Kallgren v. Steele

California Court of Appeal Feb 21, 1955 No. Civ. 20444Published

Before: Drapeau

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Holding. The court held that a seller's intentional concealment of material facts regarding property, specifically that improvements were located within a state highway right of way, constitutes actionable fraud. Consequently, the trial court's judgment for the plaintiffs was affirmed.

Issues

Whether a seller's failure to disclose that property improvements were located within a state highway right of way constitutes actionable fraud.
Whether the rule of caveat emptor shields a seller from liability for the suppression of material facts known to the seller but unknown to the buyer.

Disposition. Affirmed

Quotations verified verbatim against the opinion

“Concealment may constitute actionable fraud where a seller knows of facts which materially affect the desirability of property, which he knows are unknown to the buyer.”

“Fraud may consist in the misrepresentation or concealment of material facts, and may be inferred from the circumstances and condition of the parties contracting.”

DRAPEAU, J.

Plaintiffs purchased from defendant Fred A. Steele and his wife (who is now dead) a resort in the San Bernardino mountains, consisting of a store, gasoline and service equipment, and several cabins. These improvements were located on United States government land in the San Bernardino National Forest, and along the state highway. For many years the resort had been known as “Bear Creek Lodge.”

The improvements had been built upon the government land, and maintained there under a special use permit from the federal forest service, with an annual rental of $150. The permit provided that it could be terminated at any time for any reason by the forest service.

The purchase price of the lodge was $12,000, with $6,000 in cash, and the remainder in monthly installments of $100 or more.

[45]

At the time of the negotiations for the sale, the parties went to the office of the forest service and explained what they were doing. The forest service made no objection to the transfer of the permit to plaintiffs. Apparently the permit was continued in Mr. Steele’s name until plaintiffs paid him the last installment on the purchase price.

Then the forest service notified plaintiffs that the permit would be revoked at the end of five years. The reasons given for this drastic action were that the store and cabins were too close to the state highway, that they were in very poor condition, and that they impaired scenic values.

This was the first time that plaintiffs learned that any part of Bear Creek Lodge was within or too close to the state right of way. Defendant, Mr. Steele, knew about it all the time, but said nothing about it to plaintiffs. And due to the location of the buildings on the side of a precipitous mountain canyon it is impossible to move them farther away from the state highway.

Thus the forest service put an end to all of plaintiff’s rights in and to Bear Creek Lodge, except salvage value of the buildings if the cost of removing them should possibly be less than what they can be sold for.

Nothing in the record indicates that the state highway department was making any complaint about the purpresture.

Kallgren v. Steele

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DRAPEAU, J.

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