The brief accompanying the respondents' (defendants') petition for a rehearing contends that we erred when we applied in this suit the benefit-of-the-bargain rule. It cites no authorities not mentioned in our previous decision except pages 448 to 454, McCormick on Damages. Our decision quoted from a treatise written by the same author, published in 28 Ill. Law Rev. 1050, which apparently afforded the substance for the above-cited pages of his textbook.
We are likely to become so engrossed in efforts to formulate a rule of damages capable of precise application in all future cases and incapable of misapplication in any, that we may lose sight of our real duty in the present case; which is to sift out the charges of fraud, and, if it then appears that the alleged wrongdoer is guilty of the charges made against him, to enter judgment against him for all damages which are the proximate result of the wrong which he committed. Upon the reargument the defendants did not contend that the circuit court erred when it found that the charges of fraud were true, nor that we erred when we *Page 614 adopted that finding. Hence, the ascertainment of what, if any, damages were the proximate result of the wrong is the only problem before us.
Regardless of whether the out-of-pocket-loss rule or the benefit-of-the-bargain rule is the correct one, the fundamental rule, universally employed, is the one just indicated: the victims of fraud are entitled to compensation for every wrong which was the natural and proximate result of the fraud. If that statement needs the support of authority, we quote from 12 R.C.L., Fraud and Deceit, p. 452, § 197:
"Under the general rule as to damages, the injured party is entitled to recover such damages as result directly and proximately from the fraud, which include those which were actually or presumptively within the contemplation of the parties when the fraud was committed."
See to the same effect Preble v. Hanna, 117 Or. 306,244 P. 75, where this court held that all damages are recoverable which "naturally flow from the tortious act of the defendant with reasonable certainty."
In Anderson v. Columbia Contract Co., 94 Or. 171, 184 P. 240, 185 P. 231, 7 A.L.R. 653, Mr. Justice HARRIS, on behalf of this court, said:
"The law aims to allow full and complete compensation to an innocent party who has been damaged by the breach of a contract or the commission of a tort. In practice, the law does not prove false to its theory * * *."
In Gustafson v. Rustemeyer, 70 Conn. 125, 39 A. 104, 39 L.R.A. 644, 66 Am.St.Rep. 92, the court, in a carefully prepared decision, said:
"We think the loss of the benefits of the bargain is one of the elements of damages which the defendant *Page 615 must be held to have contemplated as the natural and proximate result of his conduct, and for which he is therefore answerable."
In order to indicate the manner in which one writer, at least, has applied this simple formula in instances like the present, we quote the following statement made in Sutherland on Damages (4th Ed.) § 1171:
"The party guilty of the fraud is to be charged with such damages as have naturally and proximately resulted therefrom. He is to make good his representations as though he had given a warranty to that effect. He is to make compensation for the difference between the real state of the case and what it was represented to be. Thus, in cases involving sales, leases or other like contracts, where it appears that there is a fraudulently false representation of quantity, quality, price of title the measure of damages is the difference in value between that which is actual and that which was represented to exist."
To facilitate its application the proximate result rule is often subdivided into four auxiliary rules: (1) A defrauded party is entitled to all out-of-pocket losses; (2) he is entitled to the benefit of his bargain; (3) if the property was falsely represented as improved with or containing some items which are not there, he is entitled to the cost of installing them; and (4) he is entitled to all consequential damages. These are merely subdivisions of the main rule, and are employed by the courts according to the facts and demands of the various cases.
Possibly the use of the term "benefit-of-the-bargain" is misleading in the present instance. Its use is capable of indicating that the plaintiffs will get a bargain in the event that they prevail. For the purpose of showing that they will not get a bargain and *Page 616 of ascertaining whether the damages which they seek are the proximate result of the defendants' wrong, let us mention some facts to which we adverted only casually in our previous decision.
It will be remembered that the plaintiffs made only one visit to the place before signing the contract. It was a brief visit and afforded them an unsatisfactory impression of the property, due to a driving rainstorm and Blakely's lack of knowledge concerning the identity of the property. After the visit the plaintiffs, without tarrying in Corvallis for even a few minutes, immediately started upon their return trip to California, and upon reaching their home found awaiting them the letter which we shall now quote:
"Corvallis, Oregon May 23, 1933.
Mrs. S.W. Selman 485 West Harriet Street Altadena, California
Dear Mrs. Selman:
I was able to get in touch with the owner of the 160 acres this morning, and I believe after talking to him that we can get the deal on his 160 acres about the way I outlined to you yesterday. He was not so keen about waiting for two years for the payments to begin but I believe if you insist on this that he might do it. The $500.00 down payment is alright and the price of $2000.00 is alright. He told me this morning that he had a chance to trade this 160 acres and take a clear house in Los Angeles which they said was worth $5000.00 clear for his place clear, but he does not want property down there and has put the price right down in order to sell it. I think if you were here today we could drive up there to the place.
He said there was at least 4000 cords of wood on the place, and it is selling in Corvallis at $4.50 and $5.00 *Page 617 per cord now. It seems to me that it is an ideal place for your purpose.
You talked of graveling the road up there. The only expense involved for this would be your time and truck, as you can get all the gravel you want right there in that creek where we turned through the gate off the highway, at no cost.
He has the offer now as stated above, but I don't think he will take it, although they may decide to borrow money on the property there and pay for it in cash. I would suggest that you get in touch with me right away if you decide to take this farm and send along at least $100.00 or $200.00 to bind the deal until you can get up here. If you wanted to put in crops this year there is still plenty of time for a number of things, including all kinds of garden. He stated this morning that he had that creek ditched so he can irrigate about 10 acres if necessary, and if you got up here a little late you could put in a lot of garden and then if it got dry, you could turn the water on it and could raise a world of stuff this year. 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.
Let me hear from you one way or the other.
Yours very truly,
C.G. Blakely."
"Corvallis, Oregon June 1, 1933.
Mrs. S.W. Selman 485 West Harriet Street Altadena, California
Dear Mrs. Selman:
I have your letter of the 29th in which you ask about the stream that runs through the 160 acres that I showed you when you were here. In answering your question, beg to advise that this stream does run the *Page 618 year round and the owner told me the next day after you were here that it is a dandy trout stream and that he had 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 would not always have good water in this creek.
You may send your deposit to me and I will arrange to close with the owner immediately upon receipt of the deposit, and will arrange to have everything in order for you when you get here.
Thanking you for your letter and trusting I may hear again from you soon, I am
Yours very truly,
C.G. Blakely."
Shortly after the receipt of this letter the contract was signed.
The representations in these letters are unequivocal. Their meaning is clear. They were intended to, and did, deceive the plaintiffs. Not one word of testimony was offered to show that Shirley had received an offer whereby he could have traded this tract for a California home worth $5,000 or any other sum. If that representation was true when made, the defendants certainly would have produced the offer rather than the opinion evidence, hereafter to be mentioned, concerning the value of the property. Had they received such an offer they would have accepted it and would not have been forced to resort to the culpable course of working off the tract upon these plaintiffs under a vanguard of fraudulent representations. All of the other representations in the letter of May 23 have been proved untrue. The representation about the 4,000 cords of wood was expressly found untrue in the findings of the circuit court. The representation about gravel being available for improving the road was likewise untrue, *Page 619 unless there was somewhere a phantom gravel bed which Selman was unable to find and which Shirley placed in some mysterious site incapable of description. The representation that the creek was "ditched so he can irrigate about ten acres if necessary" Shirley himself virtually confessed was false. The sentence to which we have just referred continues: "If you got up here a little late you could put in a lot of garden." That was written on May 23, and although it deceived a California dressmaker and a seaman of the United States navy, no Oregon farmer could have been induced to believe it. The paragraph continues: "With your truck that you spoke of you could go right into the wood and have that place paid for in no time." This is the very representation which eventually clinched the deal, and is confessedly false. The letter of June 1 was apparently written after the defendants believed that the letter of May 23 might not suffice. Instead of the first letter bringing back a signed contract, it brought an inquiry concerning the purported irrigation stream. The letter of June 1 is a wordpicture of a stream that "runs the year round, * * * a dandy trout stream," and adds that Shirley "had caught lots of trout in it." The writer of the letter apparently felt that he needed more water, and so he continued: "There is plenty of water in this stream * * * You need have no fear that you would not always have good water in this creek." The truth of the matter was confessed by Shirley when, as a witness, he admitted that the water in the stream was so scant that pipes and a sprinkler system were necessary to water any part of the land.
This place was not a farm; it was not a wood lot; it was merely a tract of logged-off land no different in *Page 620 kind from thousands of other tracts in the Coast Range. But the plaintiffs had no thought of buying a piece of logged-off land. Logged-off land was never mentioned in the negotiations. The plaintiffs wanted a wood lot where they could cut wood and sell it. They plainly so told Blakely. That is why his letter of May 23 states: "He (Shirley) said there was at least 4,000 cords of wood on the place. * * * It seems to me that it is an ideal place for your purpose." In other words, the plaintiffs had a definite purpose and acquainted Shirley's agent with it. It is evident that they wanted not only land but also standing timber capable of being cut into cordwood. In fact, they depended upon the wood and a truckman indebted to them who had promised to cut the trees into cordwood as a means of paying for their purchase. The defendants, in order to make the deal more alluring, represented that the land contained an irrigating stream and that a gravel bed nearby would yield sufficient material, free of cost, to make the road leading into this place passable. As a matter of fact, all of the representations were false, and the plaintiffs found themselves with a piece of logged-off land not substantially different from innumerable other tracts in this state which the owners permitted to revert to the tax-levying bodies after the removal of the timber.
The contract which the parties signed recognizes that the plaintiffs were entitled to something more than the bare ground. It refers to the "physical resources" of the property, that is, to the purported timber.
We shall now review a few facts concerning value. Selman testified that he would not have accepted the place even as a gift had he not been deceived into the *Page 621 belief that timber was growing upon it and that an irrigating stream flowed through it. Charles Franklin, a farmer who had lived in the vicinity of this property for 65 years, and who had logged it off, swore concerning it: "Not much value in any of it now. The principal value was in the timber, but the condition it is in now, it is run down so, that it would take a heck of a lot to get it in a prosperous condition again." After the witness had given a further description he evidently felt the inadequacy of his power of expression, and said: "If it is permissible, I know you haven't got the time, but I would like for you to see that property involved. You could convince yourself in a minute more than we could tell you in a week." The record does not disclose whether this remark was addressed to the presiding judge; nevertheless, the latter stated: "I wouldn't be disposed to go out and look at it without the parties agree to it. But, of course, you could just call it a squirrel ranch. That's about what that is regarded." Franklin acquiesced by saying, "Well, practically so." This tract is a mile off the main highway and the road leading to it is impassable most of the year. When Blakely, in the month of May, tried to drive the defendants to it his car mired in the mud a few feet after it had left the highway, and the parties had to trudge through the mud for about a mile before they reached the tract. Selman testified, "We pack milk out of there on our back, and pack feed up the hill on our back." The tract, according to one witness, is "hill land, ferns, fern land mostly." Two of the corners are covered with second-growth fir which has sprung up among the stumps. The first-growth fir, amounting to 200 cords, is unmerchantable. In one small area the Selmans found an abandoned strawberry patch which *Page 622 has proved to be non-productive. Another patch consisting of several acres was at one time planted in oats. Upon two sides of the property is a dilapidated fence. The improvements consist of a four-room house, 20 years old, which Franklin, who built it, described as "just a common box house, very common. * * * We just built it as cheap as we possibly could." Selman testified that the roof leaked like a sieve, and Blakely said, "It isn't a house I would care to live in." The barn, 30 by 50 feet in size, was built 46 years ago. It was never painted and has a leaky roof. Shirley acquired the property in 1927 and during his ownership never lived upon it, although in the season of 1931-1932 he permitted it to be occupied by an individual named Hofstetter who sowed several acres in rye grass and planted the strawberry patch; otherwise the property remained unoccupied during Shirley's six-year ownership.
It is true that four witnesses, including the defendants Shirley and Blakely, expressed opinions that the property was worth $2,000. Blakely and Shirley were, of course, interested. The other two, C.M. Dollarhide and Martin Lewis, were real estate men. None of the four mentioned the price received for any other tract of land in that vicinity, nor for any other tract of similar kind wherever located. Both Shirley and Lewis mentioned the transfer of a tract somewhere east of this piece, but neither disclosed the consideration it brought. Dollarhide swore that he offered Shirley "a deal" whereby the property would yield him $2,000, but that Shirley told him he had just sold the property to the Selmans. According to Dollarhide, he thereupon went out to this tract and repeated the offer to Mrs. Selman. This answer must be disregarded for two reasons: *Page 623 (a) Mrs. Selman was in California at that time; and (b) the major part of the answer was held inadmissible by the trial judge. Opinions of value which do not mention prices received upon actual sales are not persuasive. A significant fact is the circumstance that Lewis, who swore, "I had it listed for several years" and "I showed the place lots of times," had never been able to find a buyer for it. Another significant circumstance is the fact that although he had owned it since September 6, 1927, and apparently had no use for it, Shirley was not able to dispose of it until the plaintiffs came along. As we have already said, neither of them had any experience upon farms and both were strangers in this state. The wife was a dressmaker and her husband, since the age of 17 years, had been a seaman in the navy. Their visit to the place was wholly insufficient to acquaint them with its features. Then came the false representations. In other words, $2,000 was the market value of the property only when a gullible buyer was found who could be induced to believe that there stood upon the tract 4,000 cords of wood, that it was served with a good stream, and that it was capable of producing crops — crops, mind you, to be planted in June. For all other purposes it was as worthless as the hundreds of thousands of acres of logged-off land which have been forfeited to the state for the nonpayment of taxes. The property certainly was not worth $2,000. We repeat the statement that the property certainly was not worth $2,000, and in doing so call attention to the principle stated in J.C. Corbin Co. v.Preston, 109 Or. 230, 212 P. 541, 218 P. 917:
"The purchase price agreed upon by the parties, in the absence of other evidence, fixes the value the property would have had if in all material respects, it had been as represented." *Page 624 Doyle v. Union Bank T. Co., 102 Mont. 563, 59 P.2d 1171, 108 A.L.R. 1047, states the rule thus:
"The price paid for property is generally held to be strong, but not conclusive, evidence of what the value of the property would have been if as represented. 12 R.C.L. 453, Reeser v. Hammond, 122 Kan. 695, 253 P. 233; Divani v. Donovan, 214 Cal. 447, 6 P.2d 247."
In Aitken v. Bjerkvig, 77 Or. 397, 150 P. 278, Mr. Justice BURNETT quoted approvingly from Van Velsor v. Seeberger, 59 Ill. App.? 322, as follows:
"It is shown that the representations as set out in the letter were made, and that they were made to influence plaintiff to purchase the house; that he relied upon them; that some of those that were material were untrue. It is plain that there is some damage. The house is not as good as it would be if the representations were true. How much the damage is is not shown, but, under the circumstances, at least nominal damages should have been assessed."
Judge BURNETT continued:
"So in this case, there being evidence tending to show that the plaintiffs were influenced by the untrue statements of the defendants to take the land in question, and that, instead of there being 30 acres of arable land on the premises, there were only 7 or 8, there would be enough testimony to go to the jury on the question of damages."
The fact that the defendants represented that the property was served by a good irrigating stream and held a growth of timber capable of yielding 4,000 cords worth 50 cents per cord, when they asked $2,000 for the property, is an admission that the bare ground, studded with stumps and without a supply of water, was not worth $2,000. The opinion evidence was insufficient to overcome the effect of this admission. *Page 625
This is an instance, therefore, in which the proof of fraud is clear; in fact, virtually admitted. But, disregarding value for the time being, we shall consider for a moment the results which will follow if the plaintiffs are entitled to nothing, and if judgment must be entered against them for costs. To make the matter entirely clear, let us assume that the land is worth $2,000 and that we are committed to the out-of-pocket-loss rule which assumes that the proximate result of the vendor's fraud is his receipt of something worth more than that with which he parted. That rule does not concern itself with the fact that the fraudulent statements induced the innocent vendee to expect something which he did not receive. It views proximate result from the contemplations of the cozening vendor at the time he induced the vendee to make the purchase, and in this manner restricts recovery to the out-of-pocket-loss. Therefore, assuming that the land was worth $2,000, (1) the plaintiffs would not be entitled to judgment; (2) the action of ejectment would not be stayed; and (3) the plaintiffs would be evicted from the land. If that result occurs the fraudulent representations will have cost Shirley nothing, and upon regaining possession of the property he will be in a position to repeat the fraudulent representations to another prospective buyer, knowing beforehand that if the truth is discovered the worst that can happen to him is that he will again possess the property. But, in the event that the defrauded buyer pays the purchase price, Shirley will receive $2,000 for the land alone although his representations will have induced the buyer to expect not only land but also timber, a stream and gravel. Thus, the benefit-of-the-bargain principle will operate, but it will operate in reverse — the fraudulent *Page 626 vendor, and not the innocent victim, will get the benefit of the bargain. Next, if the plaintiffs are awarded no damages we will have virtually remade the contract between the parties, for it is now admitted that for the purchase money the plaintiffs were entitled not merely to the land but also to the wood, etc. Hence, if the law of damages leaves the plaintiffs empty-handed, and they are compelled to pay $2,000 for the land in order to save themselves from eviction, they will receive only a fraction of that which the defendants' written words told them they would receive. Finally, if the contract had followed the preceding negotiations, as it should have done, it would have made some mention of the timber, and in that event the plaintiffs could have maintained an action for breach of contract. In such an instance, as Mr. Justice RAND stated in Smith v. Pallay,130 Or. 282, 279 P. 279, "The law attempts to place the party injured by the breach in the position which he would have been in if the other party had performed as nearly as that is possible by means of a judgment for money." In other words, the plaintiffs would have been entitled to damages for the Shirleys' failure to provide the timber. Are they now to fare worse because they were deceived into a belief that they would receive the timber as well as the land, and therefore neglected to see to it that the contract contained a warranty concerning the timber? If that is true, the defendants have improved their own condition by multiplying their misdeeds, and we have the paradox that it is less culpable — and cheaper too — to commit fraud (always legally and morally wrong) than merely to breach a contract which, although legally wrong, may in instances be morally excusable. But why should more be obtainable in one form of action than in the *Page 627 other? We abolished the forms of action in order to obviate that absurdity and to make it possible to award adequate relief to the victim of the wrong regardless of the form of the action. Generally, more is obtainable in tort actions than in those based upon a contract (15 Am. Jur., p. 405, § 15) because in the former the damages include everything which was the proximate result of the wrong, including compensation for all injuries which were in the contemplation of the parties at the time the contract was effected, while in the latter the damages are limited to those which were in contemplation when the contract was entered into.
If the above results (those claimed by the defendants) must follow, the law of fraud has dropped to its nadir, and the fraudulent party, rather than his victim, has become its favorite. But the wrongdoer is not the favorite of the law. The primary concern of the law of fraud is not to make the wrongdoer's position safe, and it has not formulated its rule of damages in such a manner that as he plans his course of action he may know beforehand the amount of damages which he will be compelled to pay in the event his deceit is discovered. In fact, the great majority of the cases hold that the law of fraud is not concerned with his contemplations but with those of his victim. The proximate result and the natural consequences of the fraud are determined from the point of view of the victim as he contemplated his purchase.
The defendants, in seeking to ward off the plaintiffs' claim for damages, rely largely upon the reasoning set forth in Smithv. Bolles, 132 U.S. 125, 33 L.Ed. 279, 10 S.Ct. 39, and Sigafusv. Porter, 179 U.S. 116, 45 L.Ed. 113, 21 S.Ct. 34. In the former, the plaintiff, who claimed that he had been deceived by the *Page 628 defendant into the purchase of some shares of stock in a gold mining corporation, sought the recovery of damages under the benefit-of-the-bargain rule. In the second case the circumstances were the same except that the subject-matter of the false representation was a gold mine. In each instance, the federal supreme court held that the damages were the out-of-pocket losses. Concerning the first of these two decisions, Professor McCormick, in his treatise on Damages, states in a footnote on page 450:
"Court bases result on view that wrongdoer is liable only for consequences which he might reasonably have contemplated — a proposition dubious in its soundness and in its application."
We concur in that criticism. Because the out-of-pocket-loss rule determines the proximate result from the expectations of the fraudulent vendor rather than those of the innocent vendee, the vast majority of the jurisdictions have refused to embrace that rule; and apparently for the same reason Texas, in 1919, by legislative enactment (Art. 4004 Tex. Rev. Cit. Stat. 1925; 4 Tex. Law Rev. 386) substituted for it the benefit-of-the-bargain rule. The second decision, from which two of the justices dissented, was based largely upon the first. At the times when those two decisions were written the federal courts refused to employ the rule of damages embraced by local practice (McCormick on Damages, p. 450, footnote 10), but since the fall of Swift v.Tyson, 16 Pet. 1, 10 L.Ed. 865 (24 A.B.A. Journal 609), the so-called federal common law has disappeared and the federal courts now employ the common law as locally interpreted. The Smith case came from Ohio, and the Sigafus case, which was concerned with a California mine, from the second circuit — Connecticut, *Page 629 New York and Vermont. California, Ohio, Connecticut and Vermont employ the benefit-of-the-bargain rule (the cases are collected in McCormick on Damages, p. 451) and New York, after fluctuating for some time between the two rules, stated in the most recent decision of its highest court (Hotaling v. Leach Co.,247 N.Y. 84, 159 N.E. 870, 57 A.L.R. 1136):
"Varying circumstances must logically require variation in the application of that measure of damages. In Reno v. Bull, supra, we applied that measure of damages in the case of a sale of corporate stock where there were no extraordinary features. We did not hold that other cases might not require a different application of the rule. * * * If we hold that the plaintiff's damages are the difference between the market value of his bond at the time of its purchase and the price paid, we deny him all remedy in an action at law for the deceit. * * * Proximate damages may not be fixed by arbitrary rule."
Thus it is almost certain that neither of these cases would employ the out-of-pocket-loss rule were they to be decided by the same court today unless the court believed that the speculative losses which the plaintiffs sought were too conjectural to be recoverable. Therefore, the federal rule which has been the backbone of the out-of-pocket-loss rule is gone. To us, it seems that Judge Cooley's reasoning in Page v. Wells, 37 Mich. 415, is more acceptable. He said:
"If the plaintiff was induced to purchase lands on representations which proved to be untrue, the measure of his loss, as it seems to us, would be perfectly plain, and would be reached by an answer to the following question: How much less is the land worth as it is than it would have been if its condition and quality had been as represented?" *Page 630
All members of the court concurred in that decision and the high standing of the Michigan court at that time entitles the decision to great weight.
Columbia Door Co. v. Priest, 128 Or. 359, 274 P. 116; Greigv. Interstate Investment Co. 121 Or. 15, 253 P. 877; Scott v.Wallace, 102 Or. 22, 201 P. 542; Parks v. Smith, 95 Or. 300,186 P. 552, 554; Ward v. Jenson, 87 Or. 314, 170 P. 538;Salisbury v. Goddard, 79 Or. 593, 156 P. 261, (all of which are reviewed in our previous decision, and upon which the defendants also rely) arose out of trades. Hooning v. Henry, 106 Or. 605,213 P. 139, was based upon a transaction which was, in part, a trade. The courts have taken note of the fact that in most instances traders place upon their property a trading value and that such values are much higher than cash or sale prices. SeeMueller v. Michels, 184 Wis. 324, 197 N.W. 201, 199 N.W. 380. The use of inflated values, as is illustrated in Rockefeller v.Merritt, 76 Fed. 909, 917, 22 C.C.A. 608, 615, 35 L.R.A. 633, 639, by the language we shall now quote, renders impossible the measurement of damages except under the out-of-pocket-loss rule:
"If A., by the false representation of good title to a lot that is actually worth $1,000, induces B. to give him a lot of the same value in exchange, B.'s damages must be the actual value of the lot which he conveys. If in their contract of exchange of the lots and in their deeds they estimate and recite the value of each lot at five times its actual value, that fact cannot multiply or increase the damages of B. He loses no more than the $1,000, the actual value of the lot he parts with. As long as he accepted A.'s lot in payment for his, he may be permitted to maintain that his lot paid the debt of $5,000 which he incurred to A. for the latter's lot, because that was the contract. But the moment he brings his suit for damages, and thereby undertakes *Page 631 to collect the value of his lot, or any part of it in money, instead of in land he is limited to its actual market value and to his actual loss."
Very likely it is on account of the facts to which we have just adverted that Mr. Justice HARRIS, in Ward v. Jenson, supra, and Mr. Chief Justice BURNETT, in Scott v. Wallace, supra, stated: "In an action to recover damages for false representations inducing an exchange of property" the measure of damages is the difference between the market values of the two sets of property. It will be observed that they spoke of "an exchange". California, which ordinarily employs the loss-of-the-bargain rule, departs from it when the transaction is a trade. Citing three California decisions, 27 C.J., Fraud, p. 97, § 246, says concerning the law in that state:
"Where there was an exchange as distinguished from a sale, the courts have held the defrauded party entitled to the difference between what he gave and what he got."
Texas does not seem to employ the same rule in transactions which are trades as in those which are purchases: White v. Carlton,277 S.W. 701.
But the present transaction was not a trade. The contract required the plaintiffs to pay money. Lichtenthaler v. Clow,109 Or. 381, 220 P. 567, Purdy v. Underwood, 87 Or. 56,169 P. 536, and Cawston v. Sturgis, 29 Or. 331, 43 P. 656, all of which are reviewed in our previous decision, likewise arose out of the purchase of real property for money. In each of those cases the buyer, in determining whether to make the purchase, contemplated the property, not in the abstract, but as a tract of a given size; and the seller, knowing that fact, represented that it contained the desired area. In each *Page 632 instance when it developed that the representation was false, the vendor was held liable for damages equal to the value of the missing area. In other words, the buyer was entitled, not merely to a part but to all that he paid for, regardless of whether or not the amount he actually received was worth the sum he paid. InLichtenthaler v. Clow, supra, the representation was that the tract contained 20 acres when, in fact, it consisted of only 16 acres. In Purdy v. Underwood, supra, the vendor represented that the tract contained 112 1/2 acres, but, in fact, there were only 78.76 acres in the area. In Cawston v. Sturgis, supra, the buyer was induced to purchase an irregular plot under a representation that it contained two and one-half city lots when, in truth, it was no larger than two lots. In each instance the vendor, having made the fraudulent representation, was held liable for the deficiency. This court did not concern itself with the question of whether or not the tract conveyed was worth the sum paid, and yet it would have done so and would have denied recovery in all three cases if we were committed to the out-of-pocket-loss rule, and if the value of the property received equalled the sum paid. In Texas, where the out-of-pocket-loss rule was employed until the legislature substituted for it the benefit-of-the-bargain rule (Art.4004 Tex. Rev. Civ. Stat. 1925; 4 Tex. Law Rev. 386), the courts held that if the tract received, although less in area than required by the representation, was worth the sum paid, the defrauded buyer was entitled to no damages: Woodruff v. Conway,266 S.W. 868; Billingsly v. Jefferies, 255 S.W. 790, and Vogt v.Smalley, 210 S.W. 511. But "the theory that the vendee must be satisfied if he got in land the worth of his money is altogether wrong," said Estes v. Odom, *Page 633 91 Ga. 600, 18 S.E. 355, which continued: "He was entitled to have what he bought and paid for * * * the minimum recovery should be the amount paid for the deficiency * * *." The fact which settled the matter in this court was the fact that the proximate result was viewed from the point of view of the innocent buyer's contemplation. The rule is thus stated in Purdy v. Underwood, supra:
"When, however, as in the case at bar, a specified sum of money is paid for each integral part of property expected to be received, a failure to transfer a portion thereof at such ratable price, constitutes the measure of damages sustained."
The situation is the same in the present case. Shirley represented that 4,000 cords of timber, worth 50 cents per cord, stood upon the property. As a matter of fact, only 200 cords were there. Standing trees are, of course, deemed part and parcel of the land. Had he represented that 170 acres were in the tract when actually it consisted of only 160, all would agree that he would be compelled to respond in damages. In the absence of homogeneity of value we would have divided the purchase price by the number of acres and in this manner have ascertained the value per acre. We would then have multiplied the value per acre by the number of missing acres and thus have arrived at the damages. We know that Shirley represented that the stumpage value of the timber was 50 cents per cord, and we also know that he represented that the property held 4,000 cords.
In Cawston v. Sturgis, supra, Mr. Chief Justice BEAN said:
"According to the verdict of the jury, the plaintiff paid for and supposed he was buying land equal in *Page 634 area to two lots and a half, when in truth and in fact he actually received land in area equal to a 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. This rule enables a vendee who, relying upon the false and fraudulent representations of his vendor as to the quantity of land purchased, pays for land he does not receive, to recover in an action for damages the amount of money paid on account of such fraud. It works substantial justice, and is amply supported by authority."
In the above quotation we use italics in four places. Let us now re-read the quotation and make the following substitutions: For the first group of italicized words, substitute "and 4,000 cords of wood"; for the second, substitute the word "only"; for the third group, make no substitution and read with the space vacant; and for the fourth, being the word "land", substitute the word "something". Thus, we have made no change in substance and no change requiring the application of a different legal principle. The only change has been one of items — for a missing half lot we substituted 4,000 cords of missing timber. In the one instance the buyer was as badly deceived as in the other, and in each instance he was substantially damaged. As was said in Griffin v.Fairmont Coal Co., 59 W. Va. 480, 53 S.E. 24, 2 L.R.A. (N.S.) 1115:
"A person who owns the entire estate may sell and convey any part of it. It may be divided horizontally, perpendicularly or in any manner according to the will of the owner."
In the present case the parties divided the property "perpendicularly" in fixing its price and the plaintiffs received only the part up to the surface. Every demand *Page 635 of the above three precedents is present, and they constitute a sufficient reason for awarding damages.
Suppose the defendants had conveyed to the plaintiffs the timber only, all would agree that damages equal in amount to the value of the land would be recoverable. The reverse must be true, and since the plaintiffs received only the land they must be entitled to damages equal to the value of the timber.
We shall now show by the decisions of the other courts that the mere fact that the missing item is not land but is something else, does not deny relief to the plaintiffs. In Nunn v.Howard, 216 Ky. 685, 288 S.W. 678, the plaintiff had sold to the defendant a house and lot, falsely representing in so doing that an unfailing well was upon the premises. The defendant spent $158 in providing a well of the represented kind. The decision, after stating these facts, continued:
"That being true, it follows that appellee is liable in damages for the representations so made. McGuffin v. Smith, 215 Ky. 606,286 S.W. 884. And in the circumstances, the most accurate measure of damages is the reasonable cost of drilling the well. It follows that the item of $158 should have been allowed."
In Okoomian v. Brandt, 101 Conn. 427, 126 A. 332, the defendant, who had sold the plaintiff an improved lot under a false representation that the three tenants were each paying $35 per month rental, was held liable in the amount of $325.50 damages, that being the sum which the plaintiff expended in the installation of permanent electrical equipment in order to bring the income of the property up to the represented amount. InShane v. Jacobson, 136 Minn. 386, 162 N.W. 472, the plaintiff had been induced to buy a farm under a false representation that 80 acres of it was tiled. The Minnesota *Page 636 court adheres to the out-of-pocket-loss rule as it indicated in the decision under review by its following language:
"We have held, in conformity with the rule in the federal courts, that the measure of this loss is the difference between the money or the value of the property which the defrauded party was induced to part with and that which he received in the transaction."
In measuring the plaintiff's damages under that rule, the court held that the plaintiff was entitled to recover the cost of installing the tiling, together with the rental value of the land while the work was in progress. We quote from the decision the following:
"In other words, the damages in contemplation of the parties as naturally flowing from a misrepresentation in respect to this tiling would be the cost thereof, to which, perhaps, should be added the depreciation of rental value of the land affected while the tiling was being done. The rule is that a defrauded party is entitled to such damages as naturally and proximately result from the fraud. * * * Suppose in this case that plaintiff had bought the farm when he met defendant in Iowa, without seeing it, upon defendant's representations as to soil, lay of the land and improvements, and all the representations had been true except that a granary of certain dimensions and material, represented to be one of the buildings, was not there, a structure which could be erected for, say $200; could it be justly claimed that the natural and proximate loss to plaintiff for this one false representation could then have been more than the cost of placing such a granary as represented upon the farm? * * * Therefore the actual cost of placing tiling thereon, and the extent to which such improvement would increase the value of the farm, was proper and very material evidence bearing upon the amount of recovery, and without which an intelligent answer could not be given as to the natural and proximate loss to plaintiff." *Page 637
From all of the above it is seen, not only that the plaintiffs were damaged, for convincing evidence shows that the property is worth less than $2,000, but that we have an approved means of measuring the damages, which are the proximate result of the false statements made by the defendants. If the latter had represented that there was upon the property a pile of wood containing 4,000 cords, the damages to which the plaintiffs would have been entitled would have been the value of that amount of wood. The same result ought to follow when, as in this case, the defendants represented that there was standing timber upon the property capable of yielding 4,000 cords worth 50 cents per cord upon the stump. This method of measuring the damages is the same as was used in the Kentucky, Connecticut and Minnesota cases just reviewed, and is no different from that employed by us in the Lichtenthaler, Purdy and Cawston decisions.
In Page v. Wells, supra, the court indicated that the value of real property purchased as a tract cannot be determined by showing the value of each of its individual units — the timber, the clay deposits, the gravel beds — and the value of what will be left after all of these resources have been removed. But in that case the defendant was not a vendor and he had made no representation as to the value of the individual units. InRiley v. Atmar, 213 S.W. 682 (Tex.Civ.App.), the defrauded vendee, who was entitled to both land and timber, recovered the value of the timber. However, the Shirleys have not asked that the value of the timber be separately determined; nor have they sought to show what the value of the property would have been had the representations been true. They do not claim that the timber would have been worth less than 50 *Page 638 cents per cord had their representation concerning its existence been true. Therefore, to employ as a means of determining the plaintiffs' damages the value of the missing timber is the use of a method supported by authority.
To hold that the damages can be measured in this manner and that an award is recoverable is not at variance with any of our previous decisions. We certainly have no thought of overruling any of them, and state expressly that we believe each of them was correctly decided, although some of the language employed by them, which can be readily identified as dictum, went further than was necessary.
Of course, if one adheres rigorously to the out-of-pocket-loss rule or to the benefit-of-the-bargain rule certainty will be achieved, but it will be achieved in many instances at the expense of justice.
In our previous decision we cited authorities indicating that neither rule has been uniformly applied, and in preceding paragraphs of this decision have amplified them. We know of no difficulty which has resulted from flexibility. An examination of the decisions in the states employing flexibility discloses that they are not large in number, nor do they afford any indication that flexibility has created uncertainty. It is inevitable that ordinarily only out-of-pocket losses will be recoverable, for ordinarily that is the only loss which is incurred or which can be proved with sufficient certainty. Consequential damages are universally recoverable. If the representation can be made good by the expenditure of a sum less than that which is the difference between the actual value and the represented value, the cost of the installation is the sum which is recoverable. Professor McCormick recommends that *Page 639 the loss-of-the-bargain rule should also be employed where a false representation was made with moral culpability, as distinguished from one made by a person who is ignorant of the facts. But since punitive damages are recoverable in this state, there exists no occasion for a departure from the out-of-pocket-loss rule in cases of that kind. For all of the above we depend much upon Lichtenthaler v. Clow, supra, which is the decision by this court which bestowed the most extensive consideration upon the subject, and which expressly recognized that the subdivisions of the proximate result rule — (a) out-of-pocket loss, and (b) benefit-of-the-bargain — are employed in a flexible manner.
Since the petition for a rehearing has disclosed no error in our previous decision, we adhere to that opinion.
To avoid misunderstandings, we repeat that Blakely was not a party to this appeal.
RAND, C.J., KELLY and BEAN, JJ., concur.