RSB Vineyards, LLC v. Orsi

California Court of Appeal, 5th District
2017 Cal. App. LEXIS 852, 15 Cal.App.5th 1089, 223 Cal. Rptr. 3d 458 (2017)

ELI5:

Rule of Law:

A property seller is not liable for concealing defects they did not actually know about, and the knowledge of independent construction professionals hired by the seller is not imputed to the seller unless those professionals were acting as agents representing the seller in dealings with third parties.

Facts:

Defendants purchased a vineyard property in 2009 and hired an architect and contractor to renovate the existing residence into a commercial wine tasting room.
County officials inspected and approved the renovation plans and work, eventually issuing a certificate of occupancy for the tasting room.
Defendants listed the property for sale in 2011, providing an offering memorandum that described the property as having a 'vineyard-vested winery permit' and an 'active tasting room.'
RSB Vineyards (Plaintiff) purchased the property from Defendants, explicitly waiving all inspection rights and contingencies.
After the purchase, RSB hired an engineer to investigate a leaking deck, who subsequently discovered severe structural deficiencies, including insufficient floor support, dry rot, and improper framing.
The structural defects were so extensive that RSB was forced to demolish the building.
RSB's expert testified that while these defects would not be apparent to a layperson, construction professionals qualified in commercial construction should have known about them.

Procedural Posture:

RSB Vineyards sued the Defendants in state trial court for breach of contract, intentional misrepresentation, negligent misrepresentation, fraud, and negligence.
Defendants filed a motion for summary judgment, arguing they could not be liable because they had no actual knowledge of the alleged defects.
The trial court granted the Defendants' motion for summary judgment.
RSB Vineyards appealed the judgment to the Court of Appeal.

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Issue:

Is a commercial property seller liable for nondisclosure of latent structural defects where the seller lacked actual knowledge, but the seller's hired architects and engineers allegedly should have possessed knowledge of the defects?

Opinions:

Majority - Jenkins

No. The court held that a seller cannot be held liable for nondisclosure of defects absent evidence of actual knowledge, and the technical knowledge of hired professionals is not imputed to the seller. The court reasoned that liability for concealment requires the defendant to intentionally suppress a known fact. Here, Defendants provided sworn declarations that they had no knowledge of the defects, and RSB provided no evidence to the contrary. Regarding RSB's argument that the knowledge of the Defendants' architect and engineer should be imputed to the Defendants, the court clarified the law of agency. Under California law, a professional is only an 'agent' whose knowledge binds the principal when they represent the principal in dealings with third parties. When architects and engineers prepare plans or supervise construction, they act as independent contractors, not agents. Since the alleged knowledge of defects would have been acquired during the construction phase—not while dealing with third parties—that knowledge cannot be imputed to the lay-sellers. Furthermore, the statement that the property was an 'active tasting room' was factually true and did not constitute a warranty of structural perfection.

Analysis:

This decision significantly limits the scope of vicarious liability for property owners regarding construction defects. By distinguishing between a professional's role as a service provider (independent contractor) versus a representative (agent), the court established a 'shield' for lay-sellers against imputed knowledge claims. If the court had ruled otherwise, property owners could be held liable for fraud based on technical defects known only to their contractors, even if the owners were completely unaware. This case clarifies that 'imputed knowledge' in real estate transactions is strictly tied to the fiduciary representation of the principal in dealings with third parties, not merely the performance of hired work.

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