Hirsch v. Silberstein
424 Pa. 486, 1967 Pa. LEXIS 807, 227 A.2d 638 (1967)
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Rule of Law:
A seller of real property cannot rescind a contract on the basis of fraud where the buyer was an agent for an undisclosed principal and misrepresented their own intention to occupy the property, as long as the seller received the agreed-upon, fair contract price and thus suffered no legally compensable damages.
Facts:
- Appellants agreed to sell a one-acre lot adjoining their home to husband appellee Silberstein for $10,000 via a written agreement.
- The agreement contained a clause prohibiting the buyer from assigning the agreement without the seller's written consent.
- During negotiations, Silberstein stated to the appellants' real estate agent that he intended to build his own home on the lot.
- Relying on this statement, husband appellant investigated Silberstein and concluded he would be a "desirable neighbor."
- Prior to the sale, the Silbersteins had entered into a declaration of trust with appellees Cross, agreeing to convey the land to them after acquiring it.
- On May 25, 1965, appellants conveyed the property to the Silbersteins by deed.
- On the same day, the Silbersteins conveyed the property to the Crosses, who are Negroes.
- In a related affidavit, Silberstein admitted he had been acting as a straw party for the Crosses.
Procedural Posture:
- Appellants filed a complaint in equity in the trial court.
- The complaint sought to rescind or cancel two deeds to a property they had sold.
- The trial court dismissed the appellants' complaint.
- Appellants appealed the dismissal to this court.
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Issue:
Does a seller have the right to rescind a land sale contract on the grounds of fraud when the buyer, acting as an agent for an undisclosed principal, misrepresents their intent to live on the property, and the seller would not have sold had they known the buyer was a straw party, but the seller received the full contract price?
Opinions:
Majority - Mb. Justice Cohen
No. A seller cannot rescind a land sale contract for fraud due to the buyer's misrepresentation of their identity or intent when the seller has suffered no legally cognizable damages. First, the anti-assignment clause was not violated because the agreement of sale itself was never assigned; rather, Silberstein took title to the property and then conveyed it in a separate transaction. Second, the claim of fraud fails because even if Silberstein misrepresented that he was not acting for a principal, the appellants suffered no compensable damages. They received the full $10,000 price they agreed to, and no claim was made that this price was inadequate. Citing Standard Steel Car Company v. Stamm, the court reasoned that in an arm's length business transaction, the identity of the buyer is not a material element, and its concealment does not constitute fraud when the seller receives the fair, agreed-upon price. The seller's subjective desire for a particular neighbor is not a legally protected interest that can support rescission.
Analysis:
This decision solidifies the legal principle that in arm's length real estate transactions, the economic substance of the deal is paramount over the seller's subjective, non-monetary preferences, such as the identity of their future neighbor. It reaffirms the validity of using straw parties or agents for undisclosed principals, insulating such transactions from fraud claims as long as the seller receives the fair, bargained-for consideration. The ruling limits the scope of what constitutes a 'material' misrepresentation, effectively deciding that the identity of the ultimate purchaser is not material if there is no financial harm to the seller. Consequently, this case makes it significantly more difficult for sellers to rescind contracts based on the buyer's identity or intended use of the property.
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