McCue v. Bruce Enterprises, Inc.
39 Cal. Rptr. 125, 228 Cal. App. 2d 21, 1964 Cal. App. LEXIS 1056 (1964)
Rule of Law:
When a vendor speaks upon a subject affecting the value or desirability of a property, they have a duty to make a full disclosure and not conceal material facts; additionally, damages for fraud must be calculated based on the value of the property at the time of the sale, not at a subsequent date.
Facts:
- The plaintiffs (McCue, Heuser, and Green) entered into contracts to purchase homes from the defendant, a subdivider and builder.
- During negotiations, the defendant's salesman told the plaintiffs that the properties were on 'city utilities' and had the same services as living in town.
- The defendant did not disclose that the homes were actually connected to septic tanks and leach lines rather than a city sewer system, despite the defendant knowing this fact.
- The plaintiffs purchased the homes relying on the representation regarding utilities.
- After moving in, the Green and Heuser families experienced sewage backup and yard flooding because the leach lines had insufficient percolation area.
- The plaintiffs McCue also experienced drainage trouble shortly after occupancy.
- The plaintiffs paid approximately $200 to $225 to add extensions to the leach lines, which successfully rectified the drainage problems.
Procedural Posture:
- McCue, Heuser, and Green sued the defendant in the trial court for fraud and breach of warranty.
- The trial court found the defendant liable for fraud for failing to disclose the septic system status.
- The trial court also found the defendant liable for breach of warranty.
- The trial court entered judgment for the plaintiffs, awarding damages based on the difference between the purchase price and a finding of the homes' value at the time of trial.
- The defendant appealed the judgment to the District Court of Appeal.
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Issue:
Does a real estate vendor commit actionable fraud by stating a property is on 'city utilities' while concealing that the sewage system relies on a septic tank, and was the measure of damages correctly applied based on the property's value two years after the sale?
Opinions:
Majority - Justice Coughlin
Yes, the representation regarding 'city utilities' constituted fraud due to partial concealment, but the damages were calculated incorrectly. The court reasoned that while a vendor may not always have a duty to volunteer information, once they choose to speak on a subject, they must make a full and truthful disclosure. By stating the homes had 'city utilities,' the defendant implied the existence of city sewers; withholding the fact that the homes used septic tanks was a fraudulent suppression of fact. However, regarding damages, the court held that the trial court erred by assessing the property value as of the date of the trial (two years post-sale) rather than the date of the sale. Furthermore, the trial court failed to consider that the defects were curable for a minor cost ($200) and incorrectly devalued the homes by over $1,000 based on a temporary condition.
Analysis:
This case illustrates the legal danger of 'half-truths' in real estate transactions. It reinforces the principle that vague assurances like 'city utilities' can create a binding duty to disclose specific underlying facts (like septic systems) if omitting them creates a misleading impression. Procedurally, the case is significant for strictly enforcing the 'out-of-pocket' rule for damages (Civil Code § 3343), clarifying that market value fluctuations occurring after the sale—or temporary defects that are easily cured—cannot be used to inflate fraud damages. The court emphasizes that the measure of loss is the difference in value at the precise moment of the transaction.
