Opinion
Bankruptcy Case No. 00-30715DM, Adversary Proceeding No. 00-3257DM
October 1, 2001
MEMORANDUM DECISION
I. Introduction
In this adversary proceeding plaintiff, Patrick Joseph Brady ("Brady"), filed a Second Amended Complaint For Turnover Of Property Of The Bankruptcy Estate, Breach Of Contract And Declaratory Relief (the "Complaint") on March 26, 2001. In the Complaint Brady seeks turnover of $80,000 (the "$80,000 Deposit") deposited by defendant Max Keech ("Keech") with defendant Chicago Title Company, Inc. ("Chicago Title") as liquidated damages in a purchase contract described below. The purchase contract related to an aborted sale of Brady's property at 8 Cedar Lane, Woodside, California (the "Property"), to Keech. Brady also seeks interest at the rate of 10% per annum on the $80,000 Deposit from the date Keech rescinded the purchase contract and a declaration that the $80,000 Deposit (remaining on deposit at Chicago Title) belongs to him. He also claims attorneys fees and costs per the purchase contract.
By way of Answer and Counterclaim, Keech denies the material allegations of the Complaint, sets forth affirmative defenses, seeks a declaration that he timely rescinded the purchase contract, that the $80,000 Deposit should be returned to him plus interest at the rate of 7% per annum, and that he should be awarded exemplary damages and attorneys fees and costs.
Trial was held on August 27, 28 and 29, and September 5, 2001. Brady appeared and was represented by David A. Boone, Esq. and Edward A. Kunnes, Esq., two of his attorneys; Keech appeared and was represented by Peter G. Riechert, Esq., one of his attorneys; Chicago Title did not participate in the trial.
The court has reviewed the extensive oral and documentary evidence presented by the parties, and has considered the trial briefs and arguments of counsel. For the reasons set forth below, the court concludes that Brady is not entitled to any recovery on the Complaint; that Keech had a common law right to rescind the purchase contract; that he is entitled to a return of the $80,000 Deposit, together with interest at the rate of 7% per annum; and that he is entitled to recover reasonable attorneys fees for his successful defense of the Complaint and prosecution of the Counterclaim. He is not entitled to exemplary damages.
Paragraph 16C of the purchase contract that is the subject of this dispute contains a typical prevailing party attorneys fees provision. Interestingly, paragraph 5, initialed by both parties, provides for binding arbitration. Both parties waived arbitration at the commencement of trial.
Keech claims in the alternative to his common law rights that under Cal. Civ. Code §§ 1102, et seq., he had a three day right to rescind the purchase contract under the last paragraph of Civ. Code § 1102.3 beginning on November 8, 2000. This alternative theory is not available to him, however, because Cal. Civ. Code § 1102.2(b) exempts from the operative sections of the Civil Code providing a statutory right to rescind, sales by trustees in bankruptcy. Brady, as a Chapter 11 debtor in possession, has the rights, powers and duties of a trustee in bankruptcy under Bankr. Code § 1107(a) ( 11 U.S.C. § 1107(a)). Thus, this alternative theory of Keech is rejected and will not be discussed further in this Memorandum Decision. Nor will the court respond to Keech's argument that Brady was in breach because he did not timely obtain a court order authorizing the sale and did not sign escrow instructions when he was supposed to. There is no reason to address these issues in view of the court's decision in Keech's favor.
The following discussion constitutes the court's findings of fact and conclusions of law. F.R.Bankr.P. 7052(a).
Brady commenced a Chapter 11 case in this court on March 21, 2000 and at all times material thereafter continued as a debtor in possession, no trustee having been appointed. The principal reason he filed Chapter 11 was to avert a foreclosure of the Property. By a series of events not relevant to this dispute, the court directed that the holder of the first deed of trust on the Property be paid in full by November 17, 2000, or it would be permitted to foreclose promptly after that date. On October 11, 2000 Brady listed the Property for sale through Fine Homes and Estates-Seville Contempo ("Seville Contempo"), of Menlo Park, California. Michelle C. Adams ("Adams") was the real estate agent from Seville Contempo who handled the listing.
Brady had been restoring and remodeling the Property over several years, beginning in 1991. By October, 2000, when he was under extreme time pressure to sell, various permits with the Town of Woodside ("Woodside") were due to expire shortly. The entire remodel was far from complete. Several items needed to be completed in the main house, roof installation needed to be completed at the stable/garage and the guest house, and various other items that were contemplated in the plans approved by Woodside remained to be accomplished. A number of conditions precedent to Woodside's final approval of the project needed to be satisfied.
Adams held an open house at the Property on October 22, 2000, the first date on which Keech visited the Property. The advertised list price was $2,400,000. On the evening of October 22, interested bidders were invited to Seville Contempo to submit offers to purchase the Property. Keech attended the meeting at Seville Contempo and at that meeting was provided with numerous documents in a disclosure packet prepared by Adams. A flyer prepared by Adams included the following description of a second floor attic at the main house on the Property: "Upstairs . . . an extra large utility room with water heater and furnace." Keech received this flyer. In another flyer Adams represented that the garage included a "Finished loft."
The particular documents included in the disclosure packet which are pertinent to the court's decision will be discussed in more detail, supra. Significantly, the packet did not include a copy of Woodside's October 25, 1990 conditions of approval of the remodel.
On October 22, Paul Pittman and Julie Levenson (together, "the Pittmans") submitted an offer of $2,500,000 for the Property, which included what Brady's counsel described as a "sharp bid" of $50,000, not to exceed $3,050,000. In reliance on Keech's promise to submit an offer the following day, Brady did not accept the Pittmans' offer nor any other offer submitted by other interested parties. On October 23, Keech submitted an offer of $2,625,000, which offer included an Addendum #2 prepared by Adams on Seville Contempo letterhead. Addendum #2 contained a statement that:
The bid indicated that the Pittmans would pay $50,000 over the highest offer, not to exceed $3,050,000. The highest offer was to be verified by Adams.
"All Buyers and potential Buyers will visit the City of Woodside Building Department and all other pertinent departments to satisfy their own needs to decide whether to purchase the property. All sales are AS IS and all offers will include an AS IS addendum."
Keech also initialed a document provided by Adams entitled "Market Conditions Advisory." That document contained a paragraph under a heading "Non-Contingent Offers," stating:
"A non-contingent offer means that the buyer will proceed with the purchase of the property (or, if the buyer fails to do so, possibly paying damages to the seller such as the deposit money) regardless of what the buyer may learn about the condition of the property prior to the close of escrow and regardless of whether the buyer's financing is available or approved by the lender. Some sellers are insisting that the contract be non-contingent."
Keech's offer included the following at paragraph 19: "Seller to provide plans and specifications and transfer building permits." It also stated that "buyer accepts Addendum #2."
On October 23, Brady countered Keech's and the Pittmans' offers. Keech increased his offer to $2,650,000. Brady did not respond, but he and the Pittmans exchanged further counter-offers and on October 25, entered into an agreement for sale of the Property at a price of $2,850,000. After considering the matter further, Keech decided to increase his offer. On October 25, he and his real estate agent, Anne Pearson ("Pearson"), prepared a PRDS Real Estate Purchase Contract for Keech to purchase the Property for $2,850,000. Around noon of that day they both proceeded to Seville Contempo in Menlo Park, intending to present that new offer. After some delay they were advised by one of Seville Contempo's brokers, Barbara Silverberg, that Seville Contempo's counsel had confirmed that Brady was in contact with the Pittmans and could not consider an offer from Keech.
The Pittmans refused to remove their contingencies on October 30, instead reducing their offer to purchase the Property to $2,750,000. On that same day Keech interlineated the form that he had originally prepared on October 25, 2000. He inserted the date of October 30, left the price at $2,850,000 and noted that "Buyer takes property `as is'" and "this offer is non-contingent." These terms were inserted in paragraph 19 of the form; Keech deleted the requirement that the seller provide the plans and specifications and transfer building permits, and also the acknowledgment of receipt of Addendum #2. Pearson presented the latest Keech offer to Adams that evening.
Brady countered Keech's October 30th offer the next day, noting that his acceptance was "subject to releases of prior contract" (the Pittmans' contract), that escrow would close on November 9, 2000, and that the sale was "subject to court approval." He also included as a term that "buyer has prior to acceptance received, read and acknowledged in writing buyer's receipt of SSC and TDS." Keech accepted Brady's counter-offer on November 1, at which time the parties were in contract. There is no evidence that the Pittmans' contract was not released, so nothing prevented Brady and Keech from becoming bound by their contract.
There is no dispute that "SSC" refers to a TRDS Supplemental Seller's Checklist and that "TDS" refers to Transfer Disclosure Statement.
For convenience, this contract will be referred to hereafter as the "Purchase Contract."
The SSC and the TDS are replete with warnings to buyers about Brady's intention to disclaim any responsibility for the conditions at the Property or requirements of Woodside. For example, the original version of the TDS contained a statement that ". . . all items to be checked by buyer, new construction, remodeling, etc. have been done." The original SSC repeatedly used phrases such as "As-Is" and "check for yourself." Even the flyer prepared by Adams stated that "Buyers to verify permits: completed or not completed for themself (sic)."
There were multiple versions of the SSC and the TDS prepared by Brady and/or Adams at various times but the particular TDS alluded to in the Purchase Contract and referred to in this Memorandum Decision was dated as of October 25, 2000 and signed by Keech on November 1, 2000 (Trial Ex. 39). The SSC referred to in this Memorandum Decision was prepared as of October 11, but revised as of October 25, 2000, and also initialed by Keech (Trial Ex. 40).
In this document Brady disclosed for the first time that the "heating system is not shown on the plan in it's (sic) current location."
Adams prepared and Keech acknowledged an Agent's Checklist that was referred to in the TDS, having originally been prepared on October 11, 2000, and revised as of October 25, 2000.
Brady insists that a full set of the plans was available at the Property on several occasions when Keech was there. However, Keech did not receive any plans, even those that were reduced in size, until October 31. By November 1, when the Purchase Contract was in effect, he had a full size set.
The court rejects as not credible Brady's testimony that prior to execution of the Purchase Contract, Keech had a set of plans that were smaller than the full size set, but larger than the set that Adams maintains was available with her disclosure packet.
Between November 1, and November 7, Keech became aware of various problems with the Property. In particular, he claims to have learned for the first time that noise from Roberts Market, a supermarket adjacent to the Property, was excessive and that deliveries of grocery supplies and pick-ups by garbage trucks occurred very early in the morning, even on weekends. He also discovered problems with a fence running along the north side of the Property, adjacent to a creek. He was advised that Woodside had ordered the fence relocated. Keech discovered that parts of the first and second floors of the main house were not built according to plans and that there was no laundry room. Other discrepancies are discussed, infra.
On November 7, Pearson advised Adams that Keech rescinded his offer to purchase the Property as reflected in the Purchase Contract. Pearson based Keech's right to rescind on the revised TDS and revised SSC, contending that many items had not been previously disclosed or were improperly disclosed. Based upon those conditions, Pearson mentioned Keech's willingness to renegotiate the price, failing which he requested a refund of the $80,000 Deposit.
After Pearson's November 7th letter rescinding the Purchase Contract, Adams faxed to Pearson an Agent's Checklist-1A, revised as of November 8, 2000. Adams asked that these be signed and returned with "the balance of the TDS and the six page Supplement with your addendums or counters or new offers." Thus, revised Addendum-1A clearly was to be incorporated into the October 25, 2000 TDS. It now disclosed: that the upstairs plans for the main house did not match the built structure; the rear fence was located too close to the creek; truck deliveries at Roberts Market started as early as 6:00 a.m.; the six car garage could only be a three car garage and barn; and the second floor of the garage/barn could not be use for habitation.
On November 9, Brady demanded that Keech close the escrow, although by that same date he had not executed a deed, signed escrow instructions, or provided Keech with a court order approving the sale to him. Also on November 9, Brady received a new offer from the Pittmans to purchase the Property for $2,500,000; he countered that offer and after a series of further counteroffers Brady and the Pittmans arrived at an agreed price of $2,650,000, which is the price at which the Property was sold to the Pittmans. On November 9, 2000 Keech presented an offer to purchase the Property for $2,500,000. Brady did not respond.
III. Analysis
Nearly forty years ago a California Court of Appeals established the proposition that an "As Is" label does not relieve a seller of property of the duty of disclosure of material facts. In Lingsch v. Savage, 213 Cal.App.2d 729 (1963), purchasers of real estate sued the seller and the seller's broker, alleging a state of disrepair and the fact that the units being sold were illegal and that the building had been placed for condemnation by city officials. Plaintiffs did not discover those conditions and charged the defendants with willfully and fraudulently failing to reveal them, causing plaintiffs justifiably to rely on their nondisclosure. The contract between the purchasers and the sellers stated that the property was to be sold "in its present state and condition" and the sellers recited that no representations, guaranties or warranties of any kind have been made (except as expressed therein).
The trial court sustained a demurrer, but on appeal the court reversed, noting that even in the absence of active fraud or active concealment, mere nondisclosure rather than active concealment, amounts to fraud. Lingsch, 213 Cal.App.2d at 734. The court went on to rely on provisions of the California Civil Code which stood for the proposition that suppression of a fact by one bound to disclose it willfully deceives the other party. Failure of the seller to fulfill such duty of disclosure constitutes actual fraud. Id. at 735.
The elements of a cause of action for damages for fraud based on nondisclosure, and involving no confidential relationship, was said to be the following: nondisclosure of facts materially affecting the value or desirability of the property; [the seller's] knowledge of such facts and of their being unknown to or beyond the reach [the buyer]; [the seller's] intention to induce action by [the buyer]; inducement of [the buyer] to act by reason of the nondisclosure; and resulting damages. Id. at 738. In dealing with the seller's contention that the purchasers took the property "As Is," the court disposed of that by indicating that the "As Is" presupposes a reliance on representations that had been made. Noting that no prior California case had been located which gave precise definition to an "As Is" provision when included in the agreement for the sale of property, the court stated the following:
"We are of the opinion that, generally speaking, such a provision means that the buyer takes the property in the condition visible to or observable by him. (Citation omitted.) Where the seller actively misrepresents the then condition of the property (citation omitted) or fails to disclose the true facts of its condition not within the buyer's reach and affecting the value or desirability of the property, an `as is' provision is ineffective to relieve the seller of either his `affirmative' or `negative' fraud. In either situation the seller's conduct has, as it were, infected the buyer's knowledge of the condition of the property. An `as is' provision may therefore be effective as to a dilapidated stairway but not as to a missing structural member, a subterranean creek in the backyard or an unexploded bomb buried in the basement, all being known to the seller. We feel that such a view of an `as is' provision not only makes good sense but equates sound law with good morals. To enlarge the meaning of such a provision so as to make it operative against all charges of fraud would be to permit the seller to contract against his own fraud contrary to existing law. (Citation omitted.)"
See, also, Cal. Civil Code section 1689(b).
In Driver v. Melone, 11 Cal.App.3d 746 (1970), the court found that a sophisticated buyer knew all that the seller knew, and thus there was no misrepresentation. But in Katz v. Department of Real Estate ( 96 Cal.App.3d 895) (1979), the court upheld a real estate broker's license suspension because the broker had a duty to disclose a code violation not readily apparent. The fact that the buyer of the property was acquiring it "as is" was not sufficient to exonerate the broker.
While there is a great deal of evidence concerning the condition of the Property, the state of affairs at Woodside concerning Brady's permits and obligations and what was disclosed to whom and when, this case really comes down to whether Brady can rely on the fact that he insisted that Keech investigate for himself all of the conditions at the Property and any requirements of Woodside. Brady says that Keech had ample opportunity to determine what was required, and that the disclosures were adequate, either by what Keech knew or could readily determine, or by what was set forth in the various documents provided to him. Brady does not deny the existence of some of the nonconforming conditions, but rather claims that they are either immaterial or Keech knew of them and cannot now avoid loss of the $80,000 Deposit as liquidated damages because of the lower price at which Brady ultimately sold the Property to the Pittmans.
On the other hand Keech contends that Brady had an affirmative duty to disclose to him the very conditions on which he claims a right to rescind whether or not those conditions could have been discovered by Keech.
Based on the Lingsch factors, Brady's admonitions to Keech (and others) to check things for himself may have been adequate had Brady been unaware of the conditions themselves. But because he knew the true state of affairs, he cannot shift the risk of non-disclosure to Keech. As noted below, Brady concealed certain material facts affecting the value or desirability (to Keech) of the Property; the only inference the court can draw from this concealment is that it induced Keech to offer what he did, and had there not been a rescission, Keech would have suffered damages in that he would not have received the benefit of his bargain as agreed in the Purchase Contract. The specifics of Brady's material non-disclosure will be discussed in turn.
Preliminarily the court notes that in general, where Keech or some of his colleagues recall the facts one way, and Brady recalls them the other way, Keech and the others are far more convincing. Brady's testimony lacks convincing credibility in many respects. He changed position on certain matters and was imprecise about dates such as when he first obtained the permits, when he made modifications to the fences, when he met Keech and others at the Property, etc. For this reason, and the court's own observation of the witnesses, Brady's testimony has been discounted in the face of contrary testimony from his opponents.
For example, Brady says that Keech was nowhere to be found during the first week of November, immediately after execution of the Purchase Contract. The evidence is overwhelming that Keech was at the Property on November 1, 2, 3, 4 and 6. Another example: Brady testified that all deviations from the approved plans were inspected and approved. That is not even close to the truth.
Brady also argues that the non-contingent nature of Keech's October 30 offer obligated Keech to perform. But the waiver of contingencies, such as financing, further inspections, etc., has nothing to do with a seller's duty to disclose material facts. The language of the Non-Contingent Offers portion of the Market Condition Advisory Keech initialed with his original offer is of doubtful validity, and cannot overcome Brady's duty under Lingsch and Katz to make full disclosure of material facts. Keech is sophisticated and experienced in real estate matters. Unlike the buyer in Driver, however, Keech did not know what Brady knew.
1. The Mountain Home Road Gate And Access To The Property.
The Property sits on an acre of land bounded by Cedar Lane to the south and Mountain Home Road to the east. A fully functional driveway comes in from Cedar Lane and approaches the main house. A gate on Mountain Home Road opens to a second driveway which leads directly to the garage/stable. It had been ordered closed by Woodside in the October 25, 1990 conditions of approval. Brady was advised by the planning director of Woodside that the "driveway off Mountain Home Road be removed with the opening fenced and landscaped to reduce the visibility of the proposed garage/stable." Notwithstanding this requirement, which Brady did not disclose to Keech, the Agent's Checklist of October 11, 2000 that accompanied the original TDS of that date, and which was provided to Keech, stated without qualification that there were "2 sets of gates" at the Property. Brady maintains that the small plans provided to Keech, consistent with the full size plans, reveal the requirement that the Mountain Home Road gate and driveway were to be handled as required by Woodside. However, an examination of those plans shows only the barely legible words "close gate" and some other not fully legible words on the large plan that begin with "remove" followed by what might be the word "driveway." This is hardly adequate and is a material nondisclosure which by itself may be sufficient to give Keech the right to rescind the Purchase Contract. While it is true that Keech could have found the conditions of approval in Woodside's files, he was justified in relying, under Lingsch, on Brady's silence and the Agent's Checklist's misstatement.
Surprisingly, Adams' November 8th revised Agent's Checklist was still silent on the requirement that the Mountain Home Road gate be closed and the driveway eliminated.
Brady makes much of the fact that Keech really wanted to use the Mountain Home Road gate so that he could get a more fashionable address. Keech's motives are irrelevant; what matters is the materiality of the nondisclosure.
2. Noise From Robert's Market.
Among Keech's grievances is his contention that he did not realize that there would be truck deliveries or garbage pickups as early 6:00 a.m. at Robert's Market. The court believes that Brady should have been more revealing about this condition than simply reporting in the SSC that the Property ". . . is close to town noise can occur." Nevertheless, Keech is familiar with Woodside, is aware of the size and clientele of Robert's Market, including the fact that it is open every day. Anyone with any real world experience has to know that supermarkets take deliveries and get rid of their garbage at times other than when they are open for business. Thus the failure of Brady to make a specific disclosure concerning Robert's Market does not entitle Keech to rescind the Purchase Contract.
3. Windows Or French Doors In The Living Room.
Much was made of the fact that the plans for the main house's living room show windows where french doors have been installed. Substantial remodeling has been underway and the difference between a window or french door is minimal from a planning point of view. Correcting the plans to conform to an actual condition such as this is a relatively routine matter typically handled by the planning or building department without any complication. Keech knew he was going to have to deal with some modifications to the plans. This error in disclosure by Brady was immaterial.
4. Pool Ramp/Retaining Wall.
From the evidence presented the court cannot ascertain whether this is a material nonconforming matter that should be a basis to permit Keech to rescind. Thus the court will disregard Keech's arguments on this point.
5. Garage/Stable Loft.
Woodside does not permit second stories in structures such as the garage/stable at the Property. The plans call for a loft yet Brady finished much of the second level inside the stable, adding sheetrock, wiring, lighting, and the beginnings of permanent flooring. His written materials were consistent with the representation that the space could be used for an office or some other form of living space. It was reasonable for Keech to believe that that was an appropriate purpose, particularly because Brady made misleading representations that changes from the plans had been inspected by Woodside. Brady's failure to make disclosure of the loft situation was material.
6. Attic/Utility Room.
In a space in the main house adjacent to an upstairs bedroom, Brady made additions to what was described as the "attic space," installing a furnace (in addition to a water heater shown on the plans), finishing the walls, installing recessed lighting and electrical and telephone outlets. This is the utility room described in the flyer Adams prepared. Brady informed Keech that this space could be made liveable and his cryptic remarks about the heating system's location (see fn. 8) was insufficient to put Keech on notice that this was a nonconforming condition at the main house. Woodside has not approved the location of the furnace in this space. Brady also informed Keech that this space could be made liveable, a condition not evident from the plans. Brady's failure to make adequate disclosure of the attic/utility room situation was material.
7. Moved Upstairs Hallway.
From the evidence presented the court cannot ascertain whether this is a material nonconforming matter that should be a basis to permit Keech to rescind. Thus the court will disregard Keech's arguments on this point.
8. Fence Problems.
The court received a great deal of evidence concerning the history of at least two fences, the fence parallel to the creek to the north, and another fence on the west side of the Property. It is the former fence that is the point of significant dispute between Brady and Keech. Brady testified that the fence in fact appears where it is shown to be on the actual plans for the Property. Notwithstanding that testimony, later in the trial counsel for both sides stipulated that the fence is not as it appears on the plans. Thus, either the fence is in the wrong position or it is drawn to be in the wrong position on the plans.
On February 28, 1992 Woodside's Assistant Planner and Code Enforcement Officer, David Rizk, advised Brady in writing that he had observed Brady building ". . . a new fence which is closer to the creek to the rear of your property." A short time later on March 27, 1992, Mr. Rizk wrote again that the new fence was "five to eight feet closer to the creek than" the previous fence. Mr Rizk then warned Brady that before any further processing of permits for the structure could occur, the fence had to be relocated.
Brady testified with a great deal of confidence that he concluded that the dispute with Mr. Rizk about the location of the fence was resolved because he later got his permits. But his getting the permits did not really solve the fence problem. Indeed, Mr. Rizk testified that the suggestion that future permits could be held hostage pending repair of the fence was itself an error. The controversy is compounded by the fact that Woodside has in effect a setback ordinance which dictates minimum distances fences such as this must be from creeks. Brady counters by arguing, probably correctly, that his fence was "grandfathered" and did not need to comply with any such ordinance. But the fact is the controversy remains unresolved. Thus, even if Brady would ultimately prevail in any dispute with Woodside over the setback ordinance, he had to make Keech aware of the ongoing problems. It is also more likely than not that there would have to be some relocation of the fence at Keech's expense. This possibility, coupled with the fact that the fence was an item of contention between Brady and Woodside, was reason enough to make a full and adequate disclosure and let Keech make his own decision on how best to act. Brady's failure to make adequate disclosure of the fence problems was material.
9. Condition Of The Roofs.
Brady relies on a permit that noted that "roof nailing" could be revised for slate. On this thin foundation he bases his argument that the presence of slate roofing materials on the guest house were effectively approved notwithstanding the fact that the plans called for cedar shake roof materials. The testimony was convincing that the substitution of slate in place of cedar shake is not immaterial, primarily because of the incomplete information concerning the structural capacity of the guest house to handle a heavier roofing material. Brady represented to Keech that the changes had been inspected and, unlike something as relatively insignificant as windows and french doors, or the movement of the upstairs interior hallway, this information concerning the state of the roof is important. Brady's failure to make adequate disclosure of the roof problems was material.
In sum, the failure of Brady to disclose the problems with the driveway gate on Mountain Home Road, the misrepresentations concerning the usefulness of the second level in the garage/stable, the problems with the fence, and the nonconformity of the roofs, constituted material misrepresentations entitling Keech to rescind. Under Lingsch, the "As Is" terms agreed to by Keech will not prevent the conclusion that Keech may use Brady's fraud as a basis to rescind the Purchase Contract. The doctrine of "Caveat Emptor" is not available to Brady under the facts presented.
IV. Disposition
In view of the foregoing, Keech is entitled to a refund of the $80,000 Deposit, plus interest at 7% per annum from November 7, 2000. He is not entitled to exemplary damages since he has not demonstrated that Brady acted with the requisite malice or willfulness required by California law. He is entitled to recover his attorneys fees, which should be handled in accordance with the local rules of practice of this court.
Counsel for Keech should submit a form of judgment consistent with this Memorandum Decision, and should comply with B.L.R. 9002-1.
The judgment should direct Chicago Title to pay to Keech the $80,000 Deposit, plus whatever interest has been earned on it; Brady will be obligated to pay Keech any additional amount necessary for Keech to realize 7% on $80,000 from November 7, 2000 to the date of the judgment.