Shapiro v. Sutherland
64 Cal. App. 4th 1534 (1998)
Rule of Law:
A seller of real property is liable for fraudulent misrepresentation to a subsequent remote buyer, despite a lack of contractual privity, if the seller makes a representation expecting it to be repeated to and relied upon by the ultimate purchaser.
Facts:
- For 15 years, the Sutherlands owned a home next to neighbors (the Williams family) who caused significant noise disturbances and commotion, leading the Sutherlands to call the police multiple times.
- Upon transferring jobs to Washington, the Sutherlands entered a home purchase agreement with Prudential (a relocation service), essentially guaranteeing a sale price.
- The Sutherlands signed a disclosure form in which they expressly denied being aware of any 'neighborhood noise problems or other nuisances.'
- The Sutherlands also signed a grant deed with the grantee's name left blank and authorized Prudential to transfer title to a subsequent buyer.
- Prudential, which never occupied the home and knew nothing of the noise issues, marketed the property.
- Prudential sold the home to Shapiro, providing him with the Sutherlands' original disclosure form while expressly disclaiming any personal knowledge of the property's condition.
- Prudential filled in Shapiro's name on the blank deed previously signed by the Sutherlands.
- After moving in, Shapiro discovered the noise problems and sought to rescind the sale.
Procedural Posture:
- Shapiro filed a lawsuit in the trial court alleging fraudulent misrepresentation, concealment, and seeking rescission against both the Sutherlands and Prudential.
- The Sutherlands filed a motion for summary judgment, arguing they were remote sellers with no contractual relationship or duty to Shapiro.
- Prudential filed a motion for summary judgment, arguing they had no knowledge of the noise and no duty to investigate.
- The trial court granted summary judgment in favor of the Sutherlands, ruling there was no privity or duty.
- The trial court granted summary judgment in favor of Prudential, ruling they had no knowledge of the falsity and no duty to investigate.
- Shapiro appealed the entry of judgment for both defendants to the Court of Appeal.
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Issue:
Does a property seller owe a duty of disclosure to a remote buyer with whom they have no direct contract, and is an intermediate relocation company liable for passing on the seller's disclosures without independent investigation?
Opinions:
Majority - Justice Croskey
Yes, as to the Sutherlands, they remain liable because the doctrine of indirect deception applies when a seller has reason to expect their representations will be passed to a third party. The court rejected the 'remote seller' defense, relying on Restatement Second of Torts section 533. Since the Sutherlands knew Prudential was a relocation conduit that would not occupy the home, and because they signed a blank deed, they had every reason to expect their disclosure statement would be delivered to the ultimate buyer (Shapiro). Therefore, contractual privity was not required to sue for fraud. Regarding Prudential, the court held 'No' as to liability for fraud or negligence; the statute does not impose a duty on a transferor to investigate facts they do not know, and Prudential explicitly disclaimed knowledge. However, Prudential is a necessary party to the lawsuit solely to facilitate the equitable remedy of rescission, as they hold the purchase money.
Analysis:
This decision is significant because it modernizes the concept of privity in real estate transactions, specifically regarding corporate relocation services and 'flip' transactions. It confirms that the original owner cannot hide behind a middleman to avoid liability for fraud. If a seller knows their disclosure is intended for an eventual end-user, they are liable for lies contained within it. Additionally, the case clarifies that intermediaries (like relocation companies) generally do not have an independent duty to investigate property conditions under California Civil Code § 1102 if they act in good faith and disclose their lack of knowledge.
