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Undue Influence: No Harm, No Foul?

Posted Wednesday, October 10, 2012 by John S. Palmer

In a family dispute over farmland in Yakima County, the Washington Court of Appeals has ruled that two sisters failed to prove their brothers had obtained the property from their mother by undue influence, in part because the mother actually benefited from the transaction.

The property was originally owned by the siblings’ parents, Harvey and Mildred Jones, and consisted of 178 acres of orchard and cropland owned by Harvey and Mildred outright, plus an additional 54 acres owned by a corporation in which they owned two-thirds of the stock; the remaining stock was owned by their two sons, Will and Dennis. The corporation obtained a loan that was personally guaranteed by the four shareholders, who also entered in an agreement requiring each of them to lease their individually-owned farmland to the corporation until the loan was paid off.

Harvey died in 2003. About 3 months after his death, Mildred gave Will and Dennis all shares of the corporation owned by her and Harvey. She also agreed to lease her farmland to Will and Dennis for $50,000 per year, with an option to purchase.

Mildred died in 2007. Her daughters, Teresa and Mary Ann, filed various claims asserting that Will and Dennis had obtained the corporate stock and lease/option from Mildred by undue influence. The trial court dismissed all claims against Will and Dennis and the sisters appealed.

Before turning to the facts of the case, the Court of Appeals recited some of the basic rules of law with regard to undue influence: it involves “unfair persuasion that seriously impairs the free and competent exercise of judgment.” The burden is on a party claiming undue influence to prove it by clear, cogent, and convincing evidence; the existence of a “confidential relationship” may give rise to a rebuttable presumption of undue influence. (A “confidential relationship” is a legal term of art to describe a situation in which one person has “gained the confidence of the other and purports to act or advise with the other person’s interest in mind.”) The unfairness of the resulting bargain, the unavailability of independent advice, and the susceptibility of the person persuaded are circumstances to be taken into account when determining whether a party was unduly influenced by another, but no single factor is controlling.

The sisters argued that a confidential relationship existed between Mildred and her sons because she was distraught by the death of Harvey and was dependent on them to run the farming operation; and therefore the burden was on Will and Dennis to prove the absence of undue influence.

The court disagreed, and found that Mildred made a fair bargain with her sons; the lease provided her with a stream of income that permitted her to hire an in-home caregiver and stay in her own home, while the gift of corporate stock was necessary if the brothers were to assume the corporate debt and obtain financing in the future. Therefore, while the evidence may have established the existence of a confidential relationship, the court found that it did not establish undue influence, stating:

In cases where a confidential relationship resulted in undue influence, there typically is evidence of some type of loss resulting from that relationship… a focus on simply what was given up, without consideration of what was received, is not sufficient to establish that an unfair transaction occurred. In the absence of an unbalanced transaction, there has to be some additional evidence of influence beyond the confidential relationship. Here, there was none.

The court went on to say that, in any event, the brothers produced evidence that Mildred was competent and capable of making her own decisions at the time she gifted the stock and signed the lease, and that this evidence was sufficient to overcome any presumption of undue influence created by the parties’ confidential relationship.

Estate of Jones, Washington Court of Appeals Docket No. 30008-1-III, Decided September 11, 2012.

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