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Vargas v. Esquire Inc.

February 27, 1948


Author: Kerner

Before SPARKS, MAJOR, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

Plaintiff, a citizen of Illinois, brought this action against defendant, a Delaware corporation, to cancel and set aside a contract entered into between the parties. The case was tried by the court without a jury. The trial judge made special findings of fact. He concluded as a matter of law that at the time of the execution of the contract a relationship of special trust and confidence existed between plaintiff and Smart (defendant's agent) and entered a decree setting aside and cancelling the contract. To reverse the decree, defendant appealed.

Three questions are presented. First. Did a confidential relationship exist between the parties? Second. Was plaintiff induced to sign the contract by some deception or fraud on the part of defendant? Third. If there was fraud in the procurement of plaintiff's signature, did plaintiff's performance of the contract from May 23, 1944 to January 10, 1946, without objection, constitute an election to affirm the contract. In the view we take of this case it will not be necessary to discuss the third question.

First. It is true that when the existence of a fiduciary relationship has been established the law casts the burden upon the dominant party to produce evidence of good faith and fair dealing, but equity has not set any bounds to the facts and circumstances out of which a fiduciary relationship may arise, and each case must stand or fall on its own facts. The relationship is not confined to any specific association of the parties, and the origin of the confidence and the source of the influence is immaterial, and no special character or relationship is necessary as a matter of law. The relationship arises wherever the circumstances make it certain that confidence was reposed on one side and domination and influence resulted on the other. But where a fiduciary relationship does not exist as a matter of law, the burden of proving facts from which such a relationship arises is upon the person seeking to establish the relationship, and the proof must be clear, convincing, and so strong as to lead to but one possible conclusion. Stewart v. Sunagel, 394 Ill. 209, 68 N.E.2d 268; Finney v. White, 389 Ill. 374, 59 N.E.2d 859; Johnson v. Lane, 369 Ill. 135, 15 N.E.2d 710; Seely v. Rowe, 370 Ill. 336, 18 N.E.2d 874; and Commercial Merchants National Bank & Trust Co. v. Kloth, 360 Ill. 294, 196 N.E. 214.

With these rules in mind, we have examined the record so as to ascertain whether it contained sufficient evidence to warrant a conclusion that a fiduciary relationship existed between the parties. Our study has convinced us that there was nothing in the relationship of the parties to raise any presumption of a domination by Smart over Vargas or that Smart had acquired an influence and superiority over Vargas which he abused.

Plaintiff, an artist, fifty-one years of age, is a native of Peru. He left Peru at the age of seventeen. From 1912 to 1916 he resided in continental Europe, and since 1916 he has resided in the United States. He came to Chicago in June, 1940. Defendant is engaged in the business of publishing magazines, calendars, and other printed matter. David A. Smart is its president and all of plaintiff's dealings concerning the contract were carried on with David A. Smart as defendant's agent.

In June, 1940, Vargas, then a little known artist, after a conference with Smart, entered into an employment contract with defendant, by which he agreed to furnish defendant with certain art material for use in magazines published by Esquire and for use by it. The contract covered a period of three years, commencing July 1, 1940, with an option to defendant of extending the agreement for an additional period of three years upon giving Vargas ninety days' notice prior to such date. The contract fixed Vargas' salary at $75 per week, payable monthly, and provided additional compensation of 5% of the net receipts of Esquire from sale or other disposition of art work produced by Vargas which was sold or exploited by Esquire for commercial purposes. In case Esquire exercised its option to extend the contract, the basic salary of Vargas during such extended period was to be $150 per week and 60% of the net receipts from outside sources.

The defendant failed to exercise its option to extend this contract but Vargas continued in the defendant's employ without a contract upon a basis mutually satisfactory until May 23, 1944, when a second contract was entered into. This is the contract involved in this appeal.

Briefly, the controlling facts shown from all the evidence were that Vargas was an artist in whom Smart was interested; that as a friend he advised Vargas and his wife (a native born American who handled his business affairs) as to their place of abode and the furnishing of their apartment; that Smart visited Vargas' home and had defendant advance such money as they might need to furnish their apartment and which they might from time to time require for various purposes; that Vargas believed in the honesty of Smart; that Vargas was given attention and supervision so as to make sure that his pictures were the best to be obtained from him; that efforts were made to see that he might work and live in agreeable and pleasant surroundings which would help him to work and enhance his prestige as an artist; and that Smart did what he reasonably could to satisfy the wants and desires dictated by Vargas' artistic temperament.

But belief in the honesty and integrity of a close and intimate friend, Bordner v. Kelso, 293 Ill. 175, 127 N.E. 337; Higgins v. Chicago Title & Trust Co., 312 Ill. 11, 143 N.E. 482, or the existence of an employee-employer relationship, Doheny v. Lacy, 168 N.Y. 213, 61 N.E. 255; Renshaw v. Tracy Loan & Trust Co., 87 Utah 364, 49 P.2d 403, 100 A.L.R. 872, or debtorcreditor relationship, Guffey v. Washburn, 382 Ill. 376, 46 N.E.2d 971, or trust alone, is not sufficient to establish the relationship, Hancock v. Anderson, 160 Va. 225, 168 S.E. 458. Upon this state of the record it cannot be said as a matter of law that Vargas has established the existence of a fiduciary relationship by the proof required by the law applicable to such cases.

Second. We now consider what we think is the turning question in the case, that is, whether the contract is void because plaintiff failed to know what it contained. It is clear from this record and the findings of the court that Vargas understood that he was signing a contract fixing the terms and compensation under which he was to furnish pictures for defendant and that Vargas knew that Smart was representing defendant as its agent in executing the contract. There are but six paragraphs in the contract.It is written in plain and ordinary language and is readily understandable.

It is a rule universally recognized that a written contract is the highest evidence of the terms of an agreement between the parties to it, and it is the duty of every contracting party to learn and know its contents before he signs it. And in the absence of fraud, which must be proved by clear and convincing evidence (Bundesen v. Lewis, 368 Ill. 623, 15 N.E.2d 520), a man in possession of all his faculties, who signs a contract, cannot relieve himself from the obligations of the contract by saying he did not read it when he signed it, or did not know or understand what it contained. Upton v. Tribilcock, 91 U.S. 45, 50, 23 L. Ed. 203. To be sure, if his signature is secured by some fraudulent trick or device as to the context of the contract, which prevents him from reading the agreement, he may be proper action avoid the contract. Ford Motor Co. v. Pearson, 9 Cir., 40 F.2d 858, 867. But the contract cannot be avoided by proof that one of the parties, if he was sound in mind and able to read, did not know the terms of the agreement. One must observe what he has reasonable opportunity for knowing; the law requires men, in their dealings with each other, to exercise proper vigilence and give their attention to those particulars which may be supposed to be within reach of their observation and judgment and not to close their eyes to the means of information which are accessible to them. A person is presumed to know those things which reasonable diligence on his part would bring to his attention.

In the instant case the evidence showed and the court found that Vargas had resided in the United States since 1916; that "he writes English very well, speaks good English"; that "Vargas and his wife were both capable of reading and understanding the English language at the time of the execution of the contract"; and that "prior to the signing of the contract the plaintiff was requested * * * ...

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