Burkhouse v. Phillips

California Court of Appeal Jul 12, 1971 No. Civ. 27608Published

Before: Brown (h.C.)

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Holding. The trial court erred in instructing the jury that plaintiffs could not recover damages for fraud if the purchase price equaled the property's market value at the time of sale, as the court must consider subsequent circumstances like foreclosure to determine actual out-of-pocket losses.

Issues

Whether a jury instruction limiting damages to the difference between purchase price and market value at the time of sale is correct in a fraud action involving subsequent foreclosure.
Whether a real estate broker can be held liable for damages resulting from fraudulent misrepresentations in a property sale.

Disposition. reversed

Quotations verified verbatim against the opinion

“The section must be applied realistically so as to give the defrauded person his actual out-of-pocket loss, and, where necessary to reach that result, the court must consider subsequent circumstances.”

“Sale under foreclosure is a circumstance subsequent to the original sale which may be considered under Garrett.”

“In view of their total loss of the property, appellants received nothing, and had paid the down payment and some installments. They should be allowed to recover in this amount if liability is found.”

[663]

Opinion

BROWN (H. C.), J.

This was an action for rescission of a contract for the purchase of real property and for damages based on the alleged fraudulent misrepresentation of sellers, Carlton R. Phillips and Nellie Phillips (Phillips), and their real estate broker, W. Scott Mansfield (Mansfield).

The question presented is whether the trial court erred in instructing the jury that the plaintiffs could not recover if there was no difference between the purchase price of the property at the time it was sold and the actual value of the property. We conclude that under the facts of this case this instruction should not have been given.

The facts: In July 1963, plaintiffs saw the following ad in the San Francisco Chronicle: “45 Acres Gentleman’s Farm. 35 Ac. full bearing English Walnuts. 7 Ac. young trees, year around live stream could feed man-made lake. 1963 crop with purchase, should be approx. $8,000.00 to $10,000.00 NET (present owner does no manual labor). Comfortable 6 room home, 4 car garage, large packing shed. $25,000.00 will handle. Owner will assist in financing. W. Scott Mansfield, Realtor 1322 3rd Street, Napa BA 4-5200”

Appellants were interested in property to which they could eventually retire, and they contacted the real estate broker Mansfield immediately. They viewed the property the same day. Mansfield, the broker, stressed the fact that the present crop should net between $8,000 and $10,000, figured that the property would pay for itself and said that the standard production was 20 tons. Phillips, the owner, remarked that the present crop looked better than usual.

The same day that they had first read the ad, appellants agreed to purchase the property for $80,000 payable $25,000 down and the balance payable on a deed of trust held by Phillips. The appellants made no independent investigation of the property nor did they ask to see production records, explaining at trial that it did not occur to them to question the reliability of a county official. Phillips was county auditor of Lake County.

The 1963 crop yielded 13% tons of walnuts and grossed $6,162.69. In 1964, the crop yielded 17 tons, grossed $7,536 and netted $2,907.01. In 1965, the yield was 11 tons and the gross was $4,407.80. By 1965, the appellants were having difficulty making payments on the property and in 1966, they sought to refinance the property. The bank requested income profit and loss statements for the property for previous years, and the appellants requested and were given Phillips’ income tax schedules. These revealed a tax loss on the property in 1959, 1961 and 1962. A profit of $594.62 was reported in 1960 and a profit of $1,049.13 in 1958. Gross

Burkhouse v. Phillips

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BROWN (H. C.), J.

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