Snelson v. Ondulando Highlands Corp.

• Decision Date: 06 March 1970
• Court: California Court of Appeals Court of Appeals
• Parties: Sigmund SNELSON et al., Plaintiffs and Respondents, v. ONDULANDO HIGHLANDS CORPORATION, etc., et al., Defendants and Appellants. Civ. 33652.

Page 800

84 Cal.Rptr. 800

5 Cal.App.3d 243

Sigmund SNELSON et al., Plaintiffs and Respondents, v. ONDULANDO HIGHLANDS CORPORATION, etc., et al., Defendants and Appellants.

Civ. 33652.

Court of Appeal, Second District, Division 5, California.

March 6, 1970.

Rehearing Denied April 2, 1970.

See 85 Cal.Rptr. 806.

Hearing Denied May 6, 1970.

Halde, Barrymore & Stevens and Carroll Barrymore, Santa Barbara, for defendants and appellants.

Nordman, Cormany, Hair & Compton, Ralph L. Cormany, and Norman F. Montrose, Oxnard, for plaintiffs and respondents.

AISO, Associate Justice.

Defendants Howard Miller Ferguson, Clifford Kolhass, ¹ Ferguson Realty, Inc., a corporation and Ondulando Highlands Corporation, a corporation, appeal from a judgment granting plaintiffs Sigmund Snelson and Ann E. Snelson, husband and wife, rescission of their purchase of residential property from defendant Ondulando Highlands Corporation, and awarding said plaintiffs monetary damages and costs of suit, jointly and severally, against all four defendants.

Plaintiffs brought this action against defendants Ondulando Highlands Corporation (hereafter 'Ondulando'), Ferguson, Kolhass, and Does I through XII. Ferguson Realty, Inc., a corporation (hereafter 'Ferguson Realty') was served subsequently as defendant Doe I. The complaint set forth eight separate counts upon the following theories: rescission on fraudulent misrepresentation, negligence in design and development of the property, strict liability for defective design and manufacture, breach of warranties, failure of consideration, and mistake resulting in damages.

Pursuant to stipulation of counsel, the trial court ordered the rescission count 'bifurcated' from the other causes of action and tried first before a court sitting without a jury. It was further stipulated that if rescission were granted to plaintiffs, they would then dismiss their other remaining causes of action.

I.

The facts stated in the light most favorable to the findings of the trial court (Bancroft-Whitney Co. v. McHugh (1913) 166 Cal. 140, 142, 134 P. 1157; cf. Cunningham v. Simpson (1969) 1 Cal.3d 301, 306, 81 Cal.Rptr. 855, 461 P.2d 39) are as follows:

In October or November 1964 plaintiffs commenced negotiations for the purchase of certain real property improved with a residential house located in Ondulando Highlands, Ventura, California, commonly known as 1062 Via Cielito (legal description: Lot 238 of Tract 1435). Sigmund Snelson (hereafter 'Snelson') discussed the purchase of the home and lot with Kolhass and Ferguson. Kolhass represented himself to be the sales manager of the tract for Ondulando and introduced Ferguson as president of Ondulando. In Ferguson's presence, plaintiff inquired of Kolhass whether or not there was any fill on the particular lot in which plaintiff was interested. Kolhass replied that he was sure there was no fill on the lot but that he had maps which plaintiff could look at to confirm that fact. Throughout the trial the term 'cut' lot was employed to refer to land whose original level was higher than that desired for the final pad, requiring that the land be cut down to the desired elevation. On the other hand, the term 'fill' lot was used to indicate land whose original level was lower than that desired for the final pad, requiring that fill material be added to bring the land up to the desired elevation.

Grading and engineering maps and reports of the property in question were provided by Kolhass for Snelson's study. These maps showed the lot to be cut rather than fill. Snelson testified that he relied on both the oral and documentary representations that the lot was cut in making his decision to buy the property. He was not interested in buying a lot that had on it any fill whatsoever, and would not have purchased the lot in question if he had been apprised of its having a fill.

In early December 1964 plaintiffs entered into an escrow agreement with Ondulando for the purchase of the real property improved with the residential home. The total purchase price for the property was $30,000. Plaintiffs made a down payment of $4,800 in cash and signed a $25,200 promissory note naming California Federal Savings & Loan Association as payee. Defendant Ondulando executed a 'Corporation Grant Deed' to plaintiffs as grantees, and plaintiffs executed a first deed of trust, securing the $25,200 note, naming California Federal Savings & Loan (hereafter 'California Federal') as the beneficiary. Ondulando authorized the escrow to pay out of funds becoming payable to it a 'Demand for partial release of the loan of record in favor of California Federal' and a commission of $1,000 to Ferguson Realty. The amount of the demand for partial release of the loan in favor of California Federal is not disclosed. Plaintiffs moved onto the property in January 1965. Escrow closed around February 10, 1965. Plaintiffs had made all of the $196 monthly payments of the note apparently up to April 9, 1968, the date of the findings.

Between October and December 1965 there was a substantial amount of rain in Ventura County. On or about December 30, 1965, plaintiffs observed that after the rains a large landslide occurred on the edge of their lot.

Expert testimony disclosed that the lot purchased by plaintiffs was not cut, but in fact contained fill material and that the landslide would not have occurred had the lot been cut.

Plaintiffs' attorneys by letter dated January 24, 1966, addressed to Ondulando (attention of defendant Ferguson) gave notice of rescission, tendered possession of the property with improvements, and demanded reimbursement for sums expended on the house and property, for the down payment, closing costs, monthly payments on the note, and for improvements.

In the interest of avoiding repetition, other facts will be related where pertinent to the particular issue discussed below.

II.

While defendants raise the question under several headings of their brief, their first major contention is that the evidence is insufficient to sustain the findings of fact necessary to support a rescission on the ground of fraud.

'It is now settled in California that where the seller (of real property) 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. (Citations.) Failure of the seller to fulfill such duty of disclosure constitutes actual fraud. (Citations.)' (Lingsch v. Savage (1963) 213 Cal.App.2d 729, 735--736, 29 Cal.Rptr. 201, 204.) Here, the court went even further and found affirmative representations that the land was cut, rather than fill. 'A misrepresentation or concealment of the known fact of a fill in a lot sold to another constitutes material inducement which works fraud upon the buyer, who is ignorant of the fact. (Citations.)' (Buist v. C. Dudley DeVelbiss Corp. (1960) 182 Cal.App.2d 325, 331, 6 Cal.Rptr. 259, 263.) Affirmative representation that land is 'cut' when in fact it is on a 'fill' constitutes actionable fraud for either damages or rescission. (Buist v. C. Dudley DeVelbiss Corp. (1960) Supra, at page 330, 6 Cal.Rptr. 259; Burkett v. J. A. Thompson & Son (1957) 150 Cal.App.2d 523, 526, 527, 310 P.2d 56; Tatham v. Pattison (1952) 112 Cal.App.2d 18, 21, 245 P.2d 668.)

It is also familar law that an appellate court will not disturb a finding or a verdict if it finds the evidence in support thereof in conflict. 'The presumption is in favor of the judgment, and the appellate court must consider the evidence in the light most favorable to the prevailing party. All conflicts must be resolved in favor of the respondent and all legitimate and reasonable inferences indulged in to uphold the verdict' (Cunningham v. Simpson (1969) supra, 1 Cal.3d 301, 306, 81 Cal.Rptr. 855, 858, 461 P.2d 39, 42) or the findings (Bancroft-Whitney Co. v. McHugh (1913) supra, 166 Cal. 140, 142, 134 P. 1157). This rule was applied in Buist, Burkett, and Tatham cited above.

There can be little dispute with the court's finding the improved residential property here involved to have been a filled lot; it had been 'undercut' in the course of cutting so that the level of the land was raised by filling to achieve the desired construction pad level.

Finding No. 6 that defendants made oral and documentary representations that the property was a cut lot, not subject to earth movement, geologically stable, and one with which there would be no trouble with movement, slippage, slide or collapse of earth, finds support in the evidence. Defendants Kolhass and Ferguson indicated to Snelson that they were selling to plaintiffs an all cut non-fill property. Kolhass reinforced his oral representation by providing maps and reports to Snelson, which maps and reports showed the lot to be cut.

Defendant Kolhass was working for the Ferguson Realty which was the selling agent for Ondulando. Ferguson was the president of both Ondulando and Ferguson Realty. Kolhass made oral representations to Snelson in Ferguson's presence. Kolhass also testified that he was working for defendant Ferguson and that he was present on the tract premises during the entire period in which the lot in question was graded and developed. It may be inferred that Kolhass knew from watching the operations that he lot was fill and not cut.

Plaintiffs relied upon the oral and documentary representations and would not have purchased the lot but for such representations. Although Snelson was a geologist for oil companies, he was not an expert in soils engineering as it pertained to subdivision grading work. Surface observations would not have revealed whether the land was cut or fill. The documentary materials furnished to him gave him no notice of the fill. "An independent investigation or an examination of...