## Facts

- Francisca L. De Martin owned land subject to mortgage liens held by James Phelan.
- De Martin alleged the land was worth about $390,375 and the mortgage debt was about $196,000, leaving a substantial equity of redemption.
- De Martin alleged she was indigent, unable to obtain additional financing or sell the property during a period of financial stringency, and that Phelan knew of her condition.
- During negotiations, Phelan offered increasing amounts for De Martin’s equity of redemption, culminating in an offer of $19,000.
- While negotiations continued, Phelan advertised foreclosure sales under the mortgages and repeatedly postponed them.
- De Martin conveyed her equity of redemption to Phelan for $19,000; she alleged the equity was worth at least about $45,500 and that the price was grossly inadequate.
- About six years later, De Martin sued for equitable relief, alleging Phelan took undue advantage of her distress and failed to disclose facts bearing on value and his willingness to pay more.
- The trial court sustained a general demurrer to the amended complaint for failure to state a cause of action and entered judgment for defendants (Phelan’s executrices).

## Issues

1. Whether a mortgagor states a claim for fraud, undue influence, or oppression by alleging the mortgagee purchased the equity of redemption at a grossly inadequate price while knowing of the mortgagor’s financial distress.
2. Whether a mortgagee’s silence about the value of the equity, or about the mortgagee’s maximum willingness to pay, is actionable fraud absent a fiduciary or confidential relationship or affirmative misrepresentation.
3. Whether use of foreclosure advertising and postponements as negotiation pressure constitutes actionable coercion or oppression when the mortgagee is exercising contractual and legal rights.

## Decision

- The California Supreme Court affirmed the judgment sustaining the demurrer.
- The court held the amended complaint did not plead facts constituting fraud, undue influence, or oppression.
- The court treated the allegations as showing hard bargaining and the exercise of legal foreclosure rights, not wrongful conduct creating liability.
- The court concluded the pleaded nondisclosure did not support rescission or other relief because no duty to disclose was alleged.

## Legal Principles

- A complaint based on fraud in a transaction must allege an actionable misrepresentation or concealment in breach of a duty to speak, and facts showing inducement and causation.
- Mere silence about value, or about one party’s internal valuation or willingness to pay more, is not fraud absent a duty to disclose arising from a fiduciary or confidential relationship or similar circumstances.
- The mortgagor–mortgagee relationship, without more, does not impose fiduciary duties in negotiations for purchase of the equity of redemption.
- Lawful exercise or threatened exercise of foreclosure rights generally does not constitute oppression or undue influence, even if it increases economic pressure on a financially distressed debtor.
- Inadequacy of consideration, standing alone, is insufficient to establish fraud or undue influence without additional facts showing deception, wrongful coercion, or breach of a disclosure duty.

## Conclusion

The court affirmed dismissal at the pleading stage because the alleged disparity in price and the mortgagee’s awareness of the mortgagor’s distress, combined with nondisclosure and lawful foreclosure activity, did not establish actionable fraud, undue influence, or oppression absent misrepresentation or a duty to disclose.


De Martin v. Phelan, 115 Cal. 538 (1897)