Cory v. Villa
Properties (1986) 180 Cal.App.3d 592 ,
225 Cal.Rptr. 628
[No. B009842. Court of Appeals of California, Second Appellate District,
Division One. April 30, 1986.]
JOSEPHINE A. CORY et
al., Plaintiffs and Appellants, v. VILLA
PROPERTIES et al., Defendants and
Respondents.
(Opinion by Aranda,
J., with Hanson (Thaxton), Acting P. J.,
and Devich, J., concurring.)
COUNSEL
Scott B. Whitenack and
Michael Heumann for Plaintiffs and
Appellants.
Hagenbaugh & Murphy,
Neil R. Gunny, Katharine L. Spaniac,
Haight, Dickson, Brown & Bonesteel, Roy
G. Weatherup, Edward L. Compton and
Thomas N. Charchut for Defendants and
Respondents. [180 Cal.App.3d 595]
OPINION
ARANDA, J.
Introduction
Plaintiffs appeal the
trial court's grant of summary judgment
in favor of all defendants in a case
arising out of fraud and
misrepresentation in the sale of real
property purported by respondents to be
2.84 acres when in fact the property
consisted of only 1.88 acres. Appellant
contends there are triable issues of
fact. We agree in only one regard.
Facts
On March 7, 1980,
appellants, Josephine A. Cory and Troy
Cory (hereinafter appellants), purchased
a residential estate located at 639
Rosemont Avenue, Pasadena (hereinafter
realty) from defendant respondents,
Stephen and Marilyn Odell and Charles
and Judy Smithdeal (hereinafter
sellers). The appellants had seen a
listing in the Pasadena Board of
Realtors and an ad placed by the sellers
in Los Angeles Magazine which described
the realty as being about 2.7 acres. On
or about December 7, 1979, respondent
Sue Villicana (hereinafter sellers'
broker) had shown the property to
appellants in her capacity as a broker
for respondent Villa Properties. She
visually pointed out the realty's
boundaries and represented its acreage
at "about three acres." The next day she
delivered a brochure to the appellants
describing the property as consisting of
2.7 acres.
On December 15, 1979,
appellants again toured the realty with
both Villicana and the sellers at which
time a similar representation as to
acreage was made by both the sellers and
sellers' broker.
Appellants contend
that they purchased the property for
purposes of subdividing the lots and
selling off part of the property for
profit. For purposes of this
subdivision, appellants secured the
services of a surveyor. On March 23,
1981, appellants learned that the true
acreage was only 1.88 acres. On April 6,
1981, appellants notified sellers'
broker of "the missing acre." Although
appellants subsequently obtained a
tentative subdivision map with respect
to the 1.88 acres, it was for only two
lots instead of the greater number they
had anticipated. On May 4, 1981,
appellants filed a complaint against the
seller and the sellers' broker for
breach of contract, fraud, intentional
and negligent misrepresentation,
suppression of facts, false advertising
and for reformation of the contract on
theories of fraud and mistake. [180
Cal.App.3d 596]
The complaint was
never served on Peggy Peckham dba The
Real People, the buyers' broker. A
demurrer by the Pasadena Board of
Realtors was sustained on June 19, 1981,
and then on July 24, 1981, sellers'
demurrer (in which sellers' broker
joined) was sustained with leave to
amend. As of that same time appellants
ceased paying the obligations under the
all inclusive trust deed encumbering the
property and sellers instituted
foreclosure proceedings. To forestall
the nonjudicial foreclosure, appellants
filed for a preliminary injunction in
the trial court. The motion was denied
on August 14, 1981.
On September 4, 1981,
appellants filed the first amended
complaint which was substantially
similar to the original complaint except
as to respondent Alexander Villicana,
M.D., and in that it deleted the
Pasadena Board of Realtors.
On September 9, 1981,
appellant Josephine Cory filed a
voluntary petition for chapter 11
reorganization in the United States
Bankruptcy Court for the Central
District of California. Previously, she
had her husband, appellant Troy Cory, a
copurchaser of the realty, transfer his
title to the subject property to her as
her separate property so that she could
file for relief in bankruptcy. In the
bankruptcy petition, appellant, under
oath, estimated the value of the realty
at $1,230,000. The sellers challenged
this estimate and the bankruptcy court
resolved the dispute in its finding of
fact filed February 10, 1982, setting
the value at $850,000 exclusive of any
value of the adjoining vacant lot which
was to have been subdivided and sold.
Appellant obtained a loan and paid off
the sellers' note and her other
arrearages on the estate. Respondent
Villicana's motion to remand this suit
back to the state trial court was
granted by the bankruptcy court on
August 19, 1983. Respondents thereafter
filed their motions for summary judgment
on June 20 and June 25, 1984.
The motions for
summary judgment were on two related
grounds: (1) that there was no fiduciary
relationship between appellants and
sellers' broker and (2) that the
appellants, by virtue of appellant
Josephine Cory's own representations to
the bankruptcy court, suffered no
measurable damages within the scope of
the exclusive remedy, Civil Code section
3343.
The summary judgment
motions were granted in favor of all
defendants on October 16, 1984. The
trial court ruled as follows: "The court
has reviewed and considered the motion
of defendant [sic] for summary judgment,
papers filed in opposition by
Plaintiffs, and all other supporting
papers and finds that Plaintiffs' case
falls within the purview of Walter
versus Marler 83 CA 3rd 1, et. seq. The
Court notes Plaintiff's Josie Cory
declaration in bankruptcy proceeding,
#LA 81 11322, and more specifically
[180 Cal.App.3d 597] in Schedule A2
thereof, has elected under penalty of
perjury to place a value on the subject
real property of $1,230,000.00 and
further notes that the value in the
petition for bankruptcy is dated 9-9-81.
[¶] The Court further finds no
representations are made to Plaintiffs
as to the quantum of the property,
either in escrow and the related
contracting documents."
A judgment was entered
on October 23, 1984. This appeal ensued.
Issues
This court considered
the following issues: (1) Was there an
actionable misrepresentation of fact?
(2) If there is an actionable
misrepresentation of fact, did the trial
court make a proper determination that
Civil Code section 3343 provides the
exclusive measure of damages? (3) Was
the trial court correct in ascertaining
that there was no "out-of-pocket" loss?
(4) Even if there is no "out-of-pocket"
loss, can there still be any triable
issues?
Holding
We conclude: (1) that
misrepresentations as to the amount of
acreage did take place and that said
misrepresentations are actionable
against both sellers and sellers'
broker; (2) that the trial court
correctly determined that Civil Code
section 3343 is the exclusive measure of
damages; (3) that the trial court
properly concluded that there was no
"out-of-pocket" loss; and (4) that
appellant may have incurred "additional
damages" for subdivision expenses and
possible losses pursuant to Civil Code
section 3343, subdivisions (a)(2),
(a)(4).
I
Misrepresentation
[1] A single
misrepresentation by the vendor of a
material fact in a transaction is
sufficient to support a judgment for
fraud. (Macco Construction Co. v.
Fickert (1946)
76 Cal.App.2d 295 [172 P.2d 951].)
[2a] In the instant case, it is clear on
its face that the sellers misrepresented
the size of the property. The
advertisement in Los Angeles Magazine,
the listing and the representations made
by both the sellers and the sellers'
brokers to the purchasers were that the
property was about 2.84 acres. The
reality was that the property was only
1.88 acres.
[3] When the seller of
land possesses or assumes to possess
superior knowledge of the property and
asserts such knowledge to the vendee,
who has not had an equal opportunity to
gain knowledge, the seller's asserted
[180 Cal.App.3d 598] opinion as to
value of land may be equivalent to an
affirmation of fact and hence actionable
fraud. (People v. Gordon (1945)
71 Cal.App.2d 606 [163 P.2d 110].)
[2b] In the instant case, the sellers
asserted their knowledge that there were
2.84 acres of land. This assertion was
accepted by the appellant purchasers
until the following year when a survey
for purposes of subdivision of the
property discovered that nearly an acre
was missing and that the property was
really only 1.88 acres. Therefore, the
sellers' misrepresentations are
actionable.
In regard to sellers'
broker, we note that in the instant
case, appellant plaintiff purchasers
purchased the property on March 7, 1980,
for the sum of $705,500 in the belief
that said property contained 2.84 acres
rather than the actual 1.88 acres.
According to appellant's first amended
complaint, appellant notified the
sellers' broker of "the missing acre" on
April 6, 1981. Appellant further alleges
that "reliance on defendants'
representations were justified because
of the falsity of the statements were
not apparent from an inspection of
Rosemont Properties and Sellers' Broker
was a licensed real estate broker who
had obvious superior knowledge of the
sale of land and properties, and in
particular Rosemont Properties." In view
of the misrepresentations made by
sellers' broker to the purchasers to
induce them to buy the realty, we
conclude that appellants have clearly
spelled out a cause of action for
misrepresentation against the seller and
also the sellers' broker, all of whom
are respondents in this appeal.
II
Is Civil Code Section
3343 the Exclusive Measure of Damages?
[4] But, what is the
measure of damages? Respondents allege
that the exclusive measure of damages
for the instant action is Civil Code
section 3343. We agree.
A bit of background
would be useful.
Until 1935, California
Civil Code section 3333 provided the
general rule regarding the measure of
damages for recovery in tort, that being
that the amount to be compensated would
be for all the detriment proximately
caused which principle was called the
"benefit of the bargain rule." (See Wood
v. Niemeyer (1921) 185 Cal. 526 [197 P.
795]; Hines v. Brode (1914) 168 Cal. 507
[143 P. 729]; Rogaff v. Bartles (1931)
115 Cal.App. 429 [1 P.2d 517].)
Recognizing that the "benefit of the
bargain" rule was an extreme rule, the
Supreme Court stated that "[I]t should
... be applied only in clear cases and
upon just terms." (Hines v. Brode,
supra, at p. 511.) [180 Cal.App.3d
599]
The Legislature
responded in 1935 by the passage of
Civil Code section 3343 and the Supreme
Court in Bagdasarian v. Gragnon (1948)
31 Cal.2d 744 [192 Cal.Rptr. 935]
concluded that this statute provided the
exclusive measure of damages thereby
eliminating entirely the possibility of
recovery based upon the "benefits of the
bargain" measure. (See Adrian, Recovery
for Fraud in a California Property
Transaction (1978) 30 Hastings L.J.
475.) fn.
1
In Bagdasarian v.
Gragnon, supra, at pages 762-763, the
Supreme Court recognized that [t]he
right to recover additional damages does
not refer to the measure of damages,
but, rather, to such matters as expenses
or consequential injury resulting from
the fraud." (Italics in original.)
Hence, this interpretation is in accord
with the general rule that a defrauded
plaintiff may recover for all the
detriment proximately caused, which must
necessarily include necessary expenses
and indirect injuries caused by the
fraud. fn.
2
As authority for this
position, the Supreme Court cited Jacobs
v. Levin (1943) 58 Cal.App.2d Supp. 913
[137 P.2d 500], wherein the illustration
of the application of additional damages
was plainly made by the court stating:
"That latter provision was evidently
intended to cover a situation where for
example a buyer was obliged to move from
the property that he had been
fraudulently induced to purchase on
account of the dangerous character of
the premises. In such a case he could
not only recover the difference between
the amount that he had paid for the
property and its actual value but also
recover the expense of moving." (Id, at
p. 917.)
The Supreme Court then
went on to elaborate on the recovery of
expenditures by explaining that
"[e]xpenditures which were reasonable
under the circumstances, ... may
ordinarily be recovered, insofar as they
have been lost or rendered fruitless
because of the deceit." (Garrett v.
Perry (1959)
53 Cal.2d 178, 186 [346 P.2d 758].)
The development of a
separate rule for fraud by a fiduciary
had a somewhat uncertain beginning in
the case of Gagne v. Bertran (1954)
43 Cal.2d 481 [275 P.2d 15]. In
Gagne, the plaintiffs, contemplating the
purchase of two lots, hired defendant to
test the soil to determine the amount of
fill on the property. Defendant
negligently misrepresented the amount of
fill on the lots, as a result of which
plaintiffs bought the lots and incurred
a higher than expected cost of
constructing a building on the premises.
The trial court measured the amount of
damages by the difference between the
actual [180 Cal.App.3d 600] cost
of construction and what it would have
cost if defendant's misrepresentations
had been correct. The Supreme Court
rejected this, stating at pages 490-491,
"... the damages, whether for deceit or
negligence, must be measured by the
actual losses suffered because of the
misrepresentation."
The court added, "'In
reliance on defendant's information
plaintiffs purchased the property. If
the property was worth less than they
paid for it, defendant is liable for the
difference. On the other hand, if the
lots were worth what plaintiff paid for
them, plaintiffs were not damaged by
their purchase, for even though they
would not have bought the lots had they
known the truth, they nevertheless
received property as valuable as that
with which they parted.'" (Overgaard v.
Johnson (1977)
68 Cal.App.3d 821, 827 [137
Cal.Rptr. 412].)
Although in Gagne the
majority cites Civil Code section 3333
as the basis for its ruling, the court
actually enforced section 3343 as
pointed out by the dissent. For the rule
that Gagne notwithstanding, section 3343
applies in cases of fraud, see Garrett
v. Perry, supra,
53 Cal.2d 178 [346 P.2d 758]; Sixta
v. Ochsner (1960)
187 Cal.App.2d 485 [9 Cal.Rptr.
617]; Lawson v. Town & Country Shops,
Inc. (1959)
159 Cal.App.2d 196 [323 P.2d 843];
Bagdasarian v. Gragnon, supra,
31 Cal.2d 744;Philpott, Imposing
Liability on Data Processing
Services--Should California Choose Fraud
or Warranty? (1972) 13 Santa Clara Law.
140, 153.)
Hence, the California
statutory law follows the "out of pocket
rule." As indicated in 13 Santa Clara
Law., supra, page 153, "Civil Code §
3343, which states the rule of damage
recovery for actions in fraud, awards
the difference between what the
defrauded party has expended and what he
has received in value, plus additional
damages arising from the transaction."
(Italics in original, fn. omitted.) We
agree.
III
Was There Any
"Out-of-pocket" Loss?
[5a] How, then are the
damages to be measured in the instant
case? Since the property was purchased
for $705,000 on March 7, 1980, we must
look to the actual value of the property
on that date. There is no appraisal of
valuation as of that date other than the
purchase price. But, since appellants
allege that had they known the actual
size of the property, they would not
have paid that price for it, we must
look for the actual value. The trial
court correctly considered a number of
appraisals made a little more than a
year after the sale, the affidavit of
the appellant Josephine Cory in the
bankruptcy action that the realty had a
value of $1,230,000 as well [180
Cal.App.3d 601] as the finding of
fact of the bankruptcy judge that the
lot with the house had a value on
February 10, 1982, of $850,000 exclusive
of the additional unimproved lot.
[6] In a summary
judgment context, the standard of review
is that affidavits and declarations of
the moving party are strictly construed
and those of his opponents, even if in
conclusionary terms, are liberally
construed. (R. D. Reeder Lathing Co. v.
Allen (1967)
66 Cal.2d 373, 376 [57 Cal.Rptr.
841, 425 P.2d 785].) Even so, the
adverse party must submit competent
evidence in opposition showing
sufficient facts to substantiate his
allegations. (McHugh v. Howard (1958)
165 Cal.App.2d 169, 174 [331 P.2d
674].)
[5b] There being no
competent evidence offered in opposition
by the appellants to counter the
appraisals presented by the sellers and
sellers' broker, the issue on this
appeal becomes simply whether the
evidence that was offered by the
defendants would be sufficient to
sustain a judgment in their favor.
(Saporta v. Barbagelata (1963)
220 Cal.App.2d 463, 468 [33
Cal.Rptr. 661].)
The fact that the
estimates considered by the court were a
year after the sale does not invalidate
them as evidence, but rather a change of
value between the time of appraisal
ordinarily goes merely to the weight of
the evidence. (Los Angeles County Flood
etc. Dist. v. McNulty (1963)
59 Cal.2d 333, 337 [29 Cal.Rptr. 13,
379 P.2d 493].)
Hence, we conclude
that the trial court was correct in
determining that the value of the realty
at the time of purchase was equal to or
greater than the price paid by the
appellants. Consequently, there was no
"out-of-pocket" loss.
IV
Even If There Is No
"Out-of-pocket" Loss Can There Still Be
Triable Issues?
[7] As the Supreme
Court noted, "The statute awards damages
for traditional 'out-of-pocket' loss
'together with any additional damage
arising from the particular transaction,
...' If a plaintiff shows no traditional
'out-of-pocket' loss, that component of
the award is zero. If, however, he goes
on to show consequential or 'additional'
damage of the type prescribed by the
statute, the amount which he so
demonstrates is recoverable. The only
effect of his failure to show
traditional 'out-of-pocket' loss is the
necessity that a nullity be added to the
amount shown to have been sustained as
[180 Cal.App.3d 602]
consequential damages." (Stout v. Turney
(1978)
22 Cal.3d 718, 729-730 [150
Cal.Rptr. 637, 586 P.2d 1228]; italics
in original.)
As we have indicated
herein, Civil Code section 3343 provides
the exclusive measure of damages. The
section reads as follows:
"3343. (a) One
defrauded in the purchase, sale or
exchange of property is entitled to
recover the difference between the
actual value of that with which the
defrauded person parted and the actual
value of that which he received,
together with any additional damage
arising from the particular transaction,
including any of the following:
"(1) Amounts actually
and reasonably expended in reliance upon
the fraud.
"(2) An amount which
would compensate the defrauded party for
loss of use and enjoyment of the
property to the extent that any such
loss was proximately caused by the
fraud.
"(3) Where the
defrauded party has been induced by the
reason of the fraud to sell or otherwise
part with the property in question, an
amount which will compensate him for
profits or other gains which mightly
reasonably have been earned by use of
the property had he retained it.
"(4) Where the
defrauded party has been induced by
reason of the fraud to purchase or
otherwise acquire the property in
question, an amount which will
compensate him for any loss of profits
or other gains which were reasonably
anticipated and would have been earned
by him from the use or sale of the
property had it possessed the
characteristics fraudulently attributed
to it by the party committing the fraud,
provided that lost profits from the use
or sale of the property shall be
recoverable only if and only to the
extent that all of the following apply:
"(i) The defrauded
party acquired the property for the
purpose of using or reselling it for a
profit.
"(ii) The defrauded
party reasonably relied on the fraud in
entering into the transaction and in
anticipating profits from the subsequent
use or sale of the property.
"(iii) Any loss of
profits for which damages are sought
under this paragraph have been
proximately caused by the fraud and the
defrauded party's reliance on it.
[180 Cal.App.3d 603]
"(b) Nothing in this
section shall do either of the
following:
"(1) Permit the
defrauded person to recover any amount
measured by the difference between the
value of property as represented and the
actual value thereof.
"(2) 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."
It has been held that
in an action by a plaintiff for fraud in
the sale of real property, that the
plaintiff may specifically recover the
sum expended in attempting to obtain a
duly recorded subdivision map. (Perkins
v. Ketchum (1962)
211 Cal.App.2d 245, 253 [27
Cal.Rptr. 278].) Also, pursuant to Civil
Code section 3343, amounts paid for
escrow fees, moving to and from the
property, building permits, telephone
connections, fences, yard cleaning,
garage materials, door locks, shrubbery,
taxes, rent and labor are examples of
recoverable damages when reasonably
expended in reliance on the fraud.
(Hardy v. Carmichael (1962)
207 Cal.App.2d 218, 228 [24
Cal.Rptr. 475].)
[8] Likewise,
appellants may be entitled to damages
for the loss of profits or other gains
reasonably anticipated from subdividing
and selling off the acreage which
appellants thought they had purchased,
but which was in reality a myth. Civil
Code section 3343, subdivision (a)(4),
provides the statutory basis for damages
for loss of profits. (Stout v. Turney,
supra,
22 Cal.3d 718, 728.)
Conclusion
We find that Code of
Civil Procedure section 437c,
subdivision (f), is applicable in this
matter. It states: "When the moving
party moves for summary adjudication of
issues, either by itself or as an
alternative to summary judgment, if it
appears that the proof supports the
granting of such motion as to some but
not all the issues involved in the
action, or that one or more of the
issues raised by a claim is admitted, or
that one or more of the issues raised by
a defense is conceded, the court shall,
by order, specify that such issues are
without substantial controversy.
Moreover, upon that motion, the court
shall, by written or oral order, specify
those issues raised by the motion as to
which there exists a material, triable
controversy, and refer to the evidence
which establishes a triable issue of
fact regarding each of those issues. At
the trial of the action the issue so
specified shall be deemed established
and the action shall proceed as to the
issues remaining." Therefore, we hold
that there is no substantial controversy
as to the issues that there is in fact
an actionable misrepresentation of fact
by the sellers [180 Cal.App.3d 604]
and sellers' broker, that the trial
court correctly ruled that Civil Code
section 3343 is the exclusive measure of
damages, and that there is no
"out-of-pocket" loss suffered by the
appellants.
Further, there exists
a material, triable controversy, as to
the issue of "additional damages," if
any. This is an issue for the trial
court to determine. In respect to the
amount of "additional damages," the
judgment is reversed. In all other
respects, the summary judgment is
affirmed.
Hanson, (Thaxton),
Acting P. J., and Devich, J., concurred.
FN 1.
Many of the conclusions of the author of
this note are the conclusions of this
court.
FN 2.
See generally McCormick, Law of Damages
(1935) section 469; Prosser, Law of
Torts (4th ed. 1971) section 110;
Restatement of Torts (1965) section 549,
subdivision (b).
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