Linebaugh v. Portland Mortg. Co.

• Decision Date: 22 September 1925
• Parties: LINEBAUGH ET AL. v. PORTLAND MORTGAGE CO. [a1]
• Court: Oregon Supreme Court

239 P. 196

116 Or. 1

LINEBAUGH ET AL. v. PORTLAND MORTGAGE CO. ^[a1]

Supreme Court of Oregon

September 22, 1925

Department 2.

Appeal from Circuit Court, Multnomah County; Louis P. Hewitt, Judge.

Action by Lucinda Linebaugh, administratrix of the estate of Margaret Linebaugh, deceased, and another, against the Portland Mortgage Company. From a judgment for plaintiffs defendant appeals. Reversed and remanded, with instructions.

This action was commenced August 24, 1922, to recover damages claimed to have been sustained in an alleged fraudulent transaction, whereby plaintiffs exchanged their interest in an apartment house in the city of Portland for a ranch of 520 acres owned by defendant near Glenwood, in Klickitat county Wash. When the exchange was consummated, on August 1, 1919 the city property was incumbered by a mortgage and delinquent taxes aggregating $10,809.75. Proceedings had been instituted to foreclose the mortgage, and plaintiffs, in a desperate effort to save the property, conveyed the same to the mortgagee and entered into a lease with an option to purchase the property for the amount of the indebtedness due. This option, at the time of the exchange, would have expired in 60 days. The interest which plaintiffs had left in the apartment house thus appears to be slight, and is to be remembered in considering the question of damages. The property in Washington was also incumbered with a mortgage of $10,000 due December 1, 1920, and a district water assessment of $3,346.66, which plaintiffs, under the terms of the agreement, assumed and agreed to pay. The interest due on the mortgages was adjusted as of August 1, 1919. Defendant paid the amount of indebtedness due on the apartment house, and in addition, paid to plaintiffs the sum of $1,400. Plaintiffs assert that the property in Portland was worth $30,000, and claim the farm had no value above the amount of its incumbrances. It is charged that defendant, in order to induce them to make the exchange, falsely and fraudulently represented:

"That said farm land was very rich and productive, and that the same was an excellent dairy farm. That 120 acres of said farm were in a high state of cultivation, and that 260 acres, which were at said time used as pasture, could be made ready for production at little expense. That said farm had appurtenant to it a good water right, and that said farm was supplied with plenty of water for both stock and irrigation. That said farm lands and appurtenances were worth not less than the sum of $30,150. That plaintiffs were getting value for value in exchanging their said apartment house for said farm lands and the additional sum of $1,400 to be paid plaintiffs by defendant. That in conveying said farm lands and appurtenances subject to the incumbrances hereinabove mentioned and paying plaintiffs said sum of $1,400, the defendant was conveying and transferring to plaintiffs a consideration sufficient to equal plaintiffs' interest in said Chapman Apartments."

Plaintiffs allege:

"The said lands and appurtenances were not worth the sum of $30,150, or any sum in excess of, to wit $7,500; that said lands were not rich or productive, but, on the contrary, require artificial irrigation, and in the absence of sufficient water to irrigate the same, said lands are arid and nonproductive, and the soil is what is commonly known as a silt or ashen soil, which bakes when the weather is hot, in the absence of water for the same, and will not produce; that in truth and in fact said lands have practically no water right except as hereinafter set forth, and that at the time of said transfer, as defendant well knew, said lands were and always had been without sufficient water to irrigate the same; that said lands are irrigated by water from Frazier creek as hereafter set forth, and during the summer and in the latter part of the irrigation season said stream dries up at a time when water is essential to produce crops on said lands, and that at said time there is not sufficient water for the stock used upon said premises, and the land bakes, dries up, and the crops fail."

Plaintiffs claim they were ignorant of the condition and quality of the soil or of the irrigation of the same in that section of the state, and relied exclusively upon the representations of the defendant in reference thereto, and that they did not discover the falsity of the alleged representations concerning water rights appurtenant to the land until March, 1921, as they "were engaged in litigating said rights to such an extent they were unable to determine the true character of the soil on said premises until the fall of 1921."

Defendant denies the charge of fraud. It admits stating to the plaintiffs that "said farm land was very rich and productive, and that 120 acres of said land was in a high state of cultivation; that 260 acres which were, at or about the time of the exchange of properties, used as pasture, could be made ready for the plow at little expense; that a creek crossed said farm with plenty of water for stock and irrigation"; but alleges the same to be merely its opinion given in good faith and in the belief that it was true. Defendant denies having made any representation concerning the value of the property conveyed to plaintiffs. As a further defense, it is averred that plaintiffs, prior to consummation of the exchange, made a full, complete, and independent investigation of the ranch, and relied upon their own judgment in the matter; that they knew, or by the exercise of reasonable diligence ought to have known, the nature and character of the soil and the water rights appurtenant thereto, and that whatever was stated by defendant was capable of definite ascertainment. Defendant further pleads that more than two years have elapsed since plaintiffs discovered or ought to have discovered they were defrauded, if such be the fact, and by reason thereof are barred by the statute of limitations from prosecuting this action.

On the issues thus briefly stated, the cause was submitted to the jury, and a verdict of $17,790.25 was returned in favor of plaintiffs. It is suggested by counsel for respondent, which appears to be true, that the jury reached the amount of its verdict by deducting from the value of the apartment house, found to be $30,000, the amounts paid by defendant, viz., $10,809.75 and $1,400, and that no value above the amount of incumbrances was put on the Washington property. Defendant appeals, asserting 32 assignments of error, but our attention will be directed only to those questions which we deem decisive.

W. M. Cake and L. A. Liljeqvist, both of Portland (Cake & Cake, of Portland, on the brief), for appellant.

J. K. Carson, Jr., and W. G. Smith, both of Portland, for respondents.

BELT, J. (after stating the facts as above).

Error is predicated on the ruling of the court relative to the following question asked C. W. Hayhurst, vice president of the defendant company, by counsel for appellant: "Did you, as representing the Portland Mortgage Company, intend to cheat or defraud the Misses Linebaugh?" Witness answered: "No, sir." Whereupon counsel for respondents moved to strike the answer for the reason that it called for a conclusion of the witness and invaded the province of the jury. The court said: "I think the objection will have to be sustained." Respondents contend, however, that the record discloses the answer was not stricken, and defendant was not thereby injured, but we are of opinion that the court's ruling was equivalent to such in the juror's mind. The force and effect of the witness' answer was destroyed. Furthermore, it is apparent from other parts of the record that the trial court considered such inquiry improper, and so informed the jury. It is a well-settled rule where a person is charged with fraud--the element of intent being involved--that he may testify directly that he acted in good faith and had no intention to deceive or mislead the party to whom the representations were made. As it was proper for plaintiffs to state that they relied upon the representations of the defendant, it was likewise permissible for the defendant to deny the charge that it represented that which was known to be false. In view of the defense interposed, viz., that the representations by defendant were made in good faith and in the belief that the same were true, the ruling in question was particularly prejudicial, and constitutes reversible error. Board v. Kaylor (Or.) 234 P. 263; Mahon v. Rankin, 54 Or. 328, 102 P. 608, 103 P. 53; Jones' Commentaries on Evidence, vol. 1, § 170; Fleet v. Tichenor, 156 Cal. 343, 104 P. 458, 34 L. R. A. (N. S.) 323 and note.

Is this action, as a matter of law, barred by the statute of limitations? It was commenced 3 years and 24 days after the deal in question was consummated, but plaintiffs claim they did not discover the fraud relative to the insufficiency of the water for stock and irrigation purposes until March 1921, or learn of the falsity of the alleged representations concerning the quality of the soil until the fall of the same year. For the purpose of tolling the statute, plaintiffs allege they were engaged, between August 1, 1919, and March 14, 1921, in litigating water rights appurtenant to said lands to such an extent they were unable to determine the true character of the soil until the time as above stated. Section 8, Or. L., provides that an action at law based upon fraud or deceit must be commenced within two years from the discovery of the fraud or deceit. The statutory provision that, "the limitation shall be deemed to commence only from the discovery of the fraud or deceit," properly interpreted, means from the time the fraud was known or could have been discovered through the...