Chester v. McDaniel

• Decision Date: 29 December 1972
• Citation: 96 Or.Adv.Sh. 326,504 P.2d 726,264 Or. 303
• Parties: , Blue Sky L. Rep. P 71,062 James A. CHESTER and Maureen L. Chester, Respondents, v. Kathleen McDANIEL et al., Appellants.
• Court: Oregon Supreme Court

Page 726

504 P.2d 726

264 Or. 303, Blue Sky L. Rep. P 71,062

James A. CHESTER and Maureen L. Chester, Respondents, v. Kathleen McDANIEL et al., Appellants.

Supreme Court of Oregon, In Banc.

Argued and Submitted Oct. 13, 1972.

Decided Dec. 29, 1972.

Leo Levenson, Portland, argued the cause and filed a brief for appellants.

Roger L. Meyer, of Sabin, Newcomb, Sabin & Meyer, Portland, argued the cause and filed a brief for respondents.

McALLISTER, Justice.

Plaintiffs brought this action to recover damages for fraud perpetrated by defendants in the sale to plaintiffs of one-half the shares of stock in a grocery store owned by defendants. The jury awarded plaintiffs $15,000 compensatory damages and $30,000 punitive damages. The court awarded plaintiffs an additional $6,500 as attorneys' fees. Defendants appeal. We affirm.

We are concerned with the facts only as a background. The defendants are husband and wife. Their grocery store was incorporated as Shop-Rite Market, Inc., and all of the shares of stock were held by the wife. The land was owned by the husband and leased to the corporation. In September 1969 the defendants advertised for a purchaser of an interest in the market. The plaintiffs, also husband and wife, responded to the ad and were induced to buy one-half of the common stock of Shop-Rite Market, Inc., for $25,000, of which $15,000 was paid down. The plaintiffs soon discovered that they had been defrauded and brought this action. The evidence amply supports the verdict for both compensatory and punitive damages and we are bound by the verdict of the jury.

The voluminous transcript of the trial contains only one ruling requested by defendants in a form sufficient to support an assignment of error. When plaintiffs rested their case the defendants made the following motion:

'I will further move that there be a directed verdict of non-suit in favor of the defendants and each of them on the basis that our affirmative defense of ratification has been proven as a matter of law.'

We will assume that defendants intended to move for a nonsuit on the ground that it affirmatively appeared from plaintiffs' evidence that defendants 'defense of ratification' had been proved as a matter of law.

There is no merit to this assignment of error. The law is well settled that a defrauded purchaser upon discovery of the fraud may elect to rescind the contract or may affirm the contract and sue for damages. The action for damages is an affirmance or ratification of the contract and a waiver of the right to rescind, but in no sense is it a waiver of the right to recover all the damage caused by the fraud. The rule was stated with his usual clarity by Mr. Justice Robert S. Bean in the classic case of Scott v. Walton, 32 Or. 460, 464, 52 P. 180, 181 (1898):

'A party who has been induced to enter into a contract by fraud, has, upon its discovery, an election of remedies. He may either affirm the contract, and sue for damages, or disaffirm it, and be reinstated in the position in which he was before it was consummated. These remedies, however, are not concurrent, but wholly inconsistent. The adoption of one is the exclusion of the other. * * *'

The great weight of authority also holds that where the defrauded party has performed a contract in part before he learns of the fraud he may continue to perform and still recover damages for the fraud. Mr. Justice Lusk in Anderson v. Laws et al., 176 Or. 468, 472--473, 159 P.2d 201, 203 (1945), stated the rule as follows:

'It should be observed that the question here does not relate to a mere waiver of the right to rescind the contract. That may be brought about by 'any delay on his (the defrauded party's) part, and especially his remaining in possession of the property received by him under the contract, and dealing with it as his own.' Grant v. Cartozian Brothers, 120 Or. 607, 611, 253 P. 531, 532; Scott v. Walton, 32 Or. 460, 464, 52 P. 180. But the right to recover damages for the fraud by one proceeding as upon an affirmance of the contract is not so easily lost, and the defrauded party who does not discover the fraud until he has partly performed may go forward with the contract, keep what he received under it, and still maintain his action for damages (McCabe v. Kelleher, 90 Or. 45, 51, 175 P. 608); although he thereby waives his right to rescind, Cameron v. Edgemont Investment Co., 136 Or. 385, 398, 299 P. 698. * * *'

See, also, Selman v. Shirley, 161 Or. 582, 593, 85 P.2d 384, 91 P.2d 312 (1939); Annotation, 13 A.L.R.2d 807, 812.

Only when there is a new agreement between the parties after discovery of the fraud will the court find a waiver of the fraud action. See Anderson v. Laws, supra, and Conzelmann v. N.W.P. & D. Prod. Co., 190 Or. 332, 354--356, 225 P.2d 757 (1950). There is no contention in this case that the parties entered into a new contract respecting the same transaction within the rule of those cases. If the conduct of the plaintiffs for a short period after they began to discover the fraud was inconsistent with the right to rescind their conduct did not impair in any degree their right to damages.

Plaintiffs alleged two causes of action--one for commonlaw fraud and one under the Oregon Securities Law, ORS Chapter 59. Defendants' second assignment of error reads as follows:

'Chapter 59 (Oregon Securities Law) did not prohibit defendant Kathleen McDaniel, in an isolated transaction and not in the course of repeated and successive transactions from selling her shares in Shop-Rite Market, Inc. It was error, therefore, for the court to overrule defendants' motion for a judgment of involuntary nonsuit and not withdrawing plaintiff's second cause of action charging a violation of Chapter 59.'

This assignment of error is based on the assumption that because the sale of defendants' stock to plaintiff was an isolated transaction it was exempt from the Oregon Securities Law. Although there was...