Title: Wochnick v. TRUE ET UX
Citation: 224 Or. 470, 356 P.2d 515
Docket Number: N/A
State: Oregon
Issuer: Oregon Supreme Court
Date: November 9, 1960

Reversed November 9, 1960.
*471 Frederic P. Roehr, Portland, argued the cause for appellants. On the brief were Vergeer &amp; Samuels, and Charles S. Crookham, Portland.
Reinhart &amp; Coblens, Portland, filed a brief for respondent.
Before McALLISTER, Chief Justice, and ROSSMAN, PERRY, SLOAN and HOLMAN, Justices.
REVERSED.
HOLMAN, J. (Pro Tempore)
Plaintiff, Iva Wochnick, was the owner of an equity in a hotel at Seaside. The defendants True had previously been the owners of a jewelry business in Portland which had been operated by Mrs. True. The Trues sold the business to one Rothstein and took in return a note for the sum of $18,000, payable in monthly installments and secured by what purported to be a chattel mortgage on the fixtures and stock of goods of the business so sold. The mortgage, which was recorded, provided the mortgagor would maintain the stock of merchandise at a sufficient value at cost to secure the unpaid balance of the loan, thus impliedly giving him the right to sell the stock of goods covered by the purported mortgage. Plaintiff traded defendants the equity in the hotel for the note and purported mortgage on December *472 23, 1957, at which time the payments on the note were current. The first payment due after the exchange was January 10, 1958. This payment was not made by Rothstein, and he filed a voluntary petition in bankruptcy on January 25, 1958. The note and mortgage provided that Rothstein should have 30 days' grace after the missing of a payment before the note could be declared due and the mortgage foreclosed. The bankruptcy court took possession of the stock of goods and sold it for the benefit of creditors, denying the lien of plaintiff's chattel mortgage.
The negotiations for the exchange were carried on by plaintiff and the defendant Mrs. True, acting for herself and her husband. The ladies appeared to have about the same business experience, both having been engaged in business for an extended period of time.
1. Plaintiff brings this proceeding for rescission of the exchange on two causes of suit, the first on the grounds of misrepresentation and the second on mutual mistake. The trial court granted rescission on grounds stated in its decree to be as follows:
There is no doubt that the representation was made as set forth in the court's decree, as it is *473 admitted by the defendants in their pleadings. If the decree of the trial court is to be sustained, a review of the evidence indicates it must be on the basis of this representation. This view was apparently shared by the trial court, as it is the only stated basis for its decree.
Defendants first claim that plaintiff caused her own difficulty by not taking proper steps to protect her rights by taking the property into possession when Rothstein failed to make his payment on the 10th of January. This position is not well taken, as under the terms of the note and mortgage plaintiff could not assert her rights, whatever they might have been, until Rothstein was in default for a period of 30 days, and by this time he was in bankruptcy.
Defendants next claim the representation that the note was secured by a valid mortgage on the stock of goods was true. This requires an examination of the law relative to the legal significance of what purports to be a chattel mortgage on a revolving stock of goods. This was discussed by this court in the cases of Kenney v. Hurlburt, 88 Or 688, 172 P2d 490, 173 P 158; First Nat. Bank of Burns v. Frazier, 143 Or 662, 19 P2d 1091, 22 P2d 325; and Turner v. Dobson, 169 Or 362, 127 P2d 746. These decisions are referred to in an Oregon Law Review note in Volume 28, at page 376.
2. While the state of the law in this jurisdiction may not be entirely clear in all factual circumstances that may arise under such a situation, at least it can be said that in Oregon what purports to be a chattel mortgage on a fluctuating stock of goods is not void, in that it does bestow upon the mortgagee some rights. Without attempting to define exactly what these rights may be, they would appear to amount to *474 at least an equitable pledge giving the mortgagee the right upon default to take possession of the goods and thus secure a position as to the goods which under some circumstances is superior to the rights of general creditors who have not, prior to possession by the mortgagee, impressed the goods with a lien of their own. In the case of Turner v. Dobson, supra, at p 366, Mr. Justice LUSK, referring to Kenney v. Hurlburt, supra, states as follows:
He further stated upon page 367:
Such a document does bestow upon the person holding it some legal right as to the goods that would not be had otherwise; i.e., the right to possession upon default in the payment of the indebtedness. As such it is a form of security for the debt and is of some validity. It is in the form of a mortgage and is generally termed in business parlance a chattel mortgage on a fluctuating or revolving stock of goods.
Plaintiff testified that defendants represented to her that the mortgage would "fully secure" the unpaid balance of the note. This is a different representation from any set forth in plaintiff's first cause of suit. This will avail plaintiff nothing, as the proof cannot place her in a position stronger or better than that asserted in the complaint.
On the other hand, if we assume that the representation that the note was secured by a valid mortgage was, in fact, an untruth, the defendants' claim this was merely the statement of a legal opinion upon which the plaintiff was not entitled to rely. Restatement of the Law of Torts 102, § 545, states as follows:
Section 542 of the Restatement states as follows:
3. While the Restatement refers to "fraudulent" misrepresentations, the issue of fraud is not necessary in a suit for rescission. Sharkey v. Burlingame Co., 131 Or 185, 282 P 546. However, these sections of the Restatement would be equally applicable to the question of the recipient's right to rely thereon, whether the statements were knowingly false or not.
4. As a result of these sections it would appear to be particularly relevant to determine whether the representation made in this case was one of opinion or one of fact. Under the rules set forth in the Restatement, if it was one of fact the plaintiff would be entitled to rely thereon, while if it was one of *477 opinion she would not, as none of the requisites as set out under subsections (a), (b), (c) or (d) of § 542 are present in this case. Comment (a) under § 545 of the Restatement in discussing this matter states as follows:
Comment (d) under the same section further states:
Plaintiff, in effect, is contending the legal rights bestowed upon her by the documents for which she traded were other than as represented. These documents were available to her so that she had an opportunity to determine their legal consequences; i.e., were they valid and to what extent did they secure *478 her? Therefore, the representation, if made, was a representation of opinion as to the legal effect of the documents in question, and she was not entitled to rely thereon.
Similar situations have heretofore come before this court. In the case of Wicks v. Metcalf, 83 Or 687, 163 P 434, 163 P 988, the court stated as follows:
In the case of McFarland v. Hueners, 96 Or 579, 190 P 584, defendants in an action brought against them on a note defended upon the grounds that they were induced to sign it by a representation that they would be under no greater obligation for the purchase price of the land than was required in an original agreement between the parties. The court in considering this defense stated as follows:
*479 In the case of Ball v. Associated Oil Co., 151 Or 383, 50 P2d 125, the court had before it the contention that the signature to a modification agreement was procured by representations that the party so signing it would receive 8 cents per gallon margin on the sale of gasoline instead of 7 cents per gallon received under the original agreement The court in response to that contention said as follows:
In the case of Sorenson et ux v. Gardner et ux, 215 Or 255, 334 P2d 471, the court, speaking through Mr. Justice LUSK, held that it was a misrepresentation of fact where it was represented that a house was constructed in compliance with minimum requirements of state law and the person to whom such representations were made did not know the manner in which the house was constructed The court there stated as follows:
The court in discussing the general subject stated as follows:
The court then sets out § 545 of the Restatement of the Law of Torts and quotes from the comment on § (1) as follows:
The contents of the documents which plaintiff received by assignment were necessarily known to her, and, therefore, defendants' expression as to their legal consequences was one of opinion upon which plaintiff was not entitled to rely. Such an expression could not, therefore, be the basis for a rescission on the ground of misrepresentation as found by the trial court.
The plaintiff asserts a second cause of suit as follows:
The plaintiff testified as follows:
In other words, plaintiff is also claiming that the parties were mutually mistaken.
The above testimony of plaintiff is the only evidence upon which the allegations of the second cause of suit can be sustained. In our opinion, when taken in conjunction *482 with the balance of the testimony, this is not sufficiently convincing to upset a business transaction entered into by two business women dealing at arms' length who both had available to them all the documents in question. Mutual mistake was not the basis upon which the trial court rested its opinion decreeing rescission.
For the reasons given, the decree of the trial court will be reversed and a decree entered in favor of defendants dismissing plaintiff's complaint.
[1]  While the complaint stated the instrument secured by the mortgage was a contract and was so referred to in most of the testimony, it actually was a note.