“If, after his knowledge of what he claims to have 13 been the fraud, he elects not to rescind . . . [he] must not make any new agreement or 14 engagement respecting it; otherwise he waives the alleged fraud.”
How later courts described this case
- “If, after his knowledge of what he claims to have 13 been the fraud, he elects not to rescind . . . [he] must not make any new agreement or 14 engagement respecting it; otherwise he waives the alleged fraud.”
Written by the judges who cited it.
The opinion
SCHAUER, J.
I dissent.
I do not agree that the out-of-pocket loss rule is preferable to the benefit-of-the-bargain rule as a measure of damages in fraud-sale cases; nor do I agree that we are bound to hold that the purpose of enacting section 3343 (of the Civil Code) in 1935 was to substitute the out-of-pocket loss measure of damages for fraud in place of the former benefit-of-the-bargain rule.
*765 The statute as enacted specifically declares that “Nothing herein contained shall be deemed to deny to any person having a cause of action for fraud or deceit any legal or equitable remedies to which such person may be entitled.” As I read the whole enactment, in the light of the language above quoted and the history of the bill in this state and similar measures elsewhere, we could justifiably hold that the purpose of the Legislature was not prohibitively to substitute the “out-of-pocket” rule for the “benefit-of-the-bargain” rule but, rather, permissively to provide an additional or alternative remedy or measure of damages which might be applied in proper cases.
It seems reasonable to me to believe that the Legislature had purposed giving the defrauded victim greater protection; but the construction given the act by the majority opinion turns it into an act to protect the perpetrator rather than the victim of the fraud. As pointed out by Professor Willis-ton, under the rule now adopted by the majority “a fraudulent person can in no event lose anything by his fraud. He runs the chance of making a profit if he successfully carries out his plan and is not afterwards brought to account for it; and if he is brought to account, he at least will lose nothing by his misconduct.” (5 Williston on Contracts (rev. ed.), § 1392, p. 3886.)
It is quite conceivable that a buyer might purchase property solely because it was represented to possess a certain quality; the presence or absence of that quality in one case might substantially affect, and in another not affect at all, the market value of the property. In one case the “benefit-of-the-bargain” rule might alone afford an adequate and just remedy; in the other case the circumstances could well be such that only the “out-of-pocket” rule would accomplish a substantial recovery. Under the majority opinion rule the fraudulent misrepresentation is wholly immaterial on the question of the amount of damages; and a fraudulently induced purchase contract entered into under our system of free enterprise, of course for profit, and which would produce a profit if the fraudulent misrepresentations were true, affords no basis whatsoever for the recovery of damages on account of the falsity of the representations and the consequent failure of the contract to produce a profit. If the property purchased is worth barely the contract price, no recovery of damages can be had; the loss of the legitimately contemplated profit of *766 the entrepreneur must be borne wholly by the victim, not at all by the perpetrator, of the fraud; if the property is worth less than the contract price, the worst that can happen to the fraud perpetrator is that he may be restored to his former estate; i.e., he may be deprived of his fraudulent profit, but of no more. The innocent victim, however, as noted, is deprived of his legitimately contemplated profit.
I recognize that in a number of cases decided in this jurisdiction since the 1935 statute was enacted it has been tacitly assumed that the new legislation stated the exclusive measure of damages in fraud-sale eases; but in the absence of discussion pointed directly at this question, and considered determination thereof, I do not believe that we should now regard it as closed.
In my view the trial court’s findings are predicated on a proper theory of recovery (the benefit-of-the-bargain rule) and are supported by sufficient evidence. Accordingly, I would affirm the judgment.
Appellant and respondents’ petitions for a rehearing were denied May 27,1948, and opinion and judgment were modified to read as above. Schauer, J., voted for a rehearing.