Court Opinion

ID: 9789714
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:40:22.449046+00
Date Added: 2024-06-11T07:37:24.006839
License: Public Domain

FADELEY, J.,
concurring and dissenting.
This is a misrepresentation case. As a jury found, the Erwin joint venture (Erwin) represented to the Dante joint venture (Dante) that a large number of lots in the Wildhorse real estate development would be released to Dante when Dante paid $200,000 to the benefit of Erwin. Acting in reliance on that representation, Dante (also called “Onita” by the majority) borrowed and paid the $200,000 to Erwin’s benefit. 1 Dante also paid $850,000 worth of real estate for the *167buyer’s interest under a land sale contract covering Wild-horse Meadows and Plains.
But Erwin refused to release the lots. After the money was paid, Erwin unilaterally took actions that prevented the lot release as follows:
(1) terminated the existing escrow and changed escrow companies; and
(2) issued written escrow instructions that contained a new condition that Erwin knew would thwart release of any lots to Dante.2
Because the lots were not released, Dante failed, losing its cash and real property already paid, and also its interest in Wildhorse. Dante filed a complaint claiming both fraud and negligent misrepresentation.
The trial judge removed the fraud claim from the jury but submitted Dante’s negligent misrepresentation claim against Erwin. The jury returned its verdict for Dante and against Erwin in a substantial amount of economic damages. The trial judge set it aside, giving as his reason one of his instructions concerning the measure of damages. The Court of Appeals reinstated the verdict.
On review in this court, the majority holds that there is a tort of negligent misrepresentation in Oregon. I concur. But, the majority then create a new rule of law to prevent recovery by a party to any usual business transaction, notwithstanding that the party acted in reliance on a negligent misrepresentation of the other party to the transaction. Based on that rule, the majority overthrows the jury verdict. I dissent.
The majority’s newly created rule of law is based on the proposition that:
*168A business person in Oregon owes no legal duty of care to accurately represent the material facts of a commercial transaction to another business person during arm’s-length negotiations related to that transaction. There is no legal duty, even though the first knows that the second will rely on the facts represented when entering into that transaction. There is no legal duty, even though the first has a substantial pecuniary interest in persuading the second to enter into the transaction.
I disagree with that proposition and the newly created commercial policy that it represents. It is my view of the law that, when the negligent falsifier intends reliance by another who risks and loses economically because of that intended reliance, the risk of loss caused by negligently misrepresenting important information should not be shifted from the falsifier to the one who relies on the misrepresentation. It most certainly should not be shifted where, as here, the falsifier obtains and keeps a substantial economic benefit that was received, at least in part, as a result of disseminating the false information. Shifting the risk of loss from the misrepre-senter, who stands to gain from the misrepresentation, onto those who are intended to and do rely on the misrepresentation will have profound effects on the moral and commercial fabric of our culture.
In contrast to the majority’s proposition, Restatement (Second) of Torts, § 552(1) (1977), states the law to be that:
“One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.”
A few more facts are in order before turning to the majority’s discussion of “authorities” on which it relies for this new rule. Defendants Erwin, et al (Erwin), a joint venture, bought three parcels of land on contract from Camomile. Erwin then sold two of the three parcels (Wildhorse Plains and Wildhorse Meadows) on a separate land sale *169contract to Hatch who, with consent, assigned to Compton. The contract between Erwin, as seller, and Hatch, and Hatch’s assignee Compton, as buyer — from whom Dante bought by assignment — called for lot releases under separate escrow instructions.
In a letter from Larry Erwin dated, April 25, 1981, responding to questions asked by Dante, the following representations were made about the release of lots upon payment of incremental sums:
“Her [Camomile’s] escrow instructions as to Wildhorse Meadows and the flood plain are to deliver each of the 35 deeds [text of footnote: upon direction of Hatch or his assignee] to the joint venture or as directed by them when certain sums are received by the escrow company for delivery to her. The flood plain deed is not to be delivered until the Camomile contract is paid in full.
“There were 41 deeds delivered in escrow as to Wildhorse Plains with instructions to deliver the deeds to or as directed by the joint venture under the same escrow instructions and on the same terms as applied to Wildhorse Meadows.
“In turn, the joint venture [Erwin] delivered escrow instructions to the same escrow agent in regard to the same deeds to deliver each as directed by Hatch to prospective purchasers upon payment of $12,000. for all parcels east of Camp Polk Road and $18,000. for all parcels west of Camp Polk Road, and to pay to Betty Camomile the amounts required under her escrow instructions for release of the applicable deed [$4,000 or $7,000 per lot] and to remit the balance to the joint venture.
“A * * * deed therefore will go directly from Betty Camomile (the record titleholder) * * * to Hatch (or his assignee) [i.e., plaintiffs Dante] when Hatch has paid the required $12,000. or $18,000., and Hatch (or his assignee) could, of course, sell the property for whatever price desired.” (Emphasis added.)
As can be seen, the representation clearly states that the deeds already in escrow would go directly to Hatch’s assignee “when Hatch has paid the required $12,000. or $18,000. [per lot].” Erwin’s escrow instructions, referred to above, provided for delivery of deeds to Hatch or his order (i.e., to Compton or Compton’s assignee, Dante) in the following terms:
*170“Thirty-five deeds for numbered parcels of real property located in Deschutes County, Oregon, and identified as Wild Horse Meadows have been delivered to * * * as escrow agent, along with instructions from Betty Camomile as grantor to deliver said deeds to the undersigned or their order upon receiving $4,000. for each parcel lying east of Camp Polk Road and $7,000. for each parcel lying west of Camp Polk Road, and to deliver and release all deeds to the undersigned when said agent has in its possession satisfactory evidence that the undersigned’s obligation for payment under a contract with Betty Camomile, dated March 31, 1973 has been satisfied in full.
“You are authorized to accept each of said deeds in behalf of the undersigned and to hold the same for delivery to Robert A. Hatch or his order[3] when you have in your possession for delivery to the undersigned, the sum of $12,000. for each of said parcels lying east of the Camp Polk Road and $18,000. for each of said parcels lying west of Camp Polk Road.” (Emphasis added.)
On the strength of this document and the other representations that lots would be released to Dante when $12,000 for some lots or $18,000 for the better lots was paid, Dante paid $200,000, which was distributed as Erwin directed.
After the lot-release representation was made and after the money was paid and received, Erwin, Compton, and Dante entered into a “Modification of Agreement” that provided as follows:
“It is further agreed that [Erwin’s] deeds leaving a space for Grantee in blank conveying each lot in said subdivision as platted shall he placed in escrow conveying title to said lots in place of deeds now in escrow [from Camomile and from Erwin] which shall be canceled and deeds for lots 9, 10, 11, 12, and 13, Block 8, shall be subject to an easement to be described and subject to a restriction concerning the construction of dams or restrictions in or of Squaw Creek.
“In all other respects the contract between CHARLES D. BRONSON, CLYDE PURCELL, L. A. SWARENS and WARDE H. ERWIN, a joint venture, and ROBERT HATCH and JOHN COMPTON shall remain in full force and effect.
*171“Vendors-sellers hereby consent to sale-assignment by JOHN COMPTON to DOUGLAS K. SIEBERT, and his WIFE, and to DR. and MRS. JOHN ‘JACK’ A. DANTE, and to the DOUGLAS CASCADE CORPORATION and ONITA PACIFIC CORPORATION, as tenants in common, each to be jointly and severally liable and responsible for performance of the contract above referenced as herein modified.”
Although the Modification of Agreement did not call for a new escrow or new instructions, Erwin, acting unilaterally, restructured the entire escrow, as reported earlier in this opinion.
I believe that on the foregoing facts the Restatement formulation coincides with the law of Oregon on the subject of negligent misrepresentation. Restatement (Second) of Torts 126-27, § 552, states:
“(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
“(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered
* * * *
“(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends * * *.”
Comment a to section 552, at 128, states:
“Rather, one who relies upon information in connection with a commercial transaction may reasonably expect to hold the maker to a duty of care * * * in circumstances in which the maker was manifestly aware of the use to which the information was to be put and intended to supply it for that purpose. ’ ’
Defendants were manifestly aware of the use to which the information would be put. They intended to supply it for that purpose, as an inducement to plaintiffs to risk their economic interests on the success of the transaction. The transaction would have succeeded for all parties had the *172representation held up. That section states the proper law for Oregon and its commercial future.
But the majority has a different view — that arm’s-length negotiations and the fear of limitless liability excuse the misrepresentations and prevent any liability for harm suffered by reliance on the misrepresentations. The rationales offered for the majority’s result are founded on two different assumptions of fact that cannot logically exist together because the assumptions are mutually exclusive. One requires that the plaintiff be a party to the transaction who negotiated at arm’s length with the defendant when the misrepresentation was made; the other requires that the plaintiff be so much a stranger to the transaction that the misrepresented information was not intended or expected to be for his or her use.
First, it is said by the majority that “arms-length negotiations” prevent liability. That assumes that the party who disseminates the negligently inaccurate information and the parly who relies on it were, at the time, negotiating a business transaction with each other. Such is factually this case.
Second, it is said that liability should not be extended to any persons who were “strangers” to the transaction in which the misrepresentation was uttered. Based on concern that liability should not extend to strangers, courts of other states, “ ‘fearing limitless liability,’ ” have held that no liability exists to those not a party to the transaction or expressly intended to be affected by it because, otherwise, “ ‘liability in an indeterminate amount for an indeterminate time to an indeterminate class’ ” would arise. 315 Or at 158. The second rationale — avoiding limitless bability to a bmitless class — appealing though it may be, simply does not apply to this case. Here buyer seeks to hold seller responsible for the losses buyer incurred because information that seller gave directly to buyer, intending to induce buyer to pay $200,000 to sellers’ benefit, was negbgently false. There are no “strangers”4 to the transaction — no bmitless class — here.5
*173The majority first indicates that the rule in Restatement (Second) of Torts § 552 is “close to the mark.” 315 Or at 159. But the majority would deny the remedy of an action for negligent misrepresentation to a party who had dealt with the defendant in an arm’s-length transaction. This modification of the Restatement is unwarranted and unsupported by the authority cited in the majority opinion itself. The crucial distinction is not whether a transaction is at “arm’s length” — a distinction not found in § 552 — but rather whether the defendant knew that the plaintiff was the recipient of the information and would rely on it. Here defendants uttered the inaccurate representation to plaintiffs intending plaintiffs to rely, rather than plaintiffs being simply an unknown, but “foreseeable,” injured party.6 As § 552(2) puts it, liability for negligent misrepresentation is “limited to loss suffered * * * by the person or one of the limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it.”
The majority states that § 552 and its comments and illustrations “suggest” that it does not apply to parties engaged in an arm’s-length transaction.7 315 Or at 164. On *174the contrary, the language of § 552 explicitly applies to the situation in the present case; negligent misrepresentation applies to:
“One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.” (Emphasis added.)
The commentary and illustrations definitely do not “suggest” that an arm’s-length transaction is exempt. One comment to § 552 speaks of the ability of one who has contracted for the information to “elect” between a contract and a *175negligent misrepresentation remedy. This indicates that the negligent misrepresentation remedy is available between arm’s-length contracting parties. Restatement (Second) of Torts § 552, comment g at 132 (1977).
Even more apt to upholding liability in the present case is illustration 4 from comment h, which provides:
“A, having lots for sale, negligently supplies misinformation concerningthe lots to a real estate board, for the purpose of having the information incorporated in the board’s multiple listing of available lots, which is distributed by the board to approximately 1,000 prospective purchasers of land each month. The listing is sent by the board to B, and in reliance upon the misinformation B purchases one of A’s lots and in consequence suffers pecuniary loss. A is subject to liability to B.” Id. at 134.
In analyzing this illustration, it first must be noted that promulgation of A’s misrepresentation by the middleman “real estate board” is not present in our case where A told B directly and B relied on the misrepresentation. It is not the “real estate board,” but A, who is being held liable for negligent misrepresentation in the Restatement example. There is no indication that A and B are anything other than arm’s-length negotiators on a contract for the sale of land. This illustrative case is very similar to the situation at issue in this case. Here, the jury found that defendants negligently supplied incorrect information to plaintiffs while they were negotiating a contract for the sale of an interest in land. Section 552, cited by the majority, has no arm’s-length exception to liability.
Nor does any norm of business practices or ethics currently extant in Oregon support the exclusion from recovery announced by the majority. In the Oregon business norm, each party to a transaction takes care to not negligently mislead or misrepresent to another party who will rely on the representation. The norm involving real property has been stated in Leach v. Helm, 114 Or 405, 412, 235 P 687 (1925). There, the defendants misrepresented to the plaintiff which parcel of land was for sale. Before upholding a jury verdict that stated that the defendant was “guilty of misrepresentations,” the court said:
*176“The fact, if it be a fact, that defendant was honestly mistaken in the matter of locating plaintiff is immaterial. Defendant had reason to believe that his representations as to the land pointed out were being relied upon by plaintiff, and he was therefore obliged to speak correctly concerning the same: Jackman v. Northwestern Trust Co., 87 Or. 209 (170 Pac. 304) [1918]. As stated in Cawston v. Sturgis, 29 Or. 331[, 335] (43 Pac. 656) [1896]:
“ ‘When a party undertakes to make representations concerning a matter that he is bargaining about with another, he must know what he represents to be true, if he knows that the other party is relying upon his statements. He is held equally responsible whether he actually knew that the representations were false, or whether he negligently made representations without knowing whether they were true or false.’ ” Ibid.
In the present case, defendants knew: (1) that the information given in contract negotiation would be used by plaintiffs in evaluating the desirability of the proposed contract; (2) that plaintiffs would rely on information about what the previous contracts involving the land meant because these prior contracts were to be incorporated into the negotiated contract; and (3) that defendants, directly negotiating with plaintiffs through their agent, were the best source of information as to what previous contracts were intended to provide.
Oregon norms do not exclude the misrepresenters from liability to a reliant party damaged thereby. The majority’s view of business ethics will make Oregon a lonely anachronism in the west. For cases from our region holding liable a negligent misrepresenter in a real estate sale setting, see, e.g., Formento v. Encanto Business Park, 154 Ariz App 495, 744 P2d 22 (1987) (applying the rule from Restatement § 522 to negligent misrepresentation made by vendor to purchaser in real estate transaction); Hawkins v. Oakland Title Insurance and Guaranty Co., 165 Cal App 2d 116, 331 P2d 742, 747 (1958) (relying on § 552 and a statute); McCarty v. Lincoln Green, Inc., 190 Mont 306, 620 P2d 1221, 1225 (1980) (recognizing right to damages for negligent misrepresentation); Burien Motors, Inc. v. Balch, 9 Wash App 573, 513 P2d 582, 586-87 (1973) (failure to disclose zoning law restriction or ignorance of zoning law status).
*177In 2 Harper, James & Gray, The Law of Torts 409 nn 20ff, § 7.6 (2d ed 1986), those authors recognize and endorse liabilities under section 552 of the Restatement in the type of factual case before us. As Harper, James & Gray, advocate, even where the misrepresentation is innocent,
“What is needed is the recognition that the damage remedy should be available * * * wherever its effect will be to prevent unjust enrichment.” Id. at 418.
The majority’s reference to the parol evidence rule, 315 Or at 162, also seems out of place in this case. The misrepresentation was in writing, admissions proving it are in writing. The Modification of Agreement expressly continues in effect, by reference, the escrow instructions quoted above about which the misrepresentation was made. It contains no clause integrating all negotiating representations within its text.8 To the contrary, it expressly says that all other contracts and escrow instructions remain in force as they were written. The meaning of these in-full-force writings was the subject of the misrepresentation. It did not change or modify any term, as our quotations of those documents previously show. Moreover, defendants needed a unilateral change in the escrow instructions to do what they wanted.
Oregon’s future commercial interests, including its prospect for international trade growth, are not likely to be served by an outmoded rule9 that one party in a business transaction may not rely on what she, he, or it is told by the other party. Oregon will be best served by requiring care to not mislead your business “partners.” I think that Oregonians believe and expect that the best business is where both sides to a transaction make a profit and are able to invest *178in new activities. If the law supported by this dissent were followed, both sides of this transaction could still be business winners. I would uphold the jury verdict, remanding so that a judgment on that verdict may be entered.10

 Although Erwin had signed a written promise to not arbitrarily withhold consent to assignment, Erwin demanded that §200,000 be paid as a condition of Erwin’s consent that its buyer, one Compton, could assign the buyer’s interest in Wildhorse Plains and Meadows to Dante. The majority inaccurately states that Mrs. Camomile, who originally sold to Erwin, made the demand. The parties’ pleadings *167show that Erwin made the demand and that it led to the lot-release misrepresentation.

 After the thwarting condition was in place, Erwin wrote a letter to Dante and others that excused Erwin’s refusal to permit the release of the lots by stating that Erwin’s lawyer (Larry Erwin) “hadn’t read the contract” before making the representation that the lots would be released.

 Hatch was designated as “Purchaser” in the contract whereby Erwin sold the two parcels to Hatch “or” his assignees.

 Hale v. Groce, 304 Or 281, 284, 744 P2d 1289 (1987) (“one ordinarily is not liable for negligently causing a stranger’s purely economic loss”).

 Accordingly, none, repeat, none, of the Oregon case decisions cited, nor the New York decisional law, apply to this case. They are about liability to strangers to *173the transaction. Moreover, the New York authority cited by the majority has been modified in its state of origin, Credit Alliance Corp. v. Arthur Anderson & Co., 65 NY2d 536, 551, 493 NYS2d 435, 483 NE2d 110 (1985) (recovery is permitted where the nexus between the parties is direct or close); Ossinging School v. Anderson, 73 NY2d 417, 425, 541 NYS2d 335, 539 NE2d 91 (1989) (declaring the test for misrepresentation liability to be “(1) awareness that the reports were to be used for a particular purpose or purposes; (2) reliance by a known party or parties in furtherance of that purpose; and (3) some conduct by the defendants linking them to the party or parties and evincing defendant’s understanding of their reliance”). This test does not incorporate as any factor in the decision whether the encounter is at arm’s length. These later cases support recovery here.

 While I agree with my brother, Unis, J., that “the majority incorrectly” denies liability as a matter of law under the facts of this case, I find no reason present here to announce a rule of liability for negligent misrepresentation that “extends to include all reasonably foreseeable plaintiffs.” 315 Or at 180 (Unis, J., dissenting). Here there is no need to “extend” the utterer’s liability beyond the direct and intended recipient of the misrepresentation, made by one who receives a benefit from the other’s reliance on it.

 It is true that some commentators and courts have suggested this limitation. The majority opinion criticizes as unsupported Prosser and Keeton’s assertion that there is little justification for denying parties in an arm’s-length transaction the benefit of a remedy for negligent misrepresentation. 315 Or at 163. However, the source of the ‘ ‘unsupported’ ’ suggestion is a quote by Professor Arthur Hill in a brief discussion of negligent misrepresentation contained in his article on innocent *174misrepresentation; it is far from a comprehensive analysis. Hill, Damages for Innocent Misrepresentation, 73 Colum L Rev 679, 685-88 (1973). Besides, Hill’s major premise — that no additional state appellate courts have adopted a cause of action for negligent misrepresentation made in an arm’s-length business negotiation since Restatement § 552 was first promulgated — is not currently accurate. E.g., Restatement in the Courts 835-36 (1976 Supp); id. at 502-03 (1974-75 Supp); id. at 397-98 (1972-73 Supp), and see infra at 176, text citing appellate decisions from other western states herein.
The majority also quotes the following by Professors Harper, James, and Gray:
“On the whole, as indicated above, courts have provided a remedy for negligent misrepresentation principally against those who advise in an essentially nonadversarial capacity * * *. As against sellers and other presumed antagonists, on the other hand, the tendency of most courts has instead been either to rely on deceit with the requirement of scienter, however expanded, or to shift (by analogy to restitution or warranty) to strict liability * * 315 Or at 162 (footnotes omitted; emphasis added) (quoting 2 Harper, James & Gray, The Law of Torts 412-13, § 7.6 (2d ed 1986).
This does not discuss the “desirability” of the arm’s-length rule, as is stated in the majority, but instead, merely describes the “tendency of most courts.” Ibid. Also, the part of the quotation that states that most courts rely on strict liability or ‘ ‘deceit with its requirement of scienter, however expanded,” indicates that a remedy for the negligent misrepresentation may be available, whatever label is applied to the remedy. Ibid. Further discussion of the true position of this treatise occurs in the text post at 177.
Others have questioned any interpretation of the Restatement (Second) of Torts § 552 which excludes liability for parties arm’s-length transactions. See Note, Balancing the Buyer’s Right to Recover for Precontractual Misstatement and the Seller’s Ability to Disclaim Express Warranties, 76 Minn L Rev 1189, 1203 n 61 (1992) (Illinois’ interpretation of the Restatement as barring arm’s-length transactions is “extremely narrow[]”); Comment, Examining Restraints on Freedom to Contract as an Approach to Purchase Dissatisfaction in the Computer Industry, 74 Calif L Rev 2101, 2112 (1986) (Expressing some disbelief that some courts dispute whether the Restatement (Second) of Torts § 552 applies in a contract setting).

 The majority cites Hatley v. Stafford, 284 Or 523, 588 P2d 603 (1978). It does not support excluding evidence of the misrepresentation here. The court stated that exclusionary effect would apply “only * * * where the parties intended the writing to be a final and complete statement of their agreement.” 284 Or at 532.

 Indeed, the predatory practices permitted by the majority seem more related to the era of Gould and Fisk, over a century ago, than to the practices of today’s Oregon business mainstream. They seem based on an urban savagery where all are divided by the “limiting notion” of “us versus them.” See Frohnmayer, The New Tribalism, 53 Or Bar Bull 54 (No. 3, Dec. 1992). As M.C. Escher said in 1958, “Nobody can draw a line that is not a border line. Every line splits a unity into a multiplicity.”

 Failingthat, consideration of sufficiency of the fraud claim evidence is next in line. Given that the majority is adamant in overturning the jury’s verdict and damages award on a negligence theory, I concur that the fraud claim related to the same damages should be considered on remand.