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District Court of Appeal, Second District, Division 2, California.

GAGNE et al. v. BERTRAN et al.*

Civ. 19672.

Decided: December 17, 1953

Wallace & Cashin, Earl A. Everett, Los Angeles, for appellant. Nicholas Ferrara, Los Angeles, for respondents.

Defendant Bertran appeals from a judgment in the sum of $3,093.

Plaintiffs, who are four in number, entered into an agreement for the purchase of two unimproved lots for $8,500. The agreement recited that the deal was ‘subject to * * * a fill test to be made at buyers' expense.’ Plaintiff Joseph Billiet, acting in behalf of his coplaintiffs, thereupon telephoned defendant informing him that he wished to have test holes drilled on the two lots to ascertain whether there was fill thereon. The testimony is in sharp conflict as to the nature and extent of defendant's responsibility with respect to conduct of the said test. Billiet's testimony, which was accepted by the court, was to the effect that he employed defendant, as he had on four previous occasions between 1939 and 1942, not only to drill test holes but also to test the soil of the lots for fill. It was agreed that defendant's compensation would be at the rate of $10 per hour.

On March 7, 1947, defendant dispatched two employees with a power-operated auger mounted on the rear of a truck to the designated property. Mr. Billiet testified that defendant's employees had already drilled about three holes on the property when he came upon the scene. Defendant arrived a short while later, following which two more holes were drilled. Billiet stated that defendant picked up in his hands samples of the soil removed from the holes, examined it, and stated to him that there was nothing to worry about, that the fill was not deeper than 12 to 6 inches below the surface. On March 17, 1947, plaintiffs paid defendant the sum of $25 for his work, which had consumed two and one-half hours. Concurrently with this payment, plaintiffs requested that defendant provide them with a letter showing his findings on the parcel of land, since this might be required by the F.H.A. On March 20, 1947, defendant replied by letter, a part of which reads: ‘* * * On March 7, 1947, we drilled five 16″ dia. test holes on property located at * * * the holes were drilled to a depth of 5′0 to 6′0 deep, we did not find any evidence of fill other than on the surface for about 12″ to 16″ * * *’ Mr. Billiet testified that although he observed the manner in which defendant arrived at his finding, he believed the statements made to him and in reliance thereon he purchased the two lots for the sum of $8,500.

Subsequent to the purchase of the lots, plaintiffs decided to erect thereon a two-story house containing 12 apartment units. Commitments for financing were obtained. A contract was made with one Paul Hammond calling for the installation of a foundation for the proposed structure at a cost of $3,121.40, estimated on the presence of a fill no more than 16 inches deep. When the work of excavation for the foundation was begun, and a trench of between 10 and 15 feet long dug, the operator of the trenching machine discovered that his machine was sinking to a depth of about 5 feet. He called this to the attention of Mr. Billiet, who thereupon temporarily suspended work and notified Mr. Hammond, the cement contractor. It was then ascertained that the fill was of a greater depth than 16 inches below the surface, and in fact, about 5 or 6 feet deep. After this discovery by Mr. Hammond and Mr. Billiet, the trenching of the foundations was resumed. Mr. Billiet testified he summoned defendant to the site and explained the circumstances to him, whereupon defendant asserted he apparently made a mistake. Plaintiffs were required to place the foundation at a greater depth than planned in order to construct the type of building they desired to put on the land, thus increasing their cost of installing the foundation by $3,093.65 over the price originally contracted for with Mr. Hammond.1

Defendant testified that he was employed by plaintiffs merely to drill the holes. He stated that for this purpose he supplied the equipment and two men, and charged $25 for two and one-half hours' drilling work, his rate being $10 an hour for drilling. He testified that he told Billiet he was not a geologist or soil expert, and that Billiet should get an engineer or the city inspector to check the soil accurately. He stated he could detect fill only if he noticed foreign substances, rubble, or debris in the soil upon visual inspection. He testified that in answer to Billiet's question of how the soil looked, he simply gave his honest opinion, based on what he observed by picking up the dirt unearthed from the holes, that he found no fill below 16 inches, all the while disclaiming any professional skill.

Billiet testified that plaintiffs would not have purchased the lots had they known the fill was of a much greater depth than 16 inches, nor would defendant have been employed to make a fill test had he known defendant was not skilled or qualified to do so. There was no testimony that defendant knew the purpose for which plaintiffs contemplated purchasing the lots. In fact, Mr. Billiet testified that at the time the holes were drilled he had no plans regarding the construction. He testified that the total cost of the completed building, including the lots, was about $99,000. Defendant's attempt to place in evidence the price for which plaintiffs sold the property was rejected. Defendant thereupon made an offer to prove that plaintiffs had obtained the sum of $106,800 from the sale of the property shortly after the completion of the building, thereby realizing a profit of about $7,800 on the over-all transaction.

Plaintiffs' complaint prayed for damages in the amount of the extra sum required to install a deeper foundation due to the presence of fill on the property they purchased. The pleadings embrace three causes of action based on the theory of defendant's liability for (1) breach of warranty, (2) fraud, and (3) negligence.

The trial court made findings fastening liability upon defendant upon each of the theories advanced by plaintiffs in their complaint. Among other things, and in addition to findings generally in accord with the testimony given by Billiet, the court found that defendant held himself out as being qualified to test soil; that defendant was informed by Billiet that he wanted to purchase certain lots on which to erect an apartment house and desired to have defendant test the soil thereon for fill; that defendant warranted and represented as a fact to plaintiffs that there was no fill below 12″ to 16″, which was untrue, since the depth of the fill varied from 3′ to 6′ deep; that plaintiffs relied on such false representation and warranty in the purchase of the lots for $8,500; that defendant made his test for fill negligently and carelessly, and negligently represented that there was no fill below 12″ to 16″; and that such representation was fraudulent and untrue since defendant had no reasonable grounds for believing the representations to be true; that plaintiffs relied upon defendant's oral and written representations and warranty as to the depth of the fill, and upon the test he negligently made, to purchase the two lots for $8,500; that plaintiff's discovered for the first time the true depth of the fill when the foundation trenches were dug and as a direct and proximate cause of defendant's warranty, misrepresentation, and negligence were required to incur additional expenses by constructing a deeper foundation, said additional cost being $3,093.65; that plaintiffs were not aware of the true depth of the fill until the time the trenches were dug, and had plaintiffs known the true depth of the fill they would not have purchased the lots. The court entered judgment for plaintiffs in the sum of $3,093.65, which represented the additional cost of installing the foundation.

Defendant argues that the court erred in finding that defendant had made a warranty to plaintiffs regarding the nature of his findings with reference to the fill, or that he was guilty of fraudulent misrepresentation. He also attacks the court's findings of negligence and asserts that he was merely hired for the sum of $25 to drill test holes and was not an insurer or warrantor of the nonexistence of fill on the lots. Finally, he contends the measure of damages applied by the court in fixing plaintiffs' recovery was erroneous.

It is appropriate to observe at the very outset that insofar as the findings purport to fasten liability upon defendant on the theory of breach of warranty they are without substantial evidentiary support. The relationship between the parties was not that of seller and buyer, in which case defendant might be held liable regardless of any lack of intention that his statements constitute an express warranty, Civ.Code, § 1732; Chamberlain Co. v. Allis-Chalmers Mfg. Co., 51 Cal.App.2d 520, 523–524, 125 P.2d 113, or to which the implied warranty of the fitness of the article sold for the purpose intended by the buyer could be applied. Civ.Code, § 1735. It was a matter of complete indifference to defendant whether plaintiffs bought the two lots or not, since he had no interest whatever in that transaction. There is a well established and vital distinction between a fraudulent misrepresentation and a warranty, Rutherford v. Standard Engineering Corp., 88 Cal.App.2d 554, 565–568, 199 P.2d 354, although both may develop out of a single representation. Caldbeck v. Simanton, 82 Vt. 69, 71 A. 881, 20 L.R.A.,N.S., 844. A warranty is normally a part of a contract of sale, while a fraudulent misrepresentation is an antecedent statement made as an inducement to the contract. Griswold v. Morrison, 53 Cal.App. 93, 99, 200 P. 62. It is not every false affirmation or representation made by a party to a business transaction that will support an action for breach of warranty. See Eibel v. Von Fell, 63 N.J.L. 3, 42 A. 754. Where, as here, there was no contract of sale between the parties to which defendant's representation could attach as a warranty, before he could be held to the strict liability of a warrantor it must appear that the parties understood and intended that defendant's statement would be construed as a warranty, Shattuck v. St. Francis Hotel & Apts., 7 Cal.2d 358, 60 P.2d 855, or that there was either a specific agreement warranting a promised result, Crawford v. Duncan, 61 Cal.App. 647, 215 P. 573, or a consideration of such a nature as would indicate an express warranty was intended to be given or received. There is nothing in the record before us to suggest that the transaction between defendant and plaintiffs was undertaken with the intention that defendant would guarantee the accuracy of his statements or be held strictly liable as a warrantor. Defendant's liability, if any, upon the facts before us, must rest either upon the grounds of misrepresentation or negligence.

A cause of action for fraud is proven where the evidence discloses (1) the making of a false representation of a material fact; (2) that defendant either knew the statement was false, or lacked an honest belief in its truth, or that the statement was carelessly made, in a manner not warranted by the information possessed by defendant; (3) that it was made with intent to induce reliance by plaintiff; (4) that it was justifiably relied on by plaintiff, and (5) plaintiff suffered damage thereby. Wishnick v. Frye, 111 Cal.App.2d 926, 930, 245 P.2d 532; Podlasky v. Price, 87 Cal.App.2d 151, 158, 196 P.2d 608. Without indulging in a circumstantial review of the evidence already alluded to, it is plain that it amply sustains the findings of the existence of actionable fraud in accordance with the elements above enumerated. Boas v. Bank of America, 51 Cal.App.2d 592, 125 P.2d 620; Palladine v. Imperial Valley F. L. Ass'n, 65 Cal.App. 727, 737–739, 744, 225 P. 291; Blackman v. Howes, 82 Cal.App.2d 275, 281, 185 P.2d 1019, 174 A.L.R. 1004. Similarly, if the testimony of Mr. Billiet is to be believed, it was reasonable to find that defendant was either negligent in the manner in which he conducted his soil test or was negligent in asserting as a fact that there was no more than 16 inches of fill when he should reasonably have known his representation was not warranted by the information available to him. However, defendant's contention that the court erred in its application of the measure of damages is well taken.

It is clear from the record that the trial court assessed damages by the simple expedient of awarding plaintiffs the sum they had expended on completing the foundation in excess of the price originally agreed upon with the contractor. Such was not the correct measure of damages in the circumstances here present. By virtue of the enactment of Civil Code, § 3343, the ‘out of pocket’ loss rule was adopted in the place of the ‘benefit of the bargain’ rule as the exclusive measure of damages for fraud in the purchase of real property. Bagdasarian v. Gragnon, 31 Cal.2d 744, 759, 192 P.2d 935; Jacobs v. Levin, 58 Cal.App.2d Supp. 913, 916–917, 137 P.2d 500. Under this so-called ‘tort’ rule, the measure of damages for fraud which induces the sale of real property is computed by determining the difference between the consideration paid for the property and the actual value of the property, ‘together with any additional damage arising from a particular transaction.’ Bagdasarian v. Gragnon, supra [31 Cal. 744, 192 P.2d 944]; Rothstein v. Janss Inv. Corp., 45 Cal.App.2d 64, 73, 113 P.2d 465. In such cases damages are to be computed as of the date of the fraudulent transaction. Hancock v. Williams, 99 Cal.App.2d 80, 82, 221 P.2d 129. In the instant case, plaintiffs introduced no evidence to show that the value of the lots they purchased were not actually worth what they paid for them. The record is destitute of any evidence of the value of the lots purchased other than the price they paid. Certainly, if the lots were worth as much or more than the price expended, plaintiffs have suffered no compensable detriment.

Plaintiffs contend that in any event, by proceeding with their plans to erect an apartment building, they were required to expend $3,093.65 more than they contemplated because of their reliance on the information furnished by defendant. The additional damages that may be recovered under Civil Code, § 3343 includes the item of actual expenditures made by the plaintiffs, provided they are the proximate result of the defendant's fraud. Oliver v. Benton, 92 Cal.App.2d 853, 855, 208 P.2d 375. As previously noted, at no time was defendant informed by plaintiffs of the type of building they planned to construct, or even that they planned to erect any building at all. Plaintiffs crystallized these particular plans only after they had purchased the lots. Thereupon they contracted to have a foundation emplaced for the sum of $3,121.40. Plaintiffs indicate that this figure was predicated on the absence of fill below 16 inches. However, at the very commencement of the excavation, when only a single trenth of about 10 to 15 feet in length had been dug, plaintiffs discovered the lots contained considerable fill. At this point, having become aware of defendant's misrepresentation and negligence, plaintiffs were in a position, had they been so inclined, to discontinue their projected building and recoup their damages from defendant under the principles declared above, plus any other damages proximately caused up to that point by defendant's conduct. Civ.Code, §§ 3343 and 1709. The contract between plaintiffs and Hammond to lay the foundation for $3,121.40, being based on a mutual mistake of fact as to the actual depth of the fill, could have been rescinded. See Hannah v. Steinman, 159 Cal. 142, 112 P. 1094; Lepper v. Ratterree, 98 Cal.App. 245, 255, 276 P. 1037; Forest Lawn Memorial Park Ass'n v. DeJarnette, 79 Cal.App. 601, 604, 250 P. 581. Instead, fully cognizant of the true situation, plaintiffs chose to proceed with the work even though it entailed spending an amount almost double the original contract price to achieve the completion of the foundation. In circumstances such as these, it is manifestly unfair to impose liability for this extra amount upon defendant in the absence of any showing that it was necessary to make such an outlay to avert greater loss or damage.

It is a fundamental principle of the law of damages that an injured person shall receive compensation commensurate with his injury, and no more. Hahn v. Wilde, 211 Cal. 52, 55, 293 P. 30; 8 Cal.Jur. 821. Damages must, however, ‘be reasonable, and where an obligation of any kind appears to create a right to unconscionable and grossly oppressive damages, contrary to substantial justice, no more than reasonable damages can be recovered.’ Civ.Code, § 3359. Thus it devolves upon a person injured by the wrongful act of another to exercise reasonable care to obviate expansion of his injury or enhancement of any damage he has sustained. Schultz v. Town of Lakeport, 5 Cal.2d 377, 382, 54 P.2d 1110, 55 P.2d 485, 108 A.L.R. 1168; California Cotton Co-op. Ass'n v. Byrne, 58 Cal.App.2d 340, 345, 136 P.2d 359; 8 Cal.Jur. 782. The rationale of the rule denying recovery for losses which a party could reasonably have averted is that plaintiffs' conduct subsequent to the discovery of the injury, rather than defendant's wrong, proximately caused the damage for which compensation is sought. Valencia v. Shell Oil Co., 23 Cal.2d 840, 846–847, 147 P.2d 558. In the instant case, after discovering the filled condition of the land at a time when work had barely started, when only the expenses of preparation had been incurred, and when further work and expenditures of a substantial character could have been prevented, plaintiffs nevertheless, for reasons of their own, decided to go forward and erect an apartment building on the lots. It is unnecessary for us to speculate on whether they regarded it as a profitable deal for them despite the added expense of a deeper foundation. The essential fact is that it was their own, independent choice after full knowledge, rather than defendant's antecedent fraud or negligence, which was proximately responsible for the expenditures made subsequent to their discovery of the fill on the lots. Hickman v. Johnson, 36 Cal.App. 342, 346, 178 P. 145. The law will not countenance the ballooning of costs against a tort-feasor at a time when the injured party is in a position to mitigate further damage. If plaintiffs' theory of recovery were to prevail, it would enable a party who had become aware of another's fraud or negligence to proceed with his own plans, however, costly, in the comfortable expectation that the wrongdoer would be compelled ultimately to underwrite the added cost. It would be inconsistent with the dictates of substantial justice to thus extend the ambit of defendant's responsibility in a situation such as is here presented.

A similar result is reached with respect to the added expense of the foundation when defendant's liability is examined from the standpoint of negligence. Unless a statute specifically provides otherwise, the proper measure of damages for the breach of an obligation not arising from contract ‘is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.’ Civ.Code, § 3333. It is axiomatic that negligence is not actionable unless plaintiff can show detriment proximately engendered by reason of the negligence. McGregor v. Wright, 117 Cal.App. 186, 196, 3 P.2d 624; Prosser on Torts, p. 177. As has been pointed out in the preceding discussion, the increased costs of the foundation cannot be deemed to have flowed proximately from defendant's negligence. To affirm the award to plaintiffs of the amount of $3,093.65 would be, in effect, a surreptitious application of the former ‘benefit of the bargain’ rule in place of the ‘out of pocket’ principle, would defeat the doctrine of mitigation of damages, would ignore the elements of proximate cause in tort actions, and would impose on defendant an onerous liability not warranted by the circumstances.

There is no merit in defendant's argument that the court erred in rejecting his offer of proof that plaintiffs made an overall profit of $7,800 on the lots and building and thus suffered no detriment in relying on his representations to purchase the lots. It is axiomatic, of course, that misrepresentation without injury does not give rise to a cause of action. Hunter v. McKenzie, 197 Cal. 176, 239 P. 1090; Gaffney v. Graf, 73 Cal.App. 622, 626, 238 P. 1054, nor is negligence actionable unless plaintiff can show actual detriment by reason of the negligence. Prosser on Torts, p. 177. However, the rule is clear that damages for misrepresentation are to be assessed as of the time of the fraudulent misrepresentation. Hancock v. Williams, 99 Cal.App.2d 80, 82, 221 P.2d 129; Garstang v. Skinner, 165 Cal. 721, 726, 134 P. 329. The fact that through fortuitous, external circumstances, or through his own initiative and skill, the plaintiff or injured party has been able to secure a net benefit from the tortious incident will not be credited to defendant's benefit in considering the question of plaintiff's detriment. Leader v. Kolligian, 262 Mass. 63, 159 N.E. 458–459; Sacramento Suburban Fruit Lands Co. v. Leitch, 9 Cir., 36 F.2d 949; Rest. of Torts, sec. 920, comment d—Illustration 9.

In view of the mistake of the trial court in the measure of damages applied, the judgment is reversed and the trial court is directed to retry only the issue of damages in accordance with the views expressed herein. See Royer v. Carter, 37 Cal.2d 544, 551, 233 P.2d 539. The parties are to bear their own costs on appeal.


1.  The provisions of section 91.4807, subds. (b), (e), (f), Los Angeles Municipal Code, were read into the record, which in general require that for a two-story building, the depth of the foundation must be 18″ below undisturbed natural ground surface.

FOX, Justice.

MOORE, P. J., and McCOMB, J., concur.

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