## 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

1. Whether the evidence supported a finding that the tenant materially misrepresented his intended use of the leased premises at the time of contracting.
2. Whether the landlord relied on the tenant’s representation in entering the lease.
3. 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- A lease may be rescinded in equity when a tenant’s material misrepresentation about intended use fraudulently induces the landlord to contract.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.


Stroup v. Conant, 268 Or. 292, 520 P.2d 337 (Or. 1974)