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District Court of Appeal, Fourth District, California.

Robert W. KRUSE and Adeline L. Kruse, husband and wife, Plaintiffs and Respondents, v. George Sidney MILLER, Defendant and Appellant.

Civ. 5150.

Decided: August 03, 1956

Martin & Martin and Mahedy & Schall, San Diego, for appellant. Vincent Whelan, San Diego, for respondents.

On October 11, 1950, plaintiffs, who owned a house and lot on Whitman Street in San Diego, listed their property for sale with one G. T. Garrity, a licensed real estate broker. The defendant, who was also a licensed real estate broker, with the permission and at the request of Garrity, showed the property to George O. Carter and his wife. The Carters were interested in buying the house if it could be enlarged and on or about October 11, 1950, after they had inspected the interior of the building, Carter asked Miller if the lot was a ‘filled lot’ and Miller said ‘No’. Carter then told Miller that he intended to build on and make it an ideal home. Relying upon Miller's statement that the lot was not ‘filled’, the Carters purchased the property and moved into the house on or about October 27, 1950. The house, in fact, was on a filled lot and some time prior to October 1, 1951, it began to sink, and the Carters then discovered the fact that it was built on a filled lot. On October 11, 1951, Carter served notice of rescission of the contract of purchase on plaintiffs on the ground that Miller had falsely represented to him that the lot was not a filled lot. Plaintiffs were not aware of the statement made by Miller to the Carters and when they asked Miller, through their attorney and through Garrity, if he had made such a representation, he denied it. Plaintiffs, then relying on Miller's statement, refused to rescind the contract of sale, whereupon a suit for rescission of the contract and for damages was filed by the Carters against plaintiffs herein and, again relying on Miller's denial that he had made the false representation, plaintiffs contested the action. The Carters obtained a judgment against the Kruses in that action for $6,691.97 and this judgment was satisfied on or about May 14, 1953, by payment of said sum to the Carters. After the satisfaction of this judgment and the rescission, the Gray's Mortgage and Loan Corporation, which had sold the property to the Kruses, entered into a compromise settlement with them in which the corporation took the property back and paid plaintiffs the sum of $3,500 net, in cash, therefor.

On March 1, 1954, the present action was commenced by plaintiffs to recover from Miller the following sums:

$3,191.97 (Amount paid on Carter judgment after deducting $3,500 received from Gray's Mortgage and Loan Company.)

$575.00 (Broker's commission on sale to Carters.)

$60.50 (Escrow charges on sale to Carters.)

$800.00 (Attorney's fees incurred in defending the Carter action.)

$113.35 (Court costs defending Carter action.)

$111.16 (Loss of earnings for time spent defending Carter action.)


The trial court rendered judgment in favor of plaintiffs and against defendant Miller for the total sum of $4,857.98, plus costs, and defendant appeals from the judgment, claiming that it is erroneous.

The first argument presented by appellant in support of this claim is that no cause of action for fraud was stated or proven. This argument is without merit. It is alleged in the complaint that the defendant, in his capacity as a real estate broker, undertook to act as agent for the plaintiffs in the sale of the property involved; that while acting as such agent, he showed the property to prospective purchasers, Carter and his wife; that he represented to them that the residence was not built on a filled lot; that the lot was in fact a filled lot and that it had been built up to a height of several feet above its normal level by placing thereon loose earth and debris; that the fact that the lot was filled was not apparent to a visual inspection and was not known to plaintiffs; that the representations made by defendant were made for the purpose of inducing the Carters to purchase the property and were believed and relied upon by them, and in reliance upon such representations, the Carters purchased the property; that said representations were made without the knowledge of plaintiffs and without any authority from them; that defendant failed to disclose said representations to plaintiffs; that the Carters rescinded their contract with plaintiffs and judgment was rendered in their favor and against the plaintiffs in a rescission action; that plaintiffs were damaged in the amount of this judgment, which they paid, and by other expenses incurred by reason of the statements of defendant to the Carters. We conclude that a cause of action for fraud was sufficiently pleaded and that there is substantial evidence of the facts alleged.

Section 1709 of the Civil Code provides that one who wilfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers, and deceit is defined in section 1710 of said code, subdivision 3, as the suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact. Section 1573 of said code, subdivision 1, provides that constructive fraud consists ‘In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him.’

In the instant case Miller violated his duty to plaintiffs, his principals, by not informing them of the representations he had made to the Carters that the lot was not a filled lot, and thereby perpetrated a fraud upon the confidence bestowed upon him by the plaintiffs. 2 Cal.Jur.2d, Agency, Sec. 104. As is said in Vance v. Supreme Lodge of the Fraternal Brotherhood, 15 Cal.App. 178, 182–183, 114 P. 83, 85:

‘It is very uniformly held, however, that, where any relation of confidence and trust exists between the parties which demands that the information communicated respecting the subject of their dealings be full and complete, any concealment or misrepresentation will amount to fraud sufficient to entitle the party injured thereby to an action. The contract between plaintiff and defendant created here the relation of principal and agent. Upon the agent, because of the existence of such relation, there was the duty of informing his principal fully and correctly regarding all matters concerned in the business then being transacted under his contract of agency.’

The record shows that Kruse had no dealings with Miller in respect to the listing or sale of the property and that Miller was acting with the express permission of Garrity, who had the listing. Under the circumstances shown, Miller, as a subagent, was under the same duty as Garrity to act in the utmost good faith. 2 Cal.Jur.2d, Agency, Sec. 69.

It is next argued that the plaintiffs' action is barred by the statute of limitations. This argument is likewise without merit. The notice of rescission by the Carters was served on Kruse on October 11, 1951, and this action was filed on March 1, 1954, less than three years after the filing of the notice of rescission. Since the complaint states a cause of action for relief on the ground of fraud, the provisions of section 338, subdivision 4, of the Code of Civil Procedure, which authorizes an action for relief on the ground of fraud within three years, are applicable.

Finally, it is argued that plaintiffs suffered no damage by reason of their compliance with the decree in the rescission action. We cannot agree with this contention. Section 3333 of the Civil Code provides that ‘For the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this Code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.’ Under this provision and under the provisions of section 1709 of said code, plaintiffs are entitled to recover such damages as resulted from the fraud of Miller. Since Miller was not authorized to make the false representation to the Carters, he subjected the plaintiffs to liability because of his fraudulent acts and was chargeable with the loss which resulted therefrom. Restatement, Agency, Sec. 401, p. 914. The finding of the trial court that plaintiffs suffered damages in the sum of $4,857.98 by reason of the wrongful and fraudulent conduct of the defendant is supported by substantial evidence and cannot here be disturbed. It was stipulated that the sum of $3,500 was paid to the plaintiffs in their compromise settlement with the Gray's Mortgage and Loan Company and there is no substantial evidence that the plaintiffs could or should have received more than this sum for their interest in the property. Plaintiffs were under a duty to defendant to mitigate the damages, if any, accruing to them by reason of the defendant's wrongful representation, 14 Cal.Jur.2d, Damages, Sec. 111, and it appears that they performed this duty by an early and advantageous sale to the Gray's Mortgage and Loan Company.

The judgment is affirmed.

MUSSELL, Justice.

BARNARD, P. J., and GRIFFIN, J., concur.

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