Barnhouse v. City of Pinole
1982 Cal. App. LEXIS 1706, 133 Cal. App. 3d 171, 183 Cal. Rptr. 881 (1982)
Rule of Law:
A real estate developer has a duty to disclose material facts regarding soil stability, such as preexisting slides, to initial purchasers, and liability for fraudulent concealment of these defects extends to subsequent purchasers when resale is foreseeable and the defect remains latent.
Facts:
- In 1956, the State built a freeway and relocated a stream bed near unimproved land.
- In 1959, defendant Smith developed a residential subdivision on the adjacent land; soils engineers found springs and slides but there was a dispute regarding whether recommended drains were installed.
- Smith sold homes to the original plaintiffs (Barnhouse, Carrillo, Dempster) in 1961, informing them the land was filled but failing to disclose the preexisting slides and springs.
- In 1962, a landslide occurred; Smith, the City, and the State blamed one another.
- In 1963, Smith agreed to repair the slide for the homeowners, representing through agents that the fix would be 'permanent.'
- Smith actually performed a cheaper, temporary repair without informing the homeowners of the deviation from the permanent plan.
- In 1974, massive slides recurred, causing severe damage to the plaintiffs' properties, including the home of plaintiff Self, who had purchased his home from an original owner in 1971.
- Following the 1974 damage, the homeowners learned for the first time that Smith had not performed the permanent repairs recommended by engineers in 1963.
Procedural Posture:
- Plaintiffs (homeowners) filed suit against the Developer (Smith), the City, and the State in the Superior Court (trial court).
- The trial court sustained the Developer's demurrer to contract and warranty claims, ruling them barred by the 10-year statute of limitations.
- The trial court granted a nonsuit in favor of the Developer on the theories of fraudulent concealment and willful misconduct.
- The trial court eliminated fault theories against the City and State via a pretrial order.
- The trial court dismissed the nuisance theory against the City and State at the close of the plaintiffs' case.
- The jury returned a defense verdict for the City and State on the remaining inverse condemnation claim.
- Plaintiffs appealed the judgments to the California Court of Appeal.
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Issue:
Is a real estate developer liable for fraudulent concealment to original and subsequent homeowners for failing to disclose preexisting soil defects and inadequate repairs, and does the government retain absolute immunity against nuisance claims for public improvements?
Opinions:
Majority - Presiding Justice Grodin
Yes, the developer is liable for fraudulent concealment, and the government is not absolutely immune. regarding the developer, a nonsuit was improper because substantial evidence existed that Smith concealed material facts. A developer's duty to disclose material facts affecting property value, such as soil instability, is not discharged by a belief that the problem has been fixed. Furthermore, this liability for deceit extends to subsequent purchasers (like plaintiff Self) because it is foreseeable that homes will be resold and that the initial nondisclosure will be passed on, leaving the subsequent owner with the damage. regarding the government, the trial court erred in dismissing the nuisance claim. Government Code section 830.6 does not provide absolute immunity; the public entity must show reasonable design approval to claim immunity, and there was evidence that the public drainage systems contributed to the slide.
Analysis:
This decision is significant because it expanded the scope of a developer's liability for fraud. Previously, under cases like Cohen, liability for nondisclosure often ended with the original purchaser. The Barnhouse court explicitly rejected that narrow view, applying the Restatement's approach that liability extends to any class of persons the defendant has reason to expect will act in reliance on the misrepresentation (or nondisclosure). This prevents developers from escaping liability for latent defects simply because a property changes hands. Additionally, the case clarifies that the 10-year statute of limitations for construction defects (CCP § 337.15) does not protect developers from actions based on willful misconduct or fraudulent concealment.
