Chapter § 66.3 REMEDIES

• Jurisdiction: Oregon

§ 66.3 REMEDIES

A party generally has three basic remedies for breach of a contract or misrepresentations in the sale of land. A party may seek rescission of the contract and a return of the parties to the status quo. Alternatively, a party may affirm the contract and sue for damages or seek specific performance. In some cases, a party may seek reformation of a written instrument. The appropriate remedy to be pursued depends on the facts in each situation. In all cases, however, the purchaser, upon discovery of a breach, should act with reasonable promptness in selecting a remedy.

NOTE: For a discussion of remedies available to a seller for breach of a land sale contract, see chapter 24. For a discussion of damages, see 2 Damages chapter 28 (Oregon CLE 1998 & Supp 2007).

§ 66.3-1 Rescission

An action for rescission of a land sale contract is not an action on the contract but seeks to have the contract declared void and set aside. Therefore, the remedy in an action for rescission is to restore the purchaser and the seller as closely as possible to the position each held before the sale. See 2 Damages § 28.18 to § 28.22 (Oregon CLE 1998 & Supp 2007) for considerations in returning the parties to the status quo in land sale contracts.

The two primary grounds for rescission are (1) that the seller's fraud or misrepresentation induced the purchaser to enter into the contract, and (2) that the seller breached a material condition or covenant of the contract. Other grounds for rescission include mutual mistake, destruction of the underlying property, and invalidity of the contract.

An action for rescission is inconsistent with an action for damages, and on discovery of a breach by the seller that would justify rescission, the purchaser must make a prompt choice between affirming the contract or renouncing it. Engelking v. Field, 268 Or 537, 542, 522 P2d 493 (1974); Bridgmon v. Walker, 218 Or 130, 134, 344 P2d 233 (1959); Scott v. Walton, 32 Or 460, 464, 52 P 180 (1898). If the purchaser wishes to rescind,

he must act promptly, and return, or offer to return, what he has received under the contract. He cannot retain the fruits of the contract awaiting future developments to determine whether it will be more profitable for him to affirm or disaffirm it. Any delay on his part, and especially his remaining in possession of the property received by him under the contract, and dealing with it as his own, will be evidence of his intention to abide by the contract.

Scott, 32 Or at 464.

In most cases, rescission will not be granted unless the purchaser has acted with due diligence with respect to his or her own interest. The party seeking rescission must act quickly after discovery of the fraud or other circumstances justifying rescission of the contract, or he or she will be held to have waived the right to rescind and to have affirmed the contract. See Engelking, 268 Or at 542-43; Bridgmon, 218 Or at 135 (purchasers lost right to sue for damages by moving out and thereby electing not to affirm contract; possession of the home for several years prevented an action for rescission); Scott, 32 Or at 465 (seller allegedly misrepresented value of property; purchaser not entitled to rescission when purchaser discovered alleged fraud soon after contract but failed to request rescission for 18 months while leasing and attempting to sell land).

A court may also grant restitution to prevent unjust enrichment based on its finding that no contract exists. Ying v. Lee, 65 Or App 246, 252, 671 P2d 114 (1983), rev den, 296 Or 487 (1984). This remedy should be distinguished from a situation in which the court rescinds a contract and grants restitution. In the latter case, the plaintiff must make a prompt election to rescind the contract and seek restitution or to affirm the contract and sue for damages. See § 66.3-1(b)(2). In the former case, however, when no contract exists, "'the plaintiff has no remedy in "damages," being restricted to restitution in order to prevent unjust enrichment.'" Ying, 65 Or App at 252-53 (quoting 5 Corbin on Contracts § 1104, at 558 (1964)).

"To be entitled to rescission, the plaintiff must establish entitlement by 'clear and convincing' evidence." Venture Properties, Inc. v. Parker, 223 Or App 321, 349, 195 P3d 470 (2008).

Rescission is an equitable action that seeks to return the purchaser of the property to the position the purchaser occupied before entering into the contract with the seller. In rescission of a land sale contract, a seller must return payments received, and the buyer must return the land. However, if the buyer gained a benefit from using the property, the seller is generally entitled to an offset for reasonable rent. Daugherty v. Young, 47 Or App 585, 591-92, 615 P2d 341 (1980). If the amount of the purchase payments exceeds the offset, then the buyer is entitled to interest on the difference, calculated from the date that each payment is made. Lee v. Yang, 163 Or App 520, 525, 987 P2d 519 (1999); Daugherty, 47 Or App at 591-92. However, the court will deny prejudgment interest if a party fails to prove that the exact pecuniary amount of the loss is ascertained or ascertainable by simple computation. Robertson v. Jessup, 117 Or App 460, 466, 845 P2d 926 (1992), rev den, 316 Or 528 (1993); Wells v. Marleau, 79 Or App 784, 786, 720 P2d 409, rev den, 302 Or 159 (1986).

§ 66.3-1(a) Grounds to Rescind

§ 66.3-1(a)(1) Misrepresentation and Fraud

In an action to recover damages for misrepresentation, the plaintiff normally must prove that the misrepresentation was made fraudulently. In an action for rescission, however, it is not necessary to establish all the elements of fraud. The purchaser is entitled to rescind based on a misrepresentation of material fact, regardless of whether the misrepresentation was made fraudulently or innocently. Soursby v. Hawkins, 307 Or 79, 84, 763 P2d 725 (1988). The materiality of the misrepresentation depends on whether the purchaser would have entered into the contract or paid money if the representation had not been made. Sharkey v. Burlingame Co., 131 Or 185, 199-200, 282 P 546 (1929).

The purchaser must prove that he or she relied on the misrepresentation and had a right to rely on it. Soursby, 307 Or at 84, 87-88. A purchaser who enters into a transaction with knowledge that the seller has made material misrepresentations about the property may not later seek to rescind the transaction based on those misrepresentations. See Watson v. Fantus, 275 Or 605, 607-08, 552 P2d 251 (1976). The knowledge of the buyer's agent may be imputed to the buyer. Atkeson v. T & K Lands, LLC, 258 Or App 373, 382, 309 P3d 188 (2013).

A buyer has a right to rely on a representation if discovering the truth would be unreasonably difficult. Soursby, 307 Or at 87. A buyer has a duty to investigate the facts surrounding a misrepresentation when he or she has or can obtain equal means of information and is equally qualified to judge the facts. "If the parties do not have equal knowledge of the facts and the speaker holds himself out as having a superior ability to make an accurate representation, reliance may be reasonable." Soursby, 307 Or at 86. When a duty to investigate does arise, the buyer must exercise reasonable diligence. Soursby, 307 Or at 87.

There are important differences between an action to rescind based on fraud and an action to rescind based on an innocent misrepresentation. Although either action can justify rescission, a seller accused of making an innocent misrepresentation has more defenses available.

For example, waiver may be a defense to rescission for innocent misrepresentation. If a contract contains a clause waiving the purchaser's reliance on representations made by the seller, the clause normally cannot be used by the seller as a defense in an action based on fraud, but it can absolve the seller from an innocent misrepresentation. Bodenhamer v. Patterson, 278 Or 367, 370, 563 P2d 1212 (1977), superseded on other grounds by statute, Or Laws 2003, ch 393, § 1 (codified at ORS 20.083); Wilkinson v. Carpenter, 276 Or 311, 314, 554 P2d 512 (1976) (waiver clause barred rescission when seller's representations of quality of air-conditioning and heating systems were not made fraudulently). But see Lesher v. Strid, 165 Or App 34, 44-45, 996 P2d 988 (2000) (court found that disclaimer clause in land sale contract did not preclude buyers from reasonably relying on seller's innocent misrepresentation, established by incorporating a water-rights certificate into earnest-money contract).

This rule of waiver includes misrepresentations made by the seller's agent. Hoover v. Hegewald, 70 Or App 223, 229-30, 689 P2d 965 (1984), rev den, 298 Or 773 (1985). In Hoover, the agents of the seller of the property made innocent misrepresentations concerning the farming and grazing capacity of the land. The contract contained a clause stating that the sellers and their agents made no representations or warranties beyond those expressly set forth in the contract, and that the purchasers were purchasing the property based on their own examination of it. This clause was held to have the same effect as the disclaimer in Wilkinson, and the innocent representations made by the seller's agents did not give the purchasers a right to rescind the contract.

The buyer's own negligence may also be a defense to rescission based on innocent misrepresentation. Although a purchaser normally must exercise due diligence in protecting his or her own interests, a seller who has fraudulently misrepresented a material fact may not defend on the ground that the purchaser was negligent in relying on the seller's representation; in contract, a seller who merely made an innocent representation may so defend. Bodenhamer, 278 Or at 374; Heverly v. Kirkendall, 257 Or 232, 237, 478 P2d 381 (1970); Farnsworth v. Feller, 256 Or 56, 63-64, 471 P2d 792 (1970) (purchaser was not required to make his own investigation...