Ziegler v. Stinson , 111 Or. 243 ( 1924 )

RAND, J.

The principles of law applicable to the foregoing facts are well settled. A party to a contract for the exchange of goods, chattels or real property, who was induced to enter into the contract by false and fraudulent representations, may, at his election, after knowledge of the fraud, rescind the contract and recover back what he has parted with, provided always that the parties can be restored to the position in which they stood at the time the contract was entered into: Kerr on Fraud (5 ed.), p. 386.

A party, in ignorance of the true facts to whom false and fraudulent representations are made for the purpose of inducing him to enter into a contract, as a general rule is justified in relying upon the statements and is not bound to verify them by an independent investigation of his own. To entitle him to relief, either at law or in equity, it is sufficient if the representation was false and was made to induce him to enter into the contract or transaction and that he relied and acted upon it and that the misrepresentation concerned something really material, and so far affected the value or character of the subject matter of the contract that had the truth been known to him it is not probable he would have entered into the contract or engaged in the transaction. But he is not justified in relying upon a statement, says Mr. Pomeroy, “when, before entering into the contract or other transaction, he actually resorts to the proper means of ascertaining the truth and verifying the statement”; or “if, after a representation of fact, however positive, the party to whom it was made institutes an inquiry for himself, has recourse to the proper means of obtaining information, and actually learns the real facts,” or “when, after the representation, the party receiving it has given to him a sufficient opportunity of examining into the real facts, when his attention is directed to the sources of information, and he commences, or purports or professes to commence, an investigation. The plainest motives of expediency and of justice require that he should be charged with all the knowledge which he might have obtained had he pursued the inquiry to the end with diligence and completeness.” 2 Pomeroy’s Equity Jurisprudence (3 ed.), §§ 892, 893.

It is held in this jurisdiction that the rule of caveat emptor applies “where a party alleged to have been deceived by the false representations of his adversary has full means of knowing the truth, and has acted in the transaction on his own judgment.” Da-vict v. Moore, 46 Or. 148 (79 Pac. 415); Wimer v. Smith, 22 Or. 469 (30 Pac. 416); Cawston v. Sturgis, 29 Or. 331 (43 Pac. 656).

The testimony shows, and it is not disputed, that the plaintiff, instead of relying upon the representations alleged in the complaint as to the value of the real and personal property, the number of acres tilled and the age and condition of the horses, chose to make an independent investigation for himself and to form his own judgment concerning the same. These things were all open, patent and visible and could have been discovered by plaintiff by the exercise of ordinary observation, and he is charged with all the knowledge concerning the same that he could have acquired had he made a thorough and complete investigation of them, as he was bound to do.

As to the alleged representations of the income which the defendants had received from the milk, cream, bntter and eggs, a careful consideration of all of the testimony convinces us that these representations, if made as alleged, were true. In justice to the defendant, it should be said that there is no clear, satisfactory or convincing testimony that the defendants ever misrepresented any fact to the plaintiff or that the plaintiff was ever misled or defrauded in the transaction. It seems to be clear from the testimony that the plaintiff was entirely satisfied with his bargain until Mrs. Ziegler, who had been employed as a cashier in the office of the “Morning Oregonian,” first visited the place at the end of Ju]y, 1921, and at once became dissatisfied.

Kelly, who later became the agent of both parties, testified that during his first interview with plaintiff, he informed plaintiff that defendants’ personalty was unencumbered, and the proof shows that that representation was untrue. There is no testimony, either that of Kelly or of anyone else, that the defendant ever expressly or tacitly authorized Kelly to make any such statement. At the time Kelly made that statement he informed the plaintiff that he had no personal knowledge of his own and the evidence clearly discloses that in making the statement Kelly was acting innocently. If. it can be said that at the time Kelly made said statement he was acting in the business of the defendant and within the scope of his authority, his declaration would be the declaration of his principal, and if plaintiff relied upon the statement and was misled to his injury, the fact that the statement was made by Kelly might afford the plaintiff ground for relief, even though the defendant himself was ignorant of the fraud and free from all moral guilt: Kerr on Fraud (5 ed.), 407.

It also appears that Kelly prepared all of the instruments effecting the exchange of properties, including the bill of sale, and that the bill of sale so prepared by Kelly was written upon a printed form of a bill of sale and contained a printed habendum clause, containing covenants usual to such instruments. Among these covenants was the covenant that the property transferred thereby was free from all liens and encumbrances. The defendant testified that he signed this bill of sale hurriedly ^and without reading the printed part, and that at xhe time he signed it he had no knowledge that this covenant of warranty was contained therein. There is nothing in the testimony to impute doubt upon the motives or honesty of the defendant. Plaintiff had a right to rely upon this representation without the making of any search of the records to verify it, and it is apparent that the plaintiff acquired the property believing that the personal property was unencumbered. The fact was, and it is so alleged in the complaint, that at the time the exchange was made, defendant’s real and personal property was subject to the lien of two mortgages, one a real mortgage, the other a chattel mortgage, but both mortgages were given to secure one and the same debt. They were both given to secure the payment of two notes aggregating the sum of $4,000, and in each mortgage the amount of the indebtedness and the time stipulated for payment were identical in terms. By his contract, as well as by the terms of the deed, which he accepted, the plaintiff assumed this indebtedness and agreed to pay the same. Payment by him of the amount secured by the real mortgage would have operated to satisfy and discharge the lien of both mortgages. Plaintiff was, therefore, not required to pay any greater amount than the amount assumed or to pay that amount at any different time than that contracted for. There is no evidence to show that the plaintiff has ever been disturbed in his possession of the personal property. The only damage or injury he could have sustained on account of there being two mortgages, instead of one, would result solely from his inability to handle and dispose of the personalty as freely as he could otherwise have done. His damages, if any, were merely nominal and there is no allegation or proof that he sustained even nominal damages.

“Fraud without resulting pecuniary damage is not a ground for the exercise of remedial jurisdiction, equitable or legal; * * If any pecuniary loss is shown to have resulted the court will not inquire into the extent of the injury; it is sufficient if the party misled has been very slightly prejudiced, if the amount is at all appreciable.” 2 Pomeroy’s Equity Jurisprudence (3d ed.), § 898.

As plaintiff assumed the payment of the $4,000 secured by a mortgage upon the realty, it is not reasonable to say, under the testimony offered in this case, that it is not probable he would have refused to make the exchange if he had known that the indebtedness he had assumed and agreed to pay was secured by a lien upon the small amount of personal property he was acquiring by means of the exchange. There is no evidence to show that at the time or before the entering into of the contract by plaintiff, the plaintiff ever saw the bill of sale or knew that the covenant of warranty, that the personal property was free from encumbrances, was inserted therein. The bill of sale was delivered after the contract was entered into and there -is nothing to show that this covenant of warranty in any way induced the plaintiff to enter into the contract. “A breach of warranty does not entitle the plaintiff to avoid the contract; he must sue upon the breach of warranty, but a misrepresentation may entitle the plaintiff to avoid the contract.” Kerr on Fraud (4 ed.), p. 7.

The fact that some of the stock and farm utensils on the place were subject to the lien of a chattel mortgage is at most a partial failure of consideration for which compensation can be made in damages and which accordingly does not discharge the entire contract. The rule is stated as follows:

“A partial failure of consideration does not operate as a discharge of the entire contract if compensation for such breach can be made by awarding damages to the adversary party and if the performance which he has received, together with such award of damages, 'will do substantial justice.” 5 Page on Contracts (2d ed.), § 2982. See also § 2981, where it is said: “It is not the breach of every covenant of a contract that may operate as a discharge of the adversary party. To have this effect the covenant broken must be a vital term of the contract, breach of which makes performance impractical and the accomplishment of the purpose of the contract impossible. Breach of a minor and subsidiary covenant may give rise to an action for damages, but it cannot operate as a discharge.”

Plaintiff’s allegation that defendant falsely and fraudulently represented to plaintiff that the real property was free from all liens and encumbrances, except a mortgage for $4,000, when in fact it was subject to the lien of a judgment for $357.01, does not seem to have been made in good faith, for the writing prepared by the plaintiff and the defendant as a basis of their negotiations for an exchange of their properties, recites that there is a judgment lien for $282.92, costs on same $44.40, interest on same for one and three-fourths years, $29.69, making a total of said sum of $357.01. The contract later entered into by the parties contains a recital to the same effect and expressly stipulated that this sum was a lien against the land. The sum of $406.34, which the contract stipulated should be paid by defendant to the bank for. plaintiff, included and was intended as a payment of this sum of $357.01.

For these reasons the decree of the lower court must be reversed and the cause will be remanded to the court below, with directions to dismiss the suit, and it is so ordered.

Reversed and Remanded, With Directions.

Rehearing Denied.

McBride, C. J., and Burnett and Brown, JJ., concur.