## Facts

- A seller agreed to sell two dry-cleaning businesses in Hillsboro, Oregon to a purchaser.
- Before the purchase, the purchaser was shown a photocopy of a multiple-listing agreement containing financial figures, including a stated net operating income of $21,938.10.
- The purchaser later entered the transaction and executed two promissory notes as part of the purchase price.
- After the purchase, the purchaser discovered that the seller’s 1974 operations reflected a net operating loss of $6,876.
- The purchaser claimed the seller failed to disclose the loss and led him to believe the businesses had been profitable in recent years.
- The purchaser continued operating the businesses and made payments on the notes for about 18 months, then closed the stores as unprofitable.
- Under a security agreement, the seller repossessed the businesses, resold them, and sued for the unpaid balances on the promissory notes.

## Issues

1. Whether the purchaser’s post-discovery conduct barred, as a matter of law, counterclaims for fraud seeking (a) damages while affirming the contract and (b) rescission.
2. Whether the multiple-listing agreement was improperly excluded as evidence relevant to alleged financial misrepresentations.
3. Whether the seller’s 1974 income tax return showing a business loss was improperly excluded as evidence of falsity and magnitude of alleged misrepresentations.

## Decision

- The Oregon Court of Appeals reversed the judgment for the seller and remanded for a new trial.
- The trial court erred by striking both fraud-based counterclaims; whether the purchaser ratified the contract or waived fraud through continued performance was for the jury under the circumstances.
- The trial court erred by excluding the multiple-listing agreement because it was relevant to what representations were made and what information was communicated to the purchaser.
- The trial court erred by excluding the 1974 tax return because it was relevant to whether profitability representations were false and to the scale of any misrepresentation.

## Legal Principles

- A party allegedly induced by fraud may pursue rescission or affirm the contract and seek damages, including by pleading those remedies in the alternative.
- Continued performance after learning of an alleged misrepresentation does not automatically bar fraud remedies; ratification and waiver generally present fact questions for the trier of fact.
- Documents may be admissible to show that representations were made and conveyed, even when not offered to prove the truth of the statements asserted.
- Financial records, including tax returns, are relevant and admissible when they directly bear on the truth or falsity of claimed profitability representations and the extent of any misstatement.

## Conclusion

The appellate court ordered a new trial because striking the purchaser’s fraud counterclaims and excluding core documentary evidence prevented full presentation of the fraud theories and defense to liability on the promissory notes.


Snyder v. Rhoads, 615 P.2d 1058 (Or. Ct. App. 1980)