Dixon v. Schoonover

• Decision Date: 08 February 1961
• Citation: 359 P.2d 115,226 Or. 443
• Parties: William R. DIXON and Beatrice L. Dixon, Respondents, v. Arthur L. SCHOONOVER and Catherine F. Schoonover, Appellants.
• Court: Oregon Supreme Court

Page 115

359 P.2d 115

226 Or. 443

William R. DIXON and Beatrice L. Dixon, Respondents, v. Arthur L. SCHOONOVER and Catherine F. Schoonover, Appellants.

Supreme Court of Oregon, Department 2.

Argued and Submitted Dec. 14, 1960.

Decided Feb. 8, 1961.

Norman K. Winslow, Salem, argued the cause and filed briefs for appellants.

Carrell F. Bradley, Hillsboro, argued the cause for respondents. On the brief was Bush & Bradley, Hillsboro.

Before McALLISTER, C. J., and WARNER, SLOAN, O'CONNELL and HOWELL, JJ.

HOWELL, Justice pro tem.

Plaintiffs brought an action for breach of contract against defendants who filed a counterclaim alleging fraud. The Jury returned a verdict for the defendants on the counterclaim. The trial court granted plaintiffs' motion for judgment n. o. v. and denied their motion for a new trial. Both parties appeal.

In October 1954, plaintiffs were buying a dairy farm in Klickitat County, Washington from Delwyn Allaway. After some negotiations, the plaintiffs, on October 29, 1954, entered into a contract to sell their interest in the farm to defendants. As part payment of the purchase price the defendants transferred to plaintiffs certain real property in Lincoln County, Oregon. The contract required defendants to pay $500 per month to be applied on the Allaway contract and $200 per month to plaintiffs. The defendants made some payments on the former contract and none to plaintiffs. The Allaway contract became in default and plaintiffs' and defendants' interest in the Klickitat County, Washington, property was foreclosed.

Plaintiffs alleged a breach of contract for their first cause of action and as a second cause of action demanded judgment for $800 and attorneys' fees on a promissory note executed by defendants. Defendants filed a counterclaim alleging fraudulent misrepresentations in the sale of the Washington dairy farm and prayed for $34,000 compensatory and $15,000 punitive damages. The defendants in their answer admitted the amount demanded in plaintiffs' first cause of action and also admitted the $800 due on the promissory note alleged in plaintiffs' second cause of action.

The jury returned a verdict for $8,000 compensatory damages for defendants on their counterclaim. The judgment entered on this verdict was set aside by the trial court and a judgment n. o. v. entered for plaintiffs for the $800 and attorney's fees upon plaintiffs' second cause of action upon the promissory note. The trial court allowed plaintiffs' motion for judgment n. o. v. upon the ground that defendants' counterclaim for fraud was barred by the statute of limitations. The plaintiffs' motion for a new trial was denied.

The counterclaim, after stating the misrepresentations, alleged as follows:

'That defendants did not discover the actual truth with reference to the falsity of the misrepresentations referred to in Paragraph III hereof until they had been operating said dairy farm for a number of months and, while they had some information on some subjects prior thereto, did not discover the falsity of any of them with certainty until approximately the 15th of February, 1955, and thereafter.'

Our statute of limitations, ORS 12.110, provides that an action at law for fraud and deceit must be commenced within two years from the 'discovery of the fraud or deceit.'

'Discovery of the fraud or deceit' means from the time the fraud was known or could have been discovered through the exercise of reasonable care. Linebaugh v. Portland Mortgage Co., 116 Or. 1, 8, 239 P. 196, 198.

When the pleading discloses that the action was not commenced within the two years provided by the statute, it is necessary, in order to toll the statute, to negative lack of diligence and set forth the reasons why there was not an earlier discovery of the fraud. Heard v. Coffey et al., 218 Or. 275, 344 P.2d 751; Huycke et ux. v. Latourette et al., 215 Or. 173, 176, 332 P.2d 606.

As the defendants purchased the property on October 29, 1954, and the counterclaim was filed on February 5, 1957, over two years had elapsed and the pleading did not show an excuse for the delay. This fact appeared on the face of the counterclaim. However, the plaintiffs did not demur but pleaded the bar of the statute of limitations in their reply by alleging the action was not commenced within two years from the time the alleged fraud was or should have been discovered.

Both parties and the trial court treated the question of the statute of limitations as one of fact and evidence was introduced on the issue of when the fraud was or could have been discovered.

Defendants' first assignment of error charges the defense of the statute of limitations was waived when the plaintiffs failed to demur to the counterclaim and, consequently, the trial court erred in submitting this defense to the jury and in granting the judgment n. o. v. for plaintiffs.

The general rule is that if it appears from the face of the pleading the action is barred by the statute of limitations, the objection must be taken by demurrer or it is waived. Ricker v. Ricker, 201 Or. 416, 270 P.2d 150; Eastman v. Crary, 131 Or. 694, 284 P. 280; Creason v. Douglas County, 86 Or. 159, 167 P. 796; Spaur v. McBee, 19 Or. 76, 23 P. 818.

We think that this rule should not be applied in the circumstances of this case. If it is said that the plaintiffs waived the defense of the statute by failing to demur, then equally the defendants revived the availability of the statute as a defense when instead of moving to strike the affirmative allegations of the reply to the effect that the counterclaim was barred by the statute of limitations, they went to trial upon that issue and did not raise the question of waiver of the statute until the case reached this court.

This rule of waiver by failure to demur, while firmly established in this state, is nevertheless a technical one which ought not to be extended to a case like this where it is apparent that the party who might benefit by it elects not to do so until the case reaches the appellate court.

A somewhat similar question arose in Boyd v. Blankman, 29 Cal. 19, 87 Am.Dec. 146. There, in an action based on fraud, the complaint did not allege the discovery of the fraud within three years (the statutory time in California) next prior to the commencement of the action. However, the replication did so allege and the trial court made a finding upon this issue. With reference to this question, the Supreme Court said '* * * as the discovery within the three years is averred in general terms in the replication, and the issue thereupon was tried without objection in the court below, the finding will be taken as if made upon an issue properly raised by the pleadings.' We are of the opinion that upon the present record the defendants are precluded from urging that the plaintiffs have waived the defense of the statute of limitations.

In allowing the motion for judgment n. o. v. the trial court stated it was obvious from the record the defendants possessed knowledge of the claimed fraud more than two years before filing their counterclaim and that the issue of fraud should not have been submitted to the jury.

The allegations of misrepresentation submitted to the jury were as follows:

'(a) That the real property described in said Exhibit 'A', consisting of a dairy farm, was then grossing by way of income, approximately $24,000.00 per year.

'(b) That plaintiffs' monthly checks from the sale of dairy products raised upon said real property averaged approximately $2,000.00 per month and that a check for the previous month in the amount of $1,800.00 was the lowest check in amount that had ever been received by plaintiffs from the sale of milk from said dairy farm.

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'(d) That said dairy herd had been bred at such intervals that the cows forming a part of the same would 'come fresh' in orderly intervals throughout the calendar year in such a manner that said dairy farm would produce a regular monthly quantity of butter fat and milk throughout the year.

'(e) That plaintiffs had been meeting their 'quota' with reference to the delivery of milk from said dairy herd regularly and without the losses occasioned by failure to make said 'quota' and in particular, that said dairy herd had been bred at proper intervals so that the operator of said dairy farm could hold his 'basis' within the terms of milk marketing regulations and laws.

'(f) That a quantity of hay then stored in some of the barns upon said dairy ranch had been raised from said ranch and that it was not necessary to buy outside hay or rent outside pasture in order to carry the size of herd then being milked upon said dairy farm.'

The defendants rely upon the alleged misrepresentations of income and the breeding of the dairy herd as the two major issues of fraud.

When the alleged fraud was discovered or whether reasonable diligence was exercised to discover the same are ordinarily questions of fact but when only one conclusion can be reasonably drawn from the facts, it becomes a question of law for the court to determine. Linebaugh v. Portland Mortgage Co., supra.

The defendants had been engaged in the dairy business since 1935. They made at least two inspection trips to the farm before purchasing the property and took possession on or about November 1, 1954.

On December 2, 1954, the defendants wrote the realtor who handled the sale for the plaintiffs complaining about the representation of prior income and the milk quota. The pertinent parts of the letter follow:

'You will remember that your advt for this farm stated that the income averaged $22,000.00 per year from the dairy. You also asserted that the income last month was down to $1700.00 for the month, but that was the lowest it had evergone, [sic] and that Dixon had assured you that the income from milk was rising and would top the $1700.00 this month.

'We...