[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 584
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 585 This is an appeal by the plaintiffs from a decree of the circuit court which was entered in a suit instituted for the following purposes: (a) to correct the description of a parcel of real property contained in a contract wherein the plaintiffs undertook to purchase that property from two of the defendants, H.E. Shirley and his wife, Ruth; (b) to recover a judgment against the three defendants (the Shirleys and C.G. Blakely) upon charges that, through false representations, they induced the plaintiffs to undertake the purchase of that property; (c) to secure delivery of a deed to the above-described property which was placed in escrow concurrently with the execution *Page 586 of the contract; (d) to restrain the Shirleys from proceeding further with an ejectment action instituted by them for the purpose of removing the plaintiffs from the property; and (e) to gain judgment for the costs and disbursements of this suit.
The property with which this suit is concerned is 160 acres of land located in Benton county. In the aforementioned contract, which was executed by its parties (the plaintiffs and the Shirleys) July 1, 1933, the plaintiffs agreed to purchase this property for a consideration of $2,000, payable $500 upon the execution of the contract, and the balance in annual installments of $200, payable October 1 of the ensuing years. Defendant H.E. Shirley was the record owner of the property, and defendant C.G. Blakely was the agent who consummated this transaction. His commission was paid by H.E. Shirley, and we are satisfied that he was the defendants', and not the plaintiffs', agent. The circuit court, in a part of the decree unaffected by this appeal, held that Blakely was not guilty of any fraud and dismissed the suit as to him. Shortly after the execution of the contract the plaintiffs assumed possession of the property and have retained it ever since. They have paid a total of $750 upon the purchase price. After they had refused to make the payment of $200, payable on October 1, 1935, and had claimed that nothing further was due to the Shirleys because of alleged misrepresentations concerning the property, the Shirleys instituted the action of ejectment previously mentioned. Shortly thereafter the suit which we are now reviewing was filed by the plaintiffs.
The complaint alleges, the answer admits, and the findings state that, through mutual mistake, the contract *Page 587 failed to contain the correct description of the property. The decree, in a part not under attack by this appeal, corrects the error.
The findings state:
"The defendant, H.E. Shirley, knowingly and falsely represented to plaintiff that there was at least 4000 cords of wood on said premises; that said representations was false and was made by defendant H.E. Shirley with the intention of inducing plaintiffs to purchase said premises; that the plaintiffs in purchasing said premises relied upon said representations."
We have read carefully the transcript of evidence and are well satisfied that it fully supports the above findings. The uncontradicted testimony also indicates that Shirley represented that timber of that kind was worth 50 cents a cord as stumpage. These were material representations, and it is clear that the plaintiffs would not have signed the contract of purchase had they not been deceived into the belief that 4,000 cords of firewood were upon the place. The fraudulent representation was made in a letter, dated May 23, 1933, which Blakely sent to the plaintiffs after he had told Shirley that the plaintiffs wanted to know how much timber stood upon the place. Blakely, in relaying to the plaintiffs Shirley's reply, stated in this letter: "He said there was at least 4000 cords of wood on the place."
The plaintiffs had a debtor who possessed a truck and who proposed to cut the timber into firewood and thus, besides working out his debt, enable the plaintiffs to pay the purchase price of the property. Blakely was aware of this circumstance when he inquired of Shirley concerning the exact amount of timber upon the property; in fact, his letter from which we quoted continues, *Page 588 thus: "With your truck that you spoke of you could go right into the wood and have that place paid for in no time right there."
The plaintiffs, S.W. and Nona Selman, husband and wife, visited the property in company with Blakely May 23, 1933, a few hours before the aforementioned letter was written, but neither they nor he had been upon the property before. The plaintiffs were strangers to this state. The husband was at that time a seaman in the United States navy, and his wife was a dressmaker in Altadena, California. Neither of them had had any experience upon farms and neither knew anything about timber or land values in this state. They arrived in Corvallis May 23, 1933, and at once called upon Blakely who was a real estate agent, and a stranger to them. Blakely at once took them to this property. While standing in a small clearing he pointed to an old rail fence which marked the south line, and he also indicated as best he could the east line, but had no knowledge of the other boundaries. Rain and low-hanging clouds partially obscured the view toward the higher elevations upon which the timber was supposed to stand. The ground was very muddy, which circumstance, together with the fact that Blakely did not know the boundary lines, dissuaded the party from proceeding further. As a matter of fact, the land had been logged off in 1918 when everything merchantable was taken. The tract was surrounded by tall timber, but, since no one in the party knew the boundary lines, none knew whether the timber which they saw was upon this property or not. This cursory examination of the property, followed by misrepresentations, clearly did not preclude the plaintiffs from relying upon the latter: Southern Oregon Orchards Co. v. *Page 589 Bakke, 106 Or. 20, 210 P. 858. After their brief visit to the tract the plaintiffs left for California, and Blakely called upon Shirley, telling him that the plaintiffs were interested and wanted to know how much timber was upon the tract. Shirley, according to Blakely, replied, "If they didn't touch the wood upon the place, that if they would get fifty cents a cord for it, there would be enough to pay for the place, figuring there should be, he said, 4000 cords on it." Still later in the day Blakely wrote the letter from which we have already quoted. After its receipt the plaintiffs signed the contract above mentioned. As a matter of fact there were only 200 cords of wood upon the property. Shirley's version of the above conversation follows: "I told him that there was timber enough in the place, if they would cut it, would pay for the place and all they would be out would be their labor. * * * I figured there was a thousand cords on the place and if it was cut and all they would be out would be their labor. Now, that is the way I told him (Blakely) * * * so he misunderstood me, I suppose." Next, he was asked and answered as follows:
"Q. Did you ever at any time figure there was 4000 cords of wood on the place? A. Never."
Mrs. Selman returned to this tract in the early part of August, 1933, for a visit of three days. She was accompanied by the aforementioned truckman who, after viewing the tract, reported that there was no timber upon the property worth cutting. Promptly upon learning the truth Mrs. Selman protested to Shirley, telling him, "We have been lied to, * * * and something has to be done." According to Shirley, "she was pretty much up in the air about it. She said that she understood that there was 4000 cords of wood on *Page 590 the place and bought it with that understanding." Shirley told her that he had not made the statement attributed to him in Blakely's letter, and accordingly she sought out Blakely who insisted that the statement in the letter represented Shirley's own words. The next day Mrs. Selman arranged a meeting between Blakely and Shirley which she attended. According to her uncontradicted description, the following occurred: "Mr. Shirley come in and Mr. Blakely says, `You know you told me this' and Shirley says, `I didn't,' and I said, `Something has got to be done because when my husband finds this out, hell is going to pop; he is away and he is in the navy,' and I was there alone and no way to do anything. So it was suggested taking it to court, Mr. Blakely says, `If you take it to court, I am with you, don't forget it.' I said, `I will' and walked out." She was then compelled to return to California.
Mrs. Selman returned October 12, 1934, and has made her home upon the property ever since. At that time her husband had a brief leave of absence from the navy and he, too, was upon the property. An installment of $200 was payable at that time upon the contract. The Selmans called upon Shirley, and Mrs. Selman told him "something had to be done about those misrepresentations of his before he would do anything further." A discussion followed and, according to Mrs. Selman, Shirley assured them "that he was willing to do what was right and to adjust the wrong, and we went ahead and paid it under those conditions, that he would make good the false representations. We paid him with that understanding." Her husband gave like testimony. The payment was made October 13, 1934. While Shirley admitted that Mrs. Selman repeatedly claimed that the plaintiffs had been deceived *Page 591 into the belief that there were 4,000 cords of wood upon the property, he claimed that when the October, 1934, installment was paid nothing was said concerning the false representations. When the installment which was due in October, 1935, was payable, no adjustment had been made. The plaintiffs again protested and asked for redress, but when nothing was done by the Shirleys they withheld the payment.
Shirley, after giving the testimony which we have already mentioned, made the following answer to a question of the trial judge: "I told him (Blakely) this statement that I just made, that I figured that there was wood enough on the place to pay for it." Next, Shirley admitted that Blakely, in the conferences preceding the trial, corroborated the Selmans' claims of deceit. Two more questions by the trial judge brought the answer which we have already quoted in which Shirley admitted that he told Blakely, "I figured that there was wood enough on the place to pay for it." In other words, he denied stating there were 4,000 cords of wood on the place, but admitted saying there was enough to pay the purchase price of the property, $2,000. He made this admission, however, only after this suit was brought. When the plaintiffs called upon him and sought an adjustment of their claim he refused to admit anything, even though Blakely reminded him of their conversation preceding the letter of May 23.
We repeat that, in our opinion, the record clearly supports the aforementioned finding of the circuit court which declares that the plaintiffs were deceived into the purchase of this property through a false representation that there were 4,000 cords of wood upon the property possessing a stumpage value of 50 *Page 592 cents per cord. It will be further observed that through promises of future adjustment, to which the plaintiffs were peculiarly susceptible due to their absence from the state, they were induced to make the payment of October, 1934. They, possibly, have lost the right to a rescission.
The plaintiffs also claim that they were deceived by a representation that a stream which they saw upon their visit to the land in May, 1933, flowed throughout the year and supplied enough water to irrigate ten acres. Besides inquiring about the timber, the plaintiffs had also inquired of Blakely about the stream. In a letter to them Blakely stated: "This stream does run the year round and the owner told me the next day after you were here that it is a dandy trout stream and that he has caught lots of trout in it. There is plenty of water in this stream, as I told you, to irrigate ten acres of the farm. You need have no fear that you wouldn't always have good water in this creek." Blakely knew nothing concerning the stream from his own observations and swore that the letter was a true narrative of Shirley's statement. A witness who had overheard the conversation between the two men corroborated Blakely, stating that Shirley had said, "It was a year round stream and that he (Shirley) had irrigated ten acres." Shirley admitted that Blakely had inquired of him concerning the stream, and then swore: "I told him that there was approximately ten acres that was available to the ditch that was in there * * * and there was anyhow ten acres there that could be irrigated from this ditch that was in there if it was properly handled." But, referring to the irrigating ditch, he explained: "That land won't hold the water and it seeps away about as fast as it *Page 593 runs in there and when it hits a gopher hole it is gone." According to Shirley, a flume is required. However, the witness swore that the stream dries up in the summer months and, under the best of circumstances, does not flow sufficient water to irrigate even a small garden patch. The circuit court found that Shirley had made the statement contained in Blakely's letter, but made no finding concerning its truthfulness. We are satisfied that the evidence warrants a conclusion that the representation was false.
The findings state that the property was "of the fair market value of $2,000 at the time said contract was entered into, to-wit: July 1, 1933; that plaintiffs have suffered no damages, having agreed to pay $2,000 for said premises." The sole issue upon which we deem it necessary to express an opinion is whether the plaintiffs are entitled to (1) the benefits of their bargain; or (2) no damages because the market value of the land equals the sum which they agreed to pay.
As we have stated, the plaintiffs retained possession of the property after they discovered the fraud which had been practiced upon them. It has been many times stated by this court that a defrauded party is not required to rescind the contract in order to sue for deceit, and that if he affirms the contract he does not thereby waive his right to recover damages for the fraud which had been practiced upon him.
The plaintiffs argue that they are entitled to the benefit of their bargain which contemplated that they should have, not only 160 acres of land but also a growth of timber upon the land aggregating 4,000 cords and a good irrigating stream; and that the rule which measures their damages should be based upon that premise. The defendants contend that this court has *Page 594 rejected the benefit-of-the-bargain rule in favor of the rule which grants damages equal only to the out-of-pocket loss. The rule championed by the plaintiffs would certainly be available if this action were based upon a warranty and were, therefore, contractual in nature. In support of their contentions that this court has rejected the benefit-of-the-bargain rule in fraud actions, the defendants cite Columbia River Door Co. v. Priest,128 Or. 359 (274 P. 116); Lichtenthaler v. Clow, 109 Or. 381 (220 P. 567); Hooning v. Henry, 106 Or. 605 (213 P. 139);Southern Oregon Orchards Co. v. Bakke, 106 Or. 20 (210 P. 858);Johnson v. Meyers, 91 Or. 179 (177 P. 631); Ward v. Jenson,87 Or. 314 (170 P. 538); Salisbury v. Goddard, 79 Or. 593 (156 P. 261); and Van de Wiele v. Garbade, 60 Or. 585 (120 P. 752).
Of the above decisions the only ones which indicate comparison of the two rules for measuring damages are Ward v. Jenson andLichtenthaler v. Clow. The decision in Ward v. Jenson states that the circuit court had instructed the jury:
"The measure of damages in this case is the difference between the value of the land as it would have been if it was as represented, and the actual market value * * *."
The decision states:
"This instruction was erroneous. It is settled in this state that in an action to recover damages for false representations inducing an exchange of property the measure of damages is the difference between the market value of the property parted with by the person defrauded and the market value of the property received by him."
We shall state the facts before this court in that case later, but before doing so we shall consider Lichtenthaler v. Clow, supra. From it we quote: *Page 595
"There is a sharp conflict of opinion between the courts as to some classes of misrepresentations; but as to other classes there may be a substantial harmony of opinion, or if as to some kinds of misrepresentations there be any contrariety in the judicial views, the differences may not be very marked. Cases dealing with misrepresentations concerning quantity, condition and value are, on the question of measurement of damages, divided into two classes: (1) those which measure the damages by ascertaining the difference between the actual value of the property received and its value if it had been as it was represented to be; and (2) those which measure the damages by ascertaining the difference between the actual value of the property and the amount paid for it: See Van de Wiele v. Garbade, 60 Or. 585, 591 (120 P. 752); Zobrist v. Estes, 65 Or. 573, 578 (133 P. 644); Benson v. Murton, 66 Or. 199 (133 P. 340, 1189); Robertson v. Frey,72 Or. 599, 604 (144 P. 128); Caples v. Morgan, 81 Or. 692, 704 (160 P. 1154, L.R.A. 1917B, 760); Purdy v. Underwood, 87 Or. 56,62 (169 P. 536).
"There is also a sharp conflict of opinion between the cases dealing with misrepresentations concerning the identity and location of real estate. When the misrepresentations relate to title or encumbrances the courts appear to be in substantial harmony as to the rule for measuring damages. When the misrepresentations relate to quantity, the rule applied is not always the same; for it will be found upon an examination of the precedents that the rule of measurement is dependent upon the facts of the case. * * *"
In Columbia River Door Co. v. Priest, supra, the facts were that the Morgan Razor Works, a corporation, had exchanged some personal property which it owned for some timberlands owned by the defendants. Two years later the plaintiff, owner of all of the capital stock of the razor works, claimed that the defendants had fraudulently misrepresented the quantity of timber upon the land. The defendants claimed that *Page 596 they were the real victims of the cozening, if any had taken place, and asserted that they had received only a small part of what the trade contemplated that they should have received. The part of the decision upon which the defendants rely is the following:
"If the defendants' contention be true that plaintiff was not damaged in this exchange of property, even though false representations were made, that, of course, would preclude a recovery by the plaintiff."
No effort was made to state the rule which governed the measurement of damages, and the quoted language, it will be observed, lends no support to the defendants' contention when construed in the light of the facts just mentioned.
Hooning v. Henry, supra, was an action in which the plaintiffs sought to recover damages on account of alleged misrepresentations made by the defendant in inducing the plaintiff to purchase a used automobile. The portion of the decision material to the contention advanced by the defendants in the instant action is the following:
"The principal contention here is that the court erred in instructing the jury that the measure of damages would be the difference between the agreed purchase price of the automobile, namely, $1,200, and the reasonable market value of the machine at the time of purchase, and in refusing to instruct that the measure of damages was the difference between the value of the property as represented and its actual condition. We are aware that there is a difference among the courts as to the measure of damages in cases of misrepresentation, but this court is committed by the case of Southern Oregon Orchards Co. v. Bakke,106 Or. 20 (210 P. 858), to the rule laid down by the Circuit Court, to which we still adhere." *Page 597
The evidence had been confined to the special damages and the market value of the machine at the time of its purchase. It is evident that the rule which the defendant embraced in his requested instruction would not have been germane to the proof.
Southern Oregon Orchards Co. v. Bakke, supra, was an action upon a note of $100 in which the defendant, by way of counterclaim, alleged that he was induced to purchase a tract of land from the plaintiff and execute the note in part payment thereof through fraudulent representations made by the plaintiff concerning the land. From a judgment in favor of the defendant, the plaintiff appealed. The only part of the decision material to the inquiry in which we are engaged is the following:
"Another assignment of error is based upon the following instruction: `Now in case you should find that under the rule of law as I shall give the same to you, that the defendants were damaged in any amount, I instruct you that the rule of damages applicable would be that the damages would be the difference between what the defendant paid for the property and its fair market value at the time of entering into the contract. It would make no difference that he might later be able to sell the property for more than he paid for it.' This charge clearly states the law."
The judgment of the circuit court was affirmed. Since the out-of-pocket damage rule is more favorable to fraudulent parties than the rule which gives the defrauded party the benefit of his bargain, it is evident that the plaintiff (the fraudulent party) had no occasion to criticise the quoted instruction.
Johnson v. Meyers, supra, was an action by an individual, who had contracted to haul some cordwood out of the forest, to recover damages on account of *Page 598 alleged misrepresentations which he claimed induced him to enter into the undertaking. He averred that if the facts had been as represented he would have earned a profit of $840 instead of incurring a loss of $5,287.04. The trial resulted in a verdict and judgment in his favor in the amount of $4,281.84. We now quote from the decision:
"It is also contended that `damages which were within the contemplation of the parties or which were the necessary or natural consequences of the fraud only can be recovered.' That is the law and as we construe the record it is the theory upon which the case was tried and upon which the court instructed the jury. The defendants maintain that `the damages recovered must be limited to the actual loss sustained by reason of the fraud' and that `prospective and uncertain profits cannot be recovered.' That is the rule laid down in Smith v. Bolles, 132 U.S. 125,33 L.Ed. 279, 10 S.Ct. Rep. 39, where the court says: * * *"
The decision next quoted from Rockefeller v. Merritt, 40 U.S. App. 666, 76 Fed. 909, 22 C.C.A. 608, 35 L.R.A. 633. The instructions to the jury permitted the recovery of the alleged profit, if the jury was satisfied that it would have been earned had the facts been as represented. The decision, referring to the two federal decisions just mentioned, said: "Under the authorities above quoted, we think this was error," meaning the instruction, but held that, due to the absence of exceptions, the issue was not before the court. The judgment was affirmed.
In Salisbury v. Goddard, supra, the plaintiffs, who had traded a parcel of real property for the furnishings and lease of a hotel, alleged that they were induced to make the trade through the defendants' false representations concerning the hotel. The verdict *Page 599 and judgment were in their favor. This court's decision, after holding that reversible error had been committed in the reception of testimony, continued thus:
"In view of the conclusion thus reached, it is deemed essential to consider another alleged error in order to prevent its recurrence at a retrial of this cause. It will be remembered that this was not a suit for rescission, but it is an action at law to recover damages. If, therefore, the plaintiffs received property of equal value of the lot which they conveyed, and the money they paid, they were not injured and sustained no damages: Van de Wiele v. Garbade, 60 Or. 585, (120 P. 752); Robertson v. Frey,72 Or. 599 (144 P. 128)."
In determining the significance of that language, it is desirable to bear in mind the fact that the defendant claimed that the real property with which the plaintiffs parted was not worth its represented value.
In Van de Wiele v. Garbade, supra, the plaintiff alleged that through the defendant's fraudulent representations, he had been induced to purchase 37 1/2 shares of the capital stock of a corporation, paying for it $3,750, its par value. One of the alleged fraudulent representations upon which he depended was that the stock was worth more than par, but he demanded judgment for no more than he had paid. A principal issue upon appeal was whether the cause was a suit in the nature of a rescission or an action for damages. In affirming the judgment of the circuit court, this court employed the language upon which the defendants apparently rely:
"True enough the plaintiff brings into court the certificates of stock, alleging a previous tender and demand of the money; but this is not controlling in the premises. After verdict, the pleading may be well *Page 600 construed to be an action for damages proceeding upon the affirmance of the contract. On this theory, if the plaintiff is successful, his measure of damages would be what he paid for the stock, after deducting from that sum the reasonable value of the stock at the time of purchase. If, in fact, the stock was utterly worthless, his measure of damages in the action at law would be the full amount he paid; for in the final calculation there would be nothing in the shape of stock value to diminish the purchase price. If the stock had no value, the reason for the distinction in law between an action in affirmance of the contract, and an action in disaffirmance of the same would fail, and the reason having failed the distinction itself would fail. Under such circumstances, to return the stock is a mere act of grace, which does not prejudice the action for damages."
Since the plaintiff sought recovery for no more than he had paid for the stock, although depending upon a representation that it was worth more than par, he was not asking for the benefit-of-the-bargain rule, and, hence, this court was not called upon to make a choice between the two rules. The quoted language was employed only for the purpose of indicating that the cause was not of equitable cognizance — the certificate tendered into court was worthless, and, hence, its tender was not an indication that a rescission was sought.
The above constitutes a review of all the authorities cited by the defendants. We believe that we have discerned and quoted the part of each upon which the defendants rely. Ward v. Jenson,Columbia River Door Co. v. Priest, and Salisbury v. Goddard arose out of exchanges of properties. The first of these is representative of the other two. In that case the plaintiff, owner of a parcel of Oregon property, exchanged it for a tract in California. She claimed that the defendant *Page 601 had falsely represented the nature of his title, the acreage within the tract, the amount which he had spent upon improvements, the capacity of a pump which constituted a part of the irrigation system, the amount of time required to pump water to the land's level, the amount expended for the orange trees growing upon the land, etc. In addition, a controversy developed concerning the value of the Portland property. It is manifest that an Oregon jury would have been compelled to resort to guesswork in endeavoring to determine the value of the California property had it possessed the features which the defendant claimed for it. This is especially true since the record contained no intimation of the market value of any property possessing those qualities. Under these circumstances, the market-value rule was the only one which could compel resort to known values. In Van de Wiele v. Garbade this court was not called upon to make a choice between the two rules for the measurement of damages. In Lichtenthaler v. Clow the two rules were defined, but no preference was stated. In Hooning v. Henry the parties evidently tried their case under the out-of-pocket-loss rule. Johnson v. Meyers, while possibly containing some intimations that the benefit-of-the-bargain rule is not available in this state, nevertheless, affirmed a judgment in which purported profits were allowed the victim of the fraud. Before attempting to come to a conclusion, we deem it well to consider three additional decisions of this court.
In Robertson v. Frey, 72 Or. 599, 144 P. 128, the plaintiff, who had sold a parcel of Oregon property to the defendant, accepting in part payment a tract of Iowa land, sought damages on account of alleged fraudulent representations concerning the latter. There *Page 602 was no controversy over the Oregon property nor its value. The defendant had represented that his Iowa tract, which the plaintiff had never seen, consisted of 40 acres, and that it was worth $2,500. The truth of the matter was that the Iowa land was located upon the Missouri river and that, due to erosion, only 27.16 acres remained. It was worth between $10 and $20 per acre. The circuit judge, now Mr. Justice KELLY of this court, instructed the jury:
"The measure of damage in this case is the difference between the value of the land as it would have been if it was as represented and its actual market value."
The jury returned a verdict for $2,500. A motion for a new trial was overruled on condition that the plaintiff file a remittur in the sum of $400. The judgment of the circuit court was affirmed, the decision stating:
"The authorities as to the rule governing the measure of damages in cases of fraud are inharmonious. This is sometimes due to the difficulty of framing a definite rule which will give proper compensation to the injured party under varying states of facts."
Here, it will be observed that the evidence afforded the jury something definite upon which it could base a conclusion as to values; that is, the value of the Oregon property was admitted by the defendant, and he himself had represented that the Iowa property was worth $2,500. Under those circumstances, the defrauded vendee obtained the benefit of the bargain.
Purdy v. Underwood, 87 Or. 56 (169 P. 536), and Cawston v.Sturgis, 29 Or. 331 (43 P. 656), fall into the same general category as Lichtenthaler v. Clow, supra. In each of them a purchaser, whose contract entitled *Page 603 him to a larger tract of land, accepted less, unaware of the shortage and, upon discovering the truth, instituted an action for fraud. In the Lichtenthaler decision this court held that in the absence of special circumstances the vendee is entitled to recover such portion of the purchase price, less the value of the improvements, as the deficiency bears to the area described in the contract. In Purdy v. Underwood, supra, the plaintiff purchased, at a price of $50 per acre, a tract from the defendant which the latter represented contained 112 1/2 acres. Later the plaintiff conveyed the land for a valuable consideration to a third party, and still later discovered that it contained only 78.76 acres. He then brought the action under review charging fraud. The trial resulted in a judgment in his favor in the amount of $1,687. The defendant, upon appeal, in addition to pointing out that the plaintiff was not liable to his vendee for the shortage, argued that no recovery was permissible because in this state "the measure of damages in such cases is the difference between the actual value of the property at the time of the purchase and the price paid therefor." Disposing of this contention, the decision stated:
"The legal principle invoked by defendant's counsel is applicable where property is exchanged."
In conclusion, the decision held:
"Though the evidence fails to show what consideration was given by Mrs. Purdy for the land it will be assumed without deciding the question, that her deed was intended to be absolute, and whether she gave only one dollar as stated in the instrument, or paid more than the defendant received for the land is unimportant, for the plaintiff was legally entitled to make such disposition of the real property as he pleased." *Page 604
In Cawston v. Sturgis, supra, the defendant, through the fraudulent representation that an irregular plot which he showed to the plaintiff contained two and one-half city lots, induced the plaintiff to purchase it. The tract contained only two lots. In affirming a judgment for the plaintiff, the decision stated:
"The contention for the defendant is that the measure of damages is the difference, if any, between the value of lot five as it actually existed and what plaintiff paid for it; and, in accordance with this view, he offered to show that the tract was actually worth the purchase price, although not as large as represented by the defendant. But, according to the verdict of the jury, the plaintiff paid for and supposed he was buying land equal in area to two lots and a half, when in truth and in fact he actually received land in area equal to little over two lots; and if, by the fraud of the defendant, he was deceived and paid for more than he actually received, it seems to us the minimum recovery should be the amount paid for the deficiency, irrespective of the actual value of the true tract."
It will be observed that in the three decisions just reviewed the defrauded party got the benefit of his bargain and that the out-of-pocket-loss rule was not employed. In one of them (Purdyv. Underwood) the out-of-pocket-loss rule was expressly rejected, the decision declaring that it is "applicable where property is exchanged." The fact that the defrauded party had sold the property and had, possibly, received for it more than he paid was deemed immaterial.
The rule which gives to the defrauded party the benefit of his bargain is favored by the textbook writers. The following is quoted from Williston on Contracts (Rev. Ed.) § 1392:
"Not all courts allow the same damages to a buyer who has been induced to buy by fraudulent representations and sues for the deceit as to a buyer who sues *Page 605 for breach of warranty. The contrary view, confining the damages in deceit to the value of what the plaintiff parted with, less the value of what he received, has the support of the Supreme Court of the United States, and of some state courts. This also seems to be the law of England. At first sight it may seem that the latter rule is clearly and universally correct, confining as it does the plaintiff's recovery to a restitution of what he lost by entering into the transaction. The real explanation of the broader rule, at least in cases of sales of goods, seems to be that the defendant in deceit is not simply a fraudulent person; he is a warrantor of the truth of his statements. The injured person may, because of fraud, elect to rescind the transaction and claim restitution of what he has parted with, or he may demand that the representations be made good. Ordinary warranties where no fraud exists may be enforced by action of tort. The addition of the element of deceit cannot deprive the injured person of the rights which would be his if this element were lacking, and if the representation on which he relied were a warranty and nothing more. Nor is a strictness of pleading to be defended that denies to a plaintiff the relief that would be his if he omitted an allegation that the representation of the quality of goods, of which he complains, was fraudulent. A practical reason for the enforcement of the broader rule may be found in the fact that under the other rule a fraudulent person can in no event lose anything by his fraud. He runs the chance of making a profit if he successfully carries out his plan and is not afterward brought to account for it; and if he is brought to account, he at least will lose nothing by his misconduct. * * * Any universal statement, therefore, that the damages for fraudulent misrepresentation are the difference between the law governing sales of goods and that governing other transactions may explain some apparently inconsistent decisions."
Sedgwick on Damages (9th Ed.), § 1027, in stating the measure of damages where fraud is employed in the course of a sale of land, declares: *Page 606
"In such actions, as in actions for fraud in the sale of chattels, it has usually been held that the measure of damages is the difference in value between the land as it would have been if as represented and as it actually was."
The rule is thus stated in 27 C.J., Fraud, § 243, p. 92:
"The measure of the damages sustained by the purchaser where a purchase has been induced by fraud, is according to the weight of authority, the difference between the real value of the property purchased and the value which it would have had had the representations been true. This rule is based upon the theory that a defrauded party is entitled to the benefit of his bargain and should be placed in the same position that he would have occupied had the false representations upon which he acted been true."
Sutherland on Damages (4th Ed.), § 1172, in criticizing the out-of-pocket-loss rule, states:
"As said by Mr. Justice Gray, `to allow the plaintiff only the difference between the real value of the property and the price which he was induced to pay for it would be to make any advantage lawfully secured to the innocent purchaser in the original bargain inure to the wrong-doer; and, in proportion as the original price was low, would afford a protection to the party who had broken, at the expense of the party who was ready to abide by, the terms of the contract.' The amount paid is evidence of the value, but on principle and according to the general course of decision is not conclusive of the value as it was represented to be."
However, the Restatement of the Law of Torts, § 549, embraces the out-of-pocket-loss rule. We quote from it the following:
"The measure of damages which the recipient of a fraudulent misrepresentation is entitled to recover from its maker as damages under the rule stated in *Page 607 § 525 is the pecuniary loss which results from the falsity of the matter misrepresented, including
(a) the difference between the value of the thing bought, sold or exchanged and its purchase price or the value of the thing exchanged for it,
(b) * * *"
Williston on Contracts (Rev. Ed.), § 1392, referring to the section of the Restatement just quoted, declares that it "adopts the minority rule." Professor Williston continues that under the maxim adopted by the Restatement, "if fraudulent representations constitute a warranty also, recovery may be had on that basis"; that is, the defrauded party obtains the benefit of his bargain. Many authorities are digested in the following annotations: 108 A.L.R. 1060, 57 A.L.R. 1142, and 8 L.R.A. (N.S.) 804. See, also, 12 R.C.L., Fraud and Deceit, §§ 198 and 199, pp. 452 and 453.
Professor Charles T. McCormick, in a treatise appearing in 28 Ill. Law Rev. 1050, states:
"In few of the states have the courts seized upon one of these formulas and applied it with entire consistency in all classes of cases. * * * In land sales also many courts seem to treat differently cases where the quality or character of the land has been misrepresented from those in which the false statement relates to its title, identity or quantity."
As a footnote to this statement he quotes from that part of Mr. Justice HARRIS' opinion in Lichtenthaler v. Clow, supra, which indicates that the rule governing the measurement of damages in fraud actions has been applied in a flexible manner. In a preceding paragraph of this opinion we set forth the same excerpt. Professor McCormick approves the nonuniform manner in which these rules for the measurement of damages have been applied by the courts, and urges that "a technique *Page 608 should be developed by which both of these formulas shall be made available, so that one or the other may be used as the circumstances of the case may demand." Other authorities, as we shall now show, have also taken note of the pliable nature of the formula. In 27 C.J., Fraud, § 246, p. 97, the editor states:
"In some jurisdictions the courts, while in the main adhering to one or the other of the rules stated in one of the preceding sections, have recognized certain limitations and qualifications."
This statement is followed by a review of the decisions of Arkansas, California, Colorado, New Jersey, New York and Texas which shows that in those states the courts have applied the rule measuring damages in fraud actions in a variable manner. An extensive annotation in 8 L.R.A. (N.S.) 804, which reviews the decisions dealing with the measure of damages for fraudulent representations in real estate transactions, indicates still further that the courts do not always apply the same rule. The compiler of that annotation deduced the following as the rule generally applied:
"Where a representation is made as to the value, quality or condition of real estate, the majority of the courts apply the rule that a defrauded vendee is entitled to the difference between the actual value of the property received and its value had the representations as made been true."
A single illustration will indicate the flexible application which the rule has received: Minnesota subscribes to the out-of-pocket-loss rule, yet in Shane v. Jacobson, 136 Minn. 386, 162 N.W. 472, the plaintiff, who had been induced to purchase a farm at a price of $17,300 upon a representation that the east 80 acres of it were tiled, was held, notwithstanding the out-of-pocket-loss *Page 609 rule, to be entitled to damages equal to the expense of installing the missing tiling. It will be observed that the guide employed was, in fact, the benefit-of-the-bargain rule. In substantiation of the statement just made, we quote the following from Professor McCormick's article previously cited:
"If at reasonable cost property sold can be made to conform to the representations of the seller, to allow the buyer to recover this amount is a logical application of the principle of which the `loss of bargain' rule is founded. Thus, when the seller of a farm falsely represented that the well gave good water the buyer was allowed the cost of a new well. And a purchaser * * *.'"
We come now to an effort to reconcile our decisions and to deduce a rule therefrom. First of all, it is evident that the party guilty of fraud is liable for such damages as naturally and proximately resulted from the fraud. This is the universal rule. Next, our decisions warrant the conclusions: (1) If the defrauded party is content with the recovery of only the amount that he actually lost, his damages will be measured under that rule; (2) if the fraudulent representation also amounted to a warranty, recovery may be had for loss of the bargain because a fraud accompanied by a broken promise should cost the wrongdoer as much as the latter alone; (3) where the circumstances disclosed by the proof are so vague as to cast virtually no light upon the value of the property had it conformed to the representations, the court will award damages equal only to the loss sustained; and (4) where, as in Robertson v. Frey, supra, the damages under the benefit-of-the-bargain rule are proved with sufficient certainty, that rule will be employed. *Page 610
In the present instance, the plaintiffs are clearly the victims of a fraud. The representations which deceived them concerned the quality or condition of the property; they were willful, were phrased in positive terms and were made in writing. They were made with knowledge upon the part of Shirley that the plaintiffs were ignorant of the facts and desired information. A determination of the value of the property, had it been as represented, does not carry one into the field of conjecture, but resort may be had to values for which Shirley and other witnesses vouched; that is, 4,000 cords of stumpage were worth $2,000. Had Shirley's representations been true, the plaintiffs would now have not only the land but also the timber. They should not be compelled, because Shirley was dishonest, to be content with the land only. Through false representations Shirley should not be permitted to obtain for the logged-off land a sum which would have been refused him had he been honest and truthful. In this case we are satisfied that Shirley must have known that through his deceit the plaintiffs would lose the benefit of the bargain which he was inducing them to enter into. Thus, we get back to the one rule which is of universal application: the party guilty of the fraud is liable for such damages as naturally and proximately result from the fraud. We conclude that the plaintiffs are entitled to damages awarded upon the basis of 50 cents per cord for the difference between the represented 4,000 cords and the actual 200 cords. The balancing of these accounts will indicate that there is now $650 owing to the plaintiffs. The ejectment action should, of course, be restrained. The deed should be delivered to the plaintiffs. It may appear that under these circumstances the plaintiffs will obtain the land *Page 611 for virtually nothing. There is, however, substantial evidence in the record indicating that without the timber and water for irrigation the land possesses virtually no value. While it is true that Shirley, Blakely and two other real estate agents expressed the opinion that this logged-off tract was worth $2,000, the effect of this evidence is greatly discredited by the representation, which induced the plaintiffs to make the purchase, that the land plus the 4,000 cords and served by a good irrigating stream was worth $2,000. But, be this as it may, courts ought not to be overnice in trying to save one who has willfully deceived another from the vicissitudes resulting from his wrong.
For the sake of completeness, we add that we have not overlooked the fact that the contract is still executory. The defendants have presented no issue upon that score, and the plaintiffs' position is fully sustained by many decisions of which Hines v. Brodie, 168 Cal. 507, 143 P. 729, is a good example.
The cause will be remanded to the circuit court for the purpose of adjusting the accounts of the parties in harmony with the above and of entering the modified decree.
RAND and KELLY, JJ., concur.