Hardy v. Carmichael

Plaintiffs Mr. and Mrs. Hardy purchased a dwelling house from defendants Mr. and Mrs. Carmichael for $13,125. The purchase agreement was evidenced by a “ deposit receipt” and by escrow instructions. A provision in the re

Appellants Carmichael contend that the court erred (1) in rulings as to admissibility of evidence, and (2) in determining the amount of damages, if any damages should have been allowed.

Appellant McKeever contends that there was no contractual relationship between him and the plaintiffs, and that the evidence was insufficient to support the findings as to liability and damages.

A real estate agent, Mrs. Shields, with whom the property had been listed for sale, showed the property to plaintiffs on May 1, 1956. While plaintiffs were looking at the one-story house (during a period of approximately 15 minutes), Mrs. Carmichael told them that the house was a solid concrete house—that the floors, walls, and roof were solid concrete. At that time she rapped on the wall. Mr. Hardy said that if he decided to make an offer for the property, he would ask for a termite report and for possession by May 23. Thereafter on May 1, the plaintiffs agreed to purchase the property. The deposit receipt and the escrow instructions, referring to the termite report, were signed by the parties. Later, and before plaintiffs took possession on May 23, Mrs. Carmichael told Mr. Hardy that he did not have to worry about termites at that place—that the house was solid concrete. Defendant Mr. McKeever was employed by the real estate agent to make the termite inspection. The report, which was filed in the escrow, states that the type of construction is concrete floors, walls, and roof; and that there were no infestations or indications of termites, dry rot, or fungus—that the report was “limited to what is visible” on the day the inspection was made (May 5, 1956).

Plaintiffs took possession on May 23.

On August 20, while plaintiff Mr. Hardy was demolishing

Mr. Hardy (plaintiff) testified that after he discovered the damage to the house he called Mr. McKeever, who then came to the house and said: “I sure goofed on this one; I sure pulled a booboo, but here is the way it happened. I came in. Mrs. Carmichael told me that this house was solid concrete. She got up and tapped on the wall for my benefit. I took her at her word; went back and examined the washroom addition, examined the garage and I left.” (It is agreed that there was a frame and stucco addition to the rear part of the house, which addition was clear of termite or fungus damage.) Mr. Hardy testified further that Mr. McKeever admitted that he should have seen the fungus damage on the frame of the dining room door; when he (Hardy) examined the plumbing access area he found that the studding and mud sill extended about 5 inches below the bottom of the floor slab, that earth was in contact with the studding and sill, and that the studding and sill were rotten; he removed a board from a place near the kitchen sink and found that the studs were rotten; the first time he saw the termite report was when he was at the escrow office of the bank; he relied upon the report; he sold the property for $9,800 about two years after he purchased it.

Mr. Forbes, an expert in the field of termite inspection, who was called as a witness by plaintiffs, testified that he inspected the house on August 22, 1956; the timbers under the steps where the steps had been removed were damaged by fungus and termites; there was slight evidence of termite infestation at the front door jamb; at the base of the front door, discoloration from a mud tube of termites was plainly visible; the wood at the door between the dining room and kitchen appeared to be painted over fungus infection; in the living-room closet termite tubes were visible on the plaster; by using a probing implement he discovered that the casing of the exterior doors extended below the floor slab and that there was evidence of termite damage at those doors; on the exterior wall he saw a crack around the foundation line of the building ; at the plumbing access area which was in a closet behind the bathtub he saw that the wood framing had been damaged

Mr. Miller, an investigator for the Structural Pest Control Department of the State of California, who was called as a witness by the plaintiffs, testified that on October 2, 1956, he investigated the property here involved; he noticed, at the place where the stairway had been removed, that there was termite and fungus damage at the entrance to the living room and at the bottom of the door jambs; there was extensive fungus damage to the door jambs in the dining room; there was damage under the kitchen sink where plasterboard had been removed; the construction of the house was visible through the bathroom inspection plate; the wood framing and the foundation of the house were below the interior grade; at an open inspection hole which was in an exterior wall, he saw active termites; if there is visible termite damage at a particular place, it should be included in the report.

Mr. Clarke, a building contractor of extensive experience, who was called as a witness by plaintiffs, testified that the house was a frame stucco building with a cheap grade of concrete poured between the studs; he examined the studding which was under the sink, at the plumbing access door, and at the stairway, and he found that the studding was rotten; in his opinion the condition of the studding was caused by termites or dry rot; the foundation was extremely low and the sill was on top of it; the studding was on the sill and the concrete floor had been poured after the studding had been placed; dirt was in contact with the studding and was above the foundation in some places; in his opinion the house was unsafe to live in and it could not be restored to a safe standard; he suggested to the plaintiffs that the house be demolished; it would cost $1,265 to demolish the house; in his opinion the reasonable value of the lot was $8,500.

Mrs. Shields, the real estate agent, testified that while she and the plaintiffs were at the house, Mrs. Carmichael said to them: “It is a solid concrete house”; when Mr. McKeever was at her office, he said: “I guess I goofed on this one.”

Mrs. Hardy (plaintiff) testified that Mrs. Carmichael told her that the house was a solid concrete house; when Mr. McKeever was at the house, after the damage had been discovered, he said that Mrs. Carmichael had told him that it was a

Mrs. Carmichael (defendant) testified that she was not at the house when the agent and the plaintiffs were there; she did not tell the agent or Mr. McKeever that it was a solid concrete house; she knew that it was a stucco house; while she was living in the house certain alterations were made in the kitchen, but she did not see any rotten wood during the time that work was being done; the house had been sandblasted and painted about three years before it was listed for sale.

Mr. Carmichael testified that when the kitchen remodeling was being done the studding on one side of the kitchen was visible and was in good condition; he did part of the work on the exterior wall of the kitchen, and there was no infestation or dry rot at that place.

Mr. McKeever (defendant) testified that he was employed by the real estate agent to make a termite investigation of the property; he sent his report to the bank (where the escrow was pending) ; he understood that the property was “changing hands,” but he did not know who was to be benefited by the report; when he went to the house to make the inspection, Mrs. Carmichael told him that it was a concrete house; he tapped around the baseboard and on the partition walls, and they sounded like concrete; the walls in the closet under the front stairway were plastered and there was no indication of trouble at that place; he tapped around the exterior of the building and crawled under the back addition, and he found no evidence of infestation • he went upon the roof and tapped it, and it sounded like concrete; he did not look for a plumbing access door; he ran “a blade” where there would be a concrete slab by the door casings; he was not looking for a mud sill line and therefore did not see a crack on the exterior walls; there was very thick stucco on the building; he was not in the closet in the rear bedroom, since he had already determined that the building was solid concrete; on his second visit to the house he saw the damage to the dining room door, and he looked through the plumbing access door and saw heavily infested wood.

The house was declared unsafe by the Building Department of Glendale (in which city the house was located). By reason of such unsafe condition, caused by termites, fungi, and dry rot, the house was demolished.

Further findings of fact were: Defendant McKeever was employed by the other defendants to inspect and report the condition of the house with respect to such infestations. He negligently conducted such investigation, and said report “was made and intended for the purpose that plaintiffs rely thereon. ’ ’ He filed his report in the escrow, representing that the building was visibly free of termites, fungus, and dry rot. He knew that the report was for the benefit of plaintiffs. Plaintiffs signed their acknowledgment of the report and relied upon it, but they did not thereby waive the fraud of defendants Carmichael or waive the negligence of defendant McKeever. The representations in the report were false. Defendants Carmichael represented to him that the house was of solid concrete construction, free of termites or other infestations.

Appellants Carmichael contend that the court erred in failing to sustain their objection to the introduction of any evidence against them. The basis for their objection was that on March 21, 1958, they served on plaintiffs’ former attorney a

Appellant McKeever contends there was no contractual or other relationship between him and the plaintiffs. He argues that he was employed by the sellers (through their real estate broker) for the purpose of examining the property to determine whether there were visible infestations; that he was not employed to examine the house for soundness of construction or “infestation per se”; that the duty of care required of him in performing the services should be determined from his contract with the plaintiffs; that since there was no privity of contract with respect to plaintiffs, he had no duty of care as to them under the terms of the contract; and that the situation is not one where, as a matter of policy, he should be held liable to persons with whom there is no privity of contract. There was evidence that Mr. McKeever, who was employed by a real estate agent (on behalf of the owners) to make a report, delivered his report to a bank, and at that time he knew that the property was “changing hands” or being sold, but he did not know the names of those who were to be benefited by the report. It could be inferred that he knew that his report was for the benefit or information of persons who were concerned with the purchase and sale transaction involving the property. It could also be inferred that the plaintiffs were of a class of persons for whose benefit the report was made. In Restatement of the Law of Torts, Topic 3, section 552, page 122, it is said: “One who in the course of his business or profession supplies information for the guidance of others in their business transactions is subject to liability for harm caused to them by-their reliance upon information if (a) he fails to exercise that care and competence in obtaining and communicating the information which its recipient is justified in expecting, and (b) the harm is suffered (i) by the person or one of the class of persons for whose guidance the information is supplied, and (ii) because of his justifiable reliance upon it in a transaction in which it was intended to influence his conduct. ...” (See also Prosser on Torts (2d ed.) p. 541.) Plaintiffs were entitled to rely upon the report.

Whether or not appellant McKeever was negligent was a question of fact for the trial court. The evidence was sufficient to support the findings as to negligence on his part. In the conclusions of law, the court stated that the report was

Appellant McKeever also contends that the amount awarded as damages was improper. The total amount awarded was $9,154.51. Of that amount, $4,625 represented the difference between the purchase price and the actual value on the date of sale. The remainder thereof, $4,529.51, was for consequential or additional damages arising from the transaction. The consequential damages consisted of fourteen items, such as amounts paid for: escrow fees, moving to and from the property, building permit, telephone connection, fence, cleaning yard, material for garage, door lock, shrubbery, taxes, rent, and labor. This appellant argues to the effect that damages should not have been awarded against him—that the parties had already made their contract before he was employed; that his function was to examine the property for visible pest infestations; and that he was not to determine whether the house was in sound condition. He argues further that, if it were proper to award damages, the award should be attributable to the misinformation rather than to the existing condition of the house; and that in any event the asserted consequential damages should not have been awarded. Rules relating to the measure of damages in an action involving section 3343 of the Civil Code are stated in Garrett v. Perry, 53 Cal.2d 178 [ 346 P.2d 758 ]. It was said therein (p. 186): “It is generally recognized, under both the benefit-of-the-bargain and the out-of-pocket-loss rules, that when, as a result of the fraud, the person defrauded has made expenditures which are reasonable under the circumstances, these may ordinarily be recovered, insofar as they have been lost or rendered fruitless because of the deceit.” (See also Gagne v. Bertran, 43 Cal.2d 481 [ 275 P.2d 15 ] relative to rules as to measure of damages.) In the present case it was a question of fact as to whether such alleged consequential damages were damages proximately “arising from the particular transaction.” The evidence was legally sufficient to support award of damages.

The appeal from the order denying the motions for a new trial is dismissed.

The judgment is affirmed.

Fourt, J., and Lillie, J., concurred.

A petition for a rehearing was denied September 24, 1962, and appellants’ petition for a hearing by the Supreme Court was denied October 24, 1962.