Halpert v. Rosenthal, 763-A

CourtUnited States State Supreme Court of Rhode Island
Citation267 A.2d 730,107 R.I. 406
Docket NumberNo. 763-A,763-A
PartiesRuth S. HALPERT v. Martin G. ROSENTHAL.
Decision Date20 July 1970
Alfred M. Silverstein, Providence, for plaintiff
OPINION

KELLEHER, Justice.

This is a civil action wherein the plaintiff vendor seeks damages for the breach by the defendant vendee of a contract for the sale of real estate. The defendant filed a counterclaim in which he sought the return of his deposit. A jury trial was held in the Superior Court. The jury found for the defendant and judgment followed. The case is before us on the plaintiff's appeal.

On February 21, 1967, the parties hereto entered into a real estate agreement whereby plaintiff agreed to convey a one-family house located in Providence on the southeasterly corner of Wayland and Upton Avenues to defendant for the sum of $54,000. The defendant paid a deposit of $2,000 to plaintiff. The agreement provided for the delivery of the deed and the payment of the balance of the purchase price by June 30, 1967.

On May 17, 1967, a termite inspection was made of the premises, and it was discovered that the house was inhabited by termites. The defendant then notified plaintiff that, because of the termite infestation, he was not going to purchase the property. The defendant did not appear for the title closing which plaintiff had scheduled for June 30, 1967.

The plaintiff immediately commenced this suit. Her complaint prayed for specific performance or monetary damages. When the case came on for trial, the property had been sold to another buyer for the sum of $35,000. The plaintiff then sought to recover from defendant the.$19,000 difference between the selling price called for in the sales agreement and the actual selling price. The defendant in his answer alleged that plaintiff and her agent had, during the preagreement negotiation, intentionally misrepresented the house as being free of termites. The defendant's counterclaim sought the return of the $2,000 deposit.

At the conclusion of the presentation of all the evidence, plaintiff made a motion for a directed verdict on the issue of the alleged fraudulent misrepresentations. The trial justice reserved decision on the motion and submitted the case to the jury. After the jury's verdict, he denied the motion.

This case is unique in that plaintiff made no motion for a new trial. Her appeal is based for the most part on the trial court's refusal to direct a verdict in her favor on the counterclaim. She has also alleged that the trial justice erred in certain portions of his charge to the jury and in failing to adopt some 15 requests to charge submitted by plaintiff.

The absence of a motion for a new trial narrows the scope of an inquiry on appeal. Instead of being concerned with the credibility of witnesses or the weight of the evidence as we would be were we reviewing the usual motion for a new trial, we apply the standards applicable to a motion for a directed verdict. In doing so, it is our duty to consider all of the evidence and reasonable inferences deducible therefrom in the light most favorable to defendant. Cofone v. Narragansett Racing Ass'n, Inc., 103 R.I. 345, 237 A.2d 717; Gramolini v. Marzalkowski, 102 R.I. 85, 228 A.2d 537.

Since we consider only the evidence favorable to defendant, we shall set forth defendant's version of three different occasions in 1967 when the alleged misrepresentations relative to absence of any termites were made.

1. In early February, defendant and his wife inspected the Halpert home. They asked the agent about termites and he told them that there was no termite problem and that he had never experienced any termite problem with any of the houses he sold in the East Side section of Providence.

2. Later on in February, defendant, his wife, his sister-in-law and his brother-in-law met plaintiff. The brother-in-law inquired about the presence of termites; plaintiff said that there were no termites in the house.

3. When defendant was about to sign the purchase and sales agreement, he asked plaintiff's real estate agent whether it might not be advisable if the home be inspected for termites before the agreement was signed. The agent told defendant that such a step was unnecessary because there were no termite problems in the house.

The plaintiff contends that any statements or representations attributed to her or her agent were qualified in that when asked about the termites, they replied that to the best of their knowledge or experience the Wayland Avenue property was termite free. What she overlooks is that in our consideration of the correctness of the denial of her motion for a direction, we can consider only that evidence and the reasonable inferences flowing therefrom which favor defendant. We do not weigh the evidence to determine whether her or her agent's representations were qualified or unqualified.

In contending that she was entitled to a directed verdict, plaintiff contends that to sustain the charge of fraudulent misrepresentation, some evidence had to be produced showing that either she or her agent knew at the time they said there were no termites in the house, that such a statement was untrue. Since the representations made to defendant were made in good faith, she argues that, as a matter of law, defendant could not prevail on his counterclaim.

The defendant concedes that there was no evidence which shows that plaintiff or her agent knowingly made false statements as to the existence of the termites but he maintains that an innocent misrepresentation of a material fact is grounds for rescission of a contract where, as here, a party relies to his detriment on the misrepresentation.

We affirm the denial of the motion for a directed verdict.

The plaintiff, when she made her motion for a directed verdict, stated that her motion was restricted to the issue of 'fraud.' The word 'fraud' is a generic term which embraces a great variety of actionable wrongs. LaCourse v. Kiesel, 366 Pa. 385, 77 A.2d 877. It is a word of many meanings and defies any one all-inclusive definition. Fraud may become important either for the purpose of giving the defrauded person the right to sue for damages in an action for deceit or to enable him to rescind the contract. 12 Williston, Contracts § 1487 at 322 (Jaeger 3d ed. 1970). In this jurisdiction a party who has been induced by fraud to enter into a contract may pursue either one of two remedies. He may elect to rescind the contract to recover what he has paid under it, or he may affirm the contract and sue for damages in an action for deceit. Goodwin v. Silverman, 71 R.I. 163, 43 A.2d 50; Robinson v. Standard Stores, Inc., 52 R.I. 271, 160 A. 471; Moran v. Tucker, 40 R.I. 485, 101 A. 327.

The distinction between a claim for damages for intentional deceit and a claim for rescission is well defined. Deceit is a tort action, and it requires some degree of culpability on the misrepresenter's part. Prosser, Law of Torts (3d ed.) § 100. An individual who sues in an action of deceit based on fraud has the burden of proving that the defendant in making the statements knew they were false and intended to deceive him. Cliftex Clothing Co. v. DiSanto, 88 R.I. 338, 148 A.2d 273; Conti v. Walter Winters, Inc., 86 R.I. 456, 136 A.2d 622. On the other hand, a suit to rescind an agreement induced by fraud sounds in contract. It is this latter aspect of fraud that we are concerned with in this case, and the pivotal issue before us is whether an innocent misrepresentation of a material fact warrants the granting of a claim for rescission. We believe that it does.

When he denied plaintiff's motion, the trial justice indicated that a false, though innocent, misrepresentation of a fact made as though of one's knowledge may be the basis for the rescission of a contract. While this issue is one of first impression in this state, it is clear that the trial judge's action finds support in the overwhelming weight of decisionand textual authority which has established the rule that where one induces another to enter into a contract by means of a material misrepresentation, the latter may rescind the contract. It does not matter if the representation was 'innocent' or fraudulent.

In 12 Williston, supra, § 1500 at 400-01, Professor Jaeger states:

'It is not necessary, in order that a contract may be rescinded for fraud or misrepresentation, that the party making the misrepresentation should have known that it was false. Innocent misrepresentation is sufficient, for though the representation may have been made innocently, it would be unjust and inequitable to permit a person who has made false representations, even innocently, to retain the fruits of a bargain induced by such representations.'

This statement of law is in accord with Restatement of Contracts, § 476 at 908 which states:

'Where a party is induced to enter into a transaction with another party that he was under no duty to enter into by means of the latter's fraud or material misrepresentation, the transaction is voidable as against the latter * * *.'

Misrepresentation is defined as

'* * * any manifestation by words or other conduct by one person to another that, under the circumstances, amounts to an assertion not in accordance with the facts.' Restatement of Contracts, § 470 at 890-91.

The comment following this section explains that a misrepresentation may be innocent, negligent or known to be false. A misrepresentation becomes material when it becomes likely to affect the conduct of a reasonable man with reference to a transaction with another person. Restatement of Contracts, § 470(2) at 891. Section 28 of Restatement of Restitution is also in accord with this proposition of law that a transaction can be rescinded for innocent misrepresentation of a material fact. In addition, many courts have also adopted this rule including the following: ...

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