Fuhrman v. Farkas

DORAN, J. The respondents instituted the present action seeking to rescind a contract of sale under which respondents purchased from appellants certain hotel property situated at No. 14 Ozone Avenue, Ocean Park, California. The parties commenced negotiations in April, 1948; ultimately a sale price of $18,500 was agreed upon and escrow instructions signed on May 12, 1948. Respondents paid $3,500 in cash, assumed payment of a $10,000 first trust deed, and gave back to appellants a second trust deed in the sum of $5,000. Rents were to be prorated as of the close of escrow on the basis of a statement approved by respondents. Possession of the property was taken by the respondents on July 1, 1948, and the escrow closed on July 13,1948.

On November 22, 1948, respondents Fuhrman served on appellants Farkas a written “Notice of Rescission and Offer of Restoration,’’ predicated “on the ground that you induced us to enter into said contract by your false and fraudulent misrepresentations as to the legitimate monthly income from said property. That in writing you assured us that the legitimate monthly income was over $400.00 when you knew at said time and place that you were overcharging the tenants and that the ceiling monthly rates were not more than $218.00, that the sales price, to-wit, $18,500, was based upon the monthly income which you falsely and fraudulently misrepresented to us. ’ ’ The notice then tendered a return of the property and demanded a return of $5,900, “plus our expenses in connection with the escrow, less whatever is the reasonable value of the use of the apartment occupied by us.”

The complaint which followed recites the above facts and [566]alleges that ‘ ‘ defendants falsely and fraudulently represented to the plaintiffs in writing that the legitimate monthly income was $407,” segregating the rentals received from each room, apartment, etc. The complaint then avers that “in support of their false and fraudulent representations as above outlined, defendants submitted to the plaintiffs their receipt books and records concerning the alleged legitimate income and plaintiffs relying upon said representations agreed to purchase . . . said premises and paid them the purchase money.” It is also charged that “defendants well knew that said income was not legal and that the legitimate ceiling income was approximately one-half (%) of the amount represented to the plaintiffs. ’ ’

The complaint further alleges that on November 21, 1948, “plaintiffs for the first time became aware” of the misrepresentations, and gave notice of rescission. A second cause of action alleged that plaintiffs feared that defendants would foreclose the second trust deed for failure to make payments thereunder, and sought an injunction against the defendants transferring said trust deed and restraining defendants from foreclosing same.