Von Hake v. Thomas

Citation705 P.2d 766
Decision Date22 August 1985
Docket NumberU,No. 2,No. 18649,2,18649
PartiesRichard A. VON HAKE, Plaintiff and Respondent, v. Ed THOMAS and First National Credit Corporation, a Nevada corporation, Defendants and Appellants. v. DRILLCO NO. 2, Energy Leasing, Ltd., and Energy Leasingtah limited partnership, Applicants for Intervention.
CourtUtah Supreme Court

George E. Brown, Jr., Midvale, for 1st Nat. Credit Corp.

Thomas R. Blonquist, Salt Lake City, for Drillco No. 2 et al.

T. Quentin Cannon, H. Ralph Klemm, Salt Lake City, for Von Hake.

ZIMMERMAN, Justice:

Defendants First National Credit Corporation and Ed Thomas, president of the corporation, appeal from a jury verdict finding them jointly and severally liable to plaintiff Richard A. Von Hake for damages arising out of defendants' fraudulent acquisition of Von Hake's ranch. We affirm the jury's award of $487,200 in actual damages and $500,000 in punitive damages.

Von Hake owned an 80 percent interest in the Seeps Ranch located near Kanab, Utah. 1 Von Hake had owned the ranch for nearly forty years. At the time of trial, the ranch was valued at over $1 million. In 1979, Von Hake defaulted on two loans totalling $100,000 that were secured by mortgages on the ranch. As a result, the lender initiated foreclosure proceedings.

To avoid losing the ranch, Von Hake, who was 82 years old at the time, immediately sought assistance from several people. During this time, defendant Thomas was introduced to Von Hake by a local real estate broker. Von Hake initially declined to discuss the matter with Thomas because he was negotiating with another party however, when these negotiations failed, he contacted Thomas.

In March and April of 1979, the parties met, both at Von Hake's residence in Kanab and at Thomas's home in Salt Lake City, to discuss the ranch. Von Hake revealed to Thomas his elaborate plans--or dreams--for developing the ranch into a recreational property. Von Hake testified that after these discussions Thomas agreed to go into business with him, boasted to Von Hake's friends and his own acquaintances that he was going to save Von Hake's property, and proposed the creation of a new corporation to develop the ranch as a recreational property. According to Von Hake, under the terms of their understanding Von Hake would contribute his equity in the ranch to the new corporation, while Thomas would furnish the funds to avoid foreclosure and to initially develop the property.

Approximately two weeks prior to the foreclosure sale, Thomas stayed overnight at Von Hake's home. The two again discussed Von Hake's plans for developing the ranch. Von Hake testified that after discussing their business plans, Thomas asked him to execute a warranty deed so that he could raise funds for purchasing the ranch at the foreclosure sale. Von Hake was led to believe that money was being raised to "save" the ranch and pay expenses incident to forming the new corporation and initial development costs; he therefore executed the warranty deed. The parties also agreed to meet several days later to draw up formal papers setting out the terms of their agreement to jointly form a corporation and develop the ranch.

Thomas testified differently about this encounter. He stated that until this meeting Von Hake had not made him aware of the impending sale and that during the overnight visit, Von Hake indicated an interest in any offer Thomas could make to avoid losing the ranch. Thomas testified that the next morning he offered Von Hake $10,000 for whatever equity he had in the ranch and agreed to protect him from any deficiency judgment that might result from the foreclosure sale. According to Thomas, Von Hake accepted the offer and executed a warranty deed in favor of a corporation owned by Thomas.

The following week, the parties met at the office of Thomas's attorney, Ronald C. Barker. Von Hake testified that he wanted his own attorney present, but that Thomas had been unable to reach the attorney. Thomas urged Von Hake to sign the papers in the absence of his attorney, telling Von Hake that his attorney had done nothing for him in the past and that "he will not do anything for you now." Barker prepared another deed conveying the ranch to defendant First National Bank Credit Corporation; it was then executed. When Von Hake asked to have his attorney review the deed, Barker told him that they would review the agreement concerning development of the ranch with Von Hake's attorney later and at that time complete the entire transaction.

The foreclosure sale was held the following week. Von Hake met Thomas at the courthouse before the bidding began. After the lender made an initial bid, a neighboring rancher named Goodfellow began to bid against Thomas. When the bids reached $160,000, Thomas approached Goodfellow, represented himself as Von Hake's partner, and told Goodfellow that his bid would only cause Von Hake to pay more for the property when he redeemed it. Because Goodfellow did not want to injure Von Hake, he stopped bidding. The ranch was then sold to defendant First National Bank Credit Corporation, utilizing funds tendered by Thomas, its president and agent. Von Hake did not redeem the property.

Immediately after the sale, Thomas invested a large amount of money to develop the property as a ranch and to prove up water rights. No effort was made to develop the ranch as recreational property. When Von Hake approached Thomas about formalizing their agreement to jointly develop the ranch for recreational purposes, Thomas indicated that he was now the owner of the property and that no such agreement ever existed. He refused to discuss the matter further with Von Hake, who thereafter instituted this action.

The case was tried on two related theories: first, that Thomas, having a confidential relationship with Von Hake and a concomitant fiduciary duty, had constructively defrauded Von Hake; and second, without regard to any confidential relationship, that Thomas had actually defrauded Von Hake. The jury found for plaintiff on both theories, awarding actual damages of $487,200 and punitive damages of $500,000. On appeal, defendants claim that the evidence was insufficient to support the finding of liability on either theory. In addition, they assert that the jury's award of punitive damages should be set aside because it was based solely on passion and prejudice.

We first consider defendants' claim that the evidence was insufficient to establish liability under either of the two theories asserted. A party claiming that the evidence does not support a jury's verdict carries a heavy burden. The evidence is considered in the light most supportive of the verdict, Berkeley Bank for Cooperatives v. Meibos, Utah, 607 P.2d 798, 800 (1980), and we will not substitute our judgment for that of the jury where the verdict is supported by substantial and competent evidence. Schwartz v. Tanner, Utah, 576 P.2d 873, 875 (1978). To successfully attack the verdict, an appellant must marshal all the evidence supporting the verdict and then demonstrate that, even viewing the evidence in the light most favorable to that verdict, the evidence is insufficient to support it. Scharf v. BMG Corp., Utah, 700 P.2d 1068, 1070 (1985). Having considered the evidence in accordance with this standard, we agree that the evidence does not support a finding of constructive fraud. However, we affirm the finding of liability for actual fraud.

A confidential relationship is a prerequisite to proving constructive fraud. A confidential relationship arises when one party, having gained the trust and confidence of another, exercises extraordinary influence over the other party. Blodgett v. Martsch, Utah, 590 P.2d 298, 302 (1978).

The doctrine of confidential relationship rests upon the principle of inequality between the parties, and implies a position of superiority occupied by one of the parties over the other. Mere confidence in one person by another is not sufficient alone to constitute such a relationship. The confidence must be reposed by one under such circumstances as to create a corresponding duty, either legal or moral, upon the part of the other to observe the confidence, and it must result in a situation where as a matter of fact there is superior influence on one side and dependence on the other.

Bradbury v. Rasmussen, 16 Utah 2d 378, 383, 401 P.2d 710, 713 (1965) (citations omitted). Whether such a confidential relationship exists is generally a question of fact. Blodgett v. Martsch, 590 P.2d at 302.

The law presumes that one ordinarily makes his or her own judgments, however imperfect, and acts on them; it does not readily assume that one's will has been overborne by another. Therefore, the law does not lightly recognize the existence of a confidential relationship. However, if a confidential relationship is found to exist between parties, any transaction that benefits the party in whom trust is reposed is presumed to have been unfair and to have resulted from undue influence and fraud. Bradbury v. Rasmussen, 16 Utah 2d at 383, 401 P.2d at 713; Cunningham v. Cunningham, Utah, 690 P.2d 549, 553 (1984). The benefiting party then bears the burden of persuading the fact finder by a preponderance of the evidence that the transaction was in fact fair and not the result of fraud or undue influence. If that burden is not carried, the transaction will be set aside. In re Swan's Estate, 4 Utah 2d 277, 293, 293 P.2d 682, 693 (1956); Johnson v. Johnson, 9 Utah 2d 40, 43-44, 337 P.2d 420, 422 (1959); Bradbury v. Rasmussen, 16 Utah 2d at 383, 401 P.2d at 713; Cunningham v. Cunningham, 690 P.2d at 553.

In the instant case, the evidence is insufficient to establish that a confidential relationship arose between Von Hake and Thomas. Although Von Hake was 82 years old and distressed over the imminent sale of the ranch he had owned for forty years, and Thomas clearly induced Von Hake to believe that ...

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