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Mallory v. Citizens Utilities Co.

decided: April 1, 1966.

ELSINOR PROUTY MALLORY, PLAINTIFF-APPELLEE,
v.
CITIZENS UTILITIES COMPANY, DEFENDANT-APPELLANT



Smith, Hays and Anderson, Circuit Judges.

Author: Hays

HAYS, Circuit Judge:

This case is before us for a second time, having been remanded on a previous appeal for the district court to make findings of fact and conclusions of law and to enter judgment thereon. Mallory v. Citizens Utilities Company, 342 F.2d 796 (2d Cir. 1965).

For a number of years prior to 1962 there had been litigation in both the courts of the State of Vermont and in the United States District Court for the District of Vermont between the Prouty heirs, including the appellee, Mrs. Elsinor Prouty Mallory, and the appellant, Citizens Utilities Company. In July 1962 the suit of the Prouty heirs, seeking specific performance of an agreement by Citizens Utilities to purchase property located along both sides of the Clyde River in Orleans County, Vermont, for the sum of $300,000, was pending before the district court.

On July 23, 1962 Mrs. Mallory addressed a letter to appellant offering to settle her one-quarter interest in the long-standing claim. On August 9, 1962 she entered into an agreement with appellants to convey her interest for $11,250. On September 12, 1962 the district court awarded judgment in favor of the Prouty heirs, and required Citizens Utilities to pay them $300,000 plus interest.*fn1

Mrs. Mallory brought this action to set aside her August 9, 1962 settlement agreement with Citizens Utilities on the ground that it was "fraudulently induced or otherwise unconscionable." The district court rendered judgment for Mrs. Mallory. We reverse.

The facts of the case are relatively simple. In August 1961 Mrs. Mallory moved to California. While in California she relied on her brother John Prouty and the heirs' attorney, Graves, for information concerning the Prouty litigation. During this period she was in continuous financial need. She was entitled to receive rent from the Citizens Utilities for her share of the property in litigation but she had assigned the right to these rental checks to her brother in payment of a loan from him. On July 15, 1962 Mrs. Mallory sent a telegram to her brother demanding money he owed to her from the excess of the rental checks over the loan. She threatened that "if immediate satisfactory action isn't forthcoming, will take whatever legal action necessary and will settle separately with power company " (emphasis added).

On July 23, 1962, eight days after sending the telegram, Mrs. Mallory, having received no answer from her brother, wrote a letter to Citizens Utilities, which reads in relevant part:

"I called my lawyer here this morning and he said to write you and have the check to John stopped as of now and also to contact a lawyer we know in Vermont to start legal proceedings. We did that this afternoon and our lawyer in Vermont is Kenneth P. Akey of Burlington. He will no doubt be in touch with you in the near future.

At this time I am also interested in finding out if it is possible to settle my one-quarter interest in the Pulp Mill property separately with your company. I would be very interested right now in a cash settlement which would free your company of $156.25 monthly payments to me. There are other advantages which I am sure you can figure out for yourself. I would only be interested if a settlement could be reached within fifteen days." (Emphasis added.)*fn2

On August 3, 1962, Mr. Gibbs, an officer of Citizens Utilities, called Mrs. Mallory. During their conversation Mrs. Mallory asked "how the case was going." There is contradictory testimony concerning Gibbs' reply, but taken in the light most favorable to appellee, Gibbs allegedly answered "that it was still in the courts and as far as he knew, it would be a long time before a definite decision was made." Gibbs informed Mrs. Mallory that Citizens Utilities would pay no more than $11,250 for her interest; he agreed to Mrs. Mallory's request for time to think the matter over. On August 6, Mrs. Mallory telephoned Gibbs and made a counter-offer of $15,000; Gibbs stood by his original $11,250 offer. Mrs. Mallory then said that she needed the money and had no alternative but to accept. A settlement agreement was signed on August 9. As has been stated the district court granted judgment in favor of the Prouty heirs on September 12.

Appellee concedes that the principles of fraud as established by the law of Vermont, and not some general "doctrine of unconscionable conduct," are applicable. To constitute fraud under Vermont law, the misrepresentation or attempt to ensnare must be purposefully made, be "relied upon" by the injured party, and must concern "existing facts relating to the subject matter of the contract and affecting its essence and substance." Thomas v. Johnson, 108 Vt. 363, 369, 187 A. 375, 378 (1936).

Here, Mrs. Mallory answered affirmatively to a question concerning whether the settlement offer was her "free and spontaneous idea." She testified to a "good bit of business experience" and knew that she was "selling something potentially more valuable for a lower price." The statement in her letter that she "would only be interested if a settlement could be reached within 15 days," explains appellant's emphasis on speed.

Mrs. Mallory repeatedly acknowledged during her testimony that in entering into the agreement she was motivated by her economic circumstances, and not by any expectation as to how long the litigation might continue. On the prior appeal we held that "it was never claimed or shown that the appellant knew of * * * [Mrs. Mallory's economic] hardships." Mallory v. Citizens Utilities Company, supra, 342 F.2d at 797. Even if Gibbs made the comment about a "long time" in the courts, it has not been shown that the ...


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