Federici v. Lehman

• Decision Date: 31 January 1962
• Parties: Paul A. FEDERICI and Martha E. Federici, Respondents, v. Donald M. LEHMAN, John Bates, Larry Brickley, an individual doing business under the assumed name and style of Roseway Realty, and Escrow Service Company, Inc., an Oregon corporation, Appellants.
• Court: Oregon Supreme Court

Page 611

368 P.2d 611

230 Or. 70

Paul A. FEDERICI and Martha E. Federici, Respondents, v. Donald M. LEHMAN, John Bates, Larry Brickley, an individual doing business under the assumed name and style of Roseway Realty, and Escrow Service Company, Inc., an Oregon corporation, Appellants.

Supreme Court of Oregon, Department 2.

Argued and Submitted Nov. 3, 1961.

Decided Jan. 31, 1962.

Stuart W. Hill, Portland, argued the cause for appellants. On the briefs were Gilley, Busey, Hill & Nash, Portland.

J. Robert Jordan, Portland, argued the cause for respondents. With him on brief was John F. Reynolds, Portland.

Before McALLISTER, C. J., and WARNER, PERRY, SLOAN and BRAND, JJ.

PERRY, Justice.

The plaintiffs brought this action alleging that they had rescinded a contract entered into between themselves and the defendant John Bates for the purchase of real estate situated in the city of Portland and seek to recover back money advanced in the purchase of the property.

The complaint alleges, as grounds for their right to rescind, fraud committed by defendants and mutual rescission by the parties. Defendants deny both contentions of the plaintiffs.

The jury returned a verdict for the plaintiffs and the defendants appeal.

The complaint alleges that the plaintiffs entered into a written contract with the defendants 'whereby defendants agreed to sell and plaintiffs agreed to buy' certain described real estate for a definite sum of money; that plaintiffs paid $5,106.90 thereon; that their purpose in purchasing said property was to construct a medical clinic thereon; that defendants made false representations upon which the plaintiffs relied;

'IX. That, as soon as plaintiffs discovered the true facts and learned of the fraud and deceit which had been practiced upon them in the manner aforesaid and on or about the 12th day of October, 1959, plaintiffs notified defendants of the fact that they had been so defrauded and were therefore rescinding the said contract and did then and there demand that defendants return to plaintiffs the amount paid under the said contract. That there is nothing further for plaintiffs to do to rescind the said contract.'

There is no evidence that would support plaintiffs' contention of mutual rescission. The defendants' answers deny the allegations of plaintiffs' complaint. While plaintiffs state 'there is nothing further for plaintiffs to do to rescind the said contract', this is merely a conclusion of the pleader and not a recital of fact.

It is well established that one induced to enter into a contract by fraud may upon discovery of the fraud elect his remedy. He may either rescind the contract and be returned to his former position or he may affirm the contract and sue for the damages suffered by reason of the fraud. Kruse v. Bush, 85 Or. 394, 167 P. 308; Nisson v. Tillman et ux., 213 Or. 133, 323 P.2d 329; Bridgmon v. Welker, 218 Or. 130, 344 P.2d 233.

If a defrauded party elects to rescind he may bring an action at law if full relief may there be granted or he may bring a suit in equity.

It is an elementary principle that if the recovery is sought at law, one who seeks to recover that which he has paid under the executory contract must tender back what he has received under the contract or show some legal excuse for his failure. Restatement of the Law, Contracts, § 480.

'* * * Ordinarily, before an action at law based upon rescission of a voidable contract can be maintained, such restitution of what the plaintiff has received by virtue of the contract as is necessary to put the other party back in the position he was in prior to the making of the contract must be made or attempted.' Contracts, 12 Am.Jur. 1032, § 451.

In an equitable action for rescission, an offer in the complaint is sufficient for equity has the power to render full and appropriate relief to all parties regardless of the specific prayers. Katz v. Obenchain, 48 Or. 352, 85 P. 617; Ruth v. Von Hickman, 214 Or. 490, 330 P.2d 722.

This is not true in an action at law and therefore one who claims a right to rescind must place the party in status quo or attempt to do so before bringing his action at law. T. B. Potter Realty Co. v. Breitling, 79 Or. 293, 155 P. 179.

'* * * Many of the courts have, in dealing with this question, completely lost sight of the plain distinction between the equitable remedy of rescission or cancellation (where, as in all equity decrees, complete relief is awarded to the defendant as well as to the plaintiff), and the legal remedies, based upon rescission of a contract by the act of a party thereto, where, in the act of rescission itself, the plaintiff must restore or attempt to restore the consideration, since, in legal theory, the ex parte act of rescission reinvests him with the legal title to the thing for the possession of which he subsequently sues, and must, therefore, be conditioned upon a surrender of the thing already received by him in pursuance of the transaction which he thus avoids. Restoration or tender before suit is thus a necessary element in legal rescission, but is wholly superfluous as a prerequisite to the commencement of a suit in equity for rescission or cancellation; and insistence upon it as such prerequisite often works a complete denial of justice. * * *' 5 Pomeroy on Equity Jurisprudence, 2d ed., p. 4765, § 2110.

This rule of law of prior restoration or tender applies to contracts governing the sale of real property as well as contracts governing other transactions. T. B. Potter Realty Co. v. Breitling, supra; Roberts v. James, 83 N.J.L. 492, 85 A. 244; Lackovic v. Campbell, 225 Mich. 1, 195 N.W. 798; Barker v. Fordville Land Co., 264 Mich. 95, 249 N.W. 491; Walcrath Realty Co. v. Van Dyke, 263 Mich. 316, 248 N.W. 634; Todd v. Bettingen, 109 Minn. 493, 124 N.W. 443. This rule of prior restoration applies to contracts rescinded by mutual agreement as well as contracts rescinded by one party as a matter of right. Mascall v. Erikson, 131 Or. 509, 283 P. 2.

There is some divergency of opinion among courts as to the necessity of a prior conveyance and tender by a vendee back to a vendor before commencement of an action of rescission where the contract of sale is in installments and the deed and possession are to be delivered upon full payment of the purchase price. See cases cited supra. And we note this statement, which is dictum, in Kruse v. Bush, 85 Or. 394, 167 P. 308 (supra) which deals with a vendee's right to rescind for fraud a land purchase contract:

'The contracts with which we are concerned were executory. The quitclaims were required only because plaintiff and her assignor had recorded their contracts.'

In Kruse v. Bush, supra, as in Roberts v. James, supra, there was a contract of purchase of real property under which the vendee was to receive a deed and possession only upon completion of the purchase price. Before completing payment of the purchase price and receiving the deed or possession, the plaintiff, as vendee, brought his action to rescind. Under these circumstances the court seemed to be of the opinion that a complete renunciation of the equitable title in the vendee in his complaint was sufficient to re-invest the vendor with the fee simple title, so that no further action on the part of the vendor to establish his record title would be necessary.

The matter now before us is different. The contract provides: 'Possession of said premises is to be delivered to the purchaser on or before date of closing 1959.'

At the time the contract was entered into there was a building upon the premises occupied under written lease by Guy and Mary Chimenti. The building was used by the lessees as a restaurant and on June 17, 1959, an agreement was entered into between the plaintiffs and the Chimentis for a cancellation of the lease and the removal of the lessee's property on or before July 10, 1959.

The agreement also provides:

'* * * In view of the fact that the demised premises are to be demolished by second party, first party shall within said period of time have the right to remove any part or all of the structure occupied by them under said lease, provided, however, that any personal property or portion of said structure not removed by the date last mentioned above shall be considered abandoned and second party shall have the right to destroy or otherwise dispose of the same and shall have no obligation to account to first parties.'

It therefore appears from the record that the plaintiffs went into possession and authorized the destruction of the building. There is also some evidence in the record that the Chimentis damaged and removed some portions of the real property.

In 5 Corbin on Contracts, § 1114, we read:

'With respect to the return of the consideration received and the restoration of the status quo as a condition of the plaintiff's right to restitution of the consideration paid or otherwise given by him, the rules of law are substantially the same, whether the plaintiff is asking restitution on the ground of fraudulent representation by the defendant or on the ground of failure of consideration due to a total breach of contract by the defendant.'

But whether an offer by the plaintiffs to place the defendants in status quo is a condition precedent to the commencement of an action for rescission need not be here determined, for it is certain that somewhere in the proceedings there must be some affirmative action on the part of the plaintiffs to place the defendants in status quo, and there is none.

At the conclusion of the evidence the defendants each moved for a directed verdict upon the ground that there was no evidence of an offer to place the defendants in status quo. The motion should have been granted.

The defendants also moved for a directed verdict on the grounds that there was a failure to prove fraud. This motion was also denied and is assigned as error.

The allegation of fraud relied upon by the plaintiffs to...