Easton v. Strassburger

Opinion

Valley of California, Inc., doing business as Valley Realty (appellant), appeals from a judgment for negligence entered in favor of Leticia M. Easton (respondent). Appellant was one of six defendants in the

Facts

In the case below, all defendants were found liable to respondent for negligence. However, because Valley Realty alone has appealed, we limit our review of the record only to those facts which affect the liability of that party.

Viewing the evidence in the light most favorable to respondent, as we must, the record discloses the following facts: The property which is the subject of this appeal is a one-acre parcel of land located in the City of Diablo. The property is improved with a 3,000-square-foot home, a swimming pool, and a large guest house. Respondent purchased the property for $170,000 from the Strassburgers in May of 1976 and escrow closed in July of that year. Appellant was the listing broker in the transaction.

Shortly after respondent purchased the property, there was massive earth movement on the parcel. Subsequent slides destroyed a portion of the driveway in 1977 or 1978. Expert testimony indicated that the slides occurred because a portion of the property was fill that had not been properly engineered and compacted. The slides caused the foundation of the house to settle which in turn caused cracks in the walls and warped doorways. After the 1976 slide, damage to the property was so severe that although experts appraised the value of the property at $170,000 in an undamaged condition, the value of the damaged property was estimated to be as low as $20,000. Estimates of the cost to repair the damage caused by the slides and avoid recurrence ranged as high as $213,000.

Appellant was represented in the sale of the property by its agents Simkin and Mourning. It is uncontested that these agents conducted several inspections of the property prior to sale. There is also evidence they were aware of certain “red flags” which should have indicated to them that there were soils problems. Despite this, the agents did not request that the soil stability of the property be tested and did not inform respondent that there were potential soils problems.

During the time that the property was owned by the Strassburgers there was a minor slide in 1973 involving about 10 to 12 feet of the filled slope and a major slide in 1975 in which the fill dropped about 8 to 10 feet in a circular shape 50 to 60 feet across. However, the Strassburgers did not tell Simkin or Mourning anything about the slides or the corrective action they had taken.

As one commentator has observed: “Real estate brokers are often in a very commanding position with respect to both sellers and buyers of residential property. The real estate broker’s relationship to the buyer is such that the buyer usually expects the broker to protect his interests. This trust and confidence derives from the potential value of the broker’s service; houses are infrequently purchased and require a trained eye to determine value and fitness. In addition, financing is often complex. Unlike other commodities, houses are rarely purchased new and there are virtually no remedies for deficiencies in fitness. In some respects the broker-buyer relationship is akin to the attorney-client relationship; the buyer, like the client, relies heavily on another’s acquired skill and knowledge, first because of the complexity of the transaction and second because of his own dearth of experience.” (Comment, A Reexamination of the Real Estate Broker-Buyer-Seller Relationship (1972) 18 Wayne L.Rev. 1343 .) Thus, as stated by Judge Cardozo, as he then was, in a different but still relevant context: “The real estate broker is brought by his calling into a relation of trust and confidence. Constant are the opportunities by concealment and collusion to extract illicit gains. We know from our judicial records that the opportunities have not been lost. ... He is accredited by his calling in the minds of the inexperienced or the ignorant with a knowledge greater than their own. ” (Roman v. Lobe (1926) 243 N.Y. 51 , 54-55 [ 152 N.E. 461 , 462-463; 50 A.L.R. 1329 , 1332] quoted in Richards Realty Co. v. Real Estate Comr. (1956) 144 Cal.App.2d 357 , 362 [ 300 P.2d 893 ]; see also Jacobson, Broker’s Liability for Sale of Defective Homes (1977) 52 L.A. Bar J. 346, 347, 353 and Note, Real Estate Brokers’ Duties to Prospective Purchasers (1976) B. Y. U. L.Rev. 513, 514-515.)

Definition of the broker’s duty to disclose as necessarily including the responsibility to conduct a reasonable investigation thus seems to us war

The real estate fraud cases also require that the undisclosed material facts be such as “are not known to or within the reach of the diligent attention and observation of the buyer.” (Cooper, supra, 56 Cal.App.3d, p. 866; Lingsch, supra, 213 Cal.App.2d, p. 735.) We decline to place a similar limitation on the duty to investigate here articulated. Such a limitation might, first of all, diminish the broker’s incentive to conduct the reasonably competent and diligent inspection which the law seeks to encourage. Furthermore, general principles of comparative negligence provide adequate protection to a broker who neglects to explicitly disclose manifest defects. (See generally, Li v. Yellow Cab Co. (1975) 13 Cal.3d 804 [ 119 Cal.Rptr. 858 , 532 P.2d 1226 , 78 A.L.R.3d 393 ].) The duty of the seller’s broker to diligently investigate and disclose reasonably discoverable defects to the buyer does not relieve the latter of the duty to exercise reasonable care to protect himself. Cases will undoubtedly arise in which the defect in the property is so clearly apparent that as a matter of law a broker would not be negligent for failure to expressly disclose it, as he could reasonably expect that the buyer’s own inspection of the premises would reveal the flaw. In such a case the buyer’s negligence alone would be the proximate cause of any injury he suffered.

Accordingly, we find that the instruction at issue in this case was legally correct, for, as the trial judge stated to the jury, a seller’s broker in a residential real estate transaction is “under a duty to disclose facts materially affecting the value or desirability of the property . . . which through reasonable diligence should be known to him.”

Appellant also argues that the instruction was improper because the sentence therein just quoted was immediately preceded by the definition of a broker as a “licensed person or entity who holds himself out to the public

The challenged instruction was not erroneous in any respect.

Appellant next contends that the judgment must be reversed because the verdict was not supported by substantial evidence. Again, we cannot agree. The evidence indicates that appellant’s agents had conducted a limited investigation of the property and that they were aware of “red flags” indicating erosion or settlement problems. There was evidence indicating that one or both of the agents knew that the residence was built on fill and that settlement and erosion problems are commonly associated with such soil. It was additionally established that the agents had seen netting on a slope of the property which had been placed there to repair the slide which occurred most recently prior to the sale. Furthermore, one of the agents testified that he had observed that the floor of a guest house on the property was not level, while the other agent testified that uneven floors were “red flag” indications of soils problems. Although the foregoing does not exhaust the evidence in the record that appellant’s agents were on notice of potential soils problems, it is sufficient to establish that there was substantial evidence on the point. Other evidence also established that, despite this notice, the agents did not request that a soils report be prepared, nor take any other significant steps to determine whether there had been slides or other soils problems.

While the evidence did not establish that appellant’s agents had actual knowledge of the history of slides and soil problems on the property, such actual knowledge was, as we have said, unnecessary to establish liability for negligence. The jury merely had to conclude—as apparently it did—that a reasonably competent and diligent inspection of the property would have uncovered the past history of soils problems. Real estate agents hold themselves out to the public as professionals, and, as such, are required to make reasonable use of their superior knowledge, skills and experience

The judgment for negligence against appellant was amply supported by the evidence.

Appellant next argues that the judgment must be reversed because no expert testimony was received on two critical issues: the standard of care applicable to appellant, and appellant’s failure to meet this standard. The contention is without merit.

We note first that none of the pertinent cases involving allegations of negligence against a real estate broker require expert testimony to establish the standard of care in the real estate industry, or the particular broker’s breach of that standard of care. (Merrill v. Buck, supra, 58 Cal.2d 552 ; Earp v. Nobmann, supra, 122 Cal.App.3d 270 ; Schoenberg v. Romike Properties (1967) 251 Cal.App.2d 154 [ 59 Cal.Rptr. 359 ]; Wilson v. Hisey (1957) 147 Cal.App.2d 433 [ 305 P.2d 686 ].) The only case that has expressly addressed the need for expert testimony in negligence actions against real estate brokers is Jorgensen v. Beach ’n’ Bay Realty, Inc. (1981) 125 Cal.App.3d 155 [ 177 Cal.Rptr. 882 ]. In Jorgensen the Court of Appeal reversed a judgment of nonsuit in an action against a broker for negligence and other causes of action. The trial court had ruled that the plaintiff could not establish negligence except through expert testimony. The Court of Appeal disagreed and held that under the circumstances of the case expert testimony was not required to establish negligence. The court found that two distinct types of negligence had been alleged: violation of a statutory duty of honesty and fair dealing, and failure to exercise reasonable care in setting the sale price of the plaintiff’s property. As to the first type of negligence, the Jorgensen court reasoned that expert testimony was not required since “honesty and fair dealing [are not] beyond the realm of ‘common knowledge’ of lay jurors . . . .” (Jorgensen, supra, 125 Cal.App.3d at p. 163.)

As to the second type of negligence (failure to exercise reasonable care in setting price) the court opined that it was “more technical in nature” and

Although the facts of the instant case present a somewhat closer question than that faced in Jorgensen, we find that expert testimony was not required to establish the standard of care in the industry or appellant’s breach of that standard. As the Jorgensen court so aptly put it: “The correct rule on the necessity of expert testimony has been summarized by Bob Dylan: ‘You don’t need a weatherman to know which way the wind blows.’ The California courts, although in harmony, express the rule somewhat less colorfully and hold expert testimony is not required where a question is ‘resolvable by common knowledge.’ (Cobbs v. Grant (1972) 8 Cal.3d 229 , 236 [ 104 Cal.Rptr. 505 , 502 P.2d 1 ]; see also Mavroudis v. Superior Court (1980) 102 Cal.App.3d 594 , 605 [ 162 Cal.Rptr. 724 ].)” (Jorgensen, supra, 125 Cal.App.3d at p. 163, fn. omitted.) This notion has been most fully developed in the medical malpractice cases. (See Prosser, Torts (4th ed. 1971) § 32, p. 162-165.) In medical malpractice actions “cases which depend upon knowledge of the scientific effect of medicine, or the result of surgery, must ordinarily be established by expert testimony of physicians and surgeons. [Citation.] This rule, however, applies only to such facts as are peculiarly within the knowledge of such professional experts and not to facts which may be ascertained by the ordinary use of the senses of a nonexpert.” (Barham v. Widing (1930) 210 Cal. 206 , 214 [ 291 P. 173 ].)

Adopting this rationale, we cannot say that the issue of negligence in this case turns on facts “peculiarly within the knowledge of . . . professional experts”; rather, we believe that the jury could have found appellant negligent based on “facts which may be ascertained by the ordinary use of the senses of a nonexpert.”

As we earlier found, there was ample evidence appellant’s agents were aware of the fill on the property and that erosion and settlement problems are frequently associated with such soil. The evidence also showed the agents were alert to such indications of soil problems as an uneven floor and the use of netting to repair an earlier slide. It does not require an expert to explain to the jury the relationship between uneven floors and the possibility of unstable soil, or the relationship between past slide activity and the likelihood or possibility of future slide activity. It may be noted, finally, that even if expert testimony were required in this case to establish the

In light of the circumstances, this does not constitute a sufficient objection to the theory of damages developed at trial and presented to the jury. First of all, as noted, this instruction was not proffered by appellant but by another defendant, and appellant is not vicariously entitled to any benefit that the party whose instruction was refused might now claim. Secondly, the instruction offered by the other defendant does not express the formula appellant now advances; that is, the difference between the actual value of that which respondent received and that with which she parted. Third, although appellant made a motion for new trial and attacked the damages as being the result of passion or prejudice and not supported by the evidence, appellant did not in so doing contend that the measure of damages upon which the jury was instructed was improper. (See, Sholar v. Barker (1962) 211 Cal.App.2d 31 , 32-33 [ 27 Cal.Rptr. 451 ].) Finally, in determining that damages should be based on the cost of repair, respondent and the trial court apparently relied, at least in part, on appellant’s acquiesence in the use of this measure. (6 Witkin, Cal. Procedure (2d ed. 1971) Appeal § 284, p. 4272.) Appellant did not object to the evidence offered by respondent regarding the cost of repair, and in fact offered its own evidence on this cost item. In light of these factors, and in the absence of any specific objection below by appellant to utilization of the cost of repair as the proper measure of damages, it would be unfair to allow appellant to raise this issue for the first time on appeal.

Finally with respect to damages, appellant argues that, as applied in the circumstances of this case, the rule of joint and several liability in comparative negligence cases is unfair and suggests that it must here be abrogated. Our Supreme Court has, however, authorized joint and several liability in comparative negligence cases such as this (American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578 [ 146 Cal.Rptr. 182 , 578 P.2d 899 ]), and it is not our office to abandon that authority or place limits upon its application.

In sum, we decline to assign error to the manner in which damages were fixed by the jury pursuant to the instructions of the court.

V.

Appellant’s contention that certain procedural improprieties deprived it of a fair trial may be quickly disposed of. The first asserted impropriety is that a pretrial order permitting respondent to allege a cause of action against appellant for breach of fiduciary duty was filed after trial began, in violation

Appellant also complains that the trial court improperly allowed the issue of appellant’s negligence to go to the jury even though this issue had never been properly pleaded or allowed as an amendment to conform to proof. This contention is unavailing even assuming the cause of action for simple negligence was not as a technical matter properly pleaded. The record is replete with evidence that appellant was at all material times fully apprised that the question of its negligence was placed in issue. The facts set forth in the complaint effectively made a case for negligence and appellant raised the affirmative defense, among others, of contributory negligence. In a pretrial statement appellant alleged that it was not aware “nor should it reasonably have been aware” of prior soils problems on the property, that the manner in which it listed the property “conformed to the highest standards of professional conduct then prevailing,” and that it had made a reasonable investigation of the premises. Appellant concluded this pretrial statement by asserting “[t]hat the vast weight of the evidence indicates that there was no negligence on the part of [appellant], and even if such existed, that the comparative negligence of [respondent’s] own agent . . . must be charged against [respondent].” Appellant also filed a cross-complaint for indemnity that contemplated a potential judgment against it on a negligence theory. When at the commencement of trial respondent submitted instructions on the issue of negligence appellant did not object and offered certain other instructions on the identical theory. At trial both parties adduced evidence germane only to the issue of simple negligence. Finally, at no time during the proceedings below did appellant even remotely indicate any objection to the presentation of this issue to the jury. For this reason, and because in any event there was no prejudice, appellant cannot do so now. (See Code Civ. Proc., § 475.).

Finally, appellant appeals from the portion of the judgment which denied it a right of indemnity against the sellers of the house, the Strassburgers. Appellant had filed a cross-complaint against the Strassburgers seeking full indemnity, or, in the alternative, partial indemnity based on comparative liability. The issue of indemnity went to the jury. In his instructions to the jury, the trial judge indicated that a person seeking indemnity

Before reaching the merits of this argument we must preliminarily address a related procedural matter. Although the trial judge entered judgment in favor of respondents as against all defendants, the judge failed to enter judgment on appellant’s cross-complaint for indemnification. Since the judgment failed to address the cross-complaint it is not an appealable final judgment. (Tsarnas v. Bailey (1960) 179 Cal.App.2d 332 , 337 [ 3 Cal.Rptr. 629 ].) We are constrained to note, however, that the special verdict of the jury and the rule of law expressed by the judge regarding the effect of a finding of “active” negligence leads inescapably to the conclusion that the judgment would have denied recovery to appellant had it been properly rendered on appellant’s cross-complaint.

There is salutary authority for a solution to this dilemma. In the interests of justice and judicial economy, a number of appellate courts have amended judgments which were technically defective so as to render them final and appealable. (Tsarnas v. Bailey, supra, 179 Cal.App.2d at p. 337; Gombos v. Ashe (1958) 158 Cal.App.2d 517 [ 322 P.2d 933 ], overruled on other grounds Taylor v. Superior Court (1979) 24 Cal.3d 890 , 900 [ 157 Cal.Rptr. 693 , 598 P.2d 854 ]; National Indemnity Co. v. Demanes (1978) 86 Cal.App.3d 155 , 161 [ 150 Cal.Rptr. 117 ]; 6 Witkin, supra, Cal. Procedure, §§ 49-51, pp. 4064-4066.) The Tsarnas case is particularly relevant since it dealt with a judgment which failed to address a related cross-complaint. The court ordered judgment entered on the cross-complaint in favor of the cross-defendants since (among other reasons) the circumstances of the case clearly indicated that judgment would have been entered in their favor had the trial judge not failed to do so. (Tsarnas v. Bailey, supra, 179 Cal.App.2d at p. 337.) Similarly, it is clear under the circumstances of the present case that if the judge had not neglected to enter judgment on the cross-complaint, he would have done so in favor of the Strassburgers as cross-defendants. As in Tsarnas, we order judgment entered on appellant’s cross-complaint in favor of the Strassburgers as cross-defendants and against appellant as cross-complainant.

Turning to the substance of the argument, we agree with appellant that the trial judge erred in instructing the jury that a person seeking indemnity cannot recover if his negligence is active as distinguished from passive.

In American Motorcycle our Supreme Court distinguished between two types of indemnity. The first was the form of equitable indemnity existing before American Motorcycle. This form of indemnity provided for full indemnification between concurrent tortfeasors where “the relative culpability of the parties [was] sufficiently disparate to warrant placing the entire loss on one party and completely absolving the other.” (American Motorcycle, supra, 20 Cal.3d at p. 594.) Prior to American Motorcycle, the courts struggled to find some linguistic formula that would provide an appropriate test to determine when this form of equitable indemnity was appropriate. Some authorities required that the negligence of the indemnitor be “active,” “primary,” or “positive,” while the negligence of the indemnitee be found “passive,” “secondary,” or “negative.” (Id.) As the Supreme Court noted, the attempt to create such a precise formula was a futile exercise. (Ibid.)

The second type of equitable indemnity was that created by the court in American Motorcycle. This form of indemnity “modified” the equitable indemnity doctrine just discussed to permit partial indemnity among concurrent tortfeasors on a comparative fault basis. (American Motorcycle, supra, 20 Cal.3d at p. 598.) Although the active-passive distinction may still have some validity where a party is seeking full indemnity on the basis of the equitable indemnity doctrine as it existed prior to American Motorcycle (see E. L. White, Inc. v. City of Huntington Beach (1982) 138 Cal.App.3d 366 , 375-376 [ 187 Cal.Rptr. 879 ]), this distinction is manifestly inapplicable where a party is seeking partial indemnification on a comparative fault basis. (See Kohn v. Superior Court (1983) 142 Cal.App.3d 323 , 329-330 [ 191 Cal.Rptr. 78 ]; Turcon Construction, Inc. v. Norton-Villiers, Ltd. (1983) 139 Cal.App.3d 280 , 284 [ 188 Cal.Rptr. 580 ]; and City of Sacramento v. Gemsch Investment Co. (1981) 115 Cal.App.3d 869 , 875-877 [ 171 Cal.Rptr. 764 ].) As the court in City of Sacramento v. Gemsch, supra, stated with respect to an attempt in that case to draw distinctions between “active” and “passive” negligence: “Substantively, there is no reason to make such distinctions. Whatever the nature of the relative faults, whatever the quantum, it is measurable under AMA.” (115 Cal.App.3d at p. 876.) We concur. Considering that appellant’s cross-complaint against the Strassburgers sought partial indemnity based on comparative liability (as well as full indemnity), it was error for the judge to instruct without qualification that a party seeking indemnity cannot recover if his negligence is deemed to be “active.”

Although this error requires reversal of that portion of the judgment we have entered denying recovery to appellant on its cross-complaint against