Opinion
6-4-1959
Paul GARRETT, Plaintiff and Respondent, v. Will H. PERRY and Laurice Perry, Defendants, Will H. Perry, Appellant. * Civ. 23148.
Lawrence M. Cahill, O'Melveny & Myers, and Sidney H. Wall, Los Angeles, for appellant. Charles Lederer, Alturas, and Lee Perkal, Beverly Hills, for respondent.
Paul GARRETT, Plaintiff and Respondent,
v.
Will H. PERRY and Laurice Perry, Defendants,
Will H. Perry, Appellant. *
June 4, 1959.
Hearing Granted Aug. 3, 1959.
Lawrence M. Cahill, O'Melveny & Myers, and Sidney H. Wall, Los Angeles, for appellant.
Charles Lederer, Alturas, and Lee Perkal, Beverly Hills, for respondent.
VALLEE, Justice.
Appeal by defendant Will H. Perry, called defendant, from a judgment awarding plaintiff damages for fraud in the sale of a ranch near Alturas in a section of Modoc County known as Devil's Garden. 1
Defendant and his wife were the owners of the ranch composed of three separate noncontiguous parcels containing some 15,000 acres. They had title from 1930. In April 1951 defendant and his wife sold and conveyed the ranch to plaintiff for $700,000, of which $100,000 was paid in cash. The balance was represented by promissory notes, payable to defendant in installments secured by three separate trust deeds executed by plaintiff, each covering one of the three parcels.
The court found plaintiff was induced to buy the ranch by false representations of defendant. The representations found to be false were: there was no necessity for winter feeding on the ranch; in the year 1950, when only 2,000 acres had been planted in barley, the 1950 gross income was $120,000; and the ranch would accommodate, sufficiently and properly, in excess of 5,000 head of cattle the year around without the necessity of winter feeding. All the elements of fraud were found. 2 The judgment awarded plaintiff $170,000, 'out-of-pocket' damage, and $30,400, additional damage arising from the transaction. Civ.Code, § 3343.
Defendant does not challenge the finding that the representations were made, or the finding that they were false. His first point is that the finding that plaintiff reasonably and justifiably relied on the representations is not supported by substantial evidence. He argues that plaintiff made an independent investigation of the property and of the truth of the misrepresentations concerning it without hindrance by defendant, and that he must be presumed to have acted in reliance on the result of his own investigation rather than on the misrepresentations made by defendant.
Defendant was well acquainted with the ranch, having operated it for some years. Plaintiff was wholly unfamiliar with the weather and climatic conditions in the vicinity of Alturas and with the business of cattle ranching. Plaintiff made three visits to the ranch before buying. The first visit was about February 22, 1951. Plaintiff and defendant rode on horseback over the ranch. There were patches of snow here and there on the higher land, not in the meadows. Part of the ranch, called Antelope, was 'all wet and full of ice.' A meadow in a part called Boles 'was like a lake.' On one part of Boles the land rose and there were trees. Defendant told plaintiff that was where the cattle went when it got extremely bad and 'there was a lot of feed in there.' Plaintiff asked defendant 'if he did any regular feeding in there.' Defendant said, 'Oh, no, we never feed hay. We do feed some cottonseed cake some years as much as a sack to the head in this area. It is not really necessary but we like to do that, too, some years, to keep the cattle in better shape.' On his second and third visits plaintiff and defendant again went over the ranch. The escrow was opened on April 4, 1951.
Prior to the sale, defendant gave plaintiff the names of three men who had had cattle on the ranch, the names of two neighbors, the name of an agent of an insurance company which had placed a loan on the ranch, and the made of a man who had been interested in cattle which had been on the ranch. Plaintiff talked to some of these men and to others. Some of the information he received was favorable, some unfavorable.
One Herman told plaintiff it was a 'nice' ranch and that defendant had claimed no winter feeding was necessary. Smith told him his cattle had done well on the ranch and did not require winter feeding.
One Delfino told plaintiff his cattle had done 'just pretty well' on the ranch, he had had between 500 and 1,000 cattle there but he guessed it would handle more than that. Plaintiff reported to defendant that Delfino had said 'it was just a fair ranch,' to which defendant replied that Delfino wanted to buy the ranch himself, and 'he is not going to tell you it is a wonderful ranch and have you buy it out from under him.' Sheftel, who had a cattle ranch in Modoc County, told plaintiff that while he had not been on defendant's ranch he had heard it was 'no good' because the cattle bogged down in the wet land. Plaintiff reported Sheftel's comment to defendant. Defendant said Sheftel had never lost an animal on that account.
Hoffman, who owned two ranches adjoining defendant's ranch, told plaintiff it 'wasn't much good, and that at one time he had cut hay off the place, many, many years back, but Mr. Perry had let the place go to hell'; defendant had let it go downhill and he had got a grain crop there only about one year out of five because it frosted there sooner than in Alturas, that in his opinion the ranch would carry only about 800 or 900 head of cattle for four or five months. Plaintiff reported the comments of Hoffman to defendant. Defendant said, 'Why, that old guy hasn't been on the ranch in just about since that time in about fifteen years, besides that, he is still mad at me because he had lost an argument.' Plaintiff learned Hoffman had not been on the ranch in years. Bartovich, manager of the hotel in Alturas, told plaintiff the ranch was no good because they got a grain crop only about one year out of four; everybody had gone broke on the ranch and he did not think it would hold many cattle. Plaintiff reported the comments of Bartovich to defendant, who said he had not been on the ranch in years, which plaintiff learned was a fact.
Plaintiff talked to Matthews, the manager of a bank in Alturas, who told him nobody could farm the ranch successfully because they got no crop from four to ten years and people kept going broke. Whiting, the manager of a grain elevator in Alturas, told plaintiff he knew of only one crop having been taken off the ranch in the last several years, and that one cannot farm it when he gets only one crop every so often. Hayes, the county farm advisor in Alturas, told plaintiff he had never been on the ranch but he understood they got a grain crop there only about one year out of four or five; that he thought the frost condition at the ranch was more acute than at Alturas and Tule Lake. Plaintiff reported the statements of Matthews, Whiting, and Hayes to defendant, who said they were in no position to know about the crops because in recent years he had shipped his barley crops to Tule Lake rather than to Alturas and had sold them to Tulelake Grain Company. Defendant said Matthews, 'doesn't know what he is talking about. I ship my barley up to Tule Lake every year. One year we sent it to Alturas and almost knocked their eyes out, we had a good crop, and every other year we have gone the other way'; Matthews and Whiting 'don't know what they are talking about,' '[t]hey haven't been on this ranch.' Defendant said Whiting 'doesn't know what is going on, because he runs that grain company down there.' Defendant said Hayes 'has not been on the ranch since [defendant] was there and he doesn't, he just doesn't know what he is talking about.' Tule Lake is about 100 miles from Alturas. Defendant then took plaintiff to Tule Lake and introduced him to Shook, the manager of Tulelake Grain Company. Plaintiff told Shook he understood from people in Alturas the ranch produced a grain crop only once every four years. Shook told plaintiff he got a crop of grain from defendant every year and it was a good crop; that the previous year's crop had been sold as brewing barley for over $4 per hundredweight, 'and it had gone as high as $5.00.'
Ivory, a cattleman, told plaintiff he had run cattle on the ranch, they did well; he thought the ranch would carry 5,000 cattle the year around ane get a good crop. Dorris, a cattleman who owned an adjoining ranch, told plaintiff the ranch was 'not too good.' Hillard, who had run cattle on two parcels of the ranch, told plaintiff he had had about 1,500 head on one parcel. Plaintiff told defendant one cattleman had said 'the cattle bogged down in that wet land up there all the time and you lose an awful lot of cattle,' to which defendant said, 'Why, hell, he doesn't know what he is talking about. I have been on this ranch all this time. I don't think I have ever lost an animal from bogging down, as far as I am telling you, this is--you let him show you how he knows; I have been here; where has he been; he was on a ranch over on the other side of the County.' Defendant repeatedly said to plaintiff, 'I have been on this ranch for over twenty years, I know it for over thirty, why do you go around asking other people when I am the one that knows about it?'
The general rule is 'that where one undertakes to investigate the property involved or the truth of the representations concerning it and proceeds with the investigation without hindrance, it will be considered that he went far enough with it to be satisfied with what he learned.' Carpenter v. Hamilton, 18 Cal.App.2d 69, 71, 62 P.2d 1397, 1399. But a buyer who undertakes to investigate for himself the matters as to which representations had been made does not in every case forfeit his right to rely on the representations. There are exceptions. One exception is that when 'the buyer has only a suspicion of the fraud, and the seller who has defrauded the buyer, lulls the buyer into a sense of security by both words and conduct, the seller should not be permitted to assert that the buyer had lost his rights by waiving the suspicion and accepting the reassurance of the seller that no fraud had been perpetrated.' Kalkruth v. Resort Properties, Ltd., 57 Cal.App.2d 146, 150, 134 P.2d 513, 515; Sime v. Malouf, 95 Cal.App.2d 82, 107-108, 212 P.2d 946, 213 P.2d 788. "The mere circumstance that one makes an independent investigation or consults with others does not necessarily show that he relied on his own judgment rather than upon the representations of the other party, nor does it give rise to a presumption of law to that effect." Blackman v. Howes, 82 Cal.App.2d 275, 279, 185 P.2d 1019, 1021, 174 A.L.R. 1004. An independent investigation or an examination of property does not preclude reliance on representations where the person making the representations has a superior knowledge. Bagdasarian v. Gragnon, 31 Cal.2d 744, 748, 192 P.2d 935.
In view of the fact that defendant had superior knowledge, that he iterated and reiterated he was the only one who knew the facts and that the adverse comments and opinions were not reliable, the trial judge could reasonably conclude that plaintiff justifiably believed the adverse comments were made by men who did not know the facts, that the favorable comments were made by men who did know the facts, and that plaintiff did in fact justifiably and reasonably rely on the false representations. 3 We cannot say, as a matter of law, that the court was compelled by the evidence to find that plaintiff did not justifiably and reasonably rely on the false representations, and we must therefore accept its finding. Cf. Bagdasarian v. Gragnon, 31 Cal.2d 744, 749, 192 P.2d 935.
Defendant caused two of the trust deeds securing the promissory notes, given as a part of the purchase price, to be foreclosed prior to the institution of this action. Notice of default on the third trust deed had been given prior thereto and defendant caused it to be foreclosed shortly thereafter. Defendant contends the action is based on an election by plaintiff to affirm the contract of purchase and that it cannot be maintained where the contract is no longer in force but has been wiped out of existence by foreclosure of the trust deeds securing the notes.
Defendant's point is premised on the erroneous theory 'that the contract of sale and purchase had not been fully executed and was no longer in existence' when the case went to trial. He says 'in order to elect to 'affirm the contract' and sue for damages under the 'out of pocket' rule, the plaintiff vendee must be in either of two positions: (1) he must have taken and paid for the property so that the contract is fully executed or (2) if the contract is still executory, the plaintiff must be in a position where he can be required to take and pay for the property with a reduction in the price equal to the fraud damages allowed.'
The contract was that plaintiff pay defendant $100,000 and deliver to him three promissory notes for the balance of $600,000 secured by trust deeds, and that on such payment and delivery defendant would convey title to plaintiff. When plaintiff paid the $100,000 and delivered the notes and trust deeds and defendant conveyed title, the contract of purchase and sale was fully executed. Plaintiff's only obligation was then on the notes.
'An executed contract is one, the object of which is fully performed.' Civ.Code, § 1661. An executed contract may be defined as one in which title has passed; and an executory contract, as one in which title has not passed. Lam v. White, 204 Ky. 557, 264 S.W. 1113, 1115.
In Re Estate of Dwyer, 159 Cal. 664, 115 P. 235, Mrs. Dwyer, in March 1905, three months prior to her death, contracted in writing to sell a parcel of realty, called the Broadway property, to Carr for $100,000, she to make a conveyance thereof to Carr on or before May 13, 1905, on the latter's making certain cash payments and executing notes and a mortgage for the balance of the purchase price. Prior to April 27, 1905, Carr tendered Mrs. Dwyer the money, notes, and mortgage and demanded a conveyance of the property which Mrs. Dwyer refused to make. Holding that the contract was fully executed, the court stated (159 Cal. at pages 675, 676, 115 P. at page 240): 'The contract of sale between Carr and testatrix was not executory merely at her death, but in equitable contemplation, as far as ownership of the land in Carr and the right of Mrs. Dwyer to the purchase price only are concerned, the contract had become an executed one some time before her death. 'When a contract for sale of real property binding on the parties is executed, an equitable conversion is worked; the purchaser of the land is deemed the equitable owner thereof, and the seller is considered the owner of the purchase price. The equitable conversion thus deemed to exist from the time a valid contract of sale is entered into may or may not be absolute. Whether it is, or not, will depend upon whether the terms of the contract of sale are subsequently complied with. If there is no default in that respect, but, on the contrary (and dealing now with the contract involved here), the purchaser performs all the conditions precedent which under the contract entitle him to a conveyance on a given day, he will be deemed on that day to be the owner of the land and the seller to be the owner of the purchase money. * * * [I]t necessarily follows that Mrs. Dwyer had sold all her interest in the Broadway property on the thirteenth day of May, 1905, and her only right was to the balance of the purchase price in cash and the notes and mortgages. She had no interest in the Broadway property after that date. That interest had, by the performance of the contract on his part and under the doctrine of relation, completely vested in Carr.'
The facts in Cincinnati, H. & D. R. Co. v. McKeen, 7 Cir., 64 F. 36, at page 45, as stated by the court, were these: 'McKeen agreed to sell and deliver to Ives 11,160 shares of the capital stock of the Terre Haute & Indianapolis Railroad Company and 4,446 shares of the capital stock of the Terre Haute & Logansport Railroad Company, certificates for the latter shares and for 8,560 of the 11,160 shares to be delivered to Ives on the 4th of June, 1887, and certificates for the remaining 2,600 shares of the stock of the Terre Haute & Indianapolis Railroad Company to be delivered 30 days from that date. All these things were done by McKeen within the time limited by the written agreement. 'In consideration of McKeen's agreement to sell and deliver these shares of the stock of both the Indiana corporations, Ives, on June 1, 1887, paid to McKeen $250,000 in cash, and agreed to pay to him on the 4th of June, 1887, the additional sum of $639,500, and to execute a note dated on that day for $669,150, payable six months after date, and bearing 6 per cent. interest, and providing for the sale and purchase of the above certificates of stock in the form, and upon the terms, usually adopted in cases of notes secured by collaterals, and to assign and transfer those certificates to McKeen as collateral security for the payment of the above note. All these things were done by Ives within the time limited by the contract.'
The court held (at page 46): 'It would seem, then, that, within the meaning of the general rule to which we have adverted, the contract between the parties was fully executed on the 4th day of June, 1887. In Sturges v. Crowninshield, 4 Wheat. 122, 197, Chief Justice Marshall said that 'a contract is an agreement in which a party undertakes to do, or not to do, a particular thing.' And in Fletcher v. Peck, 6 Cranch 87, 136, , he said that 'an executory contract is one in which a party binds himself to do, or not to do, a particular thing;' and 'a contract executed is one in which the object of [the] contract is performed.' Each particular thing specified in the agreement of June 1, 1887, to be done by the respective parties was done on the 4th day of June, 1887; so that a suit instituted after that day to compel its specific performance could have been dismissed upon the sole ground that nothing remained to be done which its provisions required at the hands of either party. If neither party could have maintained a suit of that character, it is not perceived upon what ground the contract between them could be characterized as executory in respect to any of its provisions. It cannot be deemed to have been executory because of the nonpayment of the note for $669,150 prior to the commencement of this suit. The written agreement of June 1, 1887, so far as it related to the balance of the price of the stock sold to Ives, after crediting the cash payments of $250,000 and $639,500, required only the execution and delivery of his note for a specified amount, containing certain provisions, and to be secured by the stock to be delivered to McKeen as collateral.'
Eatwell v. Beck, 41 Cal.2d 128, 257 P.2d 643, was an action to recover damages resulting from alleged false representations in the sale of a motel. The purchase price was $43,000. The plaintiffs paid $7,000 cash and the balance by assuming two encumbrances on which payments totaling $275 monthly were required; defendants Cummings were the holders of one of such encumbrances, on which the unpaid balance was some $22,225. After the action was filed the plaintiffs lost the property by foreclosure. Notwithstanding the fact that the property had been lost by foreclosure, it was held the plaintiffs would be entitled to allege and prove their 'out-of-pocket' damage.
The fact that plaintiff defaulted on his obligations on the notes does not preclude him from recovering damages for the fraud. It is well established that an action for damages for fraud is available to a vendee in default. Bagdasarian v. Gragnon, 31 Cal.2d 744, 192 P.2d 935; Pembrook v. Houston, 41 Cal.App. 54, 181 P. 828. On 'the discovery of the vendor's fraud, the vendee need not continue performance but may properly withhold payments under the contract in an amount necessary to recoup the damages which he has suffered. In other words, because of the vendor's fraud, he may aboid the obligation stated by the contract and excuse what would otherwise be a default.' Kent v. Clark, 20 Cal.2d 779, 783, 128 P.2d 868, 871, 142 A.L.R. 576. Williston says: 'The fact that the defrauded party has broken the contract before discovery of the fraud will not deprive him of his right to damages for the fraud in inducing him to enter into it, although the contract has been terminated by the fraudulent party on account of the breach; nor will it prevent the exercise of his power of avoidance if the requisite restoration of the former status is possible,' citing Bancroft v. Woodward, 183 Cal. 99, 190 P. 445, and Lubarsky v. Chavis, 99 Cal.App. 610, 279 P. 205. 5 Williston on Contracts, 4276, § 1526. See Annotation: 13 A.L.R.2d 1248.
Defendant asserts Dunphy v. Guaranty Bldg., etc., Ass'n, 11 Cal.App.2d 419, 53 P.2d 1036, is directly in point. In Dunphy the plaintiffs bought a lot, paid $700 down, and assumed an encumbrance. They executed another note and trust deed, and the first one was canceled. They made installment payments on the note and then defaulted, whereupon the trust deed was foreclosed and the property conveyed to a third party. The plaintiffs sued to quiet title, for damages for fraud, and for moneys had and received. The trial court granted a judgment of nonsuit which was affirmed. On review the court stated (11 Cal.App.2d at page 422, 53 P.2d at page 1038): '[T]he plaintiffs did not present sufficient evidence to authorize a judgment in their favor for damages. They did not rescind.' This language alone would indicate that since the plaintiffs had elected to sue for damages they chose to enforce their right of redress for the fraud but failed in their proof. The court, however, went on to say that the plaintiffs did not live up to the terms of their contract, were in default for many installments due and payable on the note, and under such circumstances they were not entitled to sue for damages. Defendant concedes that in the light of other cases (Bagdasarian v. Gragnon, 31 Cal.2d 744, 192 P.2d 935) the language of the court may be too broad in its implication that the plaintiffs were not entitled to sue for damages simply because they were in dafault; but they argue that the decision was correct in light of the fact that the contract was no longer in existence.
The court in Dunphy was clearly in error in holding that the default of the vendees barred their suit for damages for fraud. It appears from the statement of the court that the evidence was insufficient to prove fraud and that the plaintiffs could not have prevailed in any case, whatever their choice of remedy. Whatever the correct view of the Dunphy case may be, the court made no statement whatever indicating that the decision was based on the fact that the trust deed had been foreclosed.
Defendant relies heavily on Olson v. Northern Pac. Ry. Co., 126 Minn. 229, 148 N.W. 67, L.R.A.1915F, 962, and West v. Walker, 181 Minn. 169, 231 N.W. 826, 74 A.L.R. 165. The Olson case had to do with an executory installment contract of sale. A Minnesota statute, M.S.A. § 559.21, provided that when a default was made in the conditions of any contract for the conveyance of real estate whereby the vendor had the right to terminate the same, he might do so by serving upon the purchaser a notice specifying the conditions in which the default had been made, and stating that such contract would terminate in 30 days after the service of such notice unless prior thereto the purchaser should comply with such conditions. The plaintiff and the defendant entered into an executory contract wherein the defendant agreed to sell to the plaintiff 320 acres of land, for which he agreed to pay $4,640, also the taxes thereafter, and to break and cultivate a portion of the land after the first year. One-tenth of the purchase price, or $464, was paid when the contract was delivered; and annually thereafter for ten years plaintiff was to pay $417 of the principal and the interest on the purchase price remaining unpaid. The plaintiff made no further payment of either principal, interest, or taxes, nor did he cultivate any part of the land. When there was past due and unpaid more than $2,000 on the contract, the defendant served on the plaintiff a statutory notice to terminate the same. The contract contained a provision that the vendee's default annulled and terminated the agreement if the vendor so elected, in which event the payments made were forfeited. The plaintiff did not by payment, or tender of the amount due, attempt to prevent the cancellation of the contract or the forfeiture of the one payment made, but instead, upon the twenty-ninth day after the service of this notice brought the action for the difference between the value of the land and the price agreed to be paid. It was held that a right of action for damages for fraud inducing the purchase of land on an executory contract did not survive the cancellation of the contract. The court stated (148 N.W. 68): 'It cannot be that a person may enter a contract to buy property for a large sum to be thereafter paid, never make the payments agreed upon, suffer the other party to cancel the contract by reason of the default, and then sue and recover heavy damages for deceit inducing him to buy property which he never saw fit to accept or pay for. Before damages may be recovered for not receiving as good property as was bought, it must appear that the property was accepted so that there remains an obligation to pay the purchase price. Here the property is not taken, and there is now no obligation either to accept or pay for it.'
In a vigorous dissent, with which we agree, it was said (148 N.W. 70, 71): 'It is wholly inadmissible to read into the contract any right of cancellation on defendant's part for plaintiff's failure to comply with the terms thereof if tainted with fraud, so as to cut off the remedy sought, or any authority to retain plaintiff's money obtained by fraud; nor should use of the cancellation statute be allowed for such purpose. Defendant had the right, upon plaintiff's default in making deferred payments, to sever contractual relations with him, for the contract so provided; but it could not thus eliminate responsibility for its previous fraudulent conduct. * * * * * * * * * 'The result reached in the majority opinion comes largely from supposed necessity of distinguishing here between actions based on affirmance and disaffirmance. While it may be said that technically plaintiff affirmed the contract by bringing this action, he should not be deemed thereby to have affirmed the fraud, which is the essence of his complaint. * * * '* * * Did plaintiff lose his money through defendant's fraud, which induced him to enter into the contract and to part with his money, or through his intervening failure to make further payments after discovering the cheat? But for the latter, followed by cancellation, there could be no doubt whatever that the loss was attributable to the former. Was he then obliged, in order to preserve the continuity of this first cause, and thus lay the foundation for this action, to continue payments and be charged with all the unfavorable inferences which, later, might be drawn from such conduct, if he attempted to assert his rights by action, to be met, furthermore, at the end of the period of payment, and after paying $1,440 more than he should, with the contention that his right of action, apparently valid, was then barred by limitations? No one should be compelled so to do as a condition precedent to recovery of money fraudulently obtained, no matter what the form of action may be.'
Olson v. Northern Pac. Ry. Co., supra, 126 Minn. 229, 148 N.W. 67, was followed by West v. Walker, 181 Minn. 169, 231 N.W. 826. The court in West v. Walker gave no reasons for its conclusions, merely citing the Olson case as authority. Williston says that in West v. Walker 'a vendor exercised a statutory right to cancel a land contract. It was held, it would seem erroneously, that the vendee could not recover damages for fraud.' 5 Williston on Contracts, 4268, footnote. Also see criticism of West v. Walker an Olson v. Northern Pac. Ry. Co. in 5 Tulane L.Rev. 145, 30 Colum.L.Rev. 1205, 74 A.L.R. 173, and 120 A.L.R. 1158.
One induced by fraud to enter into a contract has an election of remedies in that he may rescind, or may recover damages for the fraud, but cannot do both. The rule is so familiar as not to require the citation of authority. The correct meaning of the rule is that where two or more inconsistent remedies are available to an injured party, an effectual choice of one precludes a later resort to another. 18 Am.Jur. 129, § 3. An action to recover damages for fraud in inducing a contract is an action in tort for deceit, not an action on the contract. 'It is a principle of universal application that a right of action for damages for a fraud arises immediately upon the consummation of the fraud, which may arise in a contract executed or executory, and which may be asserted at once upon the discovery. The action is not upon the contract, but is collateral to it, and is on the case [citation], and one induced by fraud to enter into a contract for the purchase of real estate is not required to perform on his part as a condition to maintaining his action for deceit. [Citations.] In many cases it would be unjust to hold that the party defrauded shall lose the advantage which attaches to a tort action, unless he makes further venture in a transaction into which he has been induced by fraud to enter.' Paolini v. Sulprizio, 201 Cal. 683, 685, 258 P. 380, 381.
The proposition that an action for damages for fraud affirms the contract is a false quantity in the case. That is true only where there is a contract in existence to affirm. After a fraudulent vendor has foreclosed a trust deed received and accepted as part payment of the purchase price, the elimination of the vendee's obligation on the trust deed note is immaterial so long as there remains the tort of deceit and uncompensated damage therefrom. The defrauded vendee does not lose his cause of action for the tort because of the foreclosure of the trust deed. The contract of purchase was not wiped out of existence by the foreclosures, as defendant argues. It had been wholly executed. Defendant ignores the fact that the obligations on the notes were fully satisfied on foreclosure of the trust deeds and that he received the property. When defendant caused sales to be made under the powers of sale in the trust deeds, plaintiff's obligations on the notes were discharged by operation of law since the sales and the statute precluding a deficiency judgment extinguished plaintiff's obligations on the notes. Code Civ.Proc. § 580b. Although plaintiff lost the property by the foreclosures, the tort and its obligations remained. The wrong of fraud is not breach of contract; it is tort. It is an injury entirely apart from that which follows breach of contract. The cause of action arises from the tort, committed when the contract is induced, and not at all from the contract. Plaintiff lost his money because of defendant's fraud which induced him to purchase the ranch, not because of his failure to make all the payments on the trust deed notes, which failure the court found was caused by the fraud. If we assume, as defendant argues, that by bringing this action for damages plaintiff affirmed the contract of sale, he should not thereby be deemed to have affirmed the fraud which defendant perpetrated. The wrong arose from the original transaction. If, as defendant claims, plaintiff should have paid the trust deed notes, this would mean that if he had done so with knowledge of the fraud he would have been met with the claim that he had ratified the transaction and lost his right to sue for damages.
The court found that plaintiff delivered to defendants cash and securities of the fair and reasonable value of $700,000, being the purchase price, and that in exchange plaintiff received title to the ranch of the reasonable market value of $530,000 at that time; that the difference between the value of the ranch at the time of sale and the purchase price paid, because of the false representations, was $170,000. This amount was carried into the judgment. Defendant asserts the finding that plaintiff parted with cash and securities of the fair and reasonable value of $700,000 is contrary to the evidence.
Plaintiff paid $100,000 cash at the time of the sale and had paid $59,000 on the notes before he defaulted. The argument is that the trial court, in finding that plaintiff parted with cash and securities of the value of $170,000, included the notes and trust deeds at their full face value; that because the notes were valueless at the time the action was commenced, the obligations on the notes were terminated since a deficiency judgment could not be obtained after foreclosure of a purchase money trust deed. Code Civ.Proc. § 580b. Accordingly, says defendant, the value of that which plaintiff gave up consisted only of the total amount of cash paid by him, $159,000, plus the value of the land which he lost in the foreclosures and which the court found to be $530,000; that the sum of these figures is $689,000, and the difference between that amount and $530,000, the value of the land as found, is $159,000 rather than $170,000, found as damages. He says $159,000 is the maximum which should be allowed as damages under the 'out-of-pocket' rule, Civil Code, § 3343, except for the matter of additional damage. The court did not find the value of the land which plaintiff lost in the foreclosures to be $530,00, as stated by defendant. It found the value of the land as of the date of the sale to plaintiff was $530,000. 4
Section 3343, which prescribes the measure of damages in fraud cases, provides that one who has been defrauded is entitled to recover 'the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction.' This rule is known as the 'out-of-pocket' loss rule. It was enacted to provide a uniform rule in all cases of fraud and it is the exclusive measure of damages. Bagdasarian v. Gragnon, 31 Cal.2d 744, 192 P.2d 935.
Bagdasarian v. Gragnon, supra, 31 Cal.2d 744, 192 P.2d 935, is controlling. In that case the plaintiff, in June 1944, sold a farm to the defendants for $10,000 cash, a note for $34,000 payable in installments and secured by a deed of trust on the real property, and a note for $24,000 payabe on or before December 1, 1944, and secured by a crop and chattel mortgage. The defendants, after paying $14,960.15 on the $24,000 note, defaulted on the balance. The plaintiff brought the suit to foreclose the crop and chattel mortgage. The defendants cross-complained for damages, alleging fraud in inducing the sale. The trial court found for the defendants on their cross-complaint. In applying the 'out-of-pocket' rule on review, the court said that $68,000 was the price paid for the real property, crops, and equipment. The $68,000 was made up of the $10,000 cash, the $34,000 note, and the $24,000 note which was in default. In reversing, the Supreme Court instructed the trial court to deduct from the $68,000 the value of that which the defendants received. Thus it was expressly held that in determining the actual value of that with which the defrauded person parted, the notes which were given as part of the purchase price were to be taken at their full face value even though the buyer was in default on one of the notes.
Under the 'out-of-pocket' rule the damages are to be computed as of the date of the fraudulent transaction. Garstang v. Skinner, 165 Cal. 721, 726, 134 P. 329; Whitney v. Lynch, 222 Mass. 112, 113, 109 N.E. 826, 827; Gunderson v. Havana-Clyde Min. Co., 22 N.D. 329, 133 N.W. 554, 555; Smith v. Middle States Utilities Co., 224 Iowa 151, 275 N.W. 158, 162; Peters v. Stroudsburg, 348 Pa. 451, 35 A.2d 341, 343.
In Hancock v. Williams, 99 Cal.App.2d 80, 221 P.2d 129, the defendants sold the plaintiffs realty for $50,000. The plaintiffs paid $8,000 cash, assumed two trust deeds, and executed a third trust deed to the defendants. Shortly after the purchase the plaintiffs paid the second trust deed at a discount of $3,500. It was contended that $3,500 should be deducted from the damages awarded. The argument was that the plaintiffs never parted with the $3,500 and were never 'out of pocket' in that amount. The court answered (99 Cal.App.2d at page 82, 221 P.2d at page 131): 'The measure of damages set forth in this statute, referred to as the "out-of-pocket loss' rule', is the rule in this state. [Citation.] It is also the rule that damages are to be assessed as of the date of the fraudulent transaction. [Citations.] 'The plaintiffs were clearly obligated to pay the full amount of the $11,500 trust deed. The mere fact that they were able to obtain a reduction in the amount of the indebtedness does not mean that the consideration paid by the plaintiff for the property was reduced by that amount. Defendants should not be permitted to be unjustly enriched after the consummation of the fraud by them.'
The court found that by reason of the false representations plaintiff was unable to make the payments on the trust deeds. The fact that because of defendant's tortious conduct plaintiff was unable to make the payments will not be credited to defendants's benefit in considering the question of damages. It has been held that a vendor will not be permitted to declare a forfeiture for default where the default is directly attributable to his fraud in inducing the sale. Buckingham v. Thompson, Tex.Civ.App., 135 S.W. 652, 656.
The court found plaintiff sustained $30,400 additional damage resulting from the purchase of the ranch in reliance on defendant's misrepresentations and awarded him that amount. Defendant asserts the finding is defective in that it fails to show what items were allowed and to what extent. The point may not be considered. Defendant did not, in the trial court, object to the finding of seek a breakdown of the $30,400. 'The losing party should not be permitted to criticize the findings as ambiguous when he has made no objection to them, either before they were signed, or later on motion for a new trial.' Alles v. Hipp, 108 Cal.App.2d 730, 733, 239 P.2d 451, 454; Perry v. Manning, 109 Cal.App.2d 557, 561, 241 P.2d 43.
Affirmed.
SHINN, P. J., and PARKER WOOD, J., concur. --------------- * Opinion vacated 346 P.2d 758. 1 The judgment was in favor of defendant's wife. 2 The court found: the representations were as to material facts; they were false and known to be false by defendants; they were made with the intent to induce plaintiff to buy; they were relied on by plaintiff; plaintiff was misled and deceived and induced to act by them; in acting, plaintiff was ignorant of the falsity of the representations and reasonably believed them to be true. 3 The court found: 'That it is true that prior to April 4, 1951, plaintiff was wholly unfamiliar with the weather and climatic conditions in the vicinity of the City of Alturas and with the business of cattle ranching, and that when plaintiff did make certain inquiries as to certain aspects of the ranch and the representations thereof from surrounding townspeople, the defendant, Will H. Perry, not only denied any differences or confusions which might have come up as a result of said inquiry, but further dismissed the effect for said inquiry by informing the plaintiff that no persons other than the defendant had any true knowledge of conditions of said ranch nor of any of the prior or present capacities of said ranch and that further inquiries which differed from that of the defendant's representations would not be valid or true information. That the defendant, Will H. Perry, represented to the plaintiff that for many years he personally operated and conducted and managed said ranch properties and was fully familiar with all of the properties and the weather and climatic conditions and the crop yield and production history and with the carrying capacity of cattle of said ranch, and for those reasons no one other than the defendant, Will H. Perry, would have any true and proper information relative to the grain and cattle capacity features of said ranch; that the defendant, Will H. Perry, represented to the plaintiff that he had been the owner and upon said ranch for some twenty years and knew all of its qualities and capacities and that asking or inquiring of others in the area would bear and yield no worthy information since no one other than said defendant had knowledge or experience sufficient to give any real and valid opinion.' 4 There was no evidence that the value of the land at the time action was commenced was less than $530,000, its value, as found by the court, at the time of the sale.