Farnsworth v. Feller

• Decision Date: 17 June 1970
• Citation: 256 Or. 56,471 P.2d 792
• Parties: E. Paul FARNSWORTH and Mildred I. Farnsworth, husband and wife, Appellants, v. Clarence B. FELLER and Georgia Rose Feller, husband and wife, Respondents.
• Court: Oregon Supreme Court

Page 792

471 P.2d 792

256 Or. 56

E. Paul FARNSWORTH and Mildred I. Farnsworth, husband and wife, Appellants, v. Clarence B. FELLER and Georgia Rose Feller, husband and wife, Respondents.

Supreme Court of Oregon.

Argued and Submitted June 2, 1970.

Decided June 17, 1970.

Sam F. Speerstra, Salem, argued the cause for appellants. With him on the briefs were David A. Rhoten and Rhoten, Rhoten & Speerstra, Salem.

Otto R. Skopil, Jr., Salem, argued the cause for respondents. With him on the brief were Williams, Skopil, Miller & Beck, and Lawrence N. Brown and Brown & Burt, Salem.

Before O'CONNELL, C.J., and McALLISTER, SLOAN, HOLMAN and TONGUE, JJ.

TONGUE, Justice.

This is a suit to rescind a contract for the sale of a sand and gravel business in Salem for the sum of $412,500.

Plaintiffs appeal from an adverse decree, contending: (1) that defendants misrepresented, by means of a false appraisal report, that the property involved had, and had been appraised as having, a fair market value of $450,000, when in fact no such appraisal had been made and the actual value of the property was only $295,000, and (2) that defendants represented that all of a 29 acre tract of land near the Willamette River could be used for digging sand and gravel deposits on such property, when in fact some ten acres could not be so used for the reason that it had been zoned for residential use.

Defendants deny that the value of $450,000, as stated in the appraisal report shown to plaintiffs, was false and contend that, in any event, it was not more than an expression of opinion as to value. Defendants also contend that ignorance of zoning ordinances is not a sufficient basis for rescission and that, in any event, the earnest money contract included an express provision to the effect that the property involved was to be conveyed free and clear of all incumbrances except zoning ordinances, among other exceptions. Finally, defendants contend that plaintiffs did not rely on any representation by defendants, but solely upon their own investigations, and that the final written contract of sale includes a provision to that effect.

Upon examination of the record we find that a false and forged appraisal report was delivered by defendants to plaintiffs. Defendants made no effort to controvert testimony offered by plaintiffs to the effect that the purported signature of the appraiser upon the 'certificate of value' of $450,000 in the report was a forgery and that although a previous and bona fide appraisal report on the property had been prepared and was in plaintiffs' possession, that report certified the value of the porperty to be $295,000, based upon a valuation of the 29 acre tract (one of three tracts involved) as residential property, at the much lower value of $87,000; that the page of the original report which showed that ten of the 29 acres had been zoned for residential use was not included in the report delivered by defendants to plaintiffs and that this fact was not discovered by plaintiffs until several weeks after the closing of the transaction.

Defendants contend that the appraisal report was to be used solely for the descriptions of the various tracts of land as set forth in the report. We do not so read the record.

It may be true, as also contended by defendants, that the two appraisal reports could be 'reconciled' if the entire 29 acre tract were valued for use as a sand and gravel operation, but under the zoning ordinances ten acres of that tract could not be so used. It may also be true that the ten acres zoned as residential was actually worth more than $87,000 if used for residential purposes, and that the actual total value of what was to be conveyed was worth the price paid for it. On the other hand, plaintiffs, as the purchasers of a sand and gravel business, were primarily interested in an adequate supply of sand and gravel and were not required to accept ten acres of property which could not be used for such purposes. ¹

We also conclude from the record in this case that the false appraisal report was relied upon by plaintiffs. The record is clear that it was examined by plaintiffs 'extensively' before they made their first written offer to purchase the business. It also appears that a copy of the appraisal report was delivered by defendants to the bank and was relied upon by it, as well as by plaintiffs, in financing the purchase of the property and, implicitly, in the various notes, mortgages and other security documents under which plaintiffs assumed considerable indebtedness in connection with their purchase of the property.

It is true, as defendants contend, that the mere expression of an opinion by the seller of property with reference to its value is not sufficient as the basis for rescission of a contract for the sale of such property. Ward v. Jenson, 87 Or. 314, 170 P. 538 (1918). It is far different, however, for a seller to make a representation to a prospective purchaser with reference to the value of property not simply as an expression of opinion, but as an assertion of fact, based upon a false appraisal report by which it is represented that the property had been appraised by a qualified appraiser as having such a value, when such was not the fact. Such a false representation, when relied upon by the buyer, as in this case, is sufficient ground for the rescission of the contract. As held by this court in Horner v. Wagy, 173 Or. 441, at 457, 146 P.2d 92, at 98 (1944):

'An expression of opinion may be so blended with statements of fact as to become itself a statement of fact.'

See also 1 Black, Cancellation and Rescission (2d ed.) 181 and 45, §§ 70 and 22.

We also find upon examination of the record that defendants not only concealed the fact that the ten acre tract had been zoned for residential use, but that by representing that the 'highest and best use' of this tract was for 'exploitation' of its sand and gravel deposits, defendants misled plaintiffs into believing that the tract could be used for sand and gravel operations, when such was not the fact. It is well established in Oregon that concealment of a material fact, when combined with a 'half-truth' or other misleading statement, is ground for the rescission of a contract of sale. Heise v. Pilot Rock Lumber Co., 222 Or. 78, 90, 352 P.2d 1072 (1960).

It is true, as contended by defendant, that ignorance of the law is ordinarily not a proper basis for rescission and that negligence by the purchaser of real property may be a defense in a suit for rescission. On the other hand, in Palmiter v. Hackett, 95 Or. 12, 18, 185 P. 1105, 1107, 186 P. 581 (1920), this court expressly rejected the contention that the presumption that every man knows the law is applicable to zoning ordinances. Moreover, as in that case, the matter of the zoning ordinances had been called to the attention of the defendants in this case, at least by the original appraisal report, so that the parties did not have equal knowledge. As a result, as held in Palmiter, such information was 'manifestly concealed with the purpose of inducing the trade' in this case, by deleting the pages from the appraisal report revealing that ten of the 29 acres had...