Gamble v. Beahm

• Decision Date: 27 May 1953
• Citation: 198 Or. 537,257 P.2d 882
• Parties: GAMBLE et ux. v. BEAHM. BEAHM v. GAMBLE et ux.
• Court: Oregon Supreme Court

Page 882

257 P.2d 882

198 Or. 537

GAMBLE et ux. v. BEAHM.

BEAHM v. GAMBLE et ux.

Supreme Court of Oregon.

Argued and Submitted April 1, 1953.

Decided May 27, 1953.

Frank E. Day, of Portland, argued the cause for appellant. On the brief were Stern, Reiter & Day, of Portland.

Lee A. Ellmaker, of Portland, argued the cause and filed a brief for respondents.

Before LATOURETTE, C. J., and WARNER, BRAND, TOOZE and PERRY, JJ.

PERRY, Justice.

Prior to the 23rd day of August, 1948, Charles Beahm was the owner of a dwelling house situated upon the north 10 feet of lot 8 and all of lot 'B', block 300, Central East Portland, in the city of Portland, and of certain furniture located therein, and on the 23rd day of August, 1948, he entered into a contract whereby he sold the real property and furniture for a cash down payment with the balance to the paid in monthly payments of $75 per month to Daniel C. Gamble and Iris M. Gamble, husband and wife.

On July 21, 1950, the purchasers filed a complaint in the circuit court of the state of Oregon for Multnomah county to rescind this contract, the rescission being based on allegations of fraud practiced upon them through misrepresentations made by the owner.

The owner, Charles Beahm, on July 25, 1950, brought suit for foreclose the interests of the Gambles in and to the real and personal property.

By stipulation of the parties at the time of trial, it was agreed that both cases should be tried as one and that upon the trial the complaint of each party should be considered as an answer and counterclaim to the complaint of the other, and that each party should be considered as having entered a general denial as to all matters set forth in the other's complaint, except as to such matters as were admitted by the pleadings.

The trial court granted a rescission of the contract and, accordingly, denied the strict foreclosure prayed for by the owner Charles Beahm, and caused to be made an accounting to place the parties in status quo.

From the decision of the trial court Charles Beahm appeals.

For the purpose of convenience Daniel C. Gamble and Iris M. Gamble will hereinafter be referred to as the plaintiffs, and Charles Beahm as the defendant.

The contentions of the defendant on this appeal are, first, that no misrepresentations were made by the defendant to the plaintiffs; second, that if misrepresentations were made, they were not actionable; third, that at the commencement of the suit the plaintiffs were in default and, therefore, could not maintain this action to rescind; and fourth, that the plaintiffs, after having knowledge of the fraud, affirmed the contract and cannot now complain.

A resume of the facts disclosed by the evidence reveals the following: the defendant was the owner of a two-story house, constructed with basement and attic, and of some furniture, situated on the above described real property, which he had offered for sale; and that the plaintiffs were desirous of procuring income property. Mrs. Gamble, one of the plaintiffs, had in July, and a short time before the contract was entered into that is in issue in this case, herself received a license as a real estate saleswoman and was employed by Sexton & Company, real estate brokers in the city of Portland, with whom the defendant had listed his property for sale. Sometime in the latter part of August, 1948, together with other real estate salesmen of the Sexton firm, the plaintiff, Mrs. Gamble, inspected this property, and later she, with her husband, returned to look over the property again, at which time the plaintiffs and defendant discussed the property.

The plaintiffs' version of this discussion is that they advised the defendant that they were looking for a property with rentals that would pay for the purchase of the building and where they, as managers of the property, would have their rent free; that the defendant advised them that this property was just what they wanted; that there were two apartments on the second floor that would rent for $40 each, which would take care of the payments, and that they could occupy the first floor apartment; that there was also an apartment in the basement and two rooms in the attic, advising them, however, that the attic rooms could not be rented because there was no fire escape. The defendant's version of this conversation is as follows:

'A. I didn't tell her anything. I said the house is to be sold as is.

'Q. You didn't make any statements as to the attic? A. None whatsoever.

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'A. I told her right then, I says 'go through the building, it is for sale for $11,500 completely furnished. I paid over $4,000 for the furniture.' I said, 'If you like it it is yours.''

An agent for the real estate company with whom the defendant listed the property testified relative to the use of the property, stating that the defendant at the time he received the property for listing said 'that he had two apartments on the second floor and a two room apartment in the basement.' This statement is also denied by the defendant, who stated in effect that the information the salesman received was from the salesman's own inspection of the premises and not from any statements he had made.

At the time the sale was consummated, the plaintiff, Mrs. Gamble, did not act as an agent for the real estate company in closing the transaction between the defendant and the plaintiffs, but another real estate salesman for the company handled this transaction, and the plaintiffs conferred with him for his opinion relative to the advisability of purchasing the premises.

After the signing of the contract of purchase of the real property by the plaintiffs it was discovered that the city code of the city of Portland permitted the use of the premises only as a two family dwelling and not as a multiple family dwelling; the basement being below the grade allowable for family occupancy and the second floor being inadequate for more than one family occupancy.

There is a dispute in the evidence as to when the plaintiffs were informed that the premises could only be used as a two family dwelling and not a multiple family dwelling, it being the contention of the plaintiffs that they were not advised of this matter until approximately a month before this suit was commenced, while the defendant contends that, as shown by the evidence of the plaintiffs' witness, John G. Baird, an inspector for the city of Portland, the plaintiffs were informed of this condition about the 22nd day of October, 1948.

While the evidence is conflicting as to whether or not it was represented that there were two available rentals on the second floor, the plaintiffs' testimony is corroborated by another witness who occupied one of the supposed apartments, and by the further fact that if the defendant's evidence is true, relative to the information contained in the listing of the real estate company as to the two available rentals on the second floor and a two room apartment in the basement, that the listing was obtained by inspection and not by the statement of the defendant, then it is apparent that the property had been so constructed as to give the impression to interested purchasers that there were, in fact, two separate rentals on the second floor of this dwelling and a rentable apartment in the basement.

There is ample evidence, and we, like the trial court, are prone to believe that the defendant represented the property to be a multiple family dwelling. Such a representation was not so much an opinion as to what income might be derived from the premises as it was that the premises as offered for sale were then suitable for a certain purpose, that is, a multiple dwelling. The evidence is clear that a single available rental unit other than the space occupied by the plaintiffs could not possibly provide sufficient income to make the payments upon the purchase of the property.

Expressions that certain property is suitable for a certain purpose, when in fact it is not, are misrepresentations of a present material fact and are actionable. Schuler v. Humphrey, Or., 257 P.2d 865; 27 C.J. 102, Fraud, § 252; 37 C.J.S., Fraud, § 53c, page 314.

'It is laid down in the cases that a misrepresentation must be material in order that the law may take notice of it as a fraud. If, however, a party to a bargain has made misrepresentations for the purpose of inducing action by the other, and the other party has acted, relying upon the misrepresentations, it seems that the former should not be allowed to deny that misrepresentations which have effectively served a fraudulent purpose were material.' 5 Williston, Contracts, Rev. Ed., 4159, § 1490.

It must be remembered that this is a suit for rescission and not an action in damages for deceit. We have said many times that in an action to rescind a contract on the ground of fraudulent conduct, it is not necessary to establish all of the elements of fraud. The rule as stated in Sharkey v. Burlingame Co., 131 Or. 185, 197, 282 P. 546, 550, is as follows:

'Rescission is often granted in cases where an action for deceit could not be maintained. The right of rescission does not, as the right to recover damages in a common-law action for deceit, depend upon fraud, for if the transaction was the result of a false representation of a material fact, it cannot stand against the injured party's right to rescind, however honestly made.'

So, even though the representation as to the availability of additional apartments that could be lawfully rented was innocently made and without any unlawful intent, yet when the plaintiffs discovered the truth, that this was but a two family dwelling and could not be used for more than two families, they had a right to rescind. Dahl v. Crain, 193 Or. 207, 229, 237 P.2d 939; 5 Williston, Contracts, Rev.Ed. 4189, § 1500.

The defendant contends that Mrs. Gamble conferred with another salesman thereby making an independent investigation and was not...