Nielsen v. Stephens

• Citation: 165 Or. App. 414,997 P.2d 257
• Parties: Edwin J. NIELSEN and Aletha C. Nielsen, Appellants, v. Del STEPHENS and Bruce Moore, Defendants, and JS Investments, Inc., an Oregon corporation, and F.J. Boresek, trustee of the F.J. Boresek Trust, Respondents.
• Decision Date: 09 February 2000
• Court: Oregon Court of Appeals

997 P.2d 257

165 Or. App. 414

Edwin J. NIELSEN and Aletha C. Nielsen, Appellants, v. Del STEPHENS and Bruce Moore, Defendants, and JS Investments, Inc., an Oregon corporation, and F.J. Boresek, trustee of the F.J. Boresek Trust, Respondents.

(16-95-08514; CA A100578)

Court of Appeals of Oregon.

Argued and Submitted November 25, 1998.

Decided February 9, 2000.

Paul D. Clayton, Eugene, argued the cause for appellants. With him on the briefs were Larry J. Anderson and Anderson & Clayton.

Terence J. Hammons, Eugene, argued the cause for respondents. With him on the brief was Hammons, Mills & Spickerman.

Before EDMONDS, Presiding Judge, and ARMSTRONG and KISTLER,¹ Judges.

ARMSTRONG, J.

Plaintiffs appeal from a summary judgment dismissing their claims for fraud and breach of contract against defendants J.S. Investments, Inc. (J.S.), and F.J. Boresek, trustee of the F.J. Boresek Trust (Boresek). Plaintiffs have settled their claims against defendants Stephens and Moore, who played significant roles in the events at issue. We reverse and remand.

We state the facts most favorably to plaintiffs, the non-moving parties. See ORCP 47; Jones v. General Motors Corp., 325 Or. 404, 939 P.2d 608 (1997). Plaintiffs own a home and two acres of land near Florence. At the relevant times they also owned a parcel south of Florence that was zoned for commercial use. A Florence savings and loan association had a mortgage on the home to secure a loan. For various reasons, apparently including administrative disruptions within the savings and loan that increased when the Resolution Trust Corporation took control of its assets, plaintiffs fell into default on the mortgage. Sun Life Insurance Company, to which the RTC had assigned the loan, filed a foreclosure proceeding in 1993 and received a judgment of foreclosure on December 17, 1993. Sun Life purchased the property at the sheriff's sale on March 9, 1994, for the amount of its judgment. Plaintiffs then had 180 days to redeem their property from the foreclosure. ORS 88.080; ORS 23.560.²

In May 1994 Stephens got in touch with plaintiffs and offered to find a purchaser for their redemption rights. Plaintiffs responded by asking whether he could help them get a loan that would allow them to retain their property. Stephens then told plaintiffs that he and Moore, a Eugene lawyer, had access to money that plaintiffs could borrow for that purpose. He told plaintiffs that Moore and he would represent them in obtaining the loan and clearing title to their property. Plaintiffs dealt primarily with Stephens in arranging financing, but they also met with Moore two or three times in Moore's office, primarily to deal with title issues. Eventually plaintiffs were told that they had obtained a loan and that the closing would be on June 27, 1994. When they reviewed the papers at the title company that morning they discovered that the transaction was not a loan but a sale of all of their interest in both their home and the commercial property south of Florence, including their redemption rights,³ to J.S. and Boresek with an option to repurchase the property on or before October 27, 1994, for about $18,000 more than J.S. and Boresek paid for it. If plaintiffs did not exercise the option, they would receive $10,000 after October 27.

The assignment of plaintiffs' redemption rights contained the following notice and disclaimer, in all capitals:

IT IS EXPRESSLY UNDERSTOOD BY [NIELSENS] THAT IF THEY DO NOT EXERCISE THEIR OPTION TO PURCHASE NO LATER THAN OCTOBER, 1994, THAT THEY SHALL HAVE NO FURTHER INTEREST OF ANY KIND IN THE SUBJECT REAL PROPERTY, AND ASSIGNEES WILL BE FREE TO SELL, TRANSFER OR CONVEY THE SUBJECT REAL PROPERTY TO THIRD PARTIES WITH NO OBLIGATION OF ANY KIND TO THE [NIELSENS]."

The assignment permitted plaintiffs to retain possession of the property until the end of the option period and required them to surrender possession at that time, after which they would have no possessory interest in it.

Because the transaction was not what they had expected, plaintiffs called Moore before signing the papers. In that call, Moore told them for the first time that he did not represent them but, rather, represented J.S. and Boresek. Moore also told them that, because of the pending eviction proceedings, they would lose their property irrevocably if they did not sign the papers. After that conversation, plaintiffs completed the transaction.

Plaintiffs did not exercise the option within the required period, and J.S. and Boresek did not make the $10,000 payment that the agreement required in that circumstance. After the option expired, Stephens told plaintiffs that he could obtain an extension of the option for $15,000. Plaintiffs ultimately paid Stephens $10,000 for an extension. The other defendants deny any knowledge of that payment and deny that Stephens had the authority to extend the option. In April 1995, J.S. and Boresek, represented by Moore, filed an FED proceeding seeking to evict plaintiffs from their home. At the same time, plaintiffs negotiated with J.S. and Boresek to repurchase the property. They ultimately reached an agreement (the repurchase agreement) under which plaintiffs repurchased at a price that was about $15,000 greater than the amount provided in the original option, or about $33,000 greater than the original purchase price. The repurchase, like the original purchase, included the commercial property south of Florence. However, in order to finance the repurchase, plaintiffs sold that property at less than half of its true value in what they described as a fire sale. The repurchase closed on July 13, 1995. If Stephens had actually obtained an extension of the option to repurchase the property in return for plaintiffs' payment of $10,000, the extension would have expired before that time. Plaintiffs filed this action two months later.

In their first claim, for fraud, plaintiffs alleged that all defendants represented to them that the transaction of June 27, 1994, was to be a loan in the traditional sense, that that representation was false, that all defendants knew it to be false and intended plaintiffs to rely on it, that plaintiffs were ignorant of the falsity and did rely on it, and that, as a result of the misrepresentations, by June 27 they had no alternative but to go through with the transaction as it was actually structured. In their motion for summary judgment on that claim, J.S. and Boresek argued both that there was no evidence that plaintiffs relied on the alleged misrepresentations, because they knew what the documents were before they signed them, and also that plaintiffs ratified any fraud and waived their claims by entering into the subsequent repurchase agreement.

We first consider whether there is evidence that plaintiffs relied on the misrepresentations. J.S. and Boresek rely on Ward v. Jenson, 87 Or. 314, 170 P. 538 (1918), in support of their argument that plaintiffs did not rely. In Ward the plaintiff sought damages for fraud that the defendant allegedly committed with respect to an exchange of properties. She alleged that, among other misrepresentations, the defendant had told her that he owned a ten-acre parcel that was part of the exchange and that he had a mortgage for $8,000 on it, which he stated was evidence of the value of that portion of the property. In fact, the defendant did not own that parcel but had only a contract to purchase it, and there was no mortgage. The defendant asserted that the plaintiff knew the truth about those matters before she entered into the exchange. The Supreme Court reversed a judgment for the plaintiff on other grounds but commented in dictum that, if the plaintiff did in fact know that the defendant only had a contract to purchase the ten acres and that there was no mortgage on it and, notwithstanding that knowledge, exchanged properties, she could not predicate fraud on any statements that the defendant had made on those matters. 87 Or. at 321, 170 P. 538. J.S. and Boresek argue that plaintiffs in this case knew exactly what the transaction was before entering into it and thus, under the rule of Ward, could not have relied on representations that the transaction would be something else.

The dispositive distinction between this case and Ward is that the fraud that plaintiffs allege in this case is promissory fraud. See, e.g., The Communications Group, Inc. v. GTE Mobilnet, 127 Or.App. 121, 126, 871 P.2d 502,

rev. den. 319 Or. 406, 879 P.2d 1285 (1994). Their claim is that defendants represented that they would provide a loan to refinance their property but instead presented them with a sale of the property to J.S. and Boresek. Because the alleged fraud was in the promise of what the transaction would be, plaintiffs relied on it before June 27, when the transaction closed under the fraudulent conditions. Plaintiffs relied by making Stephens and Moore their primary source for borrowing money to redeem their property. Plaintiff Aletha Nielsen testified in her deposition that, before plaintiffs began dealing with Stephens, they had been looking at other potential sources of money and that they were getting close to an agreement. A jury could find on this record that the alleged fraudulent promises were the reason that plaintiffs stopped working with those other sources. As a result of their reliance on defendants' promises, when plaintiffs had to decide on June 27 whether to go through with the sale, they could legitimately have believed that they had no realistic alternative to agreeing to the terms with which they were presented.

In Ward, the alleged fraudulent representations concerned the value and ownership of the property that the plaintiff purchased rather than the nature of the proposed transaction. The plaintiff could have decided at any time before closing not to go through with the deal with no negative effects other than the loss of a possible investment. Any reliance, thus, must have...