Lingsch v. Savage

• Decision Date: 12 March 1963
• Citation: 213 Cal.App.2d 729,8 A.L.R.3d 537,29 Cal.Rptr. 201
• Court: California Court of Appeals Court of Appeals
• Parties: , 8 A.L.R.3d 537 Edwin F. LINGSCH and John Bruni, Plaintiffs and Appellants, v. George SAVAGE, Defendant and Respondent. Civ. 20749.

Page 201

29 Cal.Rptr. 201

213 Cal.App.2d 729, 8 A.L.R.3d 537

Edwin F. LINGSCH and John Bruni, Plaintiffs and Appellants, v. George SAVAGE, Defendant and Respondent.

Civ. 20749.

District Court of Appeal, First District, Division 1, California.

March 12, 1963.

Raymond H. Levy, San Francisco, for appellants.

James C. Travis, Carl W. Svenson, San Francisco, for respondent George Savage.

SULLIVAN, Justice.

In this action for damages for fraud brought against the sellers of certain real property and the real estate broker representing them, plaintiffs appeal from a judgment for the defendant broker entered after the sustaining of his demurrer without leave to amend.

The complaint filed February 13, 1962, alleges in substance as follows: 'That plaintiffs are and, at all times since July 10, 1961, were the owners of certain real property located in San Francisco; that prior to plaintiff's acquisition thereof the defendants Nicholas Kotoff, Nell Kotoff and certain fictitious defendants were the owners, and the defendant Savage a real estate broker represented said owners; and that 'said defendants entered into a uniform agreement of sale and deposit receipt, a copy of which is hereto attached as Exhibit 1, on the dates therein referred to, and that the consideration as indicated therein was fully paid.'

It is further alleged: that at the time of the sale, the 'defendants and each of them specifically knew that the building was in a state of disrepair, and that units contained therein were illegal and that the building had been placed for condemnation by the proper officials' of San Francisco; that the plaintiffs did not know the foregoing matters and did not discover them until November 1961; that 'the defendants and each of them wilfully and fradulently failed to reveal said information' to the plaintiffs; that the plaintiffs purchased the property 'justifiably relying on said defendants' nondisclosure, as aforesaid, and in the belief that said property was in legal tenantable and properly repaired condition, as required by law'; that the defendants 'knew that plaintiffs relied on their non-disclosure * * * and intended that they should so rely, and that said non-disclosure was in fact and law misrepresentation of a material fact'; and that the actual market value of the property was $5,000 less than what it would have been in the condition as represented. The complaint sought $5,000 general and $10,000 punitive damages.

The Exhibit 1 attached to the complaint is a printed form of 'Uniform Agreement of Sale and Deposit Receipt' commonly available at local title companies. So far as is pertinent to the problem before us, the agreement acknowledges receipt from the plaintiffs of $1,000 on account of $21,000, the purchase price of the property in question 'in its present state and condition.' (Emphasis added.) Among the terms and conditions of sale is the following provision: 'No representations, guaranties or warranties of any kind or character have been made by any party hereto, or their representatives which are not herein expressed.' The first part of the document then concludes with a statement that the 'undersigned purchaser hereby agrees to purchase the herein described property for the price and according to the conditions herein specified, * * *' (Emphasis added.) Immediately below appear the signatures of both plaintiffs as purchasers and the signature of the defendant George Savage as 'Agent for The Seller.' The second part of the document is an approval of the contract signed by both sellers.

Defendant George Savage filed a demurrer ¹ asserting that the complaint failed to state facts sufficient to constitute a cause of action and that it was ambiguous, unintelligible and uncertain in various particulars. In a separate paragraph, the demurrer also attacked the legal sufficiency of the facts pleaded on the ground that, as shown by the exhibit attached to the complaint, the plaintiffs offered to purchase the property 'in its present state and condition' and expressly agreed, according to the provision set forth by us above, that there were no representations, guaranties or warranties which were not expressed in the document. The court below sustained the demurrer without leave to amend.

We first dispose of a preliminary matter. Respondent suggests somewhat obliquely that the plaintiffs declined to amend their complaint. The instant case is not one where the court sustained the demurrer with leave to amend and the plaintiffs thereafter elected not to file an amended pleading. It is clear that the court sustained the demurrer without leave to amend and that the question of whether or not the court abused its discretion in so doing is open on this appeal. (Code Civ.Proc. § 472c.) Respondent's above suggestion presumably refers to a colloquy between the court and appellants' counsel at the conclusion of the hearing on the demurrer. We have examined the transcript of the proceedings and are of the view that nothing therein contained precludes the appellants from raising the issues now before us. We therefore proceed to determine whether the complaint states a cause of action for fraud.

An examination of the pleading under attack persuades us that the only kind of fraud or deceit which it purports to assert is one based on concealment or nondisclosure. We find no allegations which can reasonably be construed as asserting fraud predicated upon intentional and affirmative misrepresentations, negligent misrepresentations or false promises. (Civ.Code, §§ 1572, subds. 1, 2 and 4; 1710, subds. 1, 2 and 4.) We should further point out that the concealment which is here the essence of the alleged deceit does not involve, in the light of the allegations before us, any affirmative acts on the part of the defendants in hiding, concealing or covering up the matters complained of. Nor do any allegations purport to set forth a confidential relationship subsisting between the plaintiffs on the one hand and all or any of the defendants on the other. We are therefore presented with an instance of mere nondisclosure, rather than active concealment, occurring between parties not in a confidential relationship. The foregoing observations, in our view, also correctly reflect the position here taken by appellants.

The principle is fundamental that '[d]eceit may be negative as well as affirmative; it may consist of suppression of that which it is one's duty to declare as well as of the declaration of that which is false.' (23 Cal.Jur.2d, fraud and Deceit, § 45, p. 106; Barder v. McClung, (1949) 93 Cal.App.2d 692, 697, 209 P.2d 808.) Thus section 1709 of the Civil Code provides: 'One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.' Section 1710 of the Civil Code in relevant part provides: 'A deceit, within the meaning of the last section, is either: * * * 3. The suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; * * *.' In order to fasten liability under the above code sections on the person charged with the concealment or nondisclosure of certain facts, it is necessary to establish that he was under a legal duty to disclose them. (See generally 23 Cal.Jur.2d, § 46, pp. 111-114.) While such duty may arise from a fiduciary or other confidential relationship (cf. Hobart v. Hobart Estate Co. (1945), 26 Cal.2d 412, 159 P.2d 958), no such relationship obtains in the case at bench and the duty of disclosure must therefore arise from other circumstances.

It is now settled in California that where the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer. (Herzog v. Capital Co. (1945), 27 Cal.2d 349, 353, 164 P.2d 8; Clauser v. Taylor (1941), 44 Cal.App.2d 453, 454, 112 P.2d 661; Rothstein v. Janss Investment Corp. (1941), 44 Cal.App.2d 64, 68-71, 113 P.2d 465; Dyke v. Zaiser (1947), 80 Cal.App.2d 639, 652-653, 182 P.2d 344; Barder v. McClung, supra, 93 Cal.App.2d 692, 697, 209 P.2d 808; Kuhn v. Gottfried (1951), 103 Cal.App.2d 80, 86 229 P.2d 137; Curran v. Heslop (1953), 115 Cal.App.2d 476, 480-481, 252 P.2d 378; Kallgren v. Steele (1955), 131 Cal.App.2d 43, 46, 279 P.2d 1027; Burkett v. J. A. Thompson & Son (1957), 150 Cal.App.2d 523, 526, 310 P.2d 56; Buist v. C. Dudley De Velbiss Corp. (1960), 182 Cal.App.2d 325, 332, 6 Cal.Rptr. 259; Crawford v. Nastos (1960), 182 Cal.App.2d 659, 668, 6 Cal.Rptr. 425; see 50 Cal.Jur.2d, Vendor and Purchaser, § 404, pp. 518-521; 29 So.Cal.L.Rev. 378; 80 A.L.R.2d 1453.) Failure of the seller to fulfill such duty of disclosure constitutes actual fraud. (Civ.Code, § 1572, subd. 3; Barder v. McClung, supra.)

The real estate agent or broker representing the seller is a party to the business transaction. In most instances he has a personal interest in it and derives a profit from it. ² Where such agent or broker possesses, along with the seller, the requisite knowledge according to the foregoing decisions, whether he acquires it from, or independently of, his principal, he is under the same duty of disclosure. He is a party connected with the fraud and if no disclosure is made at all to the buyer by the other parties to the transaction, such agent or broker becomes jointly and severally liable with the seller for the full amount of the damages. (Crawford v. Nastos, supra, 182 Cal.App.2d 659, 665, 6 Cal.Rptr. 425.) ³ It is not necessary that there be a contractual relationship between the agent or broker and the buyer. (Gill v. Johnson (1932), 125 Cal.App. 296, 300, 13 P.2d 857, 14 P.2d 1017.) As this court said in Nathanson...