V. BECKNER

597 S.E.2d 34 (2004)

NATURE OF THE CASE: Friendly (D), lessee, appealed a determination that rescinded an amendment to a lease because the lease amendment was the result of undue influence.

FACTS: Beatrice Beckner (P) and her husband entered into a commercial lease with D to build and operate a retail store. The lease commenced in 1976 with an original term of 15 years. D could exercise five renewal options of five years each. The lease required an annual payment of two percent of the store's annual gross sales exceeding $275,000 (percentage rent). In 2001, the lease generated a base rent of $1,105.00 per month and a percentage rent of $7,984.68, for a total income of approximately $21,200.00. D decided to close the retail store. Riggs Bank expressed an interest in acquiring Friendly's interest in the lease. Riggs was willing to pay Friendly approximately $800,000 for terminating the sublease and assigning the lease to Riggs if the lease were amended to relieve Riggs from payment of the percentage rent. D and P, who was 80 at the time, discussed the provisions of a proposed amendment to the lease. P said her lawyer was Norman Hammer. Hammer tried to take control of the transaction but P undermined that effort by telling D she was not represented by an attorney. D was told not to meet with P, but D did so anyway on a couple of occasions. D offered $5000 extra on the base rate, and P wanted $8950. D went to P’s home. P and D signed the deal, and P’s son objected strongly and claimed the agreements were invalid. P sued for rescission under fraud, gross inadequacy of consideration, unjust enrichment, and undue influence. The Chancellor found that P suffered from great weakness of mind, D had a confidential relationship with her consisting of a formal and informal relationship regarding business matters, and the consideration for the amendment to the lease was grossly inadequate and occurred in suspicious circumstances. D appealed. 

ISSUE: Is trust alone sufficient to establish a confidential relationship? Where great weakness of mind concurs with gross inadequacy of consideration or circumstances of suspicion, will the transaction be presumed to have been brought about by undue influence?

RULE OF LAW: Trust alone is insufficient to establish a confidential relationship. Where great weakness of mind concurs with gross inadequacy of consideration or circumstances of suspicion, the transaction will be presumed to have been brought about by undue influence.

HOLDING AND DECISION: (Lacy, J.) Is trust alone sufficient to establish a confidential relationship? No. Where great weakness of mind concurs with gross inadequacy of consideration or circumstances of suspicion, will the transaction will be presumed to have been brought about by undue influence? Yes. A court of, equity will not set aside a contract because it is 'rash, improvident or a hard bargain' but equity will act if the circumstances raise the inference that the contract was the result of imposition, deception, or undue influence. Trust alone is not sufficient to establish a confidential relationship. P suggests that the confidential relationship arose from D's 'legal advice' on the terms of the lease and amendment and from D's attempt to 'exclude all others' including Hammer and Christopherson. P claims she liked and trusted D and did not think D 'would attempt to cheat her.' These conclusions are neither sufficient to establish a confidential relationship, nor are they supported by the evidence. P and D had a business relationship. There was no history of financial interaction of any kind between P and D. Their relationship did not involve any requirement that D act on P's behalf, nor did either party presume that D should or would do so. As for the adequacy of the consideration, P would receive $125,160 more than she would have received in base rent without the amendment. P also appoints to the fact that D would get $800,000 for the assignment of the lease. The amount D's would receive from Riggs to assign the lease is irrelevant to the adequacy of the consideration P received. Consideration is grossly inadequate when the ''inequality [is] so strong, gross and manifest that it must be impossible to state it to a [person] of common sense without producing an exclamation at the inequality of it. received an annual increase of $8,940 in base rent regardless of whether the lease was assigned to another party and whether any business was operating on the property. She also acquired the possibility of owning the new bank building at the end of the lease. This record does not support a finding that the consideration P received was grossly inadequate. Weakness of mind alone will not entitle P to rescission. The record did not support a finding of grossly inadequate compensation. We will reverse the trial court's decree rescinding the amendment to the lease and requiring repayment of funds by P.

LEGAL ANALYSIS: By statutory definition, undue influence includes 'taking an unfair advantage of another's weakness of mind, or . . . taking a grossly oppressive and unfair advantage of another's necessities or distress.' (Civ. Code, § 1575.) While most reported cases of undue influence involve persons who bear a confidential relationship to one another, a confidential or authoritative relationship between the parties need not be present when the undue influence involves unfair advantage taken of another's weakness or distress. (Wells Fargo Bank v. Brady, 116 Cal.App.2d 381, 398 [254 P.2d 71]; Buchmayer v. Buchmayer, 68 Cal.App.2d 462, 467 [157 P.2d 9].)

Over persuasion is generally accompanied by certain characteristics which tend to create a pattern. The pattern usually involves several of the following elements: (1) discussion of the transaction at an unusual or inappropriate time, (2) consummation of the transaction in an unusual place, (3) insistent demand that the business be finished at once, (4) extreme emphasis on untoward consequences of delay, (5) the use of multiple persuaders by the dominant side against a single servient party, (6) absence of third-party advisers to the servient party, (7) statements that there is no time to consult financial advisers or attorneys. If a number of these elements are simultaneously present, the persuasion may be characterized as excessive.

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Issues

Rule of Law

Holding and Decision

Legal Analysis

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