Opinion
G037073
5-29-2007
KYLE MANN, Plaintiff and Appellant, v. GENESIS R. GUTIERREZ et al., Defendants and Appellants.
Vogt & Resnick and Charles C. McKenna for Plaintiff and Appellant. Daniel Kaminsky for Defendants and Appellants
NOT TO BE PUBLISHED
Kyle Mann filed a breach of contract and fraud cause of action against the sellers of a condominium unit in Garden Grove. The basis for his claim was the sellers, Genesis R. and Roselynne S. Gutierrez (hereafter, the Sellers) failed to disclose construction was taking place at a school on property adjacent to the condominium. The court entered judgment in favor of Mann, but awarded zero dollars for damages. The court also denied Manns request for an attorney fee award as the prevailing party. Both sides appealed. The Sellers argue judgment should have been entered in their favor due to Manns failure to prove damages and because the evidence does not support the courts verdict of liability. Mann seeks reversal of the courts damages award, arguing there was expert testimony establishing a $20,000 loss in value. He also challenges the courts refusal to award attorney fees. We agree with the Sellers argument the judgment must be reversed because Mann failed to establish damages as measured by Civil Code section 3343. Accordingly, we reverse the judgment, and vacate the postjudgment orders regarding attorney fees.
All further statutory references are to the Civil Code.
I
FACTS
In 2003, Mann purchased his first home, a condominium, for $ 290,000. When he visited the property for the first time, he parked his car on the blacktop of a parcel next to the condominium. Mann testified he saw there was a one-story structure on the parcel and "shortly after making [his] offer" to buy the residence, but "before [he] closed escrow," he learned the building was a Montessori preschool.
Within days of moving into his new home, Mann claims he was surprised when the school started demolition and then construction of a two-story building. Approximately 50 feet from Manns upstairs bedroom and bathroom, his view is now blocked by the second story of the preschool. He sued the Sellers, claiming they breached their duty to disclose the pending school construction before the escrow closed.
Manns real estate agent, Matthew Silva, recalled the Sellers told him and Mann there was "construction going on next door." Silva remembered seeing a one-story school building and a dug up playground. He testified the construction equipment and fence surrounding the parcel were plainly visible before escrow closed.
In his trial brief, Mann asserted the Sellers knew the school would decrease the market value of the residence, but sold it to Mann "at a premium before the value was reduced due to the presence of the school." He sought recovery of "out-of-pocket" loss, pursuant to section 3343, which is represented by the difference between the price paid and the propertys actual value at the time of purchase. Mann anticipated his expert, Dennis Mazurier, would prove "this difference in value is $20,000." He also requested an award of punitive damages for the Sellers fraudulent concealment.
At trial, Mazurier, a professional real estate appraiser, began by describing the scope of his assignment. He stated Mann asked him in August 2004 to appraise the condominium and determine "if there was a value loss that was created by an external obsolescence, which was a recently built preschool." Mazurier explained the term external obsolescence "means anything outside of the immediate property area which causes a value problem." He reasoned, "The average informed buyer is reluctant in buying a piece of property that directly backs certain items. [Those include]. . . a school, a freeway, toxic dumps, fire stations, [and] police stations."
In making his appraisal, Mazurier visited the property, inspected the surrounding area, and then researched comparable sales of properties "facing the same problems as far as an external obsolescence." Manns counsel asked Mazurier, "Did you prepare an appraisal as to the difference in value of the property at the time . . . Mann purchased it with the school there, as opposed to without the school there?" Mazurier replied, "Yes" and then added, "I determined that there was a value loss[.]" He explained the property appraised in August 2004 for $375,000, and the value of the external obsolescence at that time was a $20,000 loss. When asked if there would be a similar loss in value when Mann bought the property a year earlier (August 2003), Mazurier replied, "I concluded that there was a value loss created by the preschool. Now due to the fluctuating prices, to speculate a year prior, I couldnt give you an exact number. But there would have been a value loss, percentage loss." He later clarified, "It would have been within the same grounds, it would have been approximately $20,000."
On cross-examination, Mazurier was questioned extensively about the factual basis supporting his opinions. Relevant to this case, Mazurier admitted he never thought about giving "a value" as of August 2003 "until it was brought up just now." He conceded he did not know the value of the external obsolescence in August 2003, as it was "outside the scope of [his] assignment." Mazurier also revealed he did not "determine the difference in [the] negative value due to the obsolescence between if it were a one-story versus a two-story school[.]" He opined, "that wouldnt matter" because "the obsolescence is a school. It doesnt matter if its a 15-story school."
On redirect examination, Mazurier estimated the school was approximately 25 feet away from the property. When Manns counsel asked Mazurier if the "presence of that structure constituted an external obsolescence to . . . Manns residence?" he replied, "I would say that the use of that structure was causing the obsolescence to his property." (Italics added.)
In closing argument, Mann requested $20,000 for compensatory damages plus approximately $5,000 prejudgment interest. The Sellers argued there was no evidence from which the court could base a damage award. Specifically, they noted the expert failed to establish what the property was worth when it was purchased in August 2003, and whether Mann should have paid less than $290,000.
The court took the matter under submission and then issued a minute order stating, "The court having weighed the testimony and exhibits presented to it as well as the credibility of the witnesses and the law regarding the issues in this case finds as follows: [¶] [The Sellers] owed a duty to disclose to . . . Mann, the planned enlargement of the school which was across the alley from the property [being sold] to [Mann]. The court believes before [the Sellers] listed [their] home for sale, [they] knew of the planned construction and the negative effect on the subject property. [The Sellers] did not establish that [Mann] or his agent knew of the planned construction before the sale occurred. [¶] [Mann] however did not adequately establish the amount of damages he suffered. Expert testimony did not provide sufficient evidence to allow the court to determine the amount of decreased value of the property at the time it was purchased by [Mann]. [His] expert testified to the negative value of the `external obsolescence as of one year after the property was purchased. This is not sufficient for the court to determine damages at the time of purchase. Any amount awarded by the court would be merely speculative. [¶]. . . [¶] The court awards judgment for . . . Mann, and against [the Sellers]. Mann is awarded no monetary damages against [the Sellers]."
The Sellers brought a motion for attorney fees, seeking $8,550 based on the attorney fee clause contained in the propertys purchase agreement. Mann also filed a motion for attorney fees, seeking $30,926 plus $3,080.90 in costs. The court denied both motions, stating in its minute order, "This court did not find that [Mann] suffered no damages, but rather that the amount of damages was inadequately presented to the court through [Manns] expert to allow the court to determine the appropriate amount of damages to award to [Mann]. This does not establish [the Sellers were] the prevailing party."
II
THE ELEMENT OF DAMAGES
Both parties present arguments on the issue of damages on appeal. On one hand, the Sellers assert the court should have entered judgment in their favor because Mann failed to prove damages. On the other hand, Mann asserts the court erred in entering zero damages when his expert established a $20,000 loss in value. We agree with the Sellers: Mann failed to prove he suffered damages measured under section 3343.
Section 3343, subdivision (a), states: "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 . . . ." "The enactment of that section in 1935 marked Californias adoption of the `out-of-pocket rule as the exclusive measure of damages in fraud cases, except those involving the breach of fiduciary duties. [Citations.] It replaced the `benefit of the bargain rule, which measured damages according to `the difference between the actual value of what the defrauded person received and the value which it would have had if it had been as represented. [Citation.] The use of the latter measure of damages in cases involving the sale of property has been statutorily rejected. (§ 3343, subd. (b)(1).)" (Saunders v. Taylor (1996) 42 Cal.App.4th 1538, 1542-1543 (Saunders).)
"Thus, to establish a common law cause of action for deceit in the sale of a piece of property, a buyer must offer evidence that the price he or she paid for the property was greater than the actual value of the property." (Saunders, supra, 42 Cal.App.4th at p. 1543.) Mann failed to do this. He testified he paid $290,000 for the condominium. However, he offered no evidence of what the market value of the house would have been had the Sellers disclosed the schools expansion project. He did not offer any proof the price he paid was greater than the propertys actual value.
Manns experts testimony hurt rather than helped his case in this regard. Mazurier clearly established Manns property adjacent to a school in 2004 was worth $20,000 less than a similar property not near a school. But, the relevance of this evidence is minimal given that the expert failed to take into account the property at issue has always been located next to a school. Mann admitted he was aware of the schools proximity to the condominium when he purchased it. The expert appraised the condominium in August 2004, but did not state what the value of the property would have been in August 2003 when Mann purchased it. In short, Mazurier failed to present evidence showing there was an unexpected $20,000 depreciation in value due to the schools undisclosed expansion.
Moreover, the expert proved the property had appreciated by $ 85,000 over a one-year period. But, once again, this fact would not assist the court in determining whether there was an "out-of-pocket" loss. The purchase price may have already been adjusted by the Sellers, knowing their proximity to a preschool. Mazurier established the price would not have to be adjusted due to the increased size of the school, as it was his opinion the "use" of the property, rather than its size, was determinative. He clearly stated, "[T]he obsolescence is a school. It doesnt matter if its a 15-story school."
Finally, we have carefully read the record and found Mazurier failed to offer any opinion on whether Mann paid too much money when he purchased the property. Because there was no other evidence from which to compare the purchase price paid by Mann, we conclude Mann failed to establish he suffered any damages as measured by section 3343.
We recognize that in some cases, lack of evidence concerning "out-of-pocket" losses may not be a fatal defect if there is evidence of consequential damages. Section 3343 "awards damage for traditional `out-of-pocket loss `together with any additional damage arising from the particular transaction, including . . . . [Citation.] If a plaintiff shows no traditional `out-of-pocket loss, that component of award is zero. If, however, he goes on to show consequential or `additional damage of the type prescribed by the statute, the amount which he so demonstrates is recoverable. The only effect of his failure to show traditional `out-of-pocket loss is the necessity that a nullity be added to the amount shown to have been sustained as consequential damages." (Stout v. Turney (1978) 22 Cal.3d 718, 729-730, fn. omitted (Stout); § 3343, subd. (a)(1); see also Hardy v. Carmichael (1962) 207 Cal.App.2d 218, 228 [amounts recoverable under § 3343 as additional damages include escrow fees, moving expenses, telephone connections, fences, cleaning, shrubbery, and labor when reasonably expended in reliance on the fraud].)
For example, in Stout, the plaintiffs purchased a mobile home park based upon the sellers misrepresentations regarding the capacity of its sprinkler-type sewage disposal system. (Stout, supra, 22 Cal.3d at pp. 721-722.) The plaintiffs presented evidence of consequential damages, including: (1) lost profits resulting from being unable to construct eight additional mobile home spaces as contemplated at the time of purchase; and (2) costs incurred in buying and holding additional property for sewage "sprinkling purposes" needed to continue legally operating the existing park, such as the down payment, monthly payments, and property taxes. (Id. at p. 722.) The Supreme Court concluded the lost profits and the costs incurred in buying the additional property were permissible elements of damage under section 3343. (Id. at p. 729.)
However, in the case before us, there was no evidence other losses were incurred. Mann was not required to spend any money to address the schools undisclosed expansion. Mann did not allege at trial, and he does not contend on appeal, that he sustained consequential damages.
Since there is no dispute section 3343 is the correct measure of damages, and because Mann failed to establish either "out-of-pocket" or consequential damages, we conclude judgment should not have been entered in his favor. (See Saunders, supra, 42 Cal.App.4th at p. 1543 [judgment of nonsuit affirmed where purchasers "offered no evidence of what the market value of the house would have been had the true facts been known regarding the lack of permits and the lack of compliance with building codes"].)
To rectify this error, the Sellers suggest this court modify the judgment. However, because our determination reopens the issue of whether attorney fees should be awarded, we remand the matter for further proceedings below.
Based on this ruling, we need not address the other issues raised on appeal. We offer no opinion on whether attorney fees should be awarded, leaving that determination to the discretion of the trial court.
III
DISPOSITION
The judgment is reversed and the matter is remanded. The postjudgment orders denying attorney fees are vacated. The Sellers (Genesis R. and Roselynne S. Gutierrez) shall recover their costs on appeal.
We concur:
ARONSON, J.
FYBEL, J.