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


Civ. 11701.

Decided: May 05, 1938

Chambers & Lyman, by Robert Chambers, all of Hollywood, for appellants Gamble, Pringle, and Parker & Gamble, Ltd. Gordon W. Levoy, A. Edward Nichols, and Clarence Stephens Brooks, by Gordon W. Levoy, all of Hollywood, for appellant S. C. Kleeman. John Dean Barrick and William B. Etheridge, both of Pasadena, for respondent.

In this action plaintiff alleged that she had suffered damages occasioned by the fraud and false representations of the defendants. She obtained a judgment in the sum of $17,760 against all of the defendants except Charles Wagner and Ruth Kleeman, the last named not having been served with summons and not having appeared in the action. The defendants against whom judgment was entered have filed this appeal.

Ruth Kleeman was the owner of a lot at the corner of Third and Hobart streets in the city of Los Angeles, upon which there had been erected a building containing stores on the ground floor and apartments above. Her father, defendant S. C. Kleeman, had some interest in the property and held a power of attorney from his daughter. The Kleemans had obtained this property a few months before the transactions hereinafter referred to, having secured it at a cost of $40,000 on an exchange of properties with a party not concerned in the present litigation. S. C. Kleeman was a dealer in real estate and was a licensed real estate broker. He prepared a setup, or prospectus, setting forth the expenses of and income from the property and submitted it to a number of real estate brokers, among them defendants Parker & Gamble, Ltd., of Pasadena.

Defendant Gamble was the president of Parker & Gamble, Ltd. The plaintiff, Mrs. Feckenscher, a widow, was a client of the firm, Mr. Gamble having acted in real estate transactions on behalf of her husband during his lifetime. Defendant Pringle was a salesman in the employ of Parker & Gamble, Ltd., and conducted most of the negotiations concerning the transactions referred to in the complaint, subject to the direction of defendant Gamble. Upon receiving the set–up from Kleeman, Gamble presented to plaintiff a proposition for the exchange of plaintiff's properties for the Third and Hobart property. The negotiations commenced in March, 1935. An agreement was singed by plaintiff and Kleeman on March 29, 1935, wherein it was provided that plaintiff should exchange three properties, one in Pasadena and two in Detroit, for the Kleeman property. The Pasadena property consisted of a residence at 1711 East Maple street, encumbered with a trust deed in the sum of $2,000. The Detroit properties consisted of a store building at Twelfth and Highland streets and a land contract upon which there was due the sum of $7,000. Kleeman agreed to exchange the Third and Hobart property subject to a trust deed in the sum of $25,000, due in March, 1938, and subject to street bonds payable $200 per year and a balance of $300 on the refrigerator equipment. An escrow was opened on April 4, 1935, and instructions were placed in the escrow by the parties. It was provided in the agreement that Parker & Gamble, Ltd., were “authorized to act as agents for all parties hereto and may accept commission therefrom.” The trust deed on the property was actually for the sum of $25,500, and was past–due but Kleeman had arranged with the owner of the trust deed for an extension on making a cash payment.

After the exchange agreement had been filed and the escrow established it was discovered that plaintiff's two Michigan properties were not as represented. The mortgage on the store building at Twelfth and Highland streets had been foreclosed and the period of redemption was running, the back taxes amounted to $1,200 instead of $350 as claimed and the balance due on the land contract was less than $7,000 and the monthly installments were in arrears. The evidence is in conflict as to what took place when the true status of the Michigan properties was discovered. Kleeman testified that he wanted to withdraw. Mrs. Feckenscher testified: “Mr. Gamble and Mr. Pringle did not want me to go through with it.” She also testified that they told her that she should hurry through with the transaction and that it was a “wonderful deal” for her. By consent of all of the parties Kleeman went to Michigan and disposed of plaintiff's property, turning the proceeds into the escrow. On April 24, 1935, new escrow instructions were filed by both parties in which it was provided that plaintiff's properties should be turned in under the new conditions developed by Kleeman's disposition of the Michigan properties and that the Third and Hobart property should be turned in under the conditions that the trust deed should be extended for one year, the interest to be 8 per cent. instead of 7 per cent. and the monthly payments on the trust deed to be $200. The transaction was finally consummated on these conditions and the escrow closed on July 16, 1935.

The trial court found that the defendants were engaged in a joint adventure, that they had made false representations to plaintiff, and had acted “in pursuance of a common purpose, plan and design, and with a wilful and deliberate common purpose and intention to deceive and mislead the plaintiff and induce the plaintiff to rely upon such false statements and representations, and, so relying thereon, to enter into and consummate said exchange.” The court rendered judgment in plaintiff's favor on June 29, 1937, for the difference between the fair and reasonable value of the property received by her and the represented value thereof. Defendants contend that the court applied the wrong measure of damages, citing Tulley v. Tranor, 53 Cal. 274. In view of our disposition of other points in the case the question whether the trial court followed the correct rule in determining the amount of damages becomes immaterial.

Defendants contend that the findings of the trial court that they made false representations are not sustained by the evidence. A review of the evidence contained in the lengthy record forces the conclusion that this contention must be sustained. Much emphasis is placed upon the alleged representation that the trust deed on the Los Angeles property was to run three additional years, whereas it was due at the time of the opening of the negotiations. Without considering the point made by defendant that an extension had been granted and would have been placed in escrow before it was closed, it is sufficient to point out that upon discovering the misstatements of plaintiff concerning the Michigan properties a new agreement was made by plaintiff and defendant Kleeman. This agreement superseded the original agreement. Elko Mfg. Co. v. Brinkmeyer, 216 Cal. 658, 15 P.2d 751. Under the terms of the new agreement the extension was to provide that the trust deed should run until April, 1936. Substantial compliance was made by Kleeman with the new condition which had been agreed upon.

Plaintiff relies mainly upon the finding of the trial court that the Los Angeles property was represented to be of the value of $40,000, whereas in fact it was worth only the sum of $26,000, and the further finding that the personal property in the building was represented to be worth $7,000 whereas it was in fact worth only $3,210. Defendants testified that they considered the property worth the full value which had been placed upon it. The trial court based its findings upon the testimony of expert witnesses who testified at the time of trial concerning the value of the property nearly two years earlier. The set–up prepared by Kleeman showed that the rentals from the property were producing a net income of $125 per month. The property was at the time of the negotiations fully rented at the rent designated in the set–up with the exception of one apartment, the rental value of which was placed in the set–up as $20 per month. Plaintiff was informed of this vacancy. Defendant Kleeman did not meet plaintiff until after the consummation of the transaction. He did, however, inform Gamble that in his opinion the property was worth $40,000. Gamble in turn made similar statements to plaintiff. After plaintiff took charge of the property rentals fell off and she was unable to make the payments on the trust deed, as a result of which the trust deed, as a result of which the trust deed was foreclosed. It was established by uncontradicted evidence that the personal property involved had cost the sum of $10,000.

The trial court did not find that any of the defendants knew that the property did not have the value that they had placed upon it and the record does not disclose evidence which would have supported such a finding or circumstances from which it could reasonably be inferred that defendants knew that an excessive value was being placed upon this property. In view of the net income being derived from the property and the discussion between the parties concerning a new government loan which was in contemplation, it cannot be held that defendants were making fraudulent representations when they gave their opinions concerning the value of the property. Fraud is never presumed. On the contrary, it is provided in section 1963, subdivision 19, of the Code of Civil Procedure that unless controverted by other evidence it is presumed that private transactions have been fair and regular.

Plaintiff and Kleeman were dealing at arm's length. It is a general rule that each party must rely upon his own judgment and should investigate before making a contract. The rule is particularly applicable where the advantages or disadvantages of the transaction depend upon opinions as to the value of the property to be purchased. The valuation placed upon the property by Kleeman must be considered as his opinion only and under the circumstances here shown will not support a finding of fraud. Plaintiff lived but a few miles from the property and had ample opportunity to inspect the property and make her own conclusion as to its value. She did in fact inspect the property. In Carpenter v. Hamilton, 18 Cal.App.2d 69, 71, 62 P.2d 1397, the court had under consideration alleged fraudulent representations concerning the physical condition of a residence purchased by the plaintiffs. The court stated (page 1399): “But the right to rely upon the representations, of course, does not exist where a purchaser chooses to inspect the property before purchaser, and in making such inspection, learns the true facts, for the obvious reason that he has not been defrauded unless he has been misled, and he has not been misled where he has acted with actual or imputed knowledge of the true facts.” Mere expressions of opinion concerning the value of real estate which is subject to inspection by the purchaser do not afford grounds for damages for false representations. In Finch v. McKee, 18 Cal.App.2d 90, 62 P.2d 1380, the court held that statements concerning value (page 1382) “are charitably considered mere expressions of opinion which will not afford grounds for suit. Usually a purchaser is charged with knowledge of such excess enthusiasm and human frailty on the part of a vendor, for which he must make due allowance, and he is deemed to accept as true such representations, amounting to mere judgment or opinion, at his own peril.”

Although defendants Gamble and Pringle are in a position somewhat different from that of defendant Kleeman, since they were found by the court to be confidential agents of plaintiff, nevertheless the evidence is insufficient to justify the findings upon which the judgment is predicated. The court found upon sufficient evidence that plaintiff knew that these defendants were representing both parties to the transaction. Several months went by in which numerous escrow instructions were filed by plaintiff. She inspected the property with her lawyer and discussed the transaction with her banker. She was in danger of losing her Michigan property, which was in course of foreclosure. No showing was made that she was not capable of understanding the various documents she signed or realizing the problems which would be hers upon the consummation of the exchange. Knowledge of all the facts concerning the exchange were available to her upon inspection of the property and an examination of the documents in the escrow. Although the existence of a confidential relationship may be considered in determining the liability of defendants Gamble and Pringle, the relationship does not absolve plaintiff from the exercise of reasonable or ordinary care. Rutherford v. Rideout Bank, Cal.App., 75 P.2d 101. The principal question involved was the value of the property to be purchased, which plaintiff visited with an attorney who advised her concerning the transaction. The rule allowing vendors of real estate considerable latitude in expressing opinions as to the value of their properties is also applicable to real estate brokers and agents.

Plaintiff refers to other representations made by defendants which are claimed to be false. These representations for the most part were shown to be true and none of them resulted in damage to plaintiff. It is claimed that defendants stated that no other market was in the immediate vicinity whereas in fact another market was in the process of construction at the time of the negotiations. The court found upon sufficient evidence that plaintiff in due time was aware of the construction of the new market. Complaint is also made of the representation that the fixtures were clear of encumbrances except the sum of $330 due on their purchase price, whereas the owner of the trust deed held a lien upon the fixtures to guarantee the payment of the amounts secured by the trust deed. It was shown without contradiction that plaintiff was informed that the title to the fixtures went with the building. She was therefore informed that the holder of the trust deed must necessarily have a lien on the fixtures. Plaintiff further complains that the rentals had been assigned to the owner of the trust deed as security for the payments due. It was not shown that plaintiff suffered any damage on this account.

The judgment is reversed.

WOOD, Justice.

We concur: CRAIL, P. J.; McCOMB, J.