Facts
- A commercial building owner leased premises to a tenant after negotiations conducted primarily through the owner’s son as agent.
- During negotiations, the tenant described the planned business as a “variety” or gift-type operation, including items such as watches, wallets, chains, trinkets, novelties, and a few books or magazines.
- The written lease, prepared for the landlord, restricted use to “the sale of gifts, novelties, etc.”
- After the lease was executed, the tenant opened an adult bookstore on the premises (“Birds & Bees Adult Book Store”), displaying prominent signage and stocking pornographic books and magazines rather than the represented merchandise.
- Another tenant complained to the landlord’s agent about the adult bookstore’s presence in the building.
- The landlord asserted she would not have signed the lease had she known the tenant intended to operate an adult bookstore.
- The landlord demanded that the tenant vacate, offered to restore the status quo (including returning rent), and filed an equity suit seeking rescission based on fraudulent inducement.
- The trial court granted rescission; the tenant appealed, disputing proof of misrepresentation, reliance, and damage.
Issues
- Whether the evidence supported a finding that the tenant materially misrepresented his intended use of the leased premises at the time of contracting.
- Whether the landlord relied on the tenant’s representation in entering the lease.
- Whether the landlord suffered sufficient detriment from the fraudulent inducement to justify equitable rescission.
Decision
- The Oregon Supreme Court affirmed the decree rescinding the lease.
- The court held the evidence supported findings of material misrepresentation, reliance, and detriment.
- The court accepted the trial court’s resolution of conflicting testimony regarding what the tenant disclosed during negotiations.
Legal Principles
- A lease may be rescinded in equity when a tenant’s material misrepresentation about intended use fraudulently induces the landlord to contract.
- The nature and character of the business to be conducted on leased premises can be a material fact in lease formation.
- Reliance may be shown by evidence that the landlord would not have entered the lease absent the misrepresentation, especially when the lease’s use clause matches the represented use.
- In equitable rescission based on fraud, the remedy may be granted upon proof of sufficient detriment from being bound to a contract procured by misrepresentation, with restoration of the status quo.
Conclusion
The court affirmed rescission because the tenant’s statements and the lease’s use restriction supported a finding that the landlord was induced to lease the premises for a gift/novelty-type operation, not an adult bookstore, and the landlord’s reliance and resulting detriment warranted equitable relief.