McCabe v. Kelleher

BURNETT, J.

According to 39 Cyc. 1997, quoted with approval in Kruse v. Bush, 85 Or. 394 ( 167 Pac. 308 ):

“One who has been induced by fraudulent representations to become the purchaser of property has, upon the discovery of the fraud, three remedies open to him, either of which he may elect: He may rescind the contract absolutely and sue in an action at law to recover the consideration' parted with upon the fraudulent contract; he may bring an action in equity to rescind the contract and in that action have full relief; lastly, he may retain what he has received and bring an action at law to recover the damages sustained. ’ ’

In the instant case the plaintiffs have adopted the third remedy mentioned by the text-writer. In Kruse v. Bush the plaintiff had entered into an executory contract to buy some land and had paid part of thé purchase price, after which she discovered that she had been defrauded by the vendor. Although she had *51 not paid in full for the property, she was sustained in her rescission of the contract and her action to recover what she had paid, because she had promptly tendered to the vendor a reconveyance of the tract and had demanded the return of what she had paid.

1-5. It is also a principle of law that if while a contract is yet wholly executory the fraud inducing it is ascertained by a party to it, he waives the deceit if he performs his portion, either wholly or partly. But the rule is otherwise if he does not discover the cheat until he has partly performed: McDonough v. Williams, 77 Ark. 261 ( 92 S. W. 783 , 8 Ann. Cas. 452). The reason of this doctrine is that while the contract remains wholly executory upon both sides, the matter is yet at large, so that if with knowledge of the fraud either party goes forward in performance of the stipulation, he does so with his eyes open, and the damage resulting, if any, would be in a sense self-inflicted. A different situation is apparent when he innocently enters upon performance and accomplishes part of his covenants. He is then in the condition where he is entitled to keep, what he has acquired by the contract and sue for damages, although he may have his election to take either of the other remedies mentioned: In the first case put by Cyc. a rescission is necessary; in the third, none is required. As against a subsequent attempt at utter rescission and recovery of what has been paid on the purchase price, payment of installments of the money agreed to be paid, with knowledge of the fraud, will amount to such a ratification as will defeat complete rescission. The reason is that one wishing to break up the contract entirely must act promptly on the discovery that he has been deceived, and he is not allowed to speculate on whether some advance in values, or the like, will not *52 save him from loss: Bell v. Keepers, 39 Kan. 105 ( 17 Pac. 785 ). The principle is not controlling where the injured party elects to keep the property and sue for damages alone. In the present litigation the plaintiffs had purchased the property, had acquired the title in fee simple by the conveyance from the defendant and, according to his pleading, they had delivered their promissory notes secured by a mortgage on said real property for the remainder of the purchase price.” In other words, they had promised absolutely and at all events to pay the money, and the defendant had accepted this engagement dn lieu of such payment. In a sense, the transaction was-closed, and while it might have been utterly rescinded by a reconveyance, of the land and a demand for the return of the payments and for the cancellation of the notes and mortgage, if they were still in the control of the defendant, yet the plaintiffs were not compelled to adopt that course.

6, 7. It is said, however, in the answer to which the court sustained a demurrer, that the plaintiffs waived their claim for damages on account of having continued to pay after they discovered the fraud. The conclusion of waiver does not necessarily follow from the facts stated in the defense tendered. It is not averred therein that the plaintiffs intended to forego the right the law gave them to keep the property and sue for damages. Neither does an estoppel result, because it is not shown that the defendant was induced to change his position to his hurt on account of the payments made by the plaintiffs.

“The question of waiver is mainly a question of intention which lies at the foundation of the doctrine. Waiver must be manifested in some unequivocal manner and to operate as such it must in all eases be in *53 tentional. There can he no waiver unless so intended by one party and so understood by the other or one party has so acted as to mislead the other and is es-topped thereby. Since intention is an operation of the mind, it should be proven and found as a fact, and is rarely to be inferred as a matter of law”: 40 Cyc. 261.

8, 9. The facts stated in the defense under consideration do not show any intention on the part of the plaintiffs to relinquish their right to keep the land and sue for damages on account of its not conforming to the representations of the defendant. The matter alleged may have some value as evidence on the question as to whether the plaintiffs were really deceived or whether their grievance is a mere afterthought growing out of dissatisfaction, but there was no error in sustaining the demurrer to it as a pleading.

10. The instructions requested by the defendant should have been given. The tenth instruction given was faulty in saying in substance that the defendant would be precluded from averring that the plaintiffs were negligent merely because he had made fraudulent statements. The rule is thus tersely laid down by Mr. Justice Bean in Beimers v. Brennan, 84 Or. 53 ( 164 Pac. 552 ):

“A purchaser must use reasonable care for his own protection and should not rely blindly upon statements made by a seller; and between parties dealing at arm’s-length where no fiduciary relation exists and no device or artifice is used to prevent an investigation, it is the general rule that a purchaser must make use of his means of knowledge, and failing to do so, he cannot recover on the ground that he was misled by the seller: 30 Cyc. 49; Allen v. McNeelan, 79 Or. 606 ( 156 Pac. 274 ); Poland v. Brownell, 131 Mass. 138 ( 40 Am. Rep. 215 ). "Where there has been an inspection by a person making an exchange of property, false rep- *54 reservations as to the value cannot, as a rule be made the basis of an action for damages.” (Citing authorities.)

Where no fiduciary relation exists between the contracting parties and each is sui juris dealing at arm’s-length with the other, each is required to use diligence in a reasonable degree to protect his own interest. Neither is held to be the guardian or protector of the other. Neither can inertly shut his eyes to what is manifest to a person of ordinary intelligence. In order to excuse him from reasonable care of his own interest in respect to the subject matter of the contract which is plainly before his observation, there must be some effort on the part of the other party or some condition tending to forestall or prevent investigation. In the precedents cited by the plaintiffs on this point there is usually found some element or circumstance whereby the injured party was deprived of an opportunity to examine for himself and hence, in some degree at least, was compelled to rely upon the misleading statements of the person with whom he dealt. For instance, Steen v. Weisten, 51 Or. 473 ( 94 Pac. 834 ), was a case where the timber-land in question was in a distant part of the state and the plaintiff had no opportunity to see it before buying. In Boelk v. Nolan, 56 Or. 229 ( 107 Pac. 689 ), the half truths about the state of the plaintiff’s title to land in Oregon which the defendant sought to acquire were uttered in California where the plaintiff had no opportunity to examine the record or to consult anyone else who knew the facts. Jeffreys v. Weekly, 81 Or. 140 ( 158 Pac. 522 , Ann. Cas. 1918D, 690), involved a tract of land of such irregular shape that its area could not be estimated with any degree of accuracy, so that under the circumstances of the case the buyer was compelled to rely on the seller’s *55 statement. No such situation is presented here where the plaintiff husband is a civil engineer, confessedly competent to survey the tract with precision and, as he states, could have stepped it and thus ascertained with close approximation how much it contained.

Instructions 10 and 11 were contradictory of each other. In the former, the court eliminated the duty of the purchasers to take reasonable care of their own interest, and in the latter he inculcated it as a precept governing their conduct. The principle that where the parties are dealing on even terms it is the duty of each to exercise reasonable diligence in guarding his own interest is illustrated in Reimers v. Brennan, 84 Or. 53 ( 164 Pac. 552 ), and Allen v. McNeelan, 79 Or. 606 ( 156 Pac. 274 ). The doctrine that in order to excuse either party from thus protecting himself there must be some artifice practiced by the other to thwart investigation, is set out in Aitken v. Bjerkvig, 77 Or. 397 ( 150 Pac. 278 ).

11, 12. It is admitted that the plaintiffs resided on the land almost two months before paying any money or taking the deed, and that they had an opportunity to ascertain the area of plow land, the nature of the soil and most other things the falsity of which they charge against the defendants Under these circumstances the defendant was entitled to an instruction covering the duty of the plaintiffs to look out for themselves and the court was wrong when it said in one part of the charge that the defendant could not rely upon this rule if he made the fraudulent statements attributed to him, while later in its directions to the jury the court taught the doctrine of the plaintiffs’ duty in the respect mentioned. Contradictory instructions have often been held ground for reversal, because they tend to confuse the jury: Neis v. Whit *56 aker, 47 Or. 517 ( 84 Pac. 699 ). For this reason also the judgment is reversed and the cause remanded for further proceedings. Reversed and Remanded.

McBride, O. J., and Benson and Harris, JJ., concur.