Stroup v. Conant

Oregon Supreme Court · 1974 · Contracts

ContractsRescissionMisrepresentationFraudrescissionleasemisrepresentationhalf-truths

Facts

Plaintiff leased space in her building to defendant after plaintiff's son, acting for her, asked defendant what business he intended to operate, and defendant said he would run a variety-type operation selling watches, wallets, chains, trinkets, a few books, and novelties. The written lease stated that the premises were to be used for the sale of gifts and novelties. Shortly after execution, plaintiff learned that defendant had opened the "Birds & Bees Adult Book Store," displaying and selling pornographic magazines and books rather than the items he had described. Plaintiff testified that she would not have signed the lease had she known defendant intended to operate an adult book store, and neighboring residents and other tenants complained about the store.

Issue

Whether plaintiff was entitled to rescind the lease based on defendant's misrepresentation of the intended use of the premises. The case also asked whether rescission required proof of pecuniary damage and whether plaintiff was barred by election of remedies.

Rule

When a party undertakes to answer inquiries in forming a contract, he must tell the truth; half-truths and concealment of special knowledge are fraudulent when there is a duty to speak. In a suit for rescission based on misrepresentation, proof of pecuniary damage is not necessary. A defense based on election of remedies cannot be raised under a general denial, but must be pleaded by plea in abatement.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Tacoma, Nora Ellison advertised a storefront for lease. When her agent asked tenant Leo Mercer what he planned to operate, Leo said he would sell greeting cards, candles, and a few magazines, but he omitted that he had already arranged to open a late-night erotic video arcade; Nora signed a lease limiting use to "gifts and novelty items."

If Nora promptly sues to rescind after the business opens, what is the strongest basis for rescission?

Explanation. The majority held that when a contracting party undertakes to answer inquiries about a material matter, he must tell the truth. Half-truths and concealment of special knowledge are fraudulent when there is a duty to speak. Here, Leo answered the landlord's inquiry but gave only a sanitized partial description while concealing the actual intended use, so rescission is supported.