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Fragale v. Faulkner

Court of Appeal of California, Second Appellate District, Division Eight

July 7, 2003, Filed

B153654

Opinion

 [**618]  BOLAND, J.

SUMMARY

CA(1)(1) ] The measure of damages for a real estate broker’s intentional misrepresentation to a buyer for whom he acts as agent is not limited to the out-of-pocket losses suffered by the buyer. Because the broker is a fiduciary, damages for intentional fraud may be measured by the broader benefit-of-the-bargain rule.

FACTUAL AND PROCEDURAL BACKGROUND

Tim and Dinora Fragale purchased a home in Long Beach in 1998, and several months later filed this lawsuit against the seller, Earlene L. Faulkner. The complaint alleged two fraud causes of action, for intentional [***2]  and negligent misrepresentation, in connection with the sale. The real estate broker, Vince Messing, who represented both parties in the transaction was subsequently added as a defendant.

The Fragales’ complaint alleged defendants falsely represented that no structural defects or safety problems existed with respect to a laundry room and bonus room addition to the house which had been constructed without permits from the city. In fact, there were material construction defects in the addition, including defective interior walls, electrical wiring and other problems, which were hidden from view behind paneling installed by Faulkner’s husband. The Fragales discovered the defects almost immediately after the purchase when Tim Fragale began to tear out the paneling in the course of remodeling.

 [*233]  The matter eventually proceeded to a jury trial. Before trial began, Messing filed, and the court granted, a motion in limine to preclude the Fragales from presenting any evidence not relevant to the fraud claims pled in the complaint, specifically, any evidence of breach of fiduciary duty by Messing.

At trial, the Fragales presented testimony from Messing, Faulkner, Tim Fragales [***3]  and Lynn Sims, a construction management expert. The testimony showed Tim  [**619]  Fragales met Messing at an open house held by Messing at the Faulkner property in May 1998. At Messing’s suggestion, the Fragales decided to use Messing as their agent; Messing offered to give the Fragales $3,300 of his commission. On May 26, 1998, the Fragales made a written offer to purchase the Faulkner property. After two counteroffers, the Fragales and Faulkner signed a purchase agreement. On June 4, 1998, the Fragales received a copy of the transfer disclosure statement prepared by Faulkner. On this form, Faulkner checked boxes indicating she was aware of significant defects/malfunctions in interior walls, ceilings, floors, driveways and sidewalks. However, she gave no explanation in response to the subsequent question asking for an explanation of any such defects. On Faulkner’s transfer disclosure statement, she also checked boxes indicating she was aware of “[r]oom additions, structural modifications or other alterations or repairs” that were “made without necessary permits” and that were “not in compliance with building codes.” In response to the subsequent question asking for an explanation,  [***4]  Faulkner wrote, “[l]aundry room, bonus room, MBR closet, no permits. Doorway can be closed if necessary from bonus room to BR.” Messing did not instruct Faulkner to expand on any of these items. Messing had several discussions with Tim Fragale about the lack of permits, and explained “that they were built without someone going down to City Hall and pulling a building permit.” The Fragales employed a house inspection company to inspect the house. The inspector told the Fragales he found no major defects, but listed a number of minor defects, including the lack of permits.

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110 Cal. App. 4th 229 *; 1 Cal. Rptr. 3d 616 **; 2003 Cal. App. LEXIS 1024 ***; 2003 Cal. Daily Op. Service 5955; 2003 Daily Journal DAR 7474

TIM S. FRAGALE et al., Plaintiffs and Appellants, v. EARLENE L. FAULKNER et al., Defendants and Respondents.

Prior History:   [***1]   APPEAL from a judgment of the Superior Court for the County of Los Angeles No. NC 025115. Richard F. Charvat, Judge.

Disposition: Affirmed in part and reversed in part; cause remanded with directions.

CORE TERMS

fiduciary, out-of-pocket, measure of damages, intentional misrepresentation, trial court, permits, property value, damages, paneling, defects, negligent misrepresentation, losses, walls, benefit-of-the-bargain, cause of action, repair, offer of proof, no evidence, reopen, bonus, cases

Business & Corporate Law, Agency Relationships, Fiduciaries, General Overview, Governments, Fiduciaries, Real Property Law, Brokers, Fiduciary Responsibilities, Discipline, Licensing & Regulation, Remedies, Damages, Measurement of Damages, Purchase & Sale, Duty to Disclose, Torts, Business Torts, Fraud & Misrepresentation, Negligent Misrepresentation, Civil Procedure, Contracts Law, Affirmative Defenses, Business & Corporate Compliance, Real Property Law, Zoning, Building & Housing Codes, Duties & Liabilities, Causes of Action & Remedies, Compensatory Damages, Breach, Breach of Fiduciary Duty, Compensation, Unlawful Acts of Agents, Fraud & Misrepresentation, Intentional & Willful Injuries, Types of Damages, Compensatory Damages, Fiduciary Duties, Intentional Torts, Agents Distinguished, Labor & Employment Law, Employment Relationships, Evidence, Testimony, Lay Witnesses