California Court of Appeal Apr 18, 2013 No. D058954Unpublished
Filed 4/18/13 Svaco v. Fusina CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
ESTHER KEEFE SVACO as Trustee, etc., D058954
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2009-00054498-CU-OR-NC) JOSEPH FUSINA,
Defendant and Respondent.
ESTHER KEEFE SVACO as Trustee etc.
Plaintiff and Appellant,
v.
JOSEPH FUSINA,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of San Diego County, Robert P.
Dahlquist, Judge. Affirmed as modified.
I.
INTRODUCTION
Joseph Fusina purchased a five-acre parcel of undeveloped land (the Fusina Parcel
or Fusina's Parcel) from Eveline Bustillos (Eveline). At the time of the sale, Eveline also
owned a separate parcel (the Eveline Parcel or Eveline's Parcel) located in the same
general vicinity as the Fusina Parcel. Around the time of the sale of the Fusina Parcel,
Eveline transferred Eveline's Parcel to a trust, of which Esther Keefe Svaco is the trustee,
and Eveline and others are beneficiaries. Neither Fusina's Parcel nor Eveline's Parcel is
adjacent to a public road. Access to Fusina's Parcel and Eveline's Parcel is gained by way
of a private access road (Access Road) that traverses several parcels,1 including Eveline's
Parcel and Fusina's Parcel. The Access Road reaches Eveline's Parcel first, then splits
and continues on to Fusina's Parcel.
Svaco filed this lawsuit in which she contended that a provision in the covenants,
conditions, and restrictions (CC&Rs) governing Fusina's Parcel and Eveline's Parcel
required Fusina to contribute one-third of the costs related to improvements to the Access
Road. Svaco sought to impose an equitable lien in the amount of $242,860.84 on
Fusina's Parcel, and also brought claims for breach of contract and declaratory relief
based on Fusina's alleged obligation to contribute to the costs of improving the Access
1 Although several maps depicting the parcels and the Access Road were offered as exhibits at trial, appellants failed to transmit those exhibits to this court. We therefore base our description of the physical location of the Access Road and the parcels on the trial court's statement of decision. None of the parties has raised any challenge to the trial court's statement of decision in this respect on appeal. 2
Road. Fusina filed a cross-complaint in which he brought claims that included breach of
contract and fraudulent concealment against Eveline, and a claim for rescission against
Eveline and Svaco. Fusina's claims were based on his allegation that Eveline concealed
her plan to construct the improvements to the Access Road prior to selling him the Fusina
Parcel.
After a bench trial, the trial court ruled in Fusina's favor on all of Svaco's causes of
action. The court noted that the CC&Rs required that those who used the Access Road to
pay equal shares of the "costs of construction, [and] mutually agreed upon costs of
improvements." The court determined that the costs that Svaco sought were for
"improvements" and that they were not chargeable to Fusina because they had not been
" 'mutually agreed upon.' " On Fusina's cross-complaint, the trial court found that
Eveline had concealed her plan to perform substantial and expensive work on the Access
Road and to charge Fusina one-third of the costs. Based on this concealment, the trial
court permitted Fusina to rescind the purchase agreement for the Fusina Parcel. The
court stated that if Fusina chose not to rescind the purchase agreement, he would receive
$1.00 in damages from Eveline and would retain the Fusina Parcel. Fusina subsequently
elected the rescission remedy. The court entered judgment awarding Fusina nominal
damages on his breach of contract and concealment claims, and specified the terms by
which Fusina could effectuate a rescission of the purchase agreement for the Fusina
Parcel. The court also awarded Fusina approximately $137,000 in fees and costs as the
prevailing party.
3
Eveline and Svaco filed a joint notice of appeal. In their brief on appeal, with
respect to Fusina's cross-complaint, Eveline contends that the trial court erred in finding
that she fraudulently procured Fusina's consent to the purchase agreement for the Fusina
parcel. Specifically, Eveline contends that the trial court erred in finding that she
committed fraud by concealment in failing to disclose to Fusina her plan to improve the
Access Road. In addition, with respect to the claims in her complaint, Svaco contends
that the trial court erred in concluding that the costs related to constructing the Access
Road were not chargeable to Fusina. Eveline and Svaco also contend that we must strike
those portions of the judgment that grant Fusina affirmative relief on his breach of
contract and concealment causes of action, in light of Fusina's election to rescind the
agreement on which those causes of action are based.
We conclude that the trial court did not err in permitting Fusina to rescind the
purchase agreement for Fusina's Parcel based on Eveline's fraudulent concealment of her
plan to improve the Access Road and to charge Fusina for one-third of the costs of the
improvements. In light of our affirmance of the trial court's judgment permitting Fusina
to rescind the purchase agreement for the Fusina Parcel, Fusina cannot be liable for
claims premised on the CC&Rs governing the Fusina Parcel since those CC&Rs are not
binding on him. Accordingly, we affirm the trial court's ruling in favor of Fusina on
Svaco's claims, all of which are premised on the CC&Rs. Finally, we strike those
portions of the judgment granting Fusina affirmative relief on Fusina's breach of contract
and concealment causes of action, because such relief is inconsistent with Fusina's
election to rescind the purchase agreement. As so modified, we affirm the judgment.
4
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. Svaco's complaint
Svaco filed a complaint against Fusina in which she alleged that she was the legal
owner of Eveline's Parcel and that Fusina was the owner of Fusina's Parcel. Svaco
alleged that both Fusina's Parcel and Eveline's Parcel were bound by CC&Rs governing
the parcels. Svaco alleged that one of the terms of the CC&Rs stated, " 'All property
owners have to contribute to the construction, maintenance and improvement of the
private easements that access the Property.' "
In a claim to impose an equitable lien on Fusina's Parcel, Svaco alleged that her
predecessor in interest had begun construction on the Access Road on or about March 1,
2004, and that Svaco had substantially completed construction of the road on September
1, 2008. Svaco further alleged that Fusina had refused to "contribute his one-third share
of the costs of construction of the road," and that the CC&Rs permitted Svaco to impose
an equitable lien on Fusina's Parcel to secure the payment of Fusina's share of these
costs.2 In a breach of contract cause of action, Svaco alleged that Fusina had breached a
provision in the CC&Rs that required him to contribute one-third of the costs of
construction of the improved Access Road. Svaco also brought a claim for declaratory
relief in which she requested that the court interpret the relevant provisions of the
CC&Rs.
2 Svaco did not identify which provision in the CC&Rs she contended required Fusina to contribute a one-third share of the costs. 5
B. Fusina's cross-complaint
Fusina filed a cross-complaint against Svaco and Eveline that contained claims for
breach of contract, breach of the implied covenant of good faith and fair dealing,
intentional misrepresentation, fraudulent concealment, rescission, declaratory relief, and a
claim to quiet title. Fusina alleged that on or about February 8, 2007, he entered into a
purchase agreement with Eveline for the Fusina Parcel and that escrow on the sale had
closed on or about June 11, 2007. Fusina further alleged that "during the sale" of the
Fusina parcel, Eveline and Svaco had begun to construct improvements to the Access
Road and that the improvements were substantially completed by September 1, 2008.
Fusina claimed that he "did not learn of the [i]mprovements until . . . September 23,
2008," and that he never consented to the improvements. Fusina alleged that Eveline had
"concealed material facts" concerning the improvements prior to selling him the Fusina
Parcel.
C. The trial
In August 2010, the trial court held a bench trial on the complaint and the cross-
complaint at which the parties presented evidence concerning the circumstances
surrounding the construction of the Access Road and Fusina's purchase of the Fusina
Parcel.
The evidence established that in 2005, Eveline recorded CC&Rs burdening
Eveline's Parcel, the parcel that Fusina later purchased, and a nearby third parcel
(collectively "the Property"). The CC&Rs state in relevant part:
6
"All property owners have to contribute to the construction, maintenance and improvement of the private easements that access the Property. All persons who use the easements agree that:
"1. The slope and grade and other conditions of the access roads must be satisfactory to the relevant fire departments.
"2. The primary access roads are to have a six-foot trail on their side for horses and runners and walkers, but not for motorized vehicles. A lodgepole rail fence will be installed between the trail and the road. Native plants will be planted along the fence. A bonded DG surface will be placed on the trail.
"3. The costs of construction, mutually agreed upon costs of improvements, and all necessary and reasonable repairs and maintenance, of the roads and trail will be equally shared by the property owners and others using the road.
"4. Those property owners and others using the roads and trail who contribute to the costs of construction, improvements, repairs and maintenance will have equal access to the use, improvements and repairs to the road and trail.
"5. Those people who fail to pay their share of costs of construction, mutually agreed upon costs of improvements, and all necessary and reasonable repairs and maintenance, agree to pay interest on the unpaid balance at the rate of twenty-five percent per annum, and agree to permit a lien for the unpaid balance to be placed on their real and personal properties. Interest and other payments collected under this paragraph will be used to reimburse those parties who have made their required contributions or (if appropriate) retained for future repairs and maintenance or mutually agreed upon improvements.
"6. Costs of construction are required only for those portions of the access roads lying within [the Property]."
In November 2005, Eveline hired Michael Smith, a civil engineer, to design the
Access Road. By late February 2007, Smith had completed approximately 75 percent of
his work.
7
On February 7, 2007, Fusina offered Eveline $570,000 to purchase the Fusina
Parcel.
On or about February 9, Fusina and his real estate agent, Brian Cane, met with
Eveline's husband, Michael Bustillos (Michael), who showed them the Fusina Parcel.
Both Fusina and Cane testified that Michael did not disclose any plan to improve the
Access Road during the showing. Michael testified that he did tell Fusina and Cane
about the plan to improve the Access Road at the February 9 showing.
On or about March 7, Eveline accepted Fusina's offer to purchase the Fusina
Parcel. In March and April 2007, Eveline and/or Michael received various bids for
performing portions of the work on the Access Road, including bids of $153,592 for
grading and drainage, $56,046 for asphalt paving, and $337,000 for concrete work.
Neither Michael nor Eveline disclosed the bids to Fusina.
The bulk of the Access Road improvements were constructed between April and
September 2008, at a total cost of $655,073.51. Fusina first learned of the improvements
to the Access Road in September 2008, when Michael sent him a letter asking him to pay
$179,193.56. In the letter, Michael claimed that the CC&Rs required that Fusina pay this
amount for his share of the costs of the improvements to the Access Road.
8
D. The trial court's ruling
On September 13, 2010, the trial court entered a statement of decision in which the
court ruled in favor of Fusina on all of the claims in Svaco's complaint. The court
interpreted the CC&Rs and determined that none of the costs of improving the Access
Road were chargeable to Fusina. The court therefore ruled that Svaco was not entitled to
prevail on her breach of contract and declaratory relief claims, which were based on the
CC&Rs, and that Svaco was not entitled to impose an equitable lien on the Fusina Parcel
to secure payment of these costs.3
With respect to Fusina's cross-complaint, the trial court found that Eveline had
breached provisions in the purchase agreement for the Fusina Parcel that required her to
disclose "known material facts and defects affecting the property." The court found also
that Fusina was entitled to prevail on his claim for fraudulent concealment against
Eveline, based on her failure to disclose her plan to improve the Access Road, and that
Fusina was entitled to rescind the purchase agreement for the Fusina Parcel due to this
concealment. Finally, the court found that Fusina was the prevailing party in the action.4
3 The trial court also found that Fusina was entitled to prevail on his claim for quiet title against Svaco, on the ground that Svaco was not entitled to impose a lien on the Fusina Parcel.
4 Although not material to this appeal, the court also found that Fusina was not entitled to recover on his claims for breach of the covenant of good faith and fair dealing and intentional misrepresentation, that it was not necessary to award Fusina any declaratory relief, and that Fusina was not entitled to recover punitive damages. 9
On September 23, Fusina filed a "Notice of Election of Rescission," notifying the
court and the other parties of his election to rescind the purchase agreement for the
Fusina Parcel, pursuant to the court's statement of decision.
The trial court entered a judgment on November 12, 2010, in favor of Fusina
against Svaco on her claims for equitable lien, breach of contract, and declaratory relief.
The court granted judgment in favor of Fusina, against Eveline, on the claims in his
cross-complaint for breach of contract and fraudulent concealment, and awarded Fusina
damages in the amount of $1.00 on each claim. In addition, the court granted judgment
in favor of Fusina on his cause of action for rescission of the purchase agreement for the
Fusina Parcel, and specified the manner by which the rescission was to be effectuated.
Finally, the court found that Fusina was the prevailing party, and awarded him costs in
the amount of $6,918.11 and attorney fees in the amount of $129,852.50. The court
stated that Svaco and Eveline were jointly and severally liable for the costs and attorney
fees.
E. The appeal
Svaco and Eveline timely appealed the judgment.
10
III.
DISCUSSION
A. The trial court did not err in permitting Fusina to rescind the purchase agreement based on Eveline's fraudulent concealment of her plan to improve the Access Road
Eveline contends that the trial court erred in finding that she fraudulently procured
Fusina's consent to the purchase agreement for the Fusina parcel by concealing her plan
to improve the Access Road.
1. Governing law
a. Fraudulent concealment
In Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, at
pages 612 through 613, the court outlined the elements of a fraudulent concealment cause
of action:
"(1) [T]he defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage."
In Alfaro v. Community Housing Imp. System & Planning Assn., Inc. (2009) 171
Cal.App.4th 1356, the court discussed the tort of fraudulent concealment in the context of
a real estate transaction by stating, "A seller of real property has a common law duty to
disclose 'where the seller 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
11
buyer . . . .' [Citations.]" (Id. at p. 1382.) "This broad statement of duty has led one
commentator to conclude: 'The ancient maxim caveat emptor ("let the buyer beware")
has little or no application to California real estate transactions.' (1 Miller & Starr,
Current Law of Cal. Real Estate (rev. ed. 1975) § 1:80.)" (Reed v. King (1983) 145
Cal.App.3d 261, 265 [concluding buyer stated cause of action for rescission based on
seller's failure to disclose that a woman and her four children had been murdered on the
"A party to a contract may rescind the contract in the following cases:
"(1) If the consent of the party rescinding, or of any party jointly contracting with him, was given by . . . fraud . . . exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party."
Civil Code section 1572, provides in relevant part:
"Actual fraud, within the meaning of this chapter, consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract:
"[¶] . . . . [¶]
"3. The suppression of that which is true, by one having knowledge or belief of the fact[.]"
In the context of real estate sales, "[b]reach of a seller's duty of disclosure is
grounds for rescission. [Citation.]" (Assilzadeh v. Cal. Fed. Bank (2000) 82 Cal.App.4th
399, 409 (Assilzadeh).)
12
2. Factual and procedural background
In its statement of decision, the trial court stated the following:
"The court finds that Fusina's consent to the purchase agreement was procured by 'fraud' within the meaning of Civil Code section 1689. The 'fraud' consisted of the concealment of the following material facts: "(1) [Eveline] had plans to perform substantial work on the [Access Road]; (2) [Eveline] knew that the costs of the work would be significant – in the hundreds of thousands of dollars; (3) [Eveline] had received bids from contractors showing that the expected costs would be in the hundreds of thousands of dollars; and (4) [Eveline] planned to charge Fusina for a one-third share of those costs. [¶] Therefore, Fusina may, at his election, rescind the purchase of the Fusina Parcel."
In addition to making these findings, the trial court determined that Eveline had
breached various provisions in the purchase agreement for the Fusina Parcel that required
her to disclose material facts affecting the property. In making this determination, the
trial court noted that Eveline had provided Fusina with a document entitled, "Seller
Vacant Land Questionnaire." That questionnaire states in relevant part, " 'Are you
(Seller) aware of . . . [a]ny Homeowner or Property Owner Association (OA) governing
the Property, or any pending or proposed due increases, special assessments, rule
changes, insurance, availability issues or litigation by or against the OA affecting the
Property?' " The trial court noted that Eveline had answered " 'Yes' " to this question and
that she had added, " 'Recorded CC&Rs requiring contribution to access and trails.' " The
court found that Eveline's "response was misleading and incomplete," reasoning:
"At the time of the response, [Eveline] knew that she or others would be making a claim against the purchaser of the Fusina Parcel for one-third of hundreds of thousands of dollars of work to be performed on the [Access Road]. . . . [¶] In essence [Eveline] knew that Fusina was not only buying the Fusina Parcel for $570,000, he
13
was also buying a claim against him for more than a hundred thousand dollars. Even if the claim turned out to be legally invalid (as this Court believes to be the case), Fusina was unwittingly buying an obligation to defend against a claim that was known to [Eveline]. This was material to the transaction and should have been disclosed. The failure to disclose constitutes a breach of the purchase agreement. [¶] In this regard, the Court finds that the testimony of both [Eveline] and [Michael] concerning these important topics was not entirely credible."
3. Eveline's contentions in support of reversal are without merit
Eveline raises several contentions in support of reversal of the trial court's ruling
permitting Fusina to rescind his purchase of the Fusina Parcel. None are persuasive.
a. There is substantial evidence to support the trial court's finding that Eveline concealed her plan to perform extensive work on the Access Road
Eveline's contends that there is no substantial evidence to support the trial court's
finding that she failed to disclose to Fusina her plan to perform extensive work on the
Access Road.
i. Standard of review
"We review findings by the trier of fact under the substantial evidence
standard. . . ." (Faigin v. Signature Group Holdings, Inc. (2012) 211 Cal.App.4th 726,
736.) " 'Substantial evidence' is evidence of ponderable legal significance, evidence that
is reasonable, credible and of solid value. [Citation] . . . Inferences may constitute
substantial evidence, but they must be the product of logic and reason. Speculation or
conjecture alone is not substantial evidence. [Citations.] . . . [¶] The ultimate test is
whether it is reasonable for a trier of fact to make the ruling in question in light of the
14
whole record. [Citation.]" (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634,
651-652.)
ii. Application
At trial, Fusina repeatedly testified that no one disclosed to him Eveline's plan to
perform extensive work on the road. For example, Fusina testified as follows:
"I had no . . . idea that there was going to be a road or in the process of it. And if it started in 2004, even though it didn't get finished until 2008, you would think that I would have been told something. You would think that I would have been told something. You would think that the people selling this, knowing that, that they would tell me something that a road is coming in there. And it never happened."5
Fusina's real estate agent, Brian Cane, also testified that no one disclosed to him
the plans to perform work on the Access Road:
"[Fusina's attorney]: And no one ever told you that . . . that road was going to be built and Mr. Fusina was going to be expected to pay one-third of it; is that right?"
"[Cane]: No."
"[Fusina's attorney]: And had you known that, you certainly would have told Fusina; is that correct?
"[Cane]: Correct."
5 Fusina also testified "Nothing was ever said to me about a road . . . . And nobody, nobody said anything to me until it was 98 percent done a year later." In addition, when asked, "Did anyone ever tell you that you needed to pay so much money for these improvements?" Fusina responded, "Not until September of . . . 2008 when it was 98 percent completed. Previous to that, no." 15
Further, none of the various documents that Eveline provided to Fusina in
connection with the sale of the Fusina Parcel disclosed her plan to perform substantial
work on the Access Road.
Eveline does not dispute that she had a duty to disclose her plan to perform
substantial work on the Access Road, and does not address any of the evidence discussed
above on which the trial court could have based a reasonable finding that she failed to
disclose such plan. Rather, Eveline's sole argument is that she adequately disclosed her
plan to perform substantial work on the Access Road by providing Fusina with a copy of
a "soils report"6 related to the Access Road. We are not persuaded. Most fundamentally,
Eveline does not identify any portion of the soils report that discloses an imminent plan
to improve the Access Road. Further, the trial court could have reasonably relied on the
following testimony concerning the soils report in finding that Eveline did not fulfill her
duty to disclose her plan to perform substantial work on the Access Road merely by
providing Fusina with a copy of the report.
Engineer Smith testified as follows concerning the soils report:
"[Fusina's attorney]: And the soils report, which we discussed earlier, was not intended to convey that a road was going to be built. It was intended to evaluate the soils in the area to subsequently design a road; is that right?
"[Smith]: That's correct."
6 The report is formally entitled "Limited Geotechnical Investigation and Evaluation Private Easement Road." 16
Cane, Fusina's real estate agent, testified as follows concerning the soils report:
"[Fusina's attorney]: The soils report, Exhibit 12, what did the soils report tell you about the [Access Road]?
"[Cane]: Tells me that the sellers had acquired—as to [sic] the feasibility of building a road, and gave factual information on that.
"[Fusina's attorney]: And was that all it told you?
"[Cane]: The feasibility of building a road, yes.
"[Fusina's attorney]: It didn't . . . disclose to you, in your view, that anyone was planning to build a road, did it?
"[Cane]: No, it was—it's my understanding of this record that they had [sic] as to feasibility of building a road on that."
Cane also testified that he was under the impression that the soils report was "a
report that they were simply providing because they had a report." Fusina testified that
he did not understand the report.
In light of the nature of the soils report and the testimony cited above, we conclude
that the trial court was not required to find that Eveline fulfilled her duty to disclose plans
to perform substantial work on the Access Road merely by providing Fusina with a copy
of the soils report. Accordingly, because the trial court could have reasonably found that
Eveline failed to disclose, either orally or in writing, her plan to have extensive work
done on the Access Road, we conclude that there is substantial evidence to support the
trial court's finding that Eveline concealed her plan from Fusina.
17
b. There is substantial evidence to support the trial court's finding that Eveline concealed her plan to charge Fusina one-third of the costs of improving the Access Road
Eveline contends that there is no substantial evidence to support the trial court's
finding that she concealed her plan to charge Fusina for one-third of the costs of
improving the Access Road. We apply the substantial evidence standard of review
described in part III.A.1.a., ante, to this claim.
The evidence supporting this finding largely overlaps the evidence supporting the
trial court's finding that Eveline did not disclose her plan to perform substantial work on
the Access Road. Fusina and Cane both testified that no one disclosed to them the fact
that Eveline planned to charge Fusina one-third of the costs of improving the Access
Road. Nor did Eveline provide Fusina with any documentation disclosing in writing her
plan to charge him for one-third of the costs of improving the Access Road.
Eveline does not dispute that she had a duty to disclose her plan to charge Fusina
one-third of the costs of the planned improvements. However, she contends that she
fulfilled this duty by providing Fusina with a copy of the CC&Rs. In making this
contention, Eveline demonstrates her misunderstanding of the crux of the trial court's
finding concerning her failure to disclose. Irrespective of whether the costs for
improving the Access Road were chargeable to Fusina under the terms of the CC&Rs,7
7 As noted in parts I. and II., ante, in rejecting Svaco's claims, the trial court interpreted the CC&Rs and concluded that the costs of improving the Access Road were not chargeable to Fusina. Although we need not address the merits of the trial court's conclusion in this regard for the reasons explained in part I, ante, we emphasize that we 18
the trial court found that Eveline failed to disclose that she intended to make a claim
against Fusina for these costs, and that she knew that these costs would be substantial,
i.e.," in the hundreds of thousands of dollars." As noted previously, in connection with
its finding that Eveline breached the purchase agreement by failing to provide all material
facts affecting the property, the court found:
"[Eveline] knew that she or others would be making a claim against the purchaser of the Fusina Parcel for one-third of hundreds of thousands of dollars of work to be performed on the [Access Road]. . . . [¶] In essence [Eveline] knew that Fusina was not only buying the Fusina Parcel for $570,000, he was also buying a claim against him for more than a hundred thousand dollars. Even if the claim turned out to be legally invalid (as this Court believes to be the case), Fusina was unwittingly buying an obligation to defend against a claim that was known to [Eveline]."
The evidence clearly supports the trial court's finding that at the time the parties
entered into the purchase agreement for the Fusina Parcel, Eveline knew that she intended
to make a claim against Fusina. Eveline, herself, testified that she knew, prior to entering
into the purchase agreement for the Fusina Parcel, that she would seek to charge Fusina
one-third of the costs of the improvements to the Access Road.8 Further, it cannot be
disputed that the CC&Rs did not put Fusina on notice that Eveline would be making a
claim pursuant to the CC&Rs. It was Eveline's failure to disclose her intention to make a
do not intend to suggest that the trial court erred in its interpretation of the CC&Rs. We simply do not need to reach that issue in order to resolve this appeal.
8 Fusina's attorney asked Eveline, "But you knew before you sold [Fusina's parcel] that you would be asking him for a third of the costs to the road; is that correct?" Eveline responded, "Yes." Fusina's attorney continued, "Well, why not tell him or his agent?" Eveline responded, "It was in the paperwork." 19
claim for a substantial amount of money against Fusina, pursuant to the CC&Rs, that the
trial court found constituted a breach of Eveline's duty of disclosure. Eveline has failed
to make any persuasive argument that would undermine this finding. Accordingly, we
conclude that there is substantial evidence to support the trial court's finding that Eveline
concealed her plan to charge Fusina one-third of the costs of improving the Access Road.
c. Eveline's contentions concerning her failure to disclose her knowledge of the costs and bids associated with improving the Access Road are unpersuasive
Eveline raises several contentions concerning the trial court's findings that she
knew that the costs of work on the Access Road would be significant, and that she had
received bids that demonstrated that the expected costs would be in the hundreds of
thousands of dollars. None of Eveline's contentions are persuasive. Most of her
contentions fail because they are based on the faulty premise that "there is no substantial
evidence to support the finding that [Eveline] concealed plans to perform substantial
work on the [Access Road]." (Italics added.) In fact, as discussed above, there is
substantial evidence to support the trial court's finding that Eveline concealed her plan to
perform substantial work on the Access Road. It is Eveline's failure to disclose both her
plan to improve the road and the costs and bids associated with that plan that the trial
court found constituted a breach of her to duty to disclose. Thus, we are not persuaded
by any of Eveline's numerous arguments that she had no duty to disclose her knowledge
of the costs and bids associated with the road improvements because she purportedly
adequately disclosed her plan to perform substantial work on the Access Road.
20
Citing Assilzadeh, supra, 82 Cal.App.4th 399, Eveline argues that she had no duty
to disclose her knowledge of the costs and bids associated with the road improvements
because a construction bid is a speculative opinion, and not a factual matter bearing upon
the quality of the property. In Assilzadeh, the Court of Appeal concluded that a seller of
a condominium unit had complied with its duty of disclosure by informing the buyer of
the settlement of construction defect litigation related to the condominium project, and
that the seller was not required to disclose its agent's opinion concerning the potential
future market value of units in the project. (Id. at pp. 410-412.)
In this case, in contrast, there is substantial evidence to support the trial court's
finding that Eveline failed to disclose her plan to perform substantial work on the Access
Road. Further, the construction bids in this case constituted evidence that Eveline had
clear and specific plans to improve the Access Road, in contrast with the "vague and
general speculation concerning the possible market value of the unit at some unspecified
future time depending on factors that may never exist," that the Assilzadeh court held
failed to give rise to a duty of disclosure. (Assilzadeh, supra, 82 Cal.App.4th at p. 412.)
Thus, even assuming that there were authority to support the proposition that a seller does
not generally have a duty to disclose construction bids,9 in this case, as discussed above,
Eveline's failure to disclose the bids is a component of a larger breach of her duty to
disclose her plan to have extensive and costly work performed on the Access Road.
9 Assilzadeh, which, as discussed in the text, dealt with the disclosure of an opinion as to the potential future market value of real estate (Assilzadeh, supra, 82 Cal.App.4th at pp. 410-412), does not constitute authority for this proposition. 21
Eveline contends that she was not required to disclose the bids to perform work on the
Access Road because the bids were purportedly "merely further details regarding the
fundamental facts disclosed in the CC&Rs." This argument is similar to the argument
addressed above, and we reject it for a similar reason. In Stevenson, the buyers of a
mobilehome park claimed that the seller had breached his to duty of disclosure by failing
to inform the buyers that that in 1971, the seller had temporarily moved several
mobilehomes onto the property to permit an easement holder to work on a pipeline under
the property. (Id. at p. 165.) The Stevenson court rejected the buyers' argument that the
seller was required to disclose that 1971 incident, reasoning:
"Although it would no doubt have interested the [buyers] to learn of the 1971 incident, the primary material fact which potentially affected the value of the property was the 'underlying' fact of the pipeline itself—a fact immediately ascertainable from the public records. A reasonable person in the [buyers'] position, knowing that the oil company's easement was for pipeline purposes, would have realized that the easement holder might exercise its right of access to the pipeline at any time. . . . [¶] By warning the [buyers] in the purchase contract that they took title subject to easements of record, [the seller] put them on notice of the above material facts, which satisfied his duty of disclosure under the express terms of the contract." (Id. at p. 166.)
The seller in Stevenson disclosed the fundamental fact related to the property, i.e.,
the existence of the easement, but was not required to disclose additional facts related to
that fact. In this case, in contrast, there is substantial evidence to support the trial court's
finding that Eveline failed to disclose the fundamental fact related to the property at
issue, i.e., her plan to perform substantial work on the Access Road. Thus, even
22
assuming that the construction bids were "merely further details" pertaining to a
fundamental fact related to the property, Eveline failed to disclose the fundamental fact
contends that the bids were not disclosable because they were merely "practical
ramifications of the CC&Rs." In Sweat, this court concluded that a house seller's agent
was not required to disclose the legal and practical ramifications emanating from the fact
that the house was located in a floodplain. (Id. at p. 608.) The Sweat court reasoned:
"The factual matter leading to the alleged defect in the house—that it was in a floodplain—was revealed to the plaintiffs. The legal and practical effects of this state of affairs do not rise to the status of a fact—they are conclusions as to value resulting from the fact of situs in a floodplain. The existence and effect of city ordinances regulating rebuilding or improvement of a house in a floodplain constitute information as readily available to the plaintiffs as to the defendants. Actionable nondisclosure relates to facts not discoverable by the plaintiffs." (Ibid.)
Unlike in Sweat, the key factual matter related to the property at issue—Eveline's
plan to seek to recover from Fusina one-third of the costs of improving the Access
Road—was not revealed to Fusina. Further, as discussed above, there is substantial
evidence to support the trial court's finding that Eveline's disclosure of the CC&Rs did
not constitute an adequate disclosure of her plan to charge Fusina one-third of the costs of
improvements to the Access Road. Thus, contrary to Eveline's contention that the bids
were practical ramifications of the CC&Rs, in fact the bids were ramifications of
Eveline's plan to perform substantial work on the Access Road and charge Fusina one-
third of the costs. Finally, unlike in Sweat, Eveline's plan was not public information "as
23
readily available to the plaintiffs as to the defendants." (Sweat, supra, 37 Cal.App.4th at
p. 608.) Accordingly, we reject Eveline's contentions that the bids were not disclosable
pursuant to Sweat because they were merely "practical ramifications of the CC&Rs."
Eveline also contends that no duty to disclose the bids arose because there was "no
substantial evidence to prove that bids for the cost of bringing the road into compliance
with the fire department requirements were accessible only to [Eveline], and . . . there
was no substantial evidence that [Eveline] was aware that Fusina did not know how to get
such bids nor that [Eveline] knew that Fusina could not reasonably discover such bids."
This contention is entirely unpersuasive. In light of the trial court's finding that Eveline
failed to disclose her plan to have extensive work done on the Access Road, the trial
court also could have reasonably found that Fusina lacked the ability to discover the costs
of her undisclosed plan and the bids to perform such plan.
Eveline also raises a series of arguments related to her contention that there is no
substantial evidence that Fusina would have acted differently if he had known about the
bids. Fusina testified that he would not have purchased the Fusina Parcel if he had
known of Eveline's plan to improve the Access Road and that she intended to make a
claim against him for several hundred thousand dollars in costs for improving the Access
Road. In fact, Fusina testified that he would not have bought the Fusina Parcel if he had
been told that the Access Road would cost him even $20,000.10 Accordingly, we
conclude that there is substantial evidence that Fusina would not have entered into the
10 As noted in part II., ante, appellants presented evidence that the "overall cost of the road" was $655,073.51. 24
purchase agreement for the Fusina Parcel if he had known of Eveline's plan to perform
substantial work on the Access Road and the bids to perform such work.
Finally, Eveline argues that there is no substantial evidence that the work
performed on the Access Road was detrimental to the value of Fusina's Parcel. (Citing
Sweat, supra, 37 Cal.App.4th at p. 608 [seller has duty to disclose "all factual matters
bearing upon the quality of the property being sold which might be detrimental to
value"].) Eveline argues that the improvements to the Access Road "improved both the
value and quality of [Fusina's Parcel]" by making the land suitable for residential
construction. This argument overlooks the fact that Eveline's plan to charge Fusina more
than $225,000 for the improvements to the Access Road based on his ownership of the
Fusina Parcel—an amount equal to approximately 40 percent of cost of the parcel itself,
rendered the Fusina Parcel less desirable than represented. Further, in making this
argument, Eveline fails to address the detriment that Fusina suffered in having to defend
against a claim seeking to impose an equitable lien in the amount of more than $225,000
on the property to pay for the improvements.11 Accordingly, we conclude that Eveline
has not demonstrated that her failure to disclose her plan to perform substantial work on
the Access Road and charge Fusina one-third of the costs of that work was not
detrimental to the value of Fusina's Parcel.
11 We emphasize that Eveline makes no argument that the improvements to the Access Road increased the fair market value of Fusina's parcel by more than the costs to construct the improvements. 25
B. In light of Fusina's election to rescind the purchase agreement for the Fusina Parcel, the judgment must be modified by striking the judgment in Fusina's favor on his breach of contract and concealment causes of action based on that same agreement
Appellants contend that because Fusina elected to rescind the purchase agreement,
the judgment must be modified by striking the judgment in Fusina's favor on his breach
of contract and concealment causes of action based on the same agreement. We agree.
1. Governing law
The law is clear that a party may not both rescind a contract and obtain damages
for breach of that same contract.
"When one party has been injured by a breach of contract and she either lacks the ability or the desire to keep the contract alive, she can choose between two different remedies. [Citation.] She can treat the contract as rescinded and recover damages resulting from the rescission. Or she can treat the contract as repudiated by the other party and recover damages to which she would have been entitled had the other party not breached the contract or prevented her performance. [Citation.] An action for rescission is based on the disaffirmance of the contract and an action for damages for breach of contract is based on its affirmance. [Citations.] An action for rescission and an action for breach of contract are alternative remedies. The election of one bars recovery under the other. [Citations.]" (Akin v. Certain Underwriters At Lloyd's London (2006) 140 Cal.App.4th 291, 296.)
"Under California law, a defrauded party to a contract may elect to rescind the
contract and seek restitution, or stand on the contract and recover damages arising from
the fraud." (McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 793, fn. 1,
italics added (McClain).) More generally, any "cause of action having its origin in a
rescission of the contract is inconsistent with a cause of action for enforcement of the
26
contract based upon its affirmance. [Citations.]" (City Bank of San Diego v.
Ramage (1968) 266 Cal.App.2d 570, 587.)
2. Factual and procedural background
In its statement of decision, the trial court stated:
"The court will enter a separate judgment with the following terms: [¶] . . . [¶] . . . if cross-complainant Joseph Fusina does not elect to rescind the purchase of the Fusina Parcel, then . . . Joseph Fusina shall recover $1 from cross-defendant Eveline Bustillos . . . . [¶] . . . Alternatively, if Joseph Fusina elects to rescind the purchase agreement, Fusina's purchase of the Fusina Parcel shall be rescinded and the parties shall be restored to their positions as they existed immediately prior to the execution of the purchase agreement."
Ten days after the court issued its statement of decision, Fusina filed a "Notice of
Election of Rescission," indicating his intent to elect the rescission remedy and rescind
the purchase agreement for the Fusina Parcel.
Approximately two months later, the court entered judgment in favor of Fusina on
his breach of contract and concealment causes of action, and awarded nominal damages
of $1.00 for each claim. The trial court also entered judgment in favor of Fusina on his
cause of action for rescission, permitting him to rescind the purchase agreement.
3. Application
Fusina concedes that the "election of rescission is inconsistent with Judgment for
breach of contract," and agrees that the judgment for breach of contract must be stricken.
However, Fusina argues that numerous cases "hold that fraudulent concealment of a
material fact in connection with a real estate sales contract properly serves as the basis for
rescission of that contract." As made clear in their reply brief, appellants do not contend
27
otherwise. Rather appellants object to the trial court entering judgment in favor of Fusina
on his claims for breach of contract and fraudulent concealment based on the purchase
agreement for the Fusina Parcel and awarding him affirmative relief (in the form of
nominal damages) on those claims, and at the same time permitting him to rescind the
purchase agreement. Appellants are correct that the judgment violates the election of
remedies doctrine discussed in McClain. (See McClain, supra, 159 Cal.App.4th at p.
793.) Having elected to rescind the purchase agreement based on the court's finding that
his consent to the purchase agreement was obtained by fraud, Fusina may not also
recover damages based on such fraud.
Accordingly, we modify the judgment to reflect Fusina's election to rescind the
purchase agreement for the Fusina Parcel by striking the judgment in Fusina's favor on
his breach of contract and concealment causes of action based on the same agreement.12
12 As noted in the text, in its statement of decision, the trial court stated its intent to enter a judgment awarding Fusina damages on his breach of contract and concealment claims or rescission. The record indicates that the parties prepared a proposed judgment that awarded nominal damages on Fusina's breach of contract and concealment claims and rescission, which the trial court signed. Our modification of the judgment makes it consistent with that which the trial court stated it intended to enter in its statement of decision. 28
IV.
DISPOSITION
The November 12, 2010 judgment is modified to strike the judgment in favor of
Fusina on Fusina's breach of contract and concealment causes of action. As so modified,
the judgment is affirmed. Fusina shall recover costs on appeal.
AARON, J.
WE CONCUR:
O'ROURKE, Acting P. J.
IRION, J.
29
AI Brief
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Holding. The court affirmed the trial court's judgment allowing the buyer to rescind a real estate purchase agreement due to the seller's fraudulent concealment of planned, expensive road improvements. Consequently, the court held that the buyer was not bound by the CC&Rs governing the property and struck the portion of the judgment awarding the buyer affirmative relief on contract and fraud claims, as such relief was inconsistent with the election of rescission.
Issues
Did the trial court err in finding the seller committed fraudulent concealment by failing to disclose plans for expensive road improvements?
Are the CC&Rs binding on the buyer if the underlying purchase agreement is rescinded?
Is an award of affirmative damages for breach of contract and fraud consistent with a judgment for rescission of the contract?
Disposition. Affirmed as modified.
Quotations verified verbatim against the opinion
“We strike those portions of the judgment granting Fusina affirmative relief on Fusina's breach of contract and concealment causes of action, because such relief is inconsistent with Fusina's election to rescind the purchase agreement.”