Court Opinion

ID: 9577626
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:36:36.284457+00
Date Added: 2024-06-11T13:20:57.783546
License: Public Domain

TONGUE, J.,
dissenting.
The majority holds that although a so-called "merger clause” (that no representations have been made other than as stated in the contract) will not protect a seller who has made a fraudulent misrepresentation to a purchaser, such a contract clause will provide protection to a seller who has made a non-fraudulent misrepresentation.
This may be true under existing law in an action for damages, but not in a suit or counter suit for rescission of a contract including such a clause, as involved in this case. The basic distinction, as overlooked by the majority, is that in an action for damages the plaintiff is suing on the contract as a whole, which he must affirm, while in a suit for rescission the plaintiff is denying the validity of the contract, including the merger clause.
*320One of the primary authorities cited by the majority is 12 Williston on Contracts 467, § 1511 (3d ed 1970). In considering that citation, however, it is important to note the context in which the statement relied upon by the majority is made. Thus, the first sentence in § 1511 is as follows (at 465):
"The precise limits of liability in damages for honest misrepresentation are not fixed at the same place by all of the courts which hold that such liability may exist. * * *” (Emphasis added)
After some discussion of this subject, § 1511 of Williston, supra, then states (at 467), as quoted by the majority:
"The above discussion of limitation of liability by operation of law for honest misrepresentation is to be contrasted with limitation of such liability by contractual provision. Liability for innocent misrepresentation may be excluded by the express terms of the contract; but if the contract attempts to provide against liability, for misrepresentation of any kind, it will be restricted, on grounds of public policy, to honest misrepresentation.” (Emphasis added)
Thus, it is clear that the statement relied upon by the majority is one limited to the question of liability for damages for honest misrepresentation in a case involving a contract with such a clause, rather than the question whether such a contract may still be rescinded for such an honest misrepresentation.
The second authority cited by the majority in support of its position is 3 Corbin on Contracts § 578 (rev ed 1960). That authority, however, does not support the majority, but states (at 402-03) that:
"If a written document, mutually assented to, declares in express terms that it contains the entire agreement of the parties, and that there are no antecedent or extrinsic representations, warranties, or collateral provisions that are not intended to be discharged and nullified, this declaration is conclusive as long as it has itself not been set aside by a court on grounds of fraud or mistake, or on some ground that is *321sufficient for setting aside other contracts. * * *” (Emphasis added)
This is also made clear by Corbin, supra [406 n.43], stating that:
"Not only is proof of fraud, mistake, or duress admissible to show that the contract is voidable (including the clause to the effect that there are no extrinsic terms, representations, or conditions), but also to eliminate that exclusionary clause itself and to permit proof of collateral provisions and representations. * * *” (Emphasis added)
Of equal significance is the fact that the majority, in quoting from Dobbs on Remedies 644, § 9.5 (Hornbook Series 1973), omits the sentence immediately following the statement quoted by it, and which states that:
"* * * The principal who honestly disclaims having made representations to a buyer who deals with an agent, should not be liable in damages, though even here rescission may be permitted. * * (Emphasis added)
The majority recognizes that the following rule is also stated in McCormick on Evidence 453, § 222 (Hornbook Series 1954):
"* * * When the representations are innocently made, or when the principal is innocent of complicity in the conscious misstatements of the agent, the better view seems to be that a "no representations” clause will protect the principal against liability for damages in deceit for loss of the value of the bargain. The other party, however, is entitled to defend against liability on the contract so induced, and to be restored to his former position by rescission and restitution. * * *” (Emphasis added)
The majority characterizes that statement as taken from "one of the older editions.” That statement was made in McCormick on Evidence 453, § 222 (Hornbook Series 1954). The second edition of McCormick (1972) does not state a different rule, but omits all discussion of the entire subject of the parol evidence rule and related problems, such as the effect of "no representation” clauses upon the admissibility of such evidence.
*322Such a rule is also consistent with the general rule, as stated in Calamari & Perillo, Law of Contracts 86, § 42 (Hornbook Series 1970), that:
"* * * [N]or does the parol evidence rule prevent proof that the written contract lacks consideration, or that it is voidable or subject to reformation by reason of mistake, or vitiated by fraud, duress or undue influence, or that it is invalidated by illegality. In general it may be said that parol evidence is always admissible to show that the agreement is void or voidable.” (Emphasis added)
It is also significant to note that the 1927 case of Arnold v. National Aniline & Chemical Co., 20 F2d 364 (2d Cir 1927), the only court decision quoted by the majority in support of the rule adopted by it, involved a counterclaim for damages for breach of warranty and fraud, rather than a countersuit for rescission of the contract, as in this case.
The previously existing law in Oregon, as I view it, is in accord with the rules as stated in Corbin and McCormick, supra. It is well established that misrepresentation need not be fraudulent to provide sufficient grounds for the rescission of a contract, but that honest misrepresentations are sufficient for that purpose, although not sufficient to impose "liability for damages.” See Souza v. Jackson Co. Fed. S. & L., 256 Or 220, 224, 472 P2d 272 (1970), and cases cited therein.
The majority states that the decision of this court in Sharkey v. Burlingame Co., 131 Or 185, 282 P 546 (1929), is "not * * * contrary,” to the rule stated by it and in Sharkey this court allowed rescission "on the basis of the defendant’s agent’s fraudulent misrepresentations.” Be that as it may, this court in Sharkey, after discussing at some length (at 203-07) the effect of so-called "merger clauses,” concluded with a statement of the following rule (at 207):
«* * * \ye think that the rule deducible from the authorities we have cited is that misrepresentations innocently made, where the party retains the fruits of a *323bargain induced by such representations, are sufficient to maintain a suit for rescission,* * *.’,1 (Emphasis added)
This rule, as stated in Sharkey, as well as in Corbin and McCormick, supra, is also consistent with the more recent holding of the court in Farnsworth v. Feller, 256 Or 56, 471 P2d 792 (1970). Although that was a suit to rescind a contract with a "merger clause” for a false and fraudulent representation, the basis for decision (as stated at 65-66) was not that the representation was fraudulent, but was as follows:
"Finally, with reference to the contract provision reciting that plaintiffs relied solely upon their own investigation and not upon any representations by defendants, it has been expressly held by this court that such a contract provision provides no defense when, as in this case, the contract containing such a provision is voidable and itself subject to rescission. [Citing cases]”2 (Emphasis added)
*324The rule is also consistent with the modern trend by the courts, including this court, to protect purchasers against misrepresentations, whether fraudulent or "innocent,” at least to the extent of requiring repayment of the purchase price by one who would otherwise "retain the fruits of a bargain induced by such misrepresentations,” rather than to apply the old rule of caveat emptor in such cases.
Under the new rule of law as adopted by the majority in this case, sellers of real property, by the single expedient of inserting in earnest money agreements and other land sales contracts the provision approved by the majority, may completely protect themselves from the rescission of contracts induced by misrepresentations of their agents unless the purchaser is able to sustain the heavy burden of proof that such representations were made fraudulently. Thus, by the simple addition of such a "boiler plate” provision in the "fine print” of a form contract, a purchaser to whom a real estate agent has made a negligent or "mistaken” representation regarding such important facts as the boundaries, acreage, or zoning restrictions, now has no remedy by rescission of such a transaction despite the fact that at the time of the transaction he relied upon the misrepresentation and had no reason to know that it was not true, and thus no reason to question the inclusion of such clause in the contract. This new rule not only represents an important change in the law of Oregon relating to rescission of contracts, but a rule which, in my best judgment, is a "backward step” at a time when, as recognized by most other courts, purchasers of both real and personal property are in need of more, rather than less, protection.
For these reasons, I most respectfully dissent.

 3 Willison on Contracts § 1500 (1920), as cited in Sharkey v. Burlingame Co., 131 Or 185, 207, 282 P 546 (1929), states the following rule, supported by the citation of many cases:
"It is not necessary in order that a contract may be rescinded for fraud or misrepresentation that the party making the misrepresentation should have known that it was false. Innocent misrepresentation is sufficient. For though the representation may have been made innocently, it would be unjust to allow one who has made false representations even innocently, to retain the fruits of a bargain induced by such representations.* * *”
Restatement of Agency 2d § 260 (1958), although not directly in point, states the rule that:
"(1) An innocent principal can, by contract with another, relieve himself of liability for deceit because of unauthorized fraud by a servant or other agent upon the other party.
"(2) A contract with, or conveyance to, the principal obtained by his agent through misrepresentations can be rescinded by the other party to the contract or conveyance prior to a change of position by the principal, even though the contract provides that 'it shall not be affected by misrepresentations not contained therein’ and includes a statement that the agent has made no representations.” (Emphasis added)

 This rule is also consistent with our previous holding in JohnsManville Corp. v. Heckart et al, 129 Or 505, 277 P 821 (1929), involving a counterclaim for damages for breach of oral warranties in a sale made under a contract with a similar clause to the effect that there were "no *324promises” not expressed in the contract. This court held that evidence of such oral warranties was admissible even though the oral warranties were not claimed to have been made fraudulently. The court held (at 510) that "the whole evidence” showed that the statement in the contract clause "was not true.”