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RUTH v. CRANE

April 21, 1975

Lawrence A. RUTH et al.
v.
Margaret P. CRANE


Broderick, District Judge.


The opinion of the court was delivered by: BRODERICK

BRODERICK, District Judge.

 In this diversity action, the plaintiff is seeking specific performance of an agreement for the purchase of a thirteen acre parcel of land located in Plymouth Township, Montgomery County, Pennsylvania. The action was tried to the Court without a jury, commencing on January 16, 1975. After carefully considering the evidence and the arguments presented by both sides, the Court has determined that it will grant specific performance.

 The Court makes the following findings of fact and conclusions of law based on the evidence presented at the trial: The plaintiffs, Lawrence Ruth, Esq. and James Heffernen, Esq., both residents of Pennsylvania, were attorneys practicing law in Montgomery County, Pennsylvania. Although not law partners, Lawrence Ruth and James Heffernen occupied offices in the same suite and shared some expenses common to the running of the office. Sandy Towers Investors is a Pennsylvania limited partnership with four partners. Mr. Ruth and Mr. Heffernen are the general partners and Victor Montemayor and Richard Eberle are the limited partners. Margaret Crane, the defendant in this lawsuit, was a resident of the Commonwealth of Massachusetts at the time this action was instituted. She owned approximately thirteen acres of land located on Sandy Hill Road, Plymouth Township, Montgomery County, Pennsylvania.

 The defendant, Margaret Crane, became the owner of the thirteen acres of real estate by virtue of two separate conveyances to her from her parents, George and Eva Phillips. *fn1" At the time of the second conveyance, Mrs. Crane agreed to execute a mortgage in favor of her parents, George and Eva Phillips. Upon her failure to execute the mortgage, her mother, Eva Phillips, *fn2" instituted a legal action in the Court of Common Pleas of Montgomery County, Pennsylvania, to compel the execution and delivery of the mortgage. On November 18, 1971, the defendant, Margaret Crane, entered into a settlement of the legal action and executed and delivered a mortgage to her mother, Eva Phillips, in the amount of $42,925.00, which amount included both principal and interest. The mortgage provides for monthly payments in accordance with a schedule attached thereto.

 Mrs. Crane was employed as a secretary to the Honorable Richard Lowe when Mr. Lowe was the District Attorney for Montgomery County, and continued to work as his secretary for a short time after he became a Judge on the Court of Common Pleas of Montgomery County, Pennsylvania. *fn3" While she was employed by the District Attorney, she met Lawrence Ruth, Esq., who was then an Assistant District Attorney for Montgomery County. An attorney-client relationship first developed between Mr. Ruth and Mrs. Crane when Mr. Ruth prepared and filed Mrs. Crane's 1967 federal income tax return in 1968. Thereafter, Mr. Ruth continued to prepare Mrs. Crane's income tax returns and, in addition, represented her in a real estate assessment appeal and in the aforementioned legal action instituted by Mrs. Crane's mother.

 There developed a close personal friendship between Mrs. Crane and Mr. Ruth and his family. In addition, Mr. Ruth purchased some real estate from Mrs. Crane's parents *fn4" adjoining the thirteen acres in question on which he is presently building a home. Mr. Ruth also rented a farmhouse located on the thirteen acres from Mrs. Crane, which farmhouse Mr. Ruth and his family are presently occupying awaiting the completion of their new home. *fn5"

 In December of 1970, Mrs. Crane moved from Pennsylvania to Martha's Vineyard, Massachusetts and at that time she told Mr. Ruth that she was anxious to sell the thirteen acres and asked Mr. Ruth if he could find a purchaser. Mr. Ruth showed the property to several interested parties and received one offer in the summer of 1971 in the amount of $75,000.00. Mrs. Crane rejected the offer and advised Mr. Ruth that $75,000.00 was not sufficient in light of her belief that the property would be suitable for apartments and should bring a higher price.

 In June of 1972, after she had moved to Massachusetts, Mrs. Crane contacted Mr. Ruth at his office and told him that she was experiencing financial problems brought on by the bankruptcy of the Penn Central Railroad, whose stock she owned and on which she had placed substantial dependence for her income. She explained that she was having difficulty meeting the mortgage payments to her mother and paying the real estate taxes on the thirteen acre tract. Mrs. Crane then offered to sell Mr. Ruth the thirteen acres for $85,000.00. She told him that he could assume the mortgage which she had given her mother and pay her 7% interest on the balance until her mother's mortgage was paid off, and then pay her equal monthly payments of interest and principal over a period of eight years, under a mortgage similar to the one which she had given her mother.

 Mr. Ruth discussed Mrs. Crane's offer with his wife and decided that they were not in a financial position at that time to assume such an obligation. When Mr. Ruth informed Mrs. Crane of his decision, she told him that she would appreciate his looking for a purchaser for the thirteen acres. Mr. Ruth then spoke to Mr. Heffernen, with whom he shared offices, about the possibility of his helping to find a purchaser for the thirteen acres. Mr. Heffernen, who was familiar with the property, then interested three investors, Martin Bradley, Victor Montemayor and Richard Eberle, who indicated their willingness to form a group to purchase the thirteen acre tract for the sum of $85,000.00 on the terms which had been offered to Mr. Ruth, i.e., make the payments to Mrs. Crane's mother due under the mortgage given to her by Mrs. Crane, pay interest on the balance at 7% until the mortgage was paid off, and then pay Mrs. Crane equal monthly payments of interest and principal over a period of eight years, and that the terms of the mortgage would be identical to the mortgage held by the mother.

 On or about June 23, 1972, Mr. Ruth telephoned Mrs. Crane and informed her that a group of investors had agreed to purchase the thirteen acre tract for $85,000.00 on the terms heretofore discussed. Mr. Ruth also advised Mrs. Crane that both Mr. Heffernen and he would be members of the group and that the group of investors would meet the same conditions that she had offered to him. Mrs. Crane agreed and on June 26, 1972, Mr. Ruth sent an agreement of sale in letter form to Mrs. Crane. *fn6" The letter set forth the terms agreed upon during the telephone conversation.

 Prior to her signing the agreement of sale, Mrs. Crane sent Mr. Ruth a letter questioning whether the sale included the corner lot at Sandy Hill and White Roads. Mr. Ruth telephoned her and stated that the others in the group took the position that it was "all or nothing". Mrs. Crane then suggested that perhaps she should retain her own attorney in connection with the transaction. Mr. Ruth replied that it would not hurt his feelings if she did so. Shortly thereafter, Mr. Ruth received the letter agreement of sale signed by Mrs. Crane. Commencing July 1, 1972, the plaintiffs began to make the monthly interest payments required under the letter agreement of sale and also began making the monthly payments on the mortgage to Mrs. Crane's mother, Eva O. Phillips. Upon receipt of the 1972 real estate tax bills, Mrs. Crane calculated her share of the real estate taxes and sent to Mr. Ruth a check for $535.06. On August 29, 1972, Mr. Ruth mailed to the Treasurer of Plymouth Township, Montgomery County, Pennsylvania, Mrs. Crane's check and the purchaser's check for $874.14 in full payment of the tax bills which had been received.

 Mr. Ruth then began preparing a mortgage and three deeds in order to complete the transaction in accordance with the letter agreement of sale. The letter agreement of sale provided that the release provisions of the mortgage would contain the same provisions as were in the mortgage Mrs. Crane gave to her mother. *fn7" The mortgage to Mrs. Crane's mother provided that in the event all or a portion of the thirteen acres was sold, the mortgagee was required to release the lien of the mortgage upon receipt of the cash value of the property to be released. In a discussion concerning this provision of the mortgage, Mrs. Crane stated that such a provision was not satisfactory to her because she wished to receive periodic payments for the full term of the mortgage. Mr. Ruth advised the defendant that the purchasers would agree to make the periodic payments with interest but that the mortgage should contain a release provision that would not require the purchasers to make a cash payment for any portion of the property which was later conveyed to a third person. She then agreed that such a provision should be written into the mortgage. *fn8" This change was specifically noted in a letter of October 6, 1972, which Mr. Ruth sent to Mrs. Crane. *fn9"

 On November 14, 1972, Mrs. Crane came to the office of Mr. Ruth and advised him that she had changed her mind and that she did not intend to convey the thirteen acres. Mr. Ruth replied that it was alright with him, but that he would have to check with the other investors. The other investors would not agree to call off the transaction and in a letter dated November 16, 1974, Mrs. Crane was so advised and she was again requested to execute the deeds and return the mortgage. Mrs. Crane did not do so, and this action seeking specific performance was filed.

 At trial, both sides presented expert testimony as to the value of the thirteen acres as of July, 1972. Defendant's expert placed a value on the tract of land of $211,000.00, based on its use for garden apartments. However, the Court finds that the value of $95,000.00 which was placed on the thirteen acre tract by the plaintiffs' expert was the fair market value as of July, 1972. Most of the tract was (and is at present) zoned A residential. There is a small triangular section cut off from the main tract by high tension wires which was and is zoned B residential. *fn10" Neither A nor B residential zoning permit the building of either garden or high rise apartments. Both experts agreed that the highest and best use of this thirteen acres would be for some sort of apartments although they were in complete disagreement as to the likelihood of a zoning change then or now which would permit such a use. The expert for the defendant arrived at his figure of $211,000.00 on the basis of his opinion that a change in the zoning of the thirteen acre tract to permit apartments could be obtained within a period of one year from July, 1972. On the basis of testimony by the plaintiffs' expert, we find that a zoning change at or about the time of this transaction, or in the reasonably foreseeable future, was unlikely and that the fair market value of the thirteen acres as of July, 1972 was $95,000.00, as testified by the plaintiffs' expert. *fn11"

 Attorney-Client Relationship

 Defendant, Margaret Crane, contends that the plaintiffs' request for specific performance should be denied because an attorney-client relationship existed between herself and Lawrence Ruth and that Mr. Ruth, a principal in the group which entered into the agreement of sale with the defendant, took advantage of the relationship and influenced Mrs. Crane to enter into an agreement which was not in her best interest. The courts have set a high standard of fidelity which attorneys must meet when involved in purchasing property from their clients. In Kribbs v. Jackson, 387 Pa. 611, 129 A.2d 490 (1957), the Pennsylvania Supreme Court stated at pages 621-622, 129 A.2d at page 496:

 
That relation [attorney and client] is so confidential in its nature that it calls for the exercise of the most perfect good faith. In transactions between counsel and client, no shadow of anything like deception or unfair dealing upon the part of an attorney can be countenanced. In every case in which complaint is made, the courts will scrutinize the transaction with jealous care to see that there is no relaxation of the rule. Owing to the confidence bestowed upon him, the attorney is presumed to be able to strongly influence his client, hence, the law often declares transactions between them void, which between other persons would be unobjectionable. Unless the transaction is fair and conscionable, it is deemed a constructive fraud.

 In Points v. Gibboney, 340 Pa. 522, 17 A.2d 365 (1941), the Supreme Court of Pennsylvania stated:

 
The burden is upon him as attorney, to show that he did not gain a personal advantage by misrepresenting the legal situation or by failing to make it plain to those whom it was his duty to advise and protect.

 Again, in Meara v. Hewitt, 455 Pa. 132, 314 A.2d 263 (1974), the Pennsylvania Supreme Court held that:

 
[The] burden should have been placed upon [the attorney] to prove that he did not abuse that relationship, that he fully disclosed the facts of the transaction to his client, and that the transaction was fair and conscionable.

 We have determined that the plaintiffs here have met this heavy burden and have established by a preponderance of the evidence that the transaction was fair and conscionable and that there was no "overreaching".

 The defendant has pointed to different areas in which she alleges that the handling of the transaction by Mr. Ruth was questionable. She first contends that the price of $85,000.00 for the real estate was so low as to be unconscionable and that Mr. Ruth, who was her attorney, encouraged her to sell at that price by representing that there was little hope for a zoning change when he had knowledge to the contrary. We have heretofore determined that the fair market value of the defendant's tract as of July, 1972, was $95,000.00 and that the chance of an immediate change of zoning was remote. Furthermore, Mr. Ruth at no point negotiated with the defendant for any price other than the $85,000.00 purchase price which was the figure which she demanded. The purchase price of $85,000.00 is not so disproportionate to the fair market value of $95,000.00, as to make the contract unconscionable or to indicate that Mr. Ruth abused the confidence placed in him by the defendant.

 The defendant also argues strenuously that the mortgage which the defendant gave to her mother in the amount of $41,875.00, which was assumed by the plaintiffs and which was part of the $85,000.00 purchase price, was interest free to the plaintiffs and that this provision is unconscionable and tends to establish overreaching on the part of Mr. Ruth. Plaintiffs contend, however, that since interest was admittedly calculated in the monthly payments due by Mrs. Crane to her mother, they were indeed paying interest on that portion of the purchase price. No matter how one characterizes the mortgage assumed by the plaintiffs, we cannot find that the agreement was unconscionable or unfair. Indeed, it was the defendant, Mrs. Crane, who made the proposition that the purchasers should assume her obligation to her mother as provided in the then existing mortgage.


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