Rosenthal's Estate

The keystone of the opinion of the majority is found in the expression: ". . . the evidence clearly supports the findings made below to the effect . . . that the transaction was 'unaffected by any taint of undue influence, imposition or deception' and 'was the free and intelligent act of [Mrs. Rosenthal] fully explained to [her] and done with a knowledge of its consequences.' " I cannot possibly subscribe to this conclusion.

I am convinced that a confidential relation existed in this case. The doctrine that the courts will regard a transaction between parties in a confidential relation with the utmost scrutiny and will place upon the party in the superior position the burden of showing that the transaction was fair and beyond any reach of suspicion has long been established in our law. The principle applies most stringently in the case of a gift, but it is well settled that it also applies to all other transactions (Yardley v. Cuthbertson, 108 Pa. 395), although the burden of proof required may vary according to the nature of the particular transaction. The rule has thus been applied to legacies and bequests in wills (Armor's Estate, 154 Pa. 517;Miller's Estate, 179 Pa. 645), to contracts (Smith v. Loafman,145 Pa. 628), to deeds for a consideration (Worrall's Appeal,110 Pa. 349), and to bills of sale (Tetlow v. Rust, 227 Pa. 292).

It is impossible to define precisely what constitutes a confidential relation. In many instances it is found to exist as a matter of law. This is true, for example, where the relationship is that of attorney and client, trustee and beneficiary, or guardian and ward: Delamater's Estate, 1 Whart. 361; Eberts v. Eberts, 55 Pa. 110; Wilson v. Mitchell, 101 Pa. 495; see Leedom v. Palmer, 274 Pa. 22. In the majority of cases, however, the existence of the relation is a question of fact to be determined from the evidence presented: Leedom v.Palmer, supra; McCown v. Fraser, 327 Pa. 561. In general it may be said to exist whenever the relative position of the parties is such that one has the power and means to take advantage of the other. As was said in Stepp v. Frampton, 179 Pa. 284,289, it arises "when the relations existing between the contracting parties appear to be of such a character as to render it certain that they do not deal on equal terms, but that on the one side . . . from overmastering influence, or on the other side, from weakness, dependence, or trust, justifiably reposed, unfair advantage in a transaction is renderedprobable . . ."

In examining the cases dealing with this subject, certain factors consistently appear which the courts rely on in determining whether the relationship does exist. The physical and mental condition of the weaker party is a vital factor, for, although dependency alone will not beget a confidential relation (Leedom v. Palmer, supra), the person who cares for one who is subject to a physical affliction is obviously in a position to exert a certain degree of influence over the other. Thus the fact that one may be advanced in years or suffering from a severe illness is evidence that the other party is in a position to take advantage of him: Yardley v. Cuthbertson, supra; Williams' Estate, 299 Pa. 440. Likewise the fact that the weaker party is illiterate or is an habitual drunkard or is subject to the use of drugs is some indication that undue influence is probable: Miskey's Appeal, 107 Pa. 611; Hasel v.Beilstein, 179 Pa. 560; Allen v. LaVaud, 213 N.Y. 322. Where there is a mental weakness of some nature there is also a strong possibility of deception: Smith v. Loafman, supra. However, it is well settled that this is not a necessary element: Matthaei v. Pownall, 235 Pa. 460; McCown v. Fraser, supra.

The important factor is of course the degree of intimate contact between the parties. Thus the fact that the parties lived together must be considered, but if there is a close relationship whether or not they live under the same roof is immaterial: Tetlow v. Rust, supra; Snook v. Sullivan,66 N.Y. S. 24. Where it appears that the weaker party confides in the other and relies upon the latter's advice, there is justification for viewing any transaction between them with scrutiny: Worrall's Appeal, supra. The entrusting of the entire supervision of one's personal affairs to another is likewise an indication of a confidential relation (Scott v. Reed, 153 Pa. 14), and where the person claiming the benefit of the particular transaction occupies a position of supervision, authority or direction over the business affairs of the other, such a relationship will usually be found to exist: Miller's Estate, supra; Williams' Estate, supra.

Viewed in the light of these principles the facts in this case indicate that Behring and Rosenthal occupied a relationship which was most confidential. As the majority opinion indicates, Behring was on the most intimate terms with Mrs. Rosenthal, and her own letters and repeated declarations made to others prior to her death disclosed that she placed the utmost confidence and trust in him. The physical weakness of this woman who was over sixty years of age is most apparent. She was suffering from an incurable cancer and was forced to undergo two severe operations. Large doses of morphine were constantly administered to her, and during the greater part of the time after the death of her husband, she was confined to her bed. The majority opinion also points out that Behring kept all her books and records, managed her mortgages and real estate, helped to settle her husband's estate, took complete charge of the house and the expenses incident thereto, managed all her personal affairs, and had power to draw checks on her bank account. In addition, the testimony is uncontradicted that Mrs. Rosenthal told her broker that anything Behring did with respect to her investment account would be all right. Furthermore, she had Behring made Treasurer of the company so "he would have complete control of the checks that were issued." There is not the slightest doubt from the evidence that lie was her adviser in all business affairs. He was also made executor of her will and in fact prepared a codicil to it. He took care of her personal needs during her illness and was permitted to see Mrs. Rosenthal when even her relatives were excluded because of her serious condition. One of Behring's own witnesses testified that "she put all the confidence in the world in him."

In view of this array of evidence showing the dependence and trust that Mrs. Rosenthal placed in Behring, it seems to me impossible to find as a legal conclusion, as the Master did, that Behring did not bear a confidential relation to Mrs. Rosenthal. If such a conclusion is to stand it seems apparent that the doctrine of confidential relation is for all practical purposes abolished, for if no such relation existed here it is difficult to imagine how one could arise.

In Worrall's Appeal, supra, a mail 21 years of age, who was in poor health, was cared for by an older woman who was treated as a member of the household. The woman managed his property, and he constantly confided in her with respect to both his personal and business affairs. The court there held that a confidential relation existed. In Corrigan v. Conway, 269 Pa. 373, the only evidence discussed by this court in sustaining a finding of confidential relationship was that the donee of certain property was the brother of the donor, that he had transacted her business and had been consulted by her relative to her affairs, and that the deeds were prepared by an agent of the donee. In Allen v. LaVaud, supra, the evidence disclosed that the grantor was suffering from a fatal disease, that stimulants were systematically administered to him, that he conveyed a large part of his property to his daughter who nursed him and whose advice he sought. The court held that a confidential relation existed. The recent case of McCown v.Fraser, supra, presents a close analogy to the situation in this case. There the donor was an aged woman who had implicit confidence in the donee, a young man who lived with her. The donee took care of the donor's securities, and had power to draw on her bank account. As in the present case, the donee was there made an executor of the donor's will, and she repeatedly told others of the confidence she placed in him. We there held that a confidential relation existed, and since all the factors there present are apparent in this case in even a stronger degree, it seems to me that there is not the slightest doubt that such a relation existed here.

The majority opinion, although it does not admit the existence of a confidential relation, states that even though one did exist the evidence was sufficient to show that the transaction was in all respects fair. It appears to me that this conclusion ignores the heavy burden which the law places upon Behring to overcome the presumption of invalidity. As I read the record the facts not only fail to overcome this burden, but on the contrary raise a strong suspicion that he took advantage of the inability of this dying woman to manage her own affairs.

Where there is a confidential relationship any transaction between the parties is viewed with great suspicion, and the burden of attempting to uphold its validity is a heavy one. The recipient of any benefit from such a transaction must show affirmatively by full and complete proof that the transaction was fair and conscionable, that no deception was used, and that all was open, voluntary, and well understood: Stepp v.Frampton, supra; Corrigan v. Conway, supra; McConville v.Ingham, 268 Pa. 507. In Darlington's Appeal, 86 Pa. 512, this court said (p. 518): "A transaction between persons so situated is watched with extreme jealousy and solicitude, and if there be found the slightest trace of undue influence or unfair advantage, redress will be given to the injured party." (Italics added).

To get a true picture of exactly what was done here, we must go back to the period prior to Mr. Rosenthal's death. In 1917 Behring had been employed by the Rosenthals as a chauffeur. During Mr. Rosenthal's lifetime, he served the family in various other capacities and also did work for Mr. Rosenthal in connection with the latter's business. But throughout this entire period his wages never exceeded $40 per week, and when he worked for the corporation he did so only as an ordinary employee. The majority opinion states that even during Mr. Rosenthal's lifetime Behring managed Mrs. Rosenthal's property in New Jersey and handled her books and records, but it admits that there is no testimony that his advice was followed as to the action to be taken in regard to these matters and that his duties relative thereto were purely ministerial. When Mr. Rosenthal died, leaving an estate of several hundred thousand dollars, he gave Behring a legacy of $500. Upon his death a letter was found which gave explicit and detailed advice to his wife in reference to what should be done concerning his estate. In the letter he directed her not to dispose of the stock unless it was paid for in full. If she should see fit to dissolve the corporation he directed her to consult John E. Fitzpatrick and the First National Bank; no mention is made of Behring. He advised her to give the power of signing checks to Mr. Fitzpatrick; again no mention made of Behring. If she desired to make any investments, she was directed to seek the advice of her banker, and was expressly cautioned not to listen to anyone else concerning these matters. These facts leave no doubt as to Behring's status prior to Mr. Rosenthal's death.

Upon Mr. Rosenthal's death in January, 1937, Behring's importance in the Rosenthal family acquired a new aspect. Only ten days after her husband's death Mrs. Rosenthal's only daughter died. There can be no doubt that these two deaths had a severe effect on Mrs. Rosenthal and caused her to lean heavily for advice and comfort upon anyone whom she believed she could trust. From the end of January until her death in August, Behring became the dominating influence over her affairs, both personal and business. As has already been indicated he had complete dominion over her investments and finances and controlled her interests in the corporation.

During all this period Mrs. Rosenthal was slowly dying as a victim of cancer and this fact was known to Behring. In May, 1937, she was taken to the hospital for an exploratory operation and was found to have an inoperable cancer. From that time until her death she was given comparatively large doses of morphine daily to alleviate the constant pain from which she suffered. On June 27, 1937, she underwent a second operation at which time a colostomy was performed. It was just three weeks after this last operation and only a month prior to her death that Behring obtained the option. The very day following the execution of the agreement she suffered a severe heart attack. Such was the condition of the person from whom Behring obtained the option. These facts are of utmost significance, for in determining whether the burden of proof has been met the degree of infirmity of Mrs. Rosenthal and her ability to understand the nature and consequences of the acts done on her behalf are of prime importance: Wilson's Appeal, 99 Pa. 545; Ten Eyck v.Whitebeck, 156 N.Y. 341.

Furthermore, the circumstances relating to the actual execution of the written option are strongly suspicious, and the evidence fails to sustain the burden of showing that the transaction was free from the slightest trace of undue influence. The majority opinion stresses the testimony of various witnesses that Mrs. Rosenthal had a keen knowledge of the business. But in her own letters to a friend she stated that she did not understand the business. The majority opinion also states that $150 a share was a fair price for the stock. Yet in the letter which Mr. Rosenthal left for his widow on his death he advised her not to sell for less than 10% over book value, and when the option was granted the book value was $180 per share and the actual value was in excess of this amount. When Mrs. Rosenthal was offered $150 a share by the minority shareholders, she refused the offer because the price was wholly insufficient.

Even if the book value is taken to be the actual value of the stock, the value of the option exceeds $45,000. For this, the option agreement, drawn up by Behring himself, recites that the consideration given is the faithful services rendered by him and $1. It is likewise significant that the option was suggested to Mrs. Rosenthal by Behring and, according to Behring's own testimony, she did not know what an option was. No independent advice was received by Mrs. Rosenthal and it is not clear that anyone else was aware of the execution of the option. Nor can we ignore the fact that Behring drew up the agreement himself. The courts, in considering whether a person in a confidential relation has met the burden cast upon him, lay great stress on whether independent advice is given and on whether the instrument is drawn up by the recipient of the benefits of the transaction: Yeakel v. McAtee, 156 Pa. 600;Bauman v. Reithel, 302 Pa. 239; Nesbit v. Lockman, 34 N.Y. 167 (compare Dyer v. Smith, 112 N.J. Eq. 126, where the court requires proof of independent advice to sustain the validity of the transaction).

In addition to drawing up the option agreement Behring was named as an executor in Mrs. Rosenthal's will. He also wrote a codicil to that will giving himself a one-half interest in the income of a trust fund which had been set up for the benefit of Mrs. Rosenthal's grandchildren, and this codicil was produced by Behring after Mrs. Rosenthal's death. Although the benefits he thus secured for himself under her will are independent of the option, nevertheless they cannot be ignored in considering the relation between the parties and the circumstances surrounding this transaction. The option was to continue for six months, and Behring was well aware that when that time arrived she would be dead and he would be an executor of her estate. The fact that the value of the stock comprised almost half of the total value of Mrs. Rosenthal's estate is likewise important, for where the property involved in the transaction comprises a large part of the total estate, there is more occasion for viewing the transaction with suspicion: Hasel v.Beilstein, supra. Moreover, it is certainly surprising that Mrs. Rosenthal would give to a man who during his entire lifetime received only small wages an option which would require him to tender $229,200 in order to execute it.

The majority rely somewhat on the principle that the facts found by the Master have the binding effect of a verdict of a jury. I do not believe that principle applies here, for I accept the facts as found, but the inferences which the Master drew from those facts and upon which he based his conclusions seem to me entirely unwarranted. This court is not bound to accept his inferences and conclusions, (Kline's Estate, 280 Pa. 41,44), but on the contrary must draw from the admitted facts its own inferences and conclusions. Here the only reasonable inference is that Behring used his position of trust to secure a benefit for himself.

A consideration of the authorities, in this and other states, shows that the courts have done all in their power to protect those unable to take care of themselves, because of mental or physical weakness, from falling victims to the greed, rapacity or selfishness of one occupying a confidential relationship. It seems to me this case strikes a discordant note and is out of harmony with the whole body of the law. I would reverse the decree of the court below.

Mr. Justice BARNES joins in the dissent.