Parents Did Not Prove that Sons Exerted Undue Influence So as To Rescind Contract for the Sale of Parents’ Farm to the Sons.

Two sons (acting as an LLC) entered into a contract with their parents under which the sons agreed to purchase the parents’ farm, including their home, for $100,000. The contract was apparently drafted to protect the family farm from future Medicaid claims in the event the parents had to go to a nursing home. The sons made a $20,000 down payment, and then used the rental income to make the $5,000 yearly payments due under the contract. They also paid the real estate taxes and maintained the property. The parents continued to live in the house. Three years after the contract was signed (and one year after the father began suffering from dementia), the parents sued the sons, asking the court to declare the contract null and void based upon undue influence. The district court granted relief to the parents (the father was not actively involved in the lawsuit because of his health), finding that the sons had a confidential relationship with the parents and that they had placed undue influence on them. On appeal, the court reversed, finding first that no confidential relationship existed between the sons and their parents. Such a relationship, the appellate court said, did not arise simply because of a blood relationship.  This finding was in spite of the fact that purpose of the confidential relationship rule (providing a presumption of undue influence) is not so much to afford protection to (in this case) the parents against the consequences of undue influence as it is to afford the parents protection against the consequences of voluntary action on their part induced by the existence of the relationship between the parents and their sons.  At the time the contract was signed, the parents were of sound mind and did not rely on their sons for the management of their daily affairs.  There was no evidence that the sons had a dominating influence over their parents so as to find a confidential relationship. Because there was no confidential relationship, the court found that the parents did not receive a presumption that their sons had acted with undue influence. The court then found that the parents failed to prove the four elements of undue influence: (1) grantor was susceptible; (2) opportunity to effect wrongful purpose; (3) disposition to influence unduly; and (4) result clearly appears to be the effect of undue influence. The court found that the evidence failed to prove that the sons induced their parents to sign the contract by undue influence.  The court did reform the contract to grant the parents a life estate in the house and outbuildings, and to require the sons to provide a suitable house in town for them if they were to both leave the farm. Koehn v. Koehn Bros. Farms, LLC, No. 13-1036, 2014 Iowa App. LEXIS 867 (Iowa Ct. App. Aug. 27, 2014).