Case Name: PALMITER v. HACKETT
Court: Oregon Supreme Court
Jurisdiction: Oregon
Decision Date: 1919-12-30
Citations: 95 Or. 12
Docket Number: 
Parties: PALMITER v. HACKETT.
Judges: McBride, C. J., and Benson and Harris, JJ., concur.
Reporter: Oregon Reports
Volume: 95
Pages: 12–24

Head Matter:
Argued November 20,
reversed and decree rendered December 30, 1919,
rehearing denied January 27, 1920.
PALMITER v. HACKETT.
(185 Pac. 1105; 186 Pac. 581.)
Fraud — Mere Silence not Fraud Where No Duty to Speak.
1. Individuals dealing at arm’s-length must look out for themselves, and mere silence is not fraud where no duty is imposed upon one to speak, but a half truth spoken with the design of influencing the opposite party, where he has not equal means of knowledge, is in itself fraudulent.
Evidence — No Presumption of Knowledge of Ordinances.
2. The proposition that every man is presumed to know the law applies only to the general laws of the land, and not to city ordinances, except in proceedings in municipal courts, in view of Section 90, L. O. L.
Exchange of Property — Fraudulent Concealment.
3. Where one exchanging a building for other real property has aetual knowledge of a city ordinance prohibiting the use of a building simultaneously as a garage and as a residence, he is guilty of fraud where he states that the first floor was rented as a garage for $25 a month, and the second floor for $25 as living or housekeeping rooms, and that the property could be continued for the uses named; the other person not knowing of the ordinance.
Cancellation of Instruments — Offer to Do Equity not Necessary Where Court may Protect Defendant.
4. The maxim that he who seeks equity must do equity is not violated by failure of the plaintiff, in a suit to rescind an exchange of lands, on the ground of fraud, to allege restoration of and offer to return the consideration, for by his application he tacitly invites the court to protect the defendant by decreeing a restoration in consideration of a rescission.
PETITION POE REHEARING.
Contracts — Representation Made Recklessly Without Knowledge of Truth Fraudulent.
5. One of the elements respecting a fraudulent statement warranting a rescission of a contract is that the one making it must either know that it is false, or make it recklessly without any knowledge of its truth and as a positive assertion.
Fraud — One Making Reckless Statement of Fact must Disclose Subsequent Knowledge of Falsity.
6. If a party is so reckless as to make a statement which in fact is untrue and while negotiations are in progress he discovers it is not true, it is his duty to state the whole truth to the other party.
From Hood River: Feed W. Wilson, Judge.
Department 1.
The substance of the complaint is that the plaintiffs were the owners of some acreage in Hood River County and the defendants Nelson Hackett and W. A. Hackett were the owners of a certain lot in Portland. The property of the plaintiffs was encumbered by a mortgage of $1,600, that'of the defendants by two mortgages aggregating $3,100. Negotiations were opened for an exchange of properties and, as the plaintiffs allege, for the purpose of inducing them to make the exchange the defendants represented:
‘ ‘ That' said lot was improved with a two-story frame building with a good, rentable garage on the first or ground floor thereof, and housekeeping or living-rooms on the second story thereof; that the same was then and had been for a long time leased and rented to tenants for the monthly rental of $50 a month; that the lower or ground story of said building was suitable and rentable for use and occupation as a garage; that the upper story thereof was suitable and rentable as living or housekeeping rooms; and that the property could be continued for the uses named.”
Other averments upon which the plaintiffs rely state representations said to have been made by the defendants respecting the value of their property. The plaintiffs claim to have relied upon the statements of the defendants, and aver that they were fraudulent and made with the intent to wrong and defraud the plaintiffs, and to procure their property by means of the fraud. The complaint further says in substance that the Portland property belonging to the defendants was not at said time usable and rentable for living or housekeeping rooms on the second story thereof, and was not at said time leased and rented for the rental of $50 or for any other sum in excess of $25, but, on the contrary, it was well known to defendants that by the terms of Portland City Ordinance No. 34,764, approved November 27, 1917, entitled “An ordinance amending Section 683 of Ordinance No. 33,911, the Building Code covering garages and declaring an emergency,” and by the terms of Section 682 of Portland City Ordinance No. 33,911, entitled “An ordinance providing building regulations to be known as the Building Code,” approved March 13, 1918, it was provided that no tenants might occupy the second story of a frame building constructed similarly to the one on said lot, with a large garage underneath; and also well knew that, acting under the terms of said ordinance and its police powers, the proper city authorities had notified said tenants that occupancy of said second story by tenants would not longer be permitted by said city authorities. Further allegations show what is meant by a "large garage” within the purview of the city laws. The plaintiffs say they did not discover the falsity of the utterances of the defendants until after the exchange had been made, when the former demanded a reconveyance of the property in Hood River County and offered to place the defendants in the same position they were before, by returning all that the plaintiffs had received in the exchange.
The answer challenges all the imputed fraud and recites the exchange of properties as viewed from the standpoint of the defendants. The reply traverses much of the new matter in the answer.
The trial court passed a decree for the defendants, dismissing the suit and declaring the defendants Nelson Hackett and his wife the owners of the Hood River property. The plaintiffs appeal.
Reversed. Decree Rendered.
For appellants there was a brief over the name of Messrs. Bronaugh S Carter, with an oral argument by Mr. Jerry E. Bronaugh.
For respondents there was a brief and an oral argument by Mr. Ernest C. Smith.

Opinion:
BURNETT, J.
The vital contention in the suit is whether the representation of the defendants about the rentability of the property was fraudulent. The testimony is to the effect that the negotiations about the trade began early in December, 1918, and continued until January 27, 1919, when a contract was entered into outlining the terms of the exchange, followed by an exchange of deeds February 6, 1919. When the transaction was first broached, the defendants told the plaintiff Palmiter that the property was rented, the upper story as an apartment wherein a family was residing, and the ground floor as a garage, each at $25 per month, totaling $50 per month. The building was of wooden frame construction, sided with rustic and only partly ceiled. During the pendency of the negotiations the plaintiff husband examined the property and saw its physical condition. Meanwhile, the city authorities had waited upon the agent of the defendants in charge of the property and informed him of the ordinance which forbade the use of such a building simultaneously as a garage and as a residence. The agent immediately communicated this to the defendants and under instructions from his principal notified the tenants of the upper story to vacate. In all subsequent negotiations, however, although this warning from the city officials was known to both Nelson and W. A. Hackett, they scrupulously avoided saying anything to the plaintiffs about the matter. The latter were ignorant of the ordinance and of the notification which the city officials gave to the agent of the defendants and which was by him communicated to the defendants. The evidence is plain that the building was not rentable simultaneously as a garage and as a dwelling place; that this was known to the defendants and not to the plaintiffs; and that the representation about the availability of the property for leasing was made to induce the exchange on the part of the plaintiffs.
In Boelk v. Nolan, 56 Or. 229 (107 Pac. 689), the plaintiff had left his realty in Tillamook County in charge of a friend and had gone to California for the benefit of his health. He had not been heard of for several years and in his interest the friend, fearing he was dead, allowed the property to go to sale for taxes and bought it in for the purpose of holding it in trust for the plaintiff. The defendant managed to ascertain where the plaintiff was, went to California and bought the property for a trifling sum, representing to him that his land had been sold for taxes; that his title was gone; and that he, the defendant, wanted the deed from the plaintiff to confirm a title which he himself had acquired. Although well known to him, the defendant said nothing about the attitude and purpose of the friend whom the plaintiff left in custody of the property. The court there held:
"It was the duty of the defendant, when he undertook to inform plaintiff about the condition of the latter's title to the land, to make a full, truthful and complete'declaration of all the conditions, within his knowledge, affecting it; and his failure so to do amounts to such a fraud as entitled plaintiff to a cancellation of his" deed. ' '
The substance of the holding is that when a defendant opens his mouth to make declarations respecting the property involved, he must speak the whole truth, and that a suppression of part of the fact is fraud when made to induce a purchase. This does not infringe upon the rule that individuals dealing at arm's-length must look out for themselves and that' mere silence is not fraud where no duty is imposed upon one to speak. A half truth, however, spoken with a design of influencing the opposite party where he has not equal means of knowledge, is in itself fraudulent. See, also, Weikel v. Stearns, 142 Ky. 513 (134 S. W. 908, 34 L. R. A. (N. S.) 1035).
It is contended by the defendants that the plaintiffs were bound equally with them to know the city ordinances. It is an old saying that, "Every man is presumed to know the law." But this applies to the general laws of the land. It is said in 28 Cyc. 393:
"The general rule is well settled that municipal ordinances and by-laws are not laws of which judicial notice will be taken, but facts to be pleaded and proven. If not duly pleaded, they cannot be proven; and if duly pleaded and not proven in legal method, the action must fail no matter how notorious the ordinance may have been. The general rule, however, is held not to apply to proceedings brought in a municipal court, for here the ordinance is the peculiar law of the forum, of which the court is bound to take judicial notice, and this obviates any necessity for pleading the ordinance."
The litigation in hand has no relation to any proceeding in a municipal court and must be determined by the general law of the land. Our statute, Section 90, L. O. L., requires city ordinances to be pleaded as facts, which shows that the courts will treat them as facts. Moreover, the plaintiffs did not have equal opportunity with the defendants to know about the ordinances, because the attention of the latter had been especially called to the matter, through their agent, by the city authorities. The defendants were in possession of knowledge affecting the rentability of the property, which was not possessed by the plaintiffs, and it was manifestly concealed with the purpose of inducing the trade. The action of the defendants in keeping that knowledge from the plaintiffs constitutes a fraud in law sufficient to vitiate the transaction.
In Owen v. Jones, 68 Or. 311 (136 Pac. 332), the opinion quotes with approval from a decision rendered by Mr. Chief Justice Moore in Crossen v. Murphy, 31 Or. 114 (49 Pac. 858), as follows:
"The maxim that 'he who seeks equity must do equity' is evidently not violated by the failure of the plaintiff, in a suit to rescind a contract for fraud, to allege a restoration of, or an offer to return, the consideration, or a willingness even to do so, for by his application to the court for equitable redress he concedes that before it will be awarded he must do equity, which will compel him to account for everything of value he may have received, thereby tacitly inviting the court to protect the rights of the defendant by decreeing a restoration in consideration of the rescission."
The principles thus enunciated control the determination of the issue here. The decree of the Circuit Court will therefore be reversed and one here rendered to the effect that the defendants reconvey to the plaintiffs the Hood River County property and that the plaintiffs reconvey to the defendants Nelson Hackett and W. A. Hackett the Portland property, and return to said defendants the promissory note for $400 taken as part of the exchange, together with $600 cash paid thereon; each conveyance to be delivered to the clerk of the Circuit Court for the opposite party within ten days from the entry there of the mandate of this court; and that in default of so doing, the decree shall stand and operate as and for the required conveyance.
Reversed. Decree Rendered.
McBride, C. J., and Benson and Harris, JJ., concur.
Filed January 16, denied January 27, 1920.