Gray v. Don Miller & Associates, Inc.

• Decision Date: 30 January 1984
• Docket Number: S.F. 24569
• Court: California Supreme Court
• Parties: , 674 P.2d 253, 44 A.L.R.4th 763 John GRAY, Plaintiff and Respondent, v. DON MILLER & ASSOCIATES, INC., Defendant and Appellant.

Page 551

198 Cal.Rptr. 551

35 Cal.3d 498, 674 P.2d 253, 44 A.L.R.4th 763

John GRAY, Plaintiff and Respondent, v. DON MILLER & ASSOCIATES, INC., Defendant and Appellant.

S.F. 24569.

Supreme Court of California,

In Bank.

Jan. 30, 1984.

Michael D. McSweeney, Hoge, Fenton, Jones & Appel, Inc., San Jose, for defendant and appellant/petitioner.

John D. Rogers, Sacramento, for plaintiff and respondent.

MOSK, Justice.

We granted a hearing in this case in order to resolve a conflict in the decisions of the Courts of Appeal on whether a party who obtains a judgment against a fiduciary for fraud is entitled to recover attorney fees as an element of the damages incurred. Walters v. Marler (1978) 83 Cal.App.3d 1, 30, 147 Cal.Rptr. 655, held that the victim of the fraud is entitled to such damages, while Pederson v. Kennedy (1982) 128 Cal.App.3d 976, 980, 180 Cal.Rptr. 740, decided the contrary.

Plaintiff, the owner of a landscape contracting business, made an offer in writing in May 1978 to purchase a parcel of land on which he intended to build a residence and to expand his business by the addition of a nursery. The offer was made through Fitch, a licensed real estate salesman employed by defendant corporation, which conducts a real estate brokerage business. In June, Fitch telephoned plaintiff and told him that the offer had been accepted by the sellers and that escrow would close in 30 days if all went well, and later in the summer he told plaintiff's wife that she could begin preparations to move to the property. From time to time during the remainder of 1978, Fitch and plaintiff discussed problems regarding the property. Fitch told plaintiff that the close of escrow would be delayed until after the first of January 1979 because the sellers might have "income tax problems" if the property was transferred before the end of the year. Plaintiff, in reliance on Fitch's representations, incurred various expenditures in planning for the move. In January 1979 plaintiff was informed by Fitch that the seller had decided not to sell the property.

The following month, plaintiff filed an action against the sellers and defendant, seeking specific performance of the "contract of sale," and damages for fraud. The trial court found Fitch had falsely represented that plaintiff's offer had been accepted by the sellers without reasonable grounds to believe the statement to be true, that plaintiff reasonably relied on the misrepresentation, and that defendant, as Fitch's employer, had violated its fiduciary duty by breaching its obligation to act honestly and deal fairly. The representation was found to have been negligently made. The court awarded plaintiff damages in the amounts he had expended in anticipation of completing the purchase, and compensation for the time he and his partner spent in planning use of the site; ¹ plaintiff was also afforded $14,796 in "delay damages," representing the increase in the cost of constructing the residence and nursery buildings planned for the site during the six-month period which elapsed between Fitch's misrepresentation and the time plaintiff learned it was false; finally, plaintiff was awarded $7,250 in attorney fees in partial reliance on the rationale of Walters v. Marler, supra, 83 Cal.App.3d 1, 147 Cal.Rptr. 655. ² The court denied recovery against the sellers, finding that they had never accepted the offer, and that they had not entered into a contract to sell the property.

On this appeal from the ensuing judgment defendant argues, first, that the evidence was insufficient to justify the trial court's finding that Fitch had represented to plaintiff that the sellers had accepted the offer. The evidence on this issue was in conflict; plaintiff testified that such a representation had been made, while Fitch testified to the contrary. In resolving this conflict in plaintiff's favor, the trial court relied on a number of factors, including the circumstances that plaintiff had expended funds in reliance on the representation, and that Fitch had stated at one point in his testimony that he could not recall telling plaintiff either that his offer had been accepted, or that it had not. While defendant points to evidence and possible inferences therefrom which would support its claim that Fitch's testimony should have been accepted by the trial court, we are bound by the rule that when "a finding of fact is attacked on the ground that there is not any substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the finding of fact." (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881, 92 Cal.Rptr. 162, 479 P.2d 362; Primm v. Primm (1956) 46 Cal.2d 690, 693, 299 P.2d 231.) It certainly cannot be said here that there was no substantial evidence to support the trial court's finding in plaintiff's favor on this issue.

The same rule applies to defendant's challenge to the trial court conclusion that plaintiff justifiably relied on Fitch's representation. Whether reliance is justified is a question of fact for the determination of the trial court; the issue is whether the person who claims reliance was justified in believing the representation in the light of his own knowledge and experience. (Feckenscher v. Gamble (1938) 12 Cal.2d 482, 496-497, 85 P.2d 885; Winn v. McCulloch Corp. (1976) 60 Cal.App.3d 663, 671, 131 Cal.Rptr. 597.) In the present case, although there was evidence that plaintiff had some experience in purchasing real estate, he never dealt through a broker previously, and there is nothing to indicate he could not reasonably have relied on Fitch's representation that the offer had been accepted. We cannot say, therefore, that the trial court erred in concluding plaintiff reasonably relied on the representation of Fitch, a licensed salesman, who stood in a fiduciary relationship to plaintiff in the transaction.

Next, we consider the damages awarded by the trial court resulting from defendant's misrepresentation. Plaintiff did not prove that defendant's conduct resulted in lost profits, nor did he assert that he was entitled to damages because comparable property would have cost more than the parcel in issue. However, he did claim, and the trial court granted, $14,796 in "delay damages," for the increased cost of construction of the buildings planned for the site during the six-month period between June 1978, when the misrepresentation was made by Fitch, and January 1979, when plaintiff learned that the sellers refused to sell the property.

We reverse the award of "delay damages" because plaintiff suffered no damages resulting from the delay. Plaintiff has so conceded on this appeal. He was entitled only to the "actual losses suffered because of the misrepresentation." (Gagne v. Bertran (1954) 43 Cal.2d 481, 490, 275 P.2d 15; Civ.Code, § 3333.) His inability to begin construction on the property was not caused by Fitch's misrepresentation, but by the sellers' refusal to accept his offer of sale.

However, plaintiff is entitled to damages in the amounts he spent in anticipation of completing the purchase and for his own time in planning the business on the site. (See fn. 1, ante, p. 553 of 198 Cal.Rptr., p. 255 of 674 P.2d.) Although defendant asserts that these expenditures were "imprudent" and that the county would not have approved of the establishment of a nursery business on the property, the trial court's conclusion in plaintiff's favor is binding on us. While conflicting inferences may be drawn from the testimony, there was substantial evidence to support the court's determination that plaintiff had a reasonable expectation he would obtain the property and would receive permission to conduct his nursery business thereon.

We come, then, to the question whether the trial court was correct in awarding attorney fees to plaintiff. Under the American rule, as a general proposition each party must pay his own attorney fees. This concept is embodied in section 1021 of the Code of Civil Procedure, ³ which provides that each party is to bear his own attorney fees unless a statute or the agreement of the parties provides otherwise.

Several exceptions to this general rule have been created by the courts. Three of these exceptions, discussed at length in Serrano v. Priest (1977) 20 Cal.3d 25, 34-47, 141 Cal.Rptr. 315, 569 P.2d 1303, base recovery of attorney fees to the prevailing party on the fact that the litigation has conferred benefits on others. Thus, if the litigation has succeeded in creating or preserving a common fund for the benefit of a number of persons, the plaintiff may be awarded attorney fees out of that fund. (Estate of Stauffer (1939) 53 Cal.2d 124, 131-132, 346 P.2d 748.) Likewise, if a judgment confers a substantial benefit on a defendant, such as in a corporate derivative action, the defendant may be required to pay the attorney fees incurred by the plaintiff. (See e.g., Fletcher v. A.J. Industries, Inc. (1968) 266 Cal.App.2d 313, 323-325, 72 Cal.Rptr. 146.) Finally, under the "private attorney general" concept attorney fees may be awarded to those who by litigation secure benefits for a broad class of persons by effectuating a strong public policy. (serrano v. Priest, supra, 20 Cal.3d 25, 42-47, 141 Cal.Rptr. 315, 569 P.2d 1303.)

A fourth established exception, sometimes referred to as the "tort of another" or "third party tort" exception, allows a plaintiff attorney fees if he is required to employ counsel to prosecute or defend an action against a third party because of the tort of the defendant. (Prentice v. North Amer. Title Guar. Corp. (1963) 59 Cal.2d 618, 620-621, 30 Cal.Rptr. 821, 381 P.2d 645.) This rule is embodied in the Restatement of Torts and is generally followed in the United States. (Rest.2d Torts, § 914, subd. (2), and appen.)

All these exceptions were created by the courts...