Appeal from Circuit Court, Yamhill County. Kurt C. Rossman, Judge. Argued and submitted on rehearing January 8, 1973. Former opinion filed July 13, 1972, Or ,
In Banc. Denecke, J. McAllister, J., concurs in the result. Tongue, J., dissenting. Holman, J., joins in this dissent.
We granted a rehearing to reconsider plaintiff's right to rescission of a land sale contract. We affirmed the decree of rescission in our former opinion on the ground that there had been a mutual mistake. The defendant contends that mutual mistake was not an issue in the case and that if it had been it could have introduced additional evidence that no mutual mistake had occurred. Plaintiff answers that mutual mistake was an issue and was proved.
Mr. Bright, president of the plaintiff, acted for the plaintiff in this whole transaction. He was an experienced real estate developer who previously developed property in Hawaii and Alaska. He became acquainted with this property while representing another party interested in exchanging its equity in a shopping center for the property.
Mr. Bright inspected the property and subsequently purchased an adjacent 87 acres. In July 1969 he moved into a home on that land. As he said, "All I had to do was look out the front door and I can see the whole 827 acres." He became interested in developing the 827 acres and negotiated with defendant for its purchase. In November 1969 the parties entered into the contract of purchase.
Plaintiff alleged three grounds for rescission in its complaint -- fraudulent representation, innocent misrepresentation
and breach of contract. The allegation of misrepresentation stated:
"(a) That in the tract of land, the subject of the sale hereinabove described and which was commonly referred to as Rancho Verde, there was 827 acres of rich farmland and recreational property with a potential of more than 90% return on the invested capital in less than two years.
"(b) That said 827 acres of Rancho Verde as above described could be subdivided into 5-10 acre ranchettes which were in great demand in the area where the Rancho Verde lands were located.
"(c) That the real property described in said contract (Exhibit 'A') attached hereto could be readily subdivided into lots and tracts and was suitable for a subdivision and complied with all the laws of the State of Oregon relating to subdivisions within the state and that similar land had been approved by authorities as subdivided tracts and had consistently sold for from $1,000 to $1,500 an acre.
"The foregoing representations made to the plaintiff by the defendant were, in fact, at the time made, false and untrue in that said land could not be subdivided and was not rich farmland and recreational property and similar tracts had not been subdivided, and all of said representations at said time were false and untrue."
At trial the principal contentions of misrepresentation were that defendant represented that the property could be subdivided into 5- to 10-acre tracts and the plaintiff should have no trouble getting approval from the county planning authorities for subdividing the property. The evidence was that a brochure published by defendant's agent stated: "With the vast diversity of the land, Rancho Verde should be subdivided into 5-10 acre ranchettes * * *." Plaintiff's president testified defendant's agent told him
there would be no problem getting Planning Commission approval of the use of septic tanks. This was the only evidence of representations by defendant.
Bright testified his original idea was to "cut it up into 150 five-acre tracts" with the remaining area, about 75 acres, to be held in common for duck ponds, horse barns, dog kennels, bird hatcheries, pool and lodge. When the winter rains came Bright saw that "several hundred acres" were under water; so he decided to divide about half the land into 2 1/2-acre tracts and to use the other half for the various improvements and recreational use.
Before Bright signed the contract with defendant, in November, he talked with the County Planning Commission about the proposed development and it had indicated it probably would have no objection, but the plan would be subject to the Health Department's approval. In February 1970 plaintiff had percolation tests run. These tests made it appear that septic tank use was feasible on the portion plaintiff wanted to develop. The County Planning Commission had employed such percolation tests previously to determine the feasibility of using septic tanks. On the basis of the favorable test results in this instance, the commission gave plaintiff tentative approval of the subdivision with 2 1/2-acre tracts on about 400 acres.
Sometime subsequently the Planning Commission was instructed by the State Health Department to consult with the Soil Conservation Service for inquiry into the feasibility of septic tank use. As a result of the Soil Conservation Service's study the area in which septic tanks could be used with the ...