Irma C. Cundick v. J. R. Broadbent , 383 F.2d 157 ( 1967 )

MURRAH, Chief Judge.

Irma Cundick, guardian ad litem for her husband, Darwin Cundick, brought this diversity suit in Wyoming to set aside an agreement for the sale of (1) livestock and equipment; (2) shares of stock in a development company; and (3) base range land in Wyoming. The alleged grounds for nullification were that at the time of the transaction Cundick was mentally incompetent to execute the agreement; that Broadbent, knowing of such incompetency, fraudulently represented to Cundick that the purchase price for the property described in the agreement was fair and just and that Cundick relied upon the false representations when he executed the agreement and transferred the property. The complaint further states that the guardian ad litem had offered to restore and does now offer to do so, but Broadbent has refused.

Upon a trial of the case without a jury, Judge Kerr made findings of ' fact in which he narrated the details of the months-long transaction. Specifically, he found that the various papers and documents embodying the agreement between the parties were prepared by Cundick’s counsel and signed by Cundick in the presence of his counsel and his wife with her consent and approval; that the purchase price was paid and the transaction carried out between the date on which the agreement was executed, September 2, 1963, and the middle of February, 1964; that during this time neither Cundick nor his wife ever complained that he was incompetent or mentally incapable of transacting his own affairs, or that he was unable to understand and appreciate the effect of the transaction in which he had participated. He further found that Cundick’s conduct during the critical time was the conduct and behavior of a competent person and there was no indication or evidence of any kind that Cundick was defrauded, imposed upon, deceived or overreached; that Cundick’s election to rescind the agreement was not made until March, 1964, at which time the contract had been practically carried out; and that the election to rescind was not, therefore, sufficiently prompt.

The court concluded that Cundick failed to sustain the burden of proving that at the time of the transaction he was mentally incapable of managing his affairs; or that Broadbent knew of any mental deficiency when they entered into the agreement; or that Broadbent knowingly overreached him. The appeal is from a judgment dismissing the action. For reasons we shall state, the judgment is affirmed.

The contentions on appeal are twofold and stated alternatively: (1) that at the time of the transaction Cundick was totally incompetent to contract; that the agreement between the parties was therefore void ab initio, hence incapable of ratification; and (2) that in any event Cundick was mentally infirm and Broad-bent knowingly overreached him; that the contract was therefore voidable, was not ratified — hence rescindable.

At one time, in this country and in England, it was the law that since a lunatic or non compos mentis had no mind with which to make an agreement, his contract was wholly void and incapable of ratification. But, if his mind was,merely confused or weak so that he knew what he was doing yet was incapable of fully understanding the terms and effect of his agreement, he could indeed contract, but such contract would be voidable at his option. See Dexter v. Hall, 15 Wall. 9, 82 U.S. 9, 21 L.Ed. 73; see also Principles of Contract by Sir Fredrick Pollock, 4th ed. 1888, p. 158. But in recent times courts have tended away from the concept of absolutely void contracts toward the notion that even though a contract be said to be void for lack of capacity to make it, it is nevertheless ratifiable at the instance of the incompetent party. The modern rule, and the weight of authority, seems to be as stated in 2 Jaeger’s Williston on Contracts, 3d ed., § 251, in which an Eighth Circuit case is cited and quoted to the effect that “ * * * the contractual act by one claiming to be mentally deficient, but not under guardianship, absent fraud, or knowledge of such asserted incapacity by the other contracting party, is not a void act but at most only voidable at the instance of the deficient party; and then only in accordance with certain equitable principles.” Rubenstein v. Dr. Pepper Co., 8 Cir., 228 F.2d 528. See also Williston, Secs. 253 and 254.

In recognition of different degrees of mental competency the weight of authority seems to hold that mental capacity to contract depends upon whether the allegedly disabled person possessed sufficient reason to enable him to understand the nature and effect of the act in issue. Even average intelligence is not essential to a valid bargain. Willis-ton on Contracts, 2d ed., § 256. In amplification of this principle, it has been said that if a maker of a contract “ * * has sufficient mental capacity to retain in his memory without prompting the extent and condition of his property and to comprehend how he is disposing of it and to whom and upon what consideration, then he possesses sufficient mental capacity to execute such instrument.” Richard v. Smith, 235 Ark. 752, 361 S.W.2d 741, 742, citing and quoting Donaldson v. Johnson, 235 Ark. 348, 359 S. W.2d 810, 813; see also Conerly v. Lewis, 238 Miss. 68, 117 So.2d 460; Matthews v. Acacia Mutual Life Insurance Co., Okl., 392 P.2d 369; Berry v. Berry, 269 Ala. 623, 114 So.2d 916. The Wyoming court adheres to the general principle that “Mere weakness of body or mind, or of both, do not constitute what the law regards as mental incompetency sufficient to render a contract voidable. * * * A condition which may be described by a physician as senile dementia may not be insanity in a legal sense.” Kaleb v. Modern Woodmen of America, 51 Wyo. 116, 64 P.2d 605, 607. Weak-mindedness is, however, highly relevant in determining whether the deficient party was overreached and defrauded. See Williston on Contracts, 3d ed., § 256 and eases collected there.

From all this it may be said with reasonable assurance that if Cundick was utterly incapable of knowing the nature and effect of the transaction, the agreement is, without more, invalid, though capable of ratification by his representative or by him during lucid intervals. But, if the degree of disability was such that he was capable of contracting, yet his mental condition rendered him susceptible of being overreached by an unscrupulous superior, his complaint comes under the heading of fraud to be proved as such. The burden is, of course, on the one asserting incompetency and fraud at the crucial time of the making of the challenged agreement.

Cundick was never judicially adjudged incompetent and his guardian ad litem apparently assumes the burden and accepts, as she must, the proposition that if the court’s findings are supported by the record, they are conclusively binding here. She meets the issue squarely with the emphatic contention that the findings of the court are utterly without support in the record; that the evidence is all one way to the effect that at the time of the execution of the writings Cundick was mentally incompetent to make a valid contract. But, even if he was legally capable of doing so, she contends the evidence conclusively proves that he was weak-minded and that Broadbent defrauded him. It is suggested that the court significantly failed to make an affirmative finding on the issue of competency in the face of positive medical expert testimony to the effect that he was mentally incapable of conducting his affairs, particularly the sale and disposition of all his property.

All of the physicians who examined Cundick between 1961 and 1965 testified that in their judgment he was incapable of entering into the contract. When in December, 1960, Cundick first went to his family physician his condition was diagnosed as “depressive psychosis” and he was referred to a psychiatrist in Salt Lake City. While the Salt Lake City physician’s report is not in evidence, the family physician apparently was informed by letter that Cundick had been given shock treatments. When Cundick returned to the family physician more than two years later, he was treated for sore throat and bronchitis. From that time until October, 1965, the family physician saw Cundick about 25 times and treated him for everything from a sore throat to a heart attack suffered in March, 1964, but nothing was said or done about a mental condition. Apparently after this suit was filed and upon order of the court Cundick was examined in March, 1964, by two neurosurgeons in Cheyenne. By extensive tests it was established that Cundick was suffering from an atrophy of the frontal lobes of his brain diagnosed as pre-senile or premature arteriosclerosis. Both physicians used different language to say that from their examination in March, 1964, they were of the opinion that on the date of the transaction, i. e. September 2, 1963, Cundick was a “confused and befuddled man with very poor judgment”, and although there were things he could do, he was, in their opinion, unable to handle his affairs at the time of the transaction. A psychologist to whom Cundick was referred in March by the Cheyenne neurosurgeons also testified that in his judgment Cundick was incapable of transacting his important business affairs in September of 1963. There was no medical testimony to the contrary. There was also lay testimony on behalf of Cundick to the effect that he was a quiet, reserved personality ; that in approximately 1962 his personality changed from one of friendliness to inattentiveness and that during 1963 he was unable to make decisions with respect to the conduct of his ranching business.

This unimpeached testimony may not be disregarded and the trier of the fact is bound to honor it in the absence of countervailing evidence — expert or non-expert — upon which to rest a contrary finding. “But, expert evidence does not foreclose lay testimony concerning the same matter which is within the knowledge and comprehension of the lay witness. A lay witness may tell all he knows about a matter in issue even though it may tend to impugn the conclusions of the expert.” Stafos v. Missouri Pacific Railroad Company, 10 Cir., 367 F.2d 314, 317, and cases cited. The trier of the fact is not concluded by expert proof if other facts and circumstances of the case tend to cast doubt on its credibility. See Perlmutter v. C.I.R., 10 Cir., 373 F.2d 45, and cases cited; and see also Dayton P. & L. Co. v. Public Utilities Comm., 292 U.S. 290, 54 S.Ct. 647, 78 L.Ed. 1267. It has even been said that opinion evidence in cases of this kind is “ * * * generally considered low grade, and not entitled to much weight against positive testimony of actual facts”. See In re Meyers, 410 Pa. 455, 189 A.2d 852, 860.¹ The nature and circumstances of the transaction are certainly relevant evidence of the. capacity of the parties to contract. The trial judge who heard and saw the witnesses and felt the pulse beat of the lawsuit is, to be sure, the first and best judge of the weight and value to be given to all of the evidence, both expert and non-expert.

Against the background of medical and lay evidence tending to show Cundick’s incompetency on the crucial date, there is positive evidence to the effect that at the time in question he was 59 years old, married and operating a sheep ranch in Wyoming; that in previous years he had sold his lamb crop to Broadbent and on a date prior to this transaction the parties met at a midway point for the purpose of selling the current lamb crop. Although there is innuendo concerning what transpired at the meeting, neither party testified and no one else was present. We do know that the meeting resulted in a one page contract signed by both parties in which Cundick agreed to sell all of his ranching properties to Broadbent. It is undisputed that Cundick and his wife thereafter took this one page contract to their lawyer in Salt Lake City who refined and amplified it into an eleven page contract providing in detail the terms by which the sale was to be consummated. The contract was signed in the lawyer’s office by Cundick and Broadbent in the presence of Cundick’s wife and the lawyer. The lawyer testified that the contract had been explained in detail and that all parties apparently understood it.

Thereafter and on September 23, pursuant to the terms of the contract Cundick and Broadbent met at the Cundick ranch and the lamb crop was delivered to Broadbent who in turn delivered them to another purchaser. All of the arrangements for the delivery of the lamb crop were made by Cundick, and he and Broadbent worked the scales together and tallied the weights. Later, and on October 4, 1963, Cundick wrote to Broadbent notifying him that he was ready to deliver the remainder of the sheep on October 10. This date was unsatisfactory to Broadbent and the parties agreed to a postponement until October 17, Broad-bent agreeing to pay all of the expenses caused by the delay. The parties met at the Cundick corral, as agreed, on October 17. Cundick and Broadbent, aided by their ranch hands, mouthed, separated, checked and counted the ewes according to age. Cundick participated in this operation and no one seemed to notice anything unusual about him, except that in the process of mouthing the sheep Cundick missed a number of the old ewes placing them with the young to his advantage.

Cundick’s lawyer who drafted the contract testified concerning an office memorandum dated October 18 which recited that Mrs. Cundick had called him that day saying the sheep had been delivered and that Broadbent had made part payment on account of the contract including a check for the expenses incurred by Cundick due to the delay in taking delivery of the sheep. The memorandum recited that Broadbent had offered to call off the whole deal but that Cundick had refused.² The office memorandum further stated that Broadbent had given Cundick a signed memo providing “1. Cundick will waive interest on balance of amount due on contract for one year and Broadbent will add $5 per acre on the land. 2. Any income from oil or gas royalties, or leases or private lands, or oil and gas, or minerals will be paid to seller.” The office memorandum went on to state the increase in the sale price resulting from this modification.³ Thereafter Mr. and Mrs. Cundick took the memo to their lawyer and he prepared a supplemental agreement covering the changes reflected in the memo. This supplemental agreement was signed in the lawyer’s office on October 24 after discussion between the parties. Thereafter and between October 24 and February, 1964, Cundick signed and delivered all the instruments including assignments, receipts and proxies necessary to fully complete the transactions in accordance with the contract as amended.

As we have seen Cundick was not treated nor did he consult a physician for his mental condition from the time he returned from Salt Lake City in early 1961, until he was examined apparently by order of the court in March, 1964, after this suit was commenced. There was, to be sure, evidence of a change in his personality and attitude toward his business affairs during this period. But the record is conspicuously silent concerning any discussion of his mental condition among his family and friends in the community where he lived and operated his ranch. Certainly, the record is barren of any discussion or comment in Broadbent’s presence. It seems incredible that Cundick could have been utterly incapable of transacting his business affairs, yet such condition be unknown on this record to his family and friends, especially his wife who lived and worked with him and participated in the months-long transaction which she now contends was frauduently conceived and perpetrated. All this record silence, together with the affirmative evidence of normal behavior during the period of the transaction speaks loudly in support of the court’s finding that Cundick’s acts “ * * were the acts, conduct and behavior of a person competent to manage his affairs * * As applied to the critical issue of incompetency, this finding leads us to the conclusion reached by the trial judge that when the medical testimony, positive as it may be, is considered in the context of all that was said and done, it does not carry the heavy burden of proving that Cundick was incompetent, i. e. he did not know the extent and condition of his property, how he was disposing of it, to whom and upon what consideration.

The narrated facts of this case amply support the trial court’s finding to the effect that Broadbent did not deceive or overreach Cundick. In the absence of any evidence that Broadbent knew of Cundick’s mental deficiency, the only evidence from which it can be said that Broadbent took advantage or overreached him is the proof concerning the value of the property sold under the contract. As to that, there is positive evidence that the property was worth very much more than what Broadbent paid for it. But as we have noted, there was evidence to the effect that after the original contract was signed and some complaint made about the purchase price, the parties agreed to raise the price and the contract was so modified. The trial court found that the contract was supported by adequate consideration and specifically that the price paid for the shares of stock in the development company far exceeded the amount for which it sold from 1957 to 1962. It is suggested that fraudulent implications should be drawn from the fact that a substantial dividend was paid to the shareholders of the development company within a year from the date of the subject transaction; that as a director Broadbent had knowledge of a corporate transaction which contributed at least in part to the dividend and that Cundiek had no such knowledge. But, there is nothing on this record from which it can be said with assurance that Broadbent possessed any knowledge of corporate affairs or transactions which was unavailable to Cundiek or any other shareholder. Moreover, under applicable Wyoming law, a director does not stand in a fiducial relationship to a shareholder with regard to his stock. He has a right to purchase a shareholder’s stock, and mere failure on the part of the director to disclose inside information does not compel an inference of fraud. See Morrison v. State Bank of Wheatland, 58 Wyo. 138, 126 P.2d 793; But Cf. Blazer v. Black, 10 Cir., 196 F.2d 139.

The Court finally concluded that the contract as amended was not unconscionable, unfair or inequitable. From the whole record we cannot say its conclusions in that respect are unsupported by the evidence. In this view of the case we have no occasion to consider whether the contract, if voidable, was in fact ratified.

Affirmed.

1 . In the comprehensive opinion in the Meyers case the Supreme Court of Pennsylvania recognized at p. 862 three classes of testimony in determining mental competency, “(1) the testimony of those who observed the speech and conduct of the person on the day of execution of the instrument whose validity is challenged; (2) the testimony of those who observed the speech and conduct of the person a reasonable time before and after the day of execution of the instrument; (3) the testimony of those who never observed the speech and conduct of the person. In the first two classes, every witness, whether lay or expert, recites what he or she observed and then draws from the observation of such behavior an inference as to competency or incompetency which is called an opinion. In the last class, the inference is drawn after reading or hearing someone’s recital of the person’s speech and conduct, reliance being placed not on the observations of the witness but on the observations of another party. Obviously, the last class of testimony is not entitled to much weight.” See also Cyrus v. Tharp, 147 W.Va. 110, 126 S.E.2d 31.

2 . There was corroborated testimony that while the sheep were being “shaped up” and delivered, Mrs. Cundick was heard to say to Broadbent that “she didn’t like the deal”, and that Broadbent replied “Up to this point no one is hurt, the outfit is intact and if you don’t like it you can have it.” Mrs. Cundick then said “ * * * A deal [is] a deal and we can go along with it.” Curiously enough neither Broadbent nor Mrs. Cundick took the stand to testify in this case. But it was stipulated that if she testified she would deny that “an offer was made to rescind the full contract”; that instead “the offer was to rescind that portion of the contract which had to do with the base lands only * * It was also stipulated that if Broadbent took the stand he would tesify that “the offer was made.”

3 . Trial counsel objected to the Salt Lake City lawyer’s reading from this memo and “other notes and data” contained in his files. But there is nothing in these files, notes and data in the form of a communication which could properly be the subject of a confidential disclosure. See Wilcoxon v. United States, 10 Cir., 231 F.2d 384.