Cole v. Gerhart, 2

• Citation: 5 Ariz.App. 24,423 P.2d 100
• Decision Date: 27 January 1967
• Docket Number: CA-CIV,No. 2,2
• Parties: Rex L. COLE and Helga S. Cole, husband and wife, Appellants, v. Herbert GERHART and Lorena Gerhart, husband and wife, Appellees. 196.
• Court: Court of Appeals of Arizona

Page 100

423 P.2d 100

5 Ariz.App. 24

Rex L. COLE and Helga S. Cole, husband and wife, Appellants, v. Herbert GERHART and Lorena Gerhart, husband and wife, Appellees.

No. 2 CA-CIV 196.

Court of Appeals of Arizona.

Jan. 27, 1967.

O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, by Harry J. Cavanagh, Phoenix, for appellants.

Williams & Ryan, by Martin F. Ryan, Tucson, for appellees.

MOLLOY, Judge.

This is an appeal from an order granting a new trial in a civil action arising out of the sale of a 160 acre farm in the 'Kansas Settlement' area of Cochise County. A trial to a jury had resulted in a verdict in favor of the purchaser in the sum of $15,000 on a complaint charging fraud in the inducement of said contract.

The fraud charged in the complaint was that the sellers had represented that the irrigation well upon the property was capable of producing 1,000 gallons per minute, and that the domestic well upon the property was capable of producing all of the domestic water needed. At the trial there was sufficient evidence produced from which the jury could have found that the sellers knew at the time of the sale in the spring of 1962 that the water table in the particular area was falling and that this well, which had previously had a production capacity in excess of 1,000 gallons per minute, was so depleted at the time of sale that its maximum capacity was substantially less. There was also evidence from which the jury could have found that the seller represented, both personally and through a real estate broker, that the irrigation well in question was producing 1,000 gallons per minute at the time of sale.

The purchasers proved that irrigated land in this area, with a well sufficient to supply necessary irrigation water thereto, was worth $250 per acre and that undeveloped acreage in this area was worth $100 per acre. The purchasers contended that they were entitled not only to the difference in value between irrigated land and undeveloped land but also to recover monies expended in an attempt to improve the well in question up to the capacity necessary to irrigate the land in question, and also to recover for crop losses for the year of sale and subsequent years. Some of such evidence was admitted without objection but the jury was subsequently instructed by the trial court to disregard same, on the theory that the purchasers were only entitled to recover the 'benefit-of-the-bargain,' that is, the difference between the actual value of the property in question in the condition tht it was sold and the value of the same property as it would have been if it had been as represented by the sellers.

In granting a new trial as to all issues, the trial court specified his reasons for so doing as follows:

'(a) That the verdict is not justified by the evidence for the reason that the amount of the verdict in favor of plaintiffs, to-wit, $15,000.00, ignores the measure of damages in accordance with the instructions of the Court and indicates strongly that the jury based its verdict upon evidence regarding the cost to the plaintiff of his efforts to improve the well over some period of time after completion of sale and regarding crop losses for the year of sale and the following year or years, which evidence should not have been received.

'(b) That the Court erred in the admission of plaintiff's exhibit 3A, the listing prepared by Johnson & Johnson, defendants' brokers, for the reason that the record fails to show that the representation therein that the well would produce 1,000 gpm was authorized by the defendants; and that during the trial the Court declined to strike the same from the record and to instruct the jury to disregard the same because the Court felt that no amount of instruction could remove the effect thereof from the minds of the jury; the said exhibit 3A having been admitted over the defendant's objection and contrary to the ruling in G. P. Light etc. vs. Chandler Improvement Co., 33 Arizona 101.'

The purchasers contend on appeal that there was sufficient evidence in the record to support the jury's verdict under the strict 'benefit-of-the-bargain' rule upon which the jury was instructed by the trial court. The purchasers arrive at this result by computing from the results of a well test conducted some six weeks after the closing of the sale, which showed a capacity of the well in question of 680 gallons per minute. From this, and using an alleged finding of the jury that land rendered unirrigable by the well deficiency was worth $30.70 per acre, they arrive at a damage computation of exactly $15,000. We find the computation faulty, both because it allows no value whatsoever to the home included in the sale, but, more importantly, because the record is devoid of any evidence that any kind of land in this area, irrigated or unirrigated, developed or undeveloped, or in any other state, is worth less than $100 per acre.

In other portions of their brief, the purchasers argue that a well test made approximately seven months after the closing of the sale, at which time this well was tested at 372 gallons per minute, could be used in arriving at the amount of damages awarded by the jury. However, even if this measurement is used, the evidence indicates that only ninety-nine acres would be rendered unirrigable by the deficiency of 638 gallons per minute. Using this well capacity seven months after the sale, the maximum damage under the instructions of the court would be $14,850.

The purchasers further argue that there was evidence in the record that they had expended $10,277.99 in an effort to get water to irrigate this farm and that they had sustained crop losses prior to trial because of the failure of the well to come up to representations. They argue that the trial court wrongfully construed the 'benefit-of-the-bargain' rule of damages in eliminating these expenditures from the jury's consideration. We are in agreement that the trial court's concept of the rule of damages in a fraud case was erroneous and that at least some of the evidence of other loss sustained by the plaintiffs should have been considered by the jury.

This state has adopted the 'benefit-of-the-bargain' rule in fraud cases, Lutfy v. R. D. Roper & Sons Motor Co., 57 Ariz. 495, 115 P.2d 161 (1941). The rule has been adopted to provide for fuller recompense to persons defrauded, not to limit damages proximately sustained as a result of fraudulent conduct. Massachusetts has been a pioneer state in establishing the rule of damages under discussion. See McCormick, on Damages, § 121, p. 450 (1935). In the early case of Morse v. Hutchins, 102 Mass. 439 (1869), Judge Gray stated:

'To allow to the plaintiff * * * only the difference between the real value of the property and the price which he was induced to pay for it would be to make any advantage lawfully secured to the innocent purchaser in the original bargain inure to the benefit of the wrongdoer; and, in proportion as the original price was low, would afford a protection to the party who had broken, at the expense of the party who was ready to abide by, the terms of the contract.'

102 Mass. at 440.

And see United States v. Ben Grunstein & Sons Company, 137 F.Supp. 197 (1956).

We have been cited no decision holding that because the 'benefit-of-the-bargain' rule has been adopted, other fundamental rules of damage must be thrown out the window. In fact the writers in this area are unanimously in accord with the granting of other consequential damages that may arise from the fraudulent conduct of the vendor. Professor Prosser, an advocate of the 'out-of-pocket' rule, states in his Law of Torts § 105, p. 752 (3d ed. 1964):

'In addition to such a normal measure of damages Under whatever...