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Zeliff v. Sabatino

Decided: March 29, 1954.

DAVID ZELIFF, PLAINTIFF-RESPONDENT, CROSS-APPELLANT,
v.
ALFONSO SABATINO, FILOMENA SABATINO, AND A. ALBERT URDANG, DEFENDANTS-APPELLANTS, CROSS-RESPONDENTS



On appeal from the Superior Court, Appellate Division, whose opinion is reported in 27 N.J. Super. 13.

For reversal -- Chief Justice Vanderbilt, and Justices Oliphant, Jacobs and Brennan. For concurrence as to Alfonso and Filomena Sabatino and for dismissal as to A. Albert Urdang -- Justice Heher. For reversal and dismissal of complaint -- Justice Burling. The opinion of the court was delivered by Oliphant, J. Burling, J. (dissenting).

Oliphant

This action was one for damages allegedly resulting from a written representation made by defendants in connection with the sale of real property, later determined to be false. Judgment was entered upon a jury verdict in plaintiff's favor in the sum of $4,200 against all of the defendants. The defendants appealed and the Appellate Division held that defendants' liability had been established but "that there was no legal proof of damages" and remanded the action for a new trial as to damages only. The defendants petitioned for certification and the plaintiff cross-petitioned therefor. Both petitions were granted by this court.

Plaintiff paid $71,750 for the property in question which he wanted to acquire as a safe investment and to give him an assured income. He had been furnished an analysis of the annual income and expenses of the property, one of the expense items being the cost of fuel oil for the period from February 1, 1949 to February 1, 1950. Such representation as to this item was contained in the final contract of sale and the affidavit of title recited that "the representations contained in the contract shall remain effective between the parties."

The plaintiff testified that an examination of the submitted income and expense figures disclosed that he would have a return of 6.9% on his investment of $71,750, but that after taking possession of the property he discovered that his fuel bills were higher than had been represented. Upon investigation he discovered that fuel oil bills for the period from February 1, 1949 to February 1, 1950 were actually $282.74 in excess of that represented. Testimony by an expert was to the effect that a return on the investment of 6.7% or 6.9% was reasonable and that a reduction of net income of $282.74 would result in a loss to the buyer of $4,220 if capitalized at 6.7%.

We agree with the Appellate Division that "A review of the record shows there is ample evidence to support the verdict insofar as defendants' liability is concerned" but disagree with that court in its holding that this State is

definitely committed to the "out-of-pocket" rule as to damages in an action grounded in fraud or deceit and that "there was no legal proof of damages."

We rather are of the opinion that this State is not so inexorably wedded to the "out-of-pocket" rule as to the measure of damages that "the benefit-of-the-bargain" rule cannot be applied where justice requires. See Crater v. Binninger, 33 N.J.L. 513 (E. & A. 1869); Martin v. Baldwin, 90 N.J.L. 241 (E. & A. 1917). In Schwartz v. Rothman, 1 N.J. 206 (1948), while not deciding the question Justice Wachenfeld, speaking for this court, at least intimated that there was no hard and fast rule in this State in saying:

"* * * we encounter an alleged conflict of decisions as to the correct principle. Recovery for the difference between the price paid and actual value of the property acquired, commonly known as the 'out-of-pocket' rule was approved in Crater v. Binninger, 33 N.J.L. 513 (E. & A. 1869); Duffy v. McKenna, 82 N.J.L. 62 (Sup. Ct. 1912); Mitchell v. Bassett, 99 N.J.L. 110 (E. & A. 1924); Curtiss-Warner Corp. v. Thirkettle, 101 N.J. Eq. 279 (E. & A. 1927). On the other hand, in Batura v. McBride, 75 N.J.L. 480 (E. & A. 1907), the recovery was for the difference between the price paid and the value of the property had the representations been true. This is commonly designated as the 'benefit-of-the-bargain' rule."

As to some cases what is called the "out-of-pocket" rule may furnish just and adequate compensation; in others the so-called "benefit-of-the-bargain" rule may be the more just and accurate. The just method of determining damages necessarily varies with the facts of the particular case, and damages in a case such as this, which deals with an overpayment in the purchase price of property as the result of a fraudulent misrepresentation, are to be assessed in the amount of the loss occasioned by that misrepresentation. No rule of damages capable of precise application in all cases can be laid down and followed. If a charge of fraud is sustained, all damages which are the proximate result of the wrong should be awarded. "Regardless of whether the out-of-pocket rule or the benefit-of-the bargain rule is the correct one, the fundamental rule universally employed" * * * is that "The victims of fraud are entitled to compensation for

every wrong which was the natural and proximate result of the fraud." If one or the other rule is inflexibly adhered to, while certainty would be achieved it would in many instances be at the expense of justice. Selman v. Shirley, 161 or 582, 85 ...


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