§ 26.2 Recovery by the Seller

• Library: Damages (OSBar) (2016 Ed.)

§ 26.2 RECOVERY BY THE SELLER

§ 26.2-1 Rescission

§ 26.2-1(a) General Theory of Recovery

As stated in § 26.1-2(a), the purpose of rescission is to restore the parties to the position each held before entering into the contract: the seller gets the land back, and the buyer obtains a full refund of the purchase money paid, with certain financial adjustments as discussed in § 26.2-1(b) to § 26.2-1(e).

For example, if the parties never entered into a binding contract, the buyer is entitled to recover all payments on a restitution theory while the seller retains the land. L.Q. Dev., Oreg. v. Mallory, 98 Or App 121, 125-26, 778 P2d 972, rev den, 308 Or 500 (1989). Presumably, the seller would be entitled to reasonable rental payments if the buyer took possession of the property. See § 26.2-1(b).

Historically, rescission was accomplished at law by the parties or in equity by the court. To accomplish rescission at law, the plaintiff-seller tendered to the defendant-buyer all the benefits that the plaintiff received and sought restitution of the benefits conferred on the defendant. This procedure is risky when the defendant is financially irresponsible. The alternative was to seek the court's assistance in unwinding the transaction. Such a proceeding had to be in equity, because the common-law courts had no power to require the plaintiff to surrender benefits. See Dan B. Dobbs, Handbook on the Law of Remedies § 4.3, at 391-92 (2d ed 1993). Under modern Oregon procedure, this distinction is important only in determining the right to a jury trial.

Rescission is allowed only for material breaches that "touch the fundamental purposes of the contract." Koch v. Sky Tech, Inc., 263 Or 425, 434, 502 P2d 1367 (1972) (sale of airplane); see Shopping Centers of Am., Inc. v. Standard Growth Properties, Inc, 265 Or 405, 411-14, 498 P2d 781, rev'd on reh'g, 265 Or 418, 509 P2d 1189 (1973) (discussing rescission for mutual mistake and material breach); Kleiner v. Randall, 58 Or App 126, 133, 647 P2d 956 (1982) (material mistake of fact was sufficient justification for one party to reject or rescind contract). In Shopping Centers of Am., the buyer sued to rescind a contract for the sale of land. From the trial court's decree granting rescission the seller appealed, and the buyer cross-appealed from the denial of certain damages. In its original opinion, the supreme court affirmed, holding that rescission was proper on the ground of mutual mistake, even though the buyer had not pleaded that theory. Shopping Centers of Am., 265 Or at 414-15. Thus, the court modified the judgment and remanded to allow the buyer to recover certain additional damages. On rehearing, the supreme court reversed, concluding that, although a contract may be rescinded if the parties enter into it based on a mutual mistake, there was not a mutual mistake in this case that would justify rescission. The court also held that there was no breach of the contract substantial enough to justify rescission. Shopping Centers of Am., 265 Or at 427.

Rescission ordinarily is available even for innocent misrepresentations. Gardner v. Meiling, 280 Or 665, 674, 572 P2d 1012 (1977); Brown v. Hassenstab, 212 Or 246, 253, 319 P2d 929 (1957). The parties may change this rule, however, by inserting appropriate language in the contract; in such cases, only fraudulent misrepresentation justifies rescission. Bodenhamer v. Patterson, 278 Or 367, 370, 563 P2d 1212 (1977); Wilkinson v. Carpenter, 276 Or 311, 314-15, 554 P2d 512 (1976).

In Wilkinson, the sellers sought specific performance of a land sale contract, and the buyers counterclaimed for rescission, alleging fraudulent misrepresentation. The trial court, finding that no fraudulent misrepresentations had been made, allowed specific performance. The supreme court affirmed, since the contract stated that the property was sold "as is" and that the sellers had made no warranties or representations that induced the buyers to buy. Although such a clause would not preclude rescission on a showing of actual fraud, which, as the court found, was not supported by the evidence, it does preclude rescission based on innocent misrepresentations. See Wilkinson, 276 Or at 314-15.

In Lesher v. Strid, 165 Or App 34, 996 P2d 988 (2000), the buyers sought to rescind a contract for the sale of an 18-acre parcel. They based their rescission claim on alternative theories of mutual mistake of fact and innocent misrepresentation of fact concerning the existence of appurtenant water rights for irrigation purposes. The trial court ordered rescission based on both theories. On appeal, the seller argued that, like the buyers in Wilkinson, the plaintiffs were not entitled to rely on any innocent misrepresentations because the contract contained an "as is" disclaimer clause stating that the buyer was not relying on extrinsic representations by the seller. Lesher, 165 Or App at 44. But the court rejected that argument, because the statements on which the buyers had relied were not extrinsic to the contract. Unlike the Wilkinson case, the contract in Lesher expressly included a conveyance of appurtenant water rights. Lesher, 165 Or App at 44-45.

§ 26.2-1(b) Reasonable Rent

The seller may recover reasonable rent for the period that the buyer was in possession of the property. Soltis v. Liles, 275 Or 537, 544, 551 P2d 1297 (1976); Swick v. Mueller, 193 Or 668, 679, 238 P2d 717 (1951); see Bridgmon v. Walker, 218 Or 130, 145, 344 P2d 233 (1959); Daugherty v. Young, 47 Or App 585, 590, 615 P2d 341 (1980).

The sellers in Soltis, for example, sought and obtained a decree granting strict foreclosure of a land sale contract on the basis that the buyers were in default of their monthly payments. Although the buyers had a history of making late payments, which the sellers' agent accepted, the contract provided that acceptance of late payments would not be a waiver. The decree was reversed on appeal. "In this jurisdiction," the court noted, "as well as in most others, such non-waiver...