Opinion
NOT TO BE PUBLISHED
Santa Clara County Super. Ct. No. CV059100
RUSHING, P.J.
Plaintiffs Bruce and Eve Cohen bought a house in Los Altos Hills with the intention of expanding it. They brought this action against the sellers, Ira and Lily Ota, and real estate agents Gary Herbert, Dorothy Gurwith, and Valley of California, Inc. doing business as Coldwell Banker (Coldwell Banker), charging in essence that the defendants induced plaintiffs to purchase the house by misrepresenting its condition and its suitability for expansion. After a nonjury trial, the court entered judgment for all defendants essentially on the grounds that (1) the sellers assumed no contractual obligation to accurately represent the condition of the property; (2) the brokers were guilty only of negligent misrepresentation; (3) these facts barred the plaintiffs from recovering any damages other than “out-of-pocket” and consequential damages; and (4) plaintiffs failed to establish any such damages. On appeal plaintiffs challenge each of these determinations. We hold that the first cannot be sustained and that the judgment in favor of the sellers must therefore be reversed. As to the realtor defendants, however, plaintiffs have failed to demonstrate reversible error, and we must affirm.
Background
The Otas purchased the property as undeveloped land in the mid-1960’s. Defendant Ira Ota, a licensed general contractor, constructed a home on the property. Between its completion in 1967 and plaintiffs’ purchase, the Otas lived there and made various repairs and improvements. In 2003, the Otas engaged defendants Herbert and Coldwell Banker to list the house for sale. They, and he, advertised the property as “impeccable” and “expandable, ” with “[h]uge basement and attic areas allowing for easy expansion.”
Eve Cohen testified that plaintiffs engaged defendant Gurwith to represent them in searching for a suitable house for purchase. She told Gurwith that plaintiffs, who had three children, needed four bedrooms and were seeking privacy. She saw an advertisement for the Otas’ house, and told Gurwith she would like to see it. Bruce Cohen testified that at some point he and his wife went to the home and met with Ira Ota while viewing the interior. Mr. Ota told them that he was an engineer-contractor and knew what he was doing, that he had built the home to be pretty tough, and assured them that there would be no problem expanding the house because it had been built well and permitted properly. He expressed the view that they could double the size of the house. He was “rather adamant that the house was over built.” He told them no work had been done on the house without a permit.
On December 4, 2003, plaintiffs offered to purchase the house for $1.65 million. The Otas counter offered with a price of $1.7 million and an agreement to permit them to rent the property for up to 90 days after closing at the rate of $1.00 per month. Plaintiffs apparently accepted this counteroffer on December 6, 2003, the date of its making.
After the sale closed, plaintiffs encountered various obstacles to their plans for expansion. Among the most prominent was the discovery of what Bruce Cohen described as “a failing septic system that, ” for regulatory reasons, “couldn’t be fixed and couldn’t go on sewer.” It also emerged that the property had some history of soil subsidence, and that some repairs had been done to the house’s foundation as a result. During discovery in this matter plaintiffs learned for the first time of two geotechnical reports prepared for the sellers in the 1980’s reflecting some of these issues.
On April 9, 2004, Attorney E. David Marks formally demanded rescission on plaintiffs’ behalf. On April 22, Attorney Jeffrey Widman, writing on behalf of the Otas, refused.
Plaintiffs brought this action on March 2, 2006, against the Otas, Herbert, Gurwith and Coldwell Banker. The first three causes of action charged the Otas with breach of contract, breach of the covenant of good faith and fair dealing, and breach of the disclosure obligations imposed on sellers of residential real estate by Civil Code sections 1102 et sequitur. The fourth cause of action charged Herbert, Gurwith, and Coldwell Banker with negligence in that they breached the standard of care governing real estate professionals by failing to disclose relevant facts about the property, failing to adequately advise plaintiffs, failing to investigate the accuracy of statements made to plaintiffs, failing to recommend proper inspections and investigations, and failing to comply with their statutory duties of honest and fair dealing and good faith. The fifth cause of action charged the same defendants with breach of fiduciary duty. The sixth cause of action charged all defendants with negligent misrepresentations; the seventh charged the Otas with intentional misrepresentations; and the eighth charged them with “fraud and concealment.”
Herbert, Gurwith, and Coldwell Banker answered the complaint. Coldwell Banker cross-complained against the Otas for contractual indemnity and a declaration allocating among the defendants any damages awarded, and holding the Otas obligated to indemnify Coldwell Banker.
The Otas demurred to the first three causes of action of the complaint on the ground that plaintiffs’ allegations sounded in tort and thus would not support claims for breach of contract, breach of covenant, or violation of the statutory duty of disclosure. The court overruled the demurrer. The Otas answered the complaint and cross-complained against Herbert, Gurwith, and Coldwell Banker.
The matter was tried to the court without a jury. In proceedings described more fully below, the court resolved all claims against plaintiffs, and entered judgment accordingly. After motions to vacate the judgment and for a new trial were denied, plaintiffs appealed from the judgment. They appealed separately from an order awarding attorney fees to the Ota defendants. Plaintiffs moved to consolidate the appeals. We granted the motion.
Discussion
I. Breach of Contract
A. Proceedings Below
Plaintiffs alleged in their complaint that the purchase contract bound defendants “to comply with California Civil Code section 1102, et seq[.], by providing the Cohens with a completed and signed Real Estate Transfer Disclosure Statement and PRDS Supplemental Seller Checklist disclosing all material facts impacting the value or desirability of the property.” (Italics added.) Defendants breached the contract, plaintiffs alleged, “by failing to properly and accurately complete the required property disclosures....” (Italics added.)
After plaintiffs rested their case, the Otas moved for judgment on the contract cause of action on several grounds. They argued that the contract “contains no enforceable covenant requiring the Otas to provide accurate disclosures and contains no implied or express warranty as to the contents of the [disclosure documents].” They did not deny their statutory obligation to complete such documents, but they asserted that their only duty under the contract was to “timely... deliver” the statutorily required documents, most notably a transfer disclosure statement (TDS), to plaintiffs. They asserted that the TDS was “not a part of the Contract, ” and that “the representations embodied within [it] may not be enforced as separate covenants or warranties.” They argued that the only function of the TDS is “to inform the buyer before escrow closes. Its utility ends at that point, and so must the seller’s contractual duty.” They insisted that the contract contained no express or implied warranties. They also contended that insofar as the contract might otherwise have imposed obligations on them, its provisions were “merged in with the deed” delivered to plaintiffs on close of escrow. None of the obligations asserted by plaintiffs, they argued, could “survive closing of escrow” in the absence of a manifest intent by the parties that they do so. Finally, they contended that plaintiffs were refusing impermissibly to choose between their contract and tort remedies.
In granting the motion for judgment, the trial court appeared to adopt all but the last of these rationales. In its original order the court wrote that while the contract “succinctly state[d] the sellers’ disclosure obligations under settled case law [citation], and as codified in Civil Code section 1102.1(a) and 1102.6, ” it did not “state or give rise to a contractual obligation on the part of the sellers with respect to their disclosure obligations, except to disclose in a timely manner.” (Italics in original.) The court quoted a decision declaring that the similar forms asserted there could not be “ ‘relied upon as part of the purchase contract or as a separate contract containing conditions upon which the formation of the primary contract is based.’ ” (Brasier v. Sparks (1993) 17 Cal.App.4th 1756, 1760 (Brasier).) In addition, the court wrote that “the sellers’ disclosure obligations [we]re made expressly pre-contractual in the Purchase Contract, ” with the result that “the sellers had no continuing disclosure obligations under the Purchase Contract after delivery of the disclosure documents in a timely manner....” Finally, the court alluded to a decision holding “ ‘that the seller’s delivery of the disclosure statement is a condition precedent to the buyer’s duty to perform the contract.’ ” (Realmuto v. Gagnard (2003) 110 Cal.App.4th 193, 202.)
A few weeks later the court issued a further order refusing to permit plaintiffs to adduce additional evidence in support of their contract claim. The court declared the proffered evidence “neither relevant nor curative... in that their proposed new evidence fails to show or infer how the Otas’ disclosure obligations in the Purchase Contract (Exhibit 3)... survived the close of escrow....”
B. Contractual Undertaking
We first address the trial court’s determination that the sellers’ obligation to make accurate disclosures concerning the nature of the property was not contractual but arose solely from statute and common law. So far as we can discern, this determination rests on an interpretation of the parties’ agreement. We will therefore review it under principles we recently summarized in Tin Tin Corp. v. Pacific Rim Park, LLC (2009) 170 Cal.App.4th 1220, 1225: “When the meaning of the contract language may be determined without the aid of extrinsic evidence, we generally apply a de novo standard of review to the construction of the instrument. ‘ “ ‘Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. [[Civ. Code, ] § 1636.] Such intent is to be inferred, if possible, solely from the written provisions of the contract. [[Civ. Code, ] § 1639.]’ ” ’ [Citation.] ‘It is therefore solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence. Accordingly, “An appellate court is not bound by a construction of the contract based solely upon the terms of the written instrument without the aid of evidence [citations], where there is no conflict in the evidence [citations] or a determination has been made upon incompetent evidence [citation].” ’ (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865, ...; see also City of Hope Nat. Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 395, ... [Contract interpretation is solely a judicial function when ‘based on the words of the instrument alone, when there is no conflict in the extrinsic evidence, or a determination was made based on incompetent evidence’].) To the extent that the testimony adduced by the parties revealed a meaning of which the contract was reasonably susceptible, we defer to the court’s determination of those witnesses’ credibility and apply the substantial evidence rule to that determination. [Citations.]”
We see nothing to suggest that the trial court’s reading of the present contract rested on extrinsic evidence. The contract’s meaning and effect therefore presents a question for de novo review, unconstrained by deference to the trial court.
The elements of a cause of action for breach of contract are: (1) A contract obligating the defendant; (2) plaintiff’s performance of, or excuse from, conditions precedent to the defendant’s obligations; (3) the defendant’s breach of the obligation; and (4) resulting damage. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 515, p. 648.) Here the gist of plaintiffs’ claim was that the purchase contract obligated defendants to make accurate disclosures on the statutorily prescribed forms, if not elsewhere; that defendants failed to do so; and that plaintiffs were injured as a result. The only element of this claim that appears to be disputed is the first: did the contract obligate defendants to make accurate disclosures, or did it merely require them to make timely disclosures?
Plaintiffs contend that a contractual duty of accurate disclosure arose, first, from Paragraph 8 of the contract, which requires the sellers to “duly complete and provide” specified disclosure forms within a specified time. It also recites that “buyer has already received, read, and acknowledged” these statements “prior to Acceptance.” It goes on to declare that “[e]ven when” a sale is exempt-implicitly meaning, exempt from statutory disclosure requirements-the seller “is nonetheless legally obligated to disclose to Buyer all material facts of which the Seller is aware, negatively bearing on value or desirability of the Property.”
Paragraph 8 of the contract states, in pertinent part, “... Unless the transaction is exempt by law, Seller, Listing Agent (if any), and Selling agent (if any, and if such signature is required by law) shall duly complete and provide to Buyer a TDS [transfer disclosure statement], a Lead Disclosure and an NHDS [natural hazard disclosure statement]. Additionally, Seller shall duly complete and provide an SSC [supplemental seller checklist] unless the transaction is TDS-exempt.... Seller shall, within 5... days of Acceptance, deliver to Buyer each of the above-indicated Disclosure Documents for which an exemption does not apply. Those disclosure statements, if any, that the Buyer has already received, read and acknowledged prior to Acceptance are indicated here: ý TDS, ý Lead Disclosure, ý NHDS and ý SSC. If the required TDS, Lead Disclosure and/or NHDS documents are delivered to buyer after Acceptance, Buyer shall have the right to terminate the Contract by giving written notice to Seller within 3 days.... Unless Buyer elects to terminate the Contract based thereon, Buyer shall sign and return the TDS, Lead Disclosure, NHDS and SSC to Seller within 5... days.... If Buyer fails to sign and return required disclosure statements within the times required, Buyer will be in breach of this Contract. CAUTION: As to all non-exempt transactions, completion of the Disclosure Documents is required even where the Seller has little or no knowledge of the property. Even when the Property is part of a Decedent’s trust or estate (or occupies some other TDS-exempt status), the executor, trustee personal representative or other exempt seller is nonetheless legally obligated to disclose to Buyer all material facts of which the Seller is aware, negatively bearing on value or desirability of the Property. Seller is obligated to disclose all additions and alterations to the Property of which the Seller is aware and the permit and final approval status thereof....” (Italics and boldface in original.)
The trial court wrote that rather than “stat[ing] or giv[ing] rise to a contractual obligation, ” this provision merely recapitulated “the sellers[’]... disclosure obligations” under caselaw and statute. (Italics in original.) In other words, the court viewed this language as a mere recital of the sellers’ extracontractual obligations. Such a view is theoretically plausible. The law recognizes that contracting parties may wish to stipulate to some matter, without creating contractual rights or duties, usually to provide some kind of context for the obligations undertaken. (See DVD Copy Control Ass’n, Inc. v. Kaleidescape, Inc. (2009) 176 Cal.App.4th 697, 729 (conc.. opn. of Rushing, P.J.); Emeryville Redevelopment v. Harcros Pigments, Inc. (2002) 101 Cal.App.4th 1083, 1101, fn. 6, and accompanying text; 17A Am.Jur.2d (1991) Contracts, § 392, pp. 417-418; 17A C.J.S. (1999) Contracts, § 317, p. 340.) A recital may even concern a matter that seems wholly extraneous to the parties’ exchange of rights and obligations but that serves some peculiar interest of one or the other of them. (See Emeryville Redevelopment v. Harcros Pigments, Inc., supra, 101 Cal.App.4th 1083, 1101, fn. 6.) There is thus no theoretical barrier to the parties’ acknowledging duties imposed on one or both of them by general law, without intending to make those duties contractually binding. Parties might, in other words, allude to such obligations without intending to “contractualiz[e]” them. (See, e.g., In re Adelphia Business Solutions of Vermont, Inc. (2004) 861 A.2d 1078, 1083 [177 Vt. 136], quoting Milton Bd. of Sch. Dirs. v. Milton Staff Ass’n (1995) 656 A.2d 993, 995 [163 Vt. 240, 243-244].)
But if the parties are entitled to allude to extracontractual duties without making them binding covenants, they are also entitled to incorporate them into their agreement so as to provide the added assurance that any breach of those duties will support an action on the contract. Indeed, in the absence of some reason to suppose otherwise, any express recapitulation of such duties might be presumed to reflect such an intent.
It has been often declared that “ ‘ “ ‘[a]ll applicable laws in existence when an agreement is made... necessarily enter into the contract and form a part of it, without any stipulation to that effect, as if they were expressly referred to and incorporated.’ [Citation.]” ’ ” (Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 954, quoting Torrance v. Workers’ Comp. Appeals Bd. (1982) 32 Cal.3d 371, 378, quoting Alpha Beta Food Markets v. Retail Clerks Union (1955) 45 Cal.2d 764, 771, second italics added, .) This does not mean that a party breaches his contract every time he violates a statute touching on its subject matter. A pizzeria does not breach its contract to deliver a pizza merely by exceeding the speed limit in doing so. But there is no general reason to deprive the parties of the power to incorporate a general obligation into their agreement if they mutually manifest an intention to do so. The governing question will generally be the same as in all questions of contract: what was the intention of the parties, as objectively manifested by them, primarily in the words they chose?
Damages are another matter. The buyer of a pizza is unlikely to suffer any cognizable injury from a seller’s exceeding the speed limit. If, on the other hand, the seller had promised to refund the purchase price if delivery were not made by a certain time, and promised not to exceed the speed limit, the breach of the latter undertaking might support a claim for the purchase price even though the pizza actually arrived on time.
Here we see nothing in the parties’ agreement or the circumstances surrounding it that suggests that the language quoted above was not intended to bind the seller as a matter of contract. Indeed, the language of paragraph 8 affirmatively suggests that these obligations were part of the contract. It does not merely describe the seller’s disclosure duties. It uses language that seems plainly obligative, declaring that sellers “shall duly complete and provide” the specified materials. This form is conventionally understood to create an obligation, not merely acknowledge one. Moreover, if its function was merely to apprise the seller of his extracontractual duties, it was seemingly rendered superfluous by a separate document entitled “Disclosure Obligations” which manifestly performed the same function. Indeed that document explicitly acknowledged that a seller’s disclosure obligations could become part of the contract. It stated in part, “To facilitate complete disclosure, many Real Estate Agents provide Sellers with a Supplemental Disclosure form designed to fill in the gaps in the state-mandated form. Some purchase contracts require that Sellers complete a supplemental form.” (Italics added.)
Moreover, the paragraph does not limit itself to the statutory disclosure obligations but also requires the seller to complete the supplemental seller’s checklist, a form not required by statute. It goes on to delineate the seller’s general disclosure obligation, “[e]ven where” the transaction is exempt from the statutory requirements, to “disclose to Buyer all material facts of which is the Seller is aware....”
It seems to us that in the absence of some disclaimer or further explanation, the parties would naturally assume that the obligations thus stated are assumed by the seller as a matter of contract, whatever else they might represent. Certainly that is the understanding reflected in the testimony of plaintiff Bruce Cohen, who described this part of the contract as “the paragraph where the seller[’]s obligated to tell us all the things that are wrong with the house that he or she knows about.” Asked whether he “understood that was part of the contract, ” he testified “Yes.” We are directed to no evidence suggesting that any party understood the contract otherwise.
So far as we can tell, the Otas were not asked about their understanding of any of the relevant contract language. Their agent, defendant Herbert, testified without objection that in his opinion, if a seller possessed reports like the soils reports the sellers had here, “they were required by [the as-is] addendum [(see following discussion)] to provide one.”
Plaintiffs also asserted that a contractual duty of disclosure arose from the “As-Is Addendum” attached to, and expressly made a part of, the contract. In it, sellers “acknowledge[]” their “obligation of furnishing to Buyer all reasonably available current and prior reports and other information (of which Seller is reasonably aware) bearing on value and desirability of the Property and, unless the transaction is exempt, of furnishing to Buyer a complete Transfer Disclosure Statement and a completed PRDS Supplemental Seller Checklist.” (Italics in original.) This language might more readily be understood as a mere recital than is the case with the language examined above. However, such a reading is again cast in doubt by its reference to two acts that are not mandated by the statute: furnishing “current and prior reports, ” and providing a “completed PRDS Supplemental Seller Checklist [(SSC)].” It might be suggested that the duty to furnish reports has been imposed by caselaw, and thus exists outside the contract, but no such thing can be said of the “obligation” to provide a completed SSC. That obligation arises under the contract, or it does not arise at all. Since the contract explicitly asserts its existence, it must be understood to create it.
The addendum, entitled “PRDS As-Is Addendum, ” states in pertinent part:
The language we have described plainly contemplates the creation of duties between the parties. The mere fact that some of the duties would arise from statute or caselaw even without the cited language furnishes no basis to suppose that by including them in their contract the parties intended something other than to make them contractual obligations. The trial court’s conclusion that these duties were not contractual in nature cannot be sustained.
We are also unable to embrace the trial court’s conclusion that the contract only required the sellers to provide the required documents “in a timely manner.” Paragraph 8 declares not merely that the seller shall “provide” the specified documents but that he shall “duly complete” them. In such a context, “duly, ” means “[i]n a proper manner; in accordance with legal requirements” (Black’s Law Dict. (8th ed. 2004) p. 540, col. 1) or more succinctly, “ ‘according to law’ ” (Abalene Pest Control Service, Inc. v. Powell (1959) 8 A.D.2d 734, 734-735, 187 N.Y.S.2d 381, 382; see United States v. Debrow (1953) 346 U.S. 374, 377 [oath is “duly taken” if “taken according to a law which authorizes such oath”]; Maune v. Unity Press (1911) 143 A.D. 94, 127 N.Y.S. 1002, 1003 [“that which is ‘duly’ done is in legal parlance done according to law, and this does not relate to form merely, but includes both form and substance”]; Van Denburgh v. Goodfellow (1942) 19 Cal.2d 217, 222 [debt is not “duly scheduled” so as to be dischargeable in bankruptcy when creditor’s address is listed incorrectly]; cf. Merriam-Webster’s Collegiate Dict. (10th ed. 1999) p. 358 [“in due manner or time; PROPERLY”].) The plain meaning of the quoted language is that the sellers undertook to provide forms that complied with legal requirements in every respect, including substantive completeness.
Nor is there any reason to suppose that the Ota defendants understood it otherwise. On the contrary, their agent, defendant Herbert, affirmed that in discussing this language with his clients, he told them “that in order to duly complete a TDS and supplemental checklist, they need to disclose all those things they know that are questions” on those forms. He agreed that “[i]f they do not, ” they “haven’t listened to [his] advice and they have not duly completed” the forms. (Italics added.)
The court also observed that two of the disclosure forms “expressly state that they are not a part of the Purchase Contract.” The TDS recites that it “is not a warranty of any kind by the seller(s) or any agent(s) representing any principal(s) in this transaction, and is not a substitute for any inspections and warranties the principal(s) may wish to obtain.” (Capitalization removed.) Under the heading “Seller’s Information, ” it further states, “This information is a disclosure and is not intended to be part of any contract between the buyer and seller.” The SSC states: “This document is solely a supplemental disclosure; it is not, and shall not be deemed to constitute, any part of the related purchase contract.” (Capitalization removed.)
In view of the contract language we have already discussed, the clauses just quoted are at best patently ambiguous with respect to the intended contractual effect of the forms. If not for that language-if the forms merely accompanied the contract, without its referring to them-then the quoted disclaimers would go far to refute any contention by a buyer that inaccuracies in the disclosures thus made constituted a breach of contract. That is the apparent intent of the disclaimers, which originate in the statute that dictates the language of the TDS. (Civ. Code, § 1102.6.) The Legislature presumably intended by these disclaimers to avoid making the seller a guarantor of the condition of the property. It was reasonable to require the seller to disclose what he knew about problems with the property, but not to impose on him by statute-or indirectly by a statutorily prescribed form-the contractual duty to deliver property free of any conditions not mentioned. In other words, the Legislature sought quite reasonably to prevent disappointed buyers from arguing that the forms, in and of themselves, caused the seller to warrant the condition of the property. It does not follow, and we can think of no reason to suppose, that the Legislature meant to prevent the parties from voluntarily incorporating the statutory disclosure duties into their contract. It seems perfectly consistent with reason and good order for a seller to promise that he will in fact comply with his statutory duties, so that any failure to do so will violate both statute and contractual duties.
Such an undertaking does not really conflict with the disclaimer; the disclosures themselves are still not being offered to prove an underlying obligation (i.e., as “part of the contract”), but to prove a failure of performance-a breach. Thus plaintiffs did not have to show that the disclosure forms were “part of the contract” or themselves constituted contracts. Indeed the question whether a writing is “part of the contract, ” stated in the abstract, is the kind of metaphysical conundrum that ought to be rooted out of the law because it serves chiefly to obscure and confound. If A promises to sell a thousand hogs to B for a “duly drawn and issued check, ” and B tenders a forged check instead, a recital on the check that it is “not part of the contract” would scarcely insulate B from liability for breach of contract. Similarly, if a man promises to make full and truthful disclosures in a specified form, and he furnishes a form ostensibly fulfilling this undertaking but not in fact doing so, he has breached his promise, and he is liable for breach of contract, whatever disclaimers he may include in the form. The question is not what the form says about its legal effect but what the contract says on that subject; the disclaimer that the form is “part of the contract” is entirely consistent with its status as an instrumentality of performance but is not consistent with reading it to excuse the promisor from obligations expressed in the contract.
The trial court quoted a statement from Brasier, supra, 17 Cal.App.4th 1756, 1760, that the “plain language of the disclosure form” at issue there “refutes plaintiffs’ contention that the disclosure statement can be relied upon as part of the purchase contract or as a separate contract containing conditions upon which the formation of the primary contract is based.’ ” That conclusion appears to fall squarely within the interpretation we have just suggested, i.e., the duty to accurately fill out the forms cannot have been impliedly incorporated in the contract when the forms themselves declare otherwise. But here the duty to accurately fill out the forms was expressly incorporated in the body of the contract itself. The trial court therefore extended Brasier beyond its facts, reading it to mean that the parties cannot agree to impose a contractual disclosure duty on the seller because the disclaimers in the forms will supersede and nullify any such undertaking. That case does not go so far, and if it did we would be reluctant to follow it.
Here the contract obligated the sellers to “duly complete” these forms. Whether the forms were “part of the contract” is irrelevant.
The trial court also concluded that “the sellers’ disclosure obligations” were all “made expressly pre-contractual in the Purchase Contract.” We surmise that this is an allusion to the buyers’ acknowledgment in the contract that they had already received the disclosure forms. We fail to see how this could excuse a failure by the sellers to deliver forms that were “duly complete[d]” as required by the contract. The evident purpose of the acknowledgment of delivery was not to excuse incomplete forms but to satisfy the buyers’ contractual duty to acknowledge the receipt of forms ostensibly satisfying the seller’s duties. The effect of such an acknowledgment appears no different than if, in the above example, the hog seller acknowledged receipt of the buyer’s check. This mere acknowledgment could hardly excuse the buyer from liability when the check proves to be forged.
It is in this connection that the trial court quoted a passage from Realmuto, supra, 110 Cal.App.4th 193, 202. The question there was whether a residential seller could maintain a suit for specific performance after he had completely failed to provide the disclosure statements required by statute. The court concluded that the delivery of the prescribed forms was a condition precedent to the buyer’s performance, such that a complete failure to deliver them furnished a complete defense to the seller’s suit. The case differs from this one on virtually every point. The seller there had provided no disclosure statements, the buyer had refused to perform, the seller had sued, and the buyer had raised the seller’s own default as a defense. Here the sellers provided ostensibly proper forms; the buyers fully performed their obligations; the buyers sued when they discovered that the sellers had breached the undertaking to accurately disclose the condition of the property; and it is the sellers who attempt to avoid liability for breach of contract. We are unable to extract from Realmuto any statement bearing on any issue in this case. Even if we could do so, it would not constitute binding precedent. “Language used in any opinion is of course to be understood in the light of the facts and the issue then before the court, and an opinion is not authority for a proposition not therein considered.” (Ginns v. Savage (1964) 61 Cal.2d 520, 524, fn. 2; Blickman Turkus LP v. MF Downtown Sunnyvale, LLC, (2008) 162 Cal.App.4th 858, 900, fn. 13.)
Plaintiffs requested clarification below of the court’s reliance on Realmuto, but the court merely cited the case again-along with two others-in support of the statement that plaintiffs had “fail[ed] to show or infer how the Otas’ disclosure obligations... survived the close of escrow under settled case law.” This statement echoes the sellers’ assertion that none of the obligations asserted by plaintiffs could “survive closing of escrow” in the absence of a manifest intent by the parties that they do so. This assertion in turn apparently rested on their contention that once escrow closed, “all prior undertakings were merged in with the deed.” They thus invoked, and the trial court apparently adopted, the “doctrine of merger, ” which they described as “reflect[ing] the ‘fundamental rule’ that all prior negotiations and agreements are ‘merged’ into the deed.”
Needless to say, this reading does nothing to illuminate the court’s citation of Realmuto, where there was no conveyance and thus no deed into which anything could be merged.
Defendants’ reliance on the so-called “merger” rule to furnish a defense here constitutes an unjustifiable extension of that rule. The broad language on which they rely may indeed be found in a number of (mostly older) cases, and continues to be echoed at least in secondary sources. (E.g., Bryan v. Swain (1880) 56 Cal. 616, 618; 26 Cal.Jur.3d (2008) Deeds, § 160, pp. 511-513.) Other cases state the narrower and less remarkable rule that “when a provision in a deed is certain and unambiguous it prevails over an inconsistent provision in a contract of purchase pursuant to which the deed was given.” (Johnson v. Ware (1943) 58 Cal.App.2d 204, 206.) Some cases have recited both formulas as though they are different statements of the same principle. (E.g., Cochran v. Union Lumber Co. (1972) 26 Cal.App.3d 423, 429.) But of course there is a considerable difference between a rule stating that one instrument supersedes an earlier one in its entirety, and one stating that it supersedes conflicting provisions of the earlier document.
The best current understanding of the so-called “merger” doctrine is probably that it constitutes a variant on the parol evidence rule, which generally bars reliance on prior or extrinsic agreements to vary the terms of a written contract intended as the parties’ final expression of their contract. (See Szabo v. Superior Court (1978) 84 Cal.App.3d 839, 843; Roffinella v. Sherinian (1986) 179 Cal.App.3d 230, 238-239.) The codified version of the parol evidence rule supports this approach by expressly including deeds within its ambit. However, some cases speak of waiver, estoppel, or both, while citing Code of Civil Procedure section 2076, which requires a person to whom any “money, instrument, or property” is tendered to then “specify any objection he may have” to the tender, or else “be deemed to have waived it.” (See, e.g., Smiley v. Read (1912) 163 Cal. 644, 646-647; Burnand v. Nowell (1948) 84 Cal.App.2d 1, 5.) Each of these doctrines-parol evidence, waiver, and estoppel-is subject to its own conditions and limitations. One, two, all, or none of them may apply in a given case.
“As used in this section, the term agreement includes deeds and wills, as well as contracts between parties.” (Code Civ. Proc., § 1856, subd. (h).)
Whatever the foundation and scope of the doctrine-if indeed it is a doctrine and not an agglomeration of disparate concepts-it appears to be understood in its modern form as dependent upon the intentions of the parties. (See 3 Miller & Starr, Cal. Real Estate (3d ed. 2000) Deeds, § 8.3, p. 12 [“The court will not find a merger to deprive the parties of their rights under the contract unless it clearly appears that they intended such a result and the result is equitable.”]; see Szabo v. Superior Court, supra, 84 Cal.App.3d at pp. 843-845.) We know of no case of any vintage applying the doctrine as a complete and categorical bar to any claim founded on an antecedent contract, and such a view strikes us as deeply unsound. (See Szabo v. Superior Court, supra, 84 Cal.App.3d at p. 843 [“The rule that prior expressions are merged into the deed is not as broad and absolute as some abbreviated statements of the doctrine might indicate.”].) Like any other legal instrument, “a deed requires interpretation. ‘It is the duty of the Court to give the deed the same construction that the parties gave it, at the time of its execution. The Court will place itself, as nearly as possible, in the position of the contracting parties, and their intent will be ascertained in the same manner as in the case of any other contract.’ [Citation.]” (Ibid.) In other words, if the deed does not reflect an intent to supersede a particular term, or all terms, of the antecedent contract, it will not be given that effect. In the case just cited, the judgment was reversed because the trial court had decided the issue on a motion for judgment on the pleadings, i.e., as a question of law. “[I]t was error, ” wrote the reviewing court, “for the trial court to interpret the deed without a trial at which evidence might be offered for the purpose of determining whether or not the parties intended it to supersede any covenant with respect to the zoning of the property.” (Id. at p. 845.)
Here we are directed to nothing in the dealings of the parties suggesting that any of them intended or understood the deed to supersede, abrogate, extinguish, or otherwise excuse the sellers from, their disclosure obligations under the contract. The deed merely grants to plaintiffs the title to the property, as described in the attached description, “for a valuable consideration, receipt of which is hereby acknowledged.” This conveyance is by no means inconsistent with the obligations undertaken by the sellers to accurately disclose the property’s condition. We can therefore see no basis on which to suppose that the parties intended the deed to extinguish that obligation.
Indeed the construction given the deed by defendants-and apparently by the trial court-would not only extinguish any ongoing duty of disclosure but would excuse defendants from liability for their past breaches of that duty. The duties to “duly complete” disclosure forms and supply copies of existing reports were obviously most heavily incumbent upon the sellers while escrow was pending and while plaintiffs might still act upon adverse information by demanding rescission or, at worst, walking away from the sale unilaterally. In defendants view, the merger doctrine converted this period into a kind of gantlet. If they could successfully get through it without fulfilling their disclosure obligations, they would be forever absolved from the contractual consequences of their failure to do so. By the time the deed issued, defendants had already breached those obligations and their liability for that breach was fixed, if subject to the realization of damages by plaintiffs. The estoppel view of merger-by-deed assumes that the buyer, by examining the deed, can discover any discrepancy from the seller’s undertakings; it is only on that basis that the forfeiture of objections can be justified. Here, nothing in the conveyance could have told the buyers anything at all about the breaches of which they now complain.
In sum, we can find no sound basis for the trial court’s conclusion that the contract did not require the sellers to make accurate disclosures concerning the condition of the property. The trial court expressly found that they had violated those obligations in at least one respect, i.e., by failing to disclose the Jones and Cleary reports, which disclosed the presence of landslides and subsidence on the property. Defendants do not challenge this finding. The court did not find that plaintiffs were damaged by this conduct, but only because it restricted itself to the limited measure of damages allowed under the statute. It follows that apart from its interpretation of the contract, which cannot be sustained, the court offered-and defendants have offered-no basis for the rejection of plaintiffs’ contract cause of action. The judgment must therefore be reversed as to that cause of action.
II. Breach of Implied Covenant
In their second cause of action, plaintiffs alleged that the seller defendants breached the implied covenant of good faith and fair dealing by “failing to disclose the true material facts about the Property and failing to ensure the accuracy of the writings and representations made to the Cohens related thereto.” The trial court disposed of this claim by reasoning that (1) the contract by its terms did not obligate defendants to make accurate disclosures; (2) the implied covenant could not operate to enlarge defendants’ express promises in this regard; (3) therefore the failure to make accurate disclosures could not be held to breach the implied covenant. For reasons already stated, we find the first premise untenable. Accordingly, the court’s treatment of this cause of action cannot be sustained.
III. Effect of As-Is Clause
The trial court found the prima facie conditions for liability-or assumed their presence hypothetically-as to several of plaintiffs’ causes of action. Thus the court found that the sellers had breached their statutory duties of disclosure, as alleged in plaintiffs’ third cause of action, by failing to provide plaintiffs with copies of the Jones and Cleary reports. The court also found, in partial accordance with plaintiffs’ sixth cause of action, that defendant Ira Ota made affirmative, albeit merely negligent, misrepresentations of fact, i.e., “that the size of the home could be easily doubled, that the attic could be easily refinished, and that the septic system’s leach field could be expanded.”
In failing to sustain plaintiffs’ causes of action against the sellers, however, the court concluded that defendants were insulated from liability on these causes of action by the contract’s as-is addendum. As viewed by the trial court, the addendum made the parties’ transaction an “as is sale ” and thus subject to an “ ‘as is’ rule” under which the sellers were “relieved from liability for defects in the property unless the evidence establishes that through fraud or misrepresentation, they intentionally concealed known defects.” The court found that the sellers “did not fraudulently or intentionally conceal” the material facts they misrepresented or failed to disclose. Therefore, “under the ‘as is’ rule, ” they were “relieved from liability with respect to the undisclosed material facts in question” as well as “with respect to the negligent misrepresentations of material facts in question.”
In reaching this conclusion the court did not appear to examine the language of the as-is addendum beyond noting the appearance there of the phrase “as is.” The court appeared to treat that phrase as a kind of incantation, without studying its immediate context or its role in the contract as a whole. Nor did the court make any findings concerning the parties’ intentions with respect to the effect of the addendum. It attributed the cited “rule” mostly, if not entirely, to language drawn from Shapiro v. Hu (1986) 188 Cal.App.3d 324, 333-334 (Shapiro).
The approach thus taken by the trial court-at defendants’ urging-neglects the actual terms of the parties’ contract in favor of a categorical rule drawn from judicial precedent. This approach is irreconcilable with a central principle of contract law, which is that it is for the parties to determine their rights and obligations. Indeed that is the defining feature of a contract; it is in essence a mechanism by which two parties can create law as between themselves. To automatically subject their agreed arrangement to rules based only upon judicial preconceptions as to the effect of certain words or phrases subverts that fundamental conception. It is not for the courts to resolve the parties’ differences by cramming their transaction into predefined cubbyholes. Rather the courts are to “to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” (Civ. Code, § 1636.) That intent is to be ascertained, first and foremost, from the actual words they choose to use. (Civ. Code, § 1638 [“The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.”]; see Code Civ. Proc., § 1858.)
The “PRDS As-Is Addendum” (see fn. 4, ante) certainly operates to limit the sellers’ liability, and any reasonable buyer would so understand it. But its apparent intent is far less sweeping than the effect given it by the trial court. Its chief components appear to be (1) a declaration that the buyers are purchasing the property in its condition at the time of acceptance; (2) an explicit excuse of the sellers from any contractual responsibility for “inspections, certifications or work relating to structural pest control issues affecting the Property”; (3) a disclaimer of any warranty as to the condition of certain “components, systems appliances and/or other enumerated features of the Property”; and (4) a reservation of buyers’ right to secure, and an acknowledgement of their responsibility for securing, “full and comprehensive inspections of the Property.”
None of this language had any natural tendency to relieve the sellers of any duty they were otherwise under to accurately disclose what they knew about the condition of the property. Even if some hint to that effect might be found in the fourth of the above noted effects, it was dispelled by the following paragraph, in which the sellers “acknowledge[d] the obligation of furnishing to Buyer all reasonably available current and prior reports and other information (of which Seller is reasonably aware) bearing on value and desirability of the Property and, unless the transaction is exempt, of furnishing to Buyer a complete Transfer Disclosure statement and a completed PRDS Supplemental Seller Checklist.” (Italics in original.) Even if this language was ineffective to contractualize the sellers’ common-law and statutory duties of disclosure, it was certainly effective to preclude any claim that the as-is clause relieved them from those duties.
Nor does a different result follow from Shapiro, supra, 188 Cal.App.3d 324. That decision might be questioned on a number of grounds, but for present purposes it is enough to note that the facts there differed from those here in a number of material respects. First, that case involved no statutory duty of disclosure, or at least no claim of one, in part because the property there was commercial, not residential. Second, the as-is language relied on there was not accompanied by any language reaffirming a duty of disclosure on the part of the seller. Third, a jury had found that there was no misrepresentation by the sellers. This apparently left the plaintiff with only a claim for breach of contract, and that claim in turn rested, at least in large part, on the notion that the sale of the property had breached a warranty. In affirming a judgment for the sellers, the Court of Appeal reasoned that the only warranties implied in a real estate sale are those concerning the condition of title. (Id. at p. 332.) Because the transaction was an “ ‘as is’ sale, ” there could be no “warranty of quality, ” and the buyer “assum[ed] the risk on quality or condition of the property, absent express warranty, fraud or misrepresentation.” (Ibid.) This “discharge [of] warranties” was not limited to visible or observable defects but extended to “non-visible or unobservable defect[s].” (Id. at pp. 332-333.)
Among the decision’s many weaknesses as precedent is its vagueness with respect to the claims asserted, the defenses made, and the arguments offered for and against each.
Insofar as the court concluded that the use of the phrase “as is” ipso facto excuses a seller from any implied warranties, the decision has no bearing here, where no warranty claim is asserted. Nor can plaintiffs’ claims of misrepresentation and breach of a duty of disclosure be equated with a claim for breach of warranty. A warranty is a guarantee by a contracting party that something contemplated by the contract has a particular character or quality; the promising party in effect insures the other against the possibility that the thing is not as warranted. (See Mary Pickford Co. v. Bayly Bros., Inc. (1939) 12 Cal.2d 501, 520 [“The obligation of a warranty is absolute, and is imposed as a matter of law irrespective of whether the seller knew or should have known of the falsity of his representations.”].) “A warranty differs from a representation in four principal ways: (1) a warranty is an essential part of a contract, while a representation is usu[ally] only a collateral inducement, (2) an express warranty is usu[ally] written on the face of the contract, while a representation may be written or oral, (3) a warranty is conclusively presumed to be material, while the burden is on the party claiming breach to show that a representation is material, and (4) a warranty must be strictly complied with, while substantial truth is the only requirement for a representation.” (Black’s Law Dict., supra, p. 1618, col.)
The core effect of a generic as-is clause is to disclaim any warranties that might otherwise accompany the contract. (See Cal. U. Com. Code, § 2316, subd. (3).) The clause here did that, among other things. But it did not purport to disclaim the sellers’ duty of truthful disclosure. Indeed it did quite the reverse, going on to explicitly reaffirm that duty. The decision in Shapiro is simply not on point. The as-is addendum furnished no defense to the failures to disclose and affirmative misrepresentations found by the trial court.
This conclusion makes it unnecessary to consider any conflict between Shapiro and a large body of precedent perhaps best exemplified by Lingsch v. Savage (1963) 213 Cal.App.2d 729. The Shapiro decision cites Lingsch, but appears to rest on an older body of authority with which Lingsch was at odds. The analysis in Shapiro opens with the ringing pronouncement that “the law governing sales of real property has long been that of caveat emptor, with the buyer assuming the risk on quality or condition of the property, absent express warranty, fraud or misrepresentation.” (Shapiro, supra, 188 Cal.App.3d at p. 332.) But the only case cited for this proposition is Pollard v. Saxe & Yolles Dev. Co. (1974) 12 Cal.3d 374, 377, which speaks of caveat emptor in a tone quite consistent with a recognition of its erosion: “In the normal sale of land and buildings, courts have traditionally applied the doctrine of caveat emptor, with the buyer assuming the risk on quality-absent express warranty, fraud, or misrepresentation.” The Pollard court acknowledged numerous “[d]epartures from the older rule, ” as principles governing the sale of chattels had “[g]radually” entered real estate law, and as “a number of exceptions ha[d] developed to the rule imposing the risk of faulty construction on the buyer.” (Id. at pp. 377-378; see Green v. Superior Court (1974) 10 Cal.3d 616, 626 [describing the widespread “discarding” of “the caveat emptor ethic of an earlier commercial era”].) The decision in Shapiro seemed to defy this trend without even acknowledging its existence. Its value as precedent is doubtful.
IV. Broker Liability
A. Defendant Gurwith
Plaintiffs theories of recovery against the broker defendants were set forth in the fourth, fifth, and sixth causes of action. In the fourth, plaintiffs charged the brokers with professional negligence, i.e., that they “breached their professional duty” to plaintiffs by “a) failing to disclose... the true material facts about the property, and, specifically, with regard to the possibility for expansion thereof and the other material facts alleged herein affecting the Property’s value and desirability; b) failing to advise and counsel the Cohens with regard to expansion of the Property and permitting thereof and other material facts as alleged herein; c) failing to investigate the accuracy of the listings, fact sheet, and disclosure reports prepared and provided to the Cohens regarding the ability to expand the Property and the permit status and other material facts as alleged herein; d) failing to recommend the proper inspections/investigations; and e) failing to act with a duty of honest and fair dealing and good faith required of agents pursuant to Civil Code section 2079.16.” The fifth cause of action charged that this conduct constituted a breach of the realtor defendants’ fiduciary duties as plaintiffs’ agents. The sixth cause of action charged all defendants, including the realtors, with negligent misrepresentation.
Although the three realtor defendants presented a common defense, the trial court quite properly distinguished the charges against Herbert, the sellers’ agent, from those against Gurwith, the buyers’ agent, while viewing Coldwell Banker, their common principal, as a codefendant on all claims against either. With respect to defendant Gurwith, the court apparently found no breach of any duty to plaintiffs. This at any rate is how we interpret its “find[ing]” that “plaintiffs have not met their burden of proving their allegations of negligence, breach of fiduciary duty, or negligent misrepresentation against Dorothy Gurwith. In fact, the court finds that the evidence is to the contrary, exculpating her.” The court cited the testimony of five witnesses, including Gurwith, as well as a number of exhibits.
Plaintiffs’ chief claim against Gurwith seemed to be predicated on Eve Cohen’s testimony that Gurwith advised them that “since [they were] planning on doing this expansion and [were] going to get a contractor anyhow, [they didn’t] need to do” a general home inspection. Gurwith flatly contradicted this, testifying that she had never advised a buyer-client to forego inspections and that Ms. Cohen’s testimony on this point was not true.
This conflict in the evidence presented an archetypal issue of fact for the trial court, as trier of fact. Its implied resolution in favor of defendant Gurwith appears unassailable. Nor do plaintiffs mount any cogent challenge to it on appeal. Accordingly, they have failed to show error in the judgment favoring defendant Gurwith. That judgment must therefore be affirmed.
B. Defendant Herbert-Basis for Decision
The court’s treatment of the claims against defendant Herbert presents a considerably more challenging problem. In its first statement of decision the court found that Herbert’s statement that the house allowed for “ ‘easy expansion’ ” was “a negligent misrepresentation by a fiduciary of material fact affecting the value and desirability of the property..., on which [plaintiffs] justifiably relied.” The court found that his making of this statement “fell below the standard of care in his profession and constitutes negligence on his part..., and ‘constructive fraud’ which amounts to a breach of his fiduciary duty” to plaintiffs. Accordingly, the court found Herbert and Coldwell Banker “jointly and severally liable for the negligence, breach of fiduciary duty, and negligent misrepresentation that Mr. Herbert made to the Cohens.” However, the court wrote, plaintiffs’ damages were limited to the “the ‘out-of-pocket’ rule set forth in Civil Code section 3333.” Plaintiffs had “suffered no ‘detriment’ within the meaning of Civil Code section 3333, ” because they “paid $1.7 million for property worth $1.7 million.” Accordingly, they sustained “no recoverable damages from Gary Herbert and Coldwell Banker in this case.”
The court did not state whether it found that other statements charged by plaintiffs constituted actionable misrepresentations.
In a subsequent order the court sought to clarify this ruling by adding, in material part, that it had “determined from the evidence and thus found that the negligence and breach of fiduciary duty by Mr. Herbert arises from his negligent misrepresentation of ‘easy expansion.’ ” Because the negligence sounded in misrepresentation, the court wrote, it entitled the injured principal “ ‘only to the actual losses suffered because of the misrepresentation.’ See Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 502, 504, citing Gagne [v. Bertran (1954) 43 Cal.2d 481].” The court also found that plaintiffs had suffered no “ ‘additional’ ” damages, because “they purchased the property ‘as is’ and without inspections or investigations, yet nevertheless decided to proceed with their home expansion and remodeling project after learning that their plans for expansion of the home were not feasible.” The court reasoned that any expenditures thereafter incurred were not proximately caused by defendants’ misrepresentations.
Plaintiffs challenge this determination on several grounds: (1) the court erred by applying the usual “out of pocket” measure of damages for real estate fraud because, having established fraud by a fiduciary, plaintiffs were entitled to “benefit of the bargain” damages; (2) the court erred in relying on the testimony of defense appraisers to find that the property was worth what plaintiffs paid for it; and (3) the court erred by failing to award “additional” damages, and its rationale for doing so is unsustainable. We find ourselves unable to sustain these claims of error.
C. Measure of Damages for Broker’s Negligent Misrepresentations
Civil Code section 3343 (§ 3343), subdivision (a), provides, “One defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction....” This statute has been held to define the exclusive measure of damages for most forms of fraud in connection with the sale of property. (Bagdasarian v. Gragnon (1948) 31 Cal.2d 744, 762-763; Cory v. Villa Properties (1986) 180 Cal.App.3d 592, 599.) It authorizes recovery for so-called “ ‘out-of-pocket’ ” loss, i.e., “ ‘the difference between the consideration paid for the property and the actual value of the property, with additional damage, if any.’ ” (McNeill v. Bredberg (1961) 192 Cal.App.2d 458, 467-468.) It does not permit recovery of “benefit of the bargain” damages, which represent the harm to the plaintiff’s “ ‘expectancy interest, ’ ” and are measured by the difference between the value received and the value promised (or more precisely, the value the plaintiff was led to expect). (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240 (Alliance Mortgage), quoting Stout v. Turney (1978) 22 Cal.3d 718, 725.)
In sum, one who misrepresents the condition of property in order to persuade another to buy it may not generally be held liable for the difference between the value of the property as delivered and its value as described, but only for the difference between the value of the property as delivered and the price actually paid. This means that if the property is found to be worth what the plaintiff paid for it, he will be able to recover only such “additional” damages as he can establish. (§ 3343, subd. (a).)
Plaintiffs’ first challenge to the trial court’s ruling on this point is that the court erred by applying these principles to their claims against the brokers. They contend that because the misrepresentations found by the trial court had been made by one who owed them a fiduciary duty, they were entitled to benefit-of-the-bargain damages.
It must be conceded that the caselaw on this subject is bewildering. The confusion is exemplified by Alliance Mortgage, supra, 10 Cal.4th at pp. 1239, 1240-1241, 1249-1250. In one passage the court wrote that section 3343’s limitation on damages “does not apply... when a victim is defrauded by its fiduciaries.” (Id. at p. 1241.) Although “fraud” in this context is an ambiguous term, the court had elsewhere observed that “breach of a fiduciary duty usually constitutes constructive fraud.” (Id. at p. 1239, fn. 4, citing Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, 563.) Taken in combination these comments would seem to indicate that any misrepresentation constituting a breach of fiduciary duty would support recovery of expectation damages, and not merely out-of-pocket loss. Yet in a later highly perplexing passage, the court seemed to state that claims against fiduciaries are subject to the usual limitations, with a possible exception for “intentional fraud, ” by which the court presumably meant statements known by the fiduciary to be false when made.
“The damages for such fraud [in inducing lender to finance real estate transactions] are measured... by either [the lender’s] out-of-pocket and consequential damages under section 3343 or under section 3333, depending on whether defendants stand in a fiduciary relationship to [the lender]. The Court of Appeal here, relying on its earlier opinion in Salahutdin v. Valley of California, Inc., supra, 24 Cal.App.4th at pages 564-568, 29 Cal.Rptr.2d 463, concluded that the appropriate measure of damages for fraud by a fiduciary under section 3333 was the benefit-of-the-bargain rule. Salahutdin, however, involved the measure of damages for a fiduciary’s negligent misrepresentation. (Salahutdin v. Valley of California, Inc., supra, 24 Cal.App.4th at p. 560, 29 Cal.Rptr.2d 463.) We have previously held that a plaintiff is only entitled to its actual or ‘out-of-pocket’ losses suffered because of fiduciary’s negligent misrepresentation under section 3333. (Gray v. Don Miller & Associates, Inc. [(1984)] 35 Cal.3d [498, ] 502, 504, ... citing Gagne v. Bertran [, supra, ] 43 Cal.2d 481, ...) While the measure of damages under section 3333 might be greater for a fiduciary’s intentional misrepresentation, we need not address that issue here.” (Allicance Mortgage, supra, 10 Cal.4th at pp. 1249-1250.)
We confess that we find an astonishing level of disarray in the caselaw concerning the measure of damages against a real estate agent. The apparent view of the Supreme Court, however, is that in the absence of a misrepresentation accompanied by scienter (knowledge of falsity), a real estate agent is not liable for more than the out-of-pocket losses of the client he has betrayed, together with such additional damages as the client may be able to show. We are not at liberty to depart from the holdings of the Supreme Court, however perplexing we may find them. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.) We are therefore compelled to reject plaintiffs’ contention that the trial court erred by so limiting their recovery. We turn then to their contention that the court erred in failing to find either of the types of damages to which they were entitled.
D. Out-of-Pocket Damages
The court’s conclusion that plaintiffs had suffered no out-of-pocket loss rested on its finding that the value of the property at the time of sale was exactly what plaintiffs paid for it, i.e., $1.7 million. Plaintiffs contend that this finding cannot be sustained because the defense experts who so testified had not taken the actual condition of the property into account.
It appears to be undisputed that (1) neither of the defense experts was asked to, or did, take into account the actual condition of the property at the time of purchase; (2) both assumed it to be in good condition; and (3) both acknowledged that in appraising property burdened by defects, the appropriate method is to ascertain its market value in good condition and subtract the likely cost of correcting the defects. Indeed the trial court found this point so plainly established that it discouraged further questioning on the subject, stating, “The Court is aware with all these appraisals, if on the date of close of escrow all of the subsequently discovered defects and repair costs were known to the wire the property would certainly have a different fair market value in the buyer’s mind than it had at the time of close of escrow and not knowing all these defects.” The court went on to comment that “this is an as-is [case]” and that the question of the property’s value “with proper disclosure” is “my job, not his, ” i.e., the expert’s.
The first of these comments may have been garbled in transcription. According to the transcript, the court said, “The sparring with these guys based on the assumptions in their reports doesn’t get us anywhere because there will always be two different values here. The inherent value of the property if these defects were fully known, this is an as-is sale or if they weren’t known which is the case.”
Plaintiffs’ argument appears correct in the abstract, but it suffers from several fatal weaknesses. First, it is not enough to show that the trial court could not reasonably credit the defense experts’ opinions as to value. The burden is on plaintiffs, as appellants, to show that the evidence before the court compelled a finding that they paid more than the property was worth. The burden of persuasion on that issue rested squarely on plaintiffs, since the existence of compensable damages was an element of their cause of action. This burden could not be carried merely by attacking the defense witnesses, however effectively.
Plaintiffs’ argument would gain more traction if they had presented their own expert who actually performed the calculus suggested above, i.e., identified the repairs necessary to bring the property into good condition and deducted their probable cost from the property’s value in good condition. This might, of course, require the testimony of additional experts. But plaintiffs made no attempt to establish any of these variables. Instead their theory of out-of-pocket damages assumed that the value of the property was essentially its value as bare land. According to their valuation expert, the house added little if any value, because it did not represent the highest and best use for the property; “[i]t was better to start from scratch again and try to put something on the lot that would be far more marketable than what was on the lot at that time.”
Plaintiffs argue that the asserted gaps in the defense opinions made the testimony of plaintiff’s expert “the only competent evidence of ‘fair market value.’ ” But even if that were true it would not oblige the court to find plaintiffs’ evidence credible. This was not a baseball or pendulum-style arbitration in which the court had to choose one of two competing values. The court was entitled to judge the credibility of all three appraisals, and if it found none of them sound, it was obliged to find against the side with the burden of persuasion-which, here, was plaintiffs.
Plaintiffs apparently made a tactical decision not to attempt to establish the property’s value on a cost-of-repairs theory. As a result, the only evidence touching on that point seems to be that of an expert called by the broker defendants themselves. He testified that the property had a defective foundation when sold, but that the cost to repair it would have been “certainly less than fifty thousand, probably less than forty thousand.” In their “closing brief” in the trial court, the broker defendants impliedly conceded that this could be a proper factor in determining value. However plaintiffs appear not to have pursued this near-concession in the trial court; nor have they urged it on appeal. In any event it is far from clear that this is an amount for which Herbert and Coldwell Banker could be liable under the trial court’s findings. The only misrepresentation the court attributed to them was that the property could be easily expanded. We are directed to no evidence that the true facts on this subject would have rendered the property in less-than-good condition for purposes of appraising its value. They were not shown to establish, in other words, a defect in the house. The one conceded defect-the weakness in the foundation-appears unrelated to this representation. Nor do we see any claim that the broker defendants knew anything about it. Given plaintiffs’ failure to pursue any such theory on appeal, we will not attempt to parse the law of causation as it may limit the recovery of damages for negligent misrepresentation. It is enough to say that plaintiffs have failed to affirmatively show any reversible error in the court’s failure to find that plaintiffs sustained out-of-pocket damages.
E. Additional Damages
In addition to out-of-pocket losses, one defrauded in the purchase of real estate is entitled to recover “any additional damage arising from the particular transaction, including... [a]mounts actually and reasonably expended in reliance on the fraud, ” and “[a]n amount which would compensate the defrauded party for loss of use and enjoyment of the property to the extent that any such loss was proximately caused by the fraud.” (Civ. Code, § 3343, subd. (a)(1), (2).) These “additional damages” may be recovered even if no out-of-pocket loss was sustained. (Stout v. Turney, supra, 22 Cal.3d 718, 729-730; Alliance Mortgage, supra, 10 Cal.4th at p. 1241, fn. 5.)
Plaintiffs contend that the trial court erred in failing to award such damages here, but they do not appear to assert this point as a ground for reversal of the judgment in favor of the broker defendants. Plaintiffs argue only that the court “erred in failing to award appellants ‘additional damages’ against sellers.” (Italics added; capitalization removed.) The most concrete comments on this subject in plaintiffs’ brief are concerned with expenditures they made because of the “undisclosed geological issues and reports, ” of which they assertedly remained ignorant until two years after purchase. We see no distinct claim that Herbert and Coldwell Banker should be liable for the failure to disclose those matters, of which they themselves were apparently ignorant.
We conclude that plaintiffs have failed to establish reversible error in the trial court’s entry of judgment in favor of the broker defendants.
Conclusion
The trial court erred by concluding that the as-is addendum insulated the sellers from liability for breach of contract. Because plaintiffs may recover expectation damages under a contract theory, the court’s failure to find out-of-pocket losses or additional damages does not support a judgment in the sellers’ favor. That judgment must therefore be reversed. Because this destroys the foundation for the order awarding attorney fees to the sellers, that order must also be reversed. Plaintiffs have failed, however, to establish reversible error in the judgment insofar as it favored the broker defendants, and as to them the judgment will be affirmed.
Disposition
The judgment in favor of defendants Ira Ota and Lily Ota is reversed. The order awarding attorney fees is reversed. The judgment in favor of defendants Dorothy Gurwith, Gary Herbert, and Valley of California Inc. (Coldwell Banker) is affirmed. Plaintiffs shall recover their costs as against defendants Ira Ota and Lily Ota. The remaining defendants shall recover their costs as against plaintiffs.
WE CONCUR: PREMO, J., ELIA, J.
“1. In further consideration of the price and terms of sale of the Property, it is agreed that Buyer is purchasing the Property in its present (i.e., as of time of Acceptance of the Contract), ‘AS IS’ condition, and without warranty from Seller.
“2. This ‘AS IS’ Addendum supersedes and renders without force or effect:
“(a) any provision of the Contract that would have otherwise made Seller responsible for inspections, certifications or work relating to structural pest control issues affecting the Property; and
“(b) any provision (e.g., ‘maintenance clause’) under which Seller would have specifically warranted that certain designated components, systems appliances and/or other enumerated features of the Property shall be operative, in working order, and free from damage or defect at close of escrow (‘COE’).
“[¶]... [¶]
“3. Seller acknowledges the obligation of furnishing to Buyer all reasonably available current and prior reports and other information (of which Seller is reasonably aware) bearing on value and desirability of the Property and, unless the transaction is exempt, of furnishing to Buyer a complete Transfer Disclosure Statement and a completed PRDS Supplemental Seller Checklist. Seller shall also comply with smoke detector, water heater and all other government-mandated ‘point-of-sale’ seller requirements.
“4. Buyer retains full rights to secure (and acknowledges the importance of and takes responsibility for securing) full and comprehensive inspections of the Property by competent contractors, inspectors, and other qualified professionals.”