## Facts

- In July 1933, S.W. Selman and his wife bought a 160-acre tract in Benton County, Oregon, from H.E. Shirley and his wife for $2,000, paying $500 down and agreeing to pay the balance in $200 annual installments due October 1.
- Before the contract was signed, Shirley represented that the property contained about 4,000 cords of firewood and that the wood was merchantable at about $0.50 per cord; Shirley also represented that a stream on the property ran year-round and could irrigate about ten acres.
- The Selmans inspected the land only briefly and under conditions that limited careful observation; they were not familiar with the property and relied on Shirley’s affirmative statements about the timber and water.
- In fact, the land had only about 200 cords of merchantable firewood, and the water representation was also false.
- The Selmans took possession and paid a total of $750 on the purchase price, but they did not make the October 1, 1935 installment and claimed that, because of the fraud, nothing further was owed.
- The Shirleys filed an ejectment action to remove the Selmans from the property. The Selmans then filed this equity suit seeking (among other relief) reformation of the land description, damages for fraud against the Shirleys (and against C.G. Blakely, who negotiated the transaction), delivery of the escrow deed, and an injunction against the ejectment action.
- The trial court reformed the legal description (a mutual mistake) and found that Shirley knowingly made false representations that induced the purchase, but it denied fraud damages on the ground that the property’s market value equaled the $2,000 contract price.
- The trial court dismissed the fraud claim against Blakely, finding he was not guilty of fraud; that portion of the decree was not altered on appeal.
- The Oregon Supreme Court previously modified the decree to award damages using a benefit-of-the-bargain measure. The Shirleys petitioned for rehearing, challenging the use of that damages measure.

## Issues

1. On rehearing, did the court err by allowing benefit-of-the-bargain damages for fraudulent misrepresentations in a land sale, rather than limiting recovery to out-of-pocket loss?
2. Are fraud damages available when the contract price equals the land’s market value, if a specific, measurable attribute (such as quantity/value of merchantable timber) was falsely represented and caused loss?
3. Does a buyer’s limited opportunity to inspect defeat reliance on a seller’s definite, affirmative representations about conditions not readily verified on a cursory visit?

## Decision

- The Oregon Supreme Court denied rehearing and reaffirmed its earlier decision awarding the Selmans damages.
- The court stated the governing rule is that a party who commits fraud is liable for damages that naturally and proximately result from the fraud and that were within the parties’ contemplation when the fraud occurred.
- The court rejected the argument that equal market value and contract price necessarily bar recovery; the misrepresented timber (and related representations) could still cause a compensable loss.
- The court approved using a benefit-of-the-bargain calculation on these facts because the representations were definite and the proof supported a reasonably certain valuation—particularly the difference between the represented 4,000 cords and the actual 200 cords at $0.50 per cord.
- The decree remained otherwise as previously modified, including reformation of the description and dismissal of the claim against Blakely.

## Legal Principles

- A fraud victim may recover damages that are the direct, natural, and proximate result of the fraudulent conduct and that were within the parties’ contemplation when the fraud was committed.
- Labels such as “out-of-pocket” and “benefit-of-the-bargain” are methods for measuring loss; the controlling aim is compensation for harm proximately caused by the fraud.
- Benefit-of-the-bargain damages may be used in a real-property fraud case when the false statements are definite enough and the evidence permits valuation with reasonable certainty (for example, a stated quantity and unit value of merchantable timber).
- A defrauded buyer may affirm the contract, keep the property, and still sue for deceit; rescission is not required and affirmance does not waive the right to damages for the fraud.
- A cursory inspection by an inexperienced purchaser does not necessarily bar reliance on a seller’s positive representations, especially where conditions prevent careful verification and the seller speaks as one who knows.
- The fact that the land’s overall market value matches the purchase price does not, by itself, eliminate damages when specific false representations caused a measurable shortfall in what was promised.

## Conclusion

In the rehearing opinion, the Oregon Supreme Court left in place its earlier award of fraud damages, holding that sellers who fraudulently induce a land sale are responsible for losses that naturally and proximately flow from their misrepresentations, and that a benefit-of-the-bargain measure may be used where the proof permits a reasonably certain calculation of the difference between what was represented (such as 4,000 merchantable cords of wood at a stated value) and what was actually received.


Selman v. Shirley, 161 Or. 613, 91 P.2d 312 (1939)