Back

Losses in Actions For Fraud

January 19, 2022

California

,

United States of America

Issue

What damages is a real property purchaser entitled to when the seller fraudulently concealed material defects in the property?

Conclusion

Cal. Civ. Code § 1102.13 provides that a transferor who fails to comply with statutory disclosure requirements in the transfer of residential property is liable in the amount of actual damages suffered by the transferee.

"Actual damages," as used in Cal. Civ. Code § 1102.13, means compensatory damages as measured by Cal. Civ. Code § 3343. (Saunders v. Taylor)

Cal. Civ. Code § 3343 codifies the "out-of-pocket" loss rule for fraud actions where a person was defrauded in the purchase, sale, or exchange of property, and awards the difference between what the defrauded party has expended and what they have received in value, plus additional damages arising from the transaction. (Cory v. Villa Properties)

Cal. Civ. Code § 3343(a) sets out a list of recoverable additional damages; included in this list are amounts actually and reasonably expended in reliance on the fraud and compensation for loss of use and enjoyment of the property to the extent that any such loss was proximately caused by the fraud.

Cal. Civ. Code § 3343 must be applied realistically to give the defrauded person their actual out-of-pocket loss, and courts should consider subsequent circumstances when necessary to reach that result. (Garrett v. Perry)

Even if a plaintiff shows no traditional "out-of-pocket" loss, that is they did not expend more than what they have received in value, the plaintiff can still recover consequential or additional damages as prescribed by Cal. Civ. Code § 3343. (Cory v. Villa Properties)

Some examples of expenditures that California courts have found to be recoverable if reasonably expended in reliance on the fraud are the sum expended in attempting to obtain a duly recorded subdivision map, amounts paid for escrow fees, moving to and from the property, building permits, telephone connections, fences, yard cleaning, garage materials, door locks, shrubbery, taxes, rent, and labor. (Cory v. Villa Properties)

Damages for emotional distress do not constitute recoverable damages in an action for fraud in the purchase, sale, or exchange of property. Recoverable damages in action for fraud in the purchase, sale, or exchange are limited to those damages specified by Cal. Civ. Code § 3343. (Devin v. United Services Auto. Assn.)

Law

Cal. Civ. Code § 1102.13 sets out liability for the failure to comply with statutory disclosure requirements in the transfer of residential property:

No transfer subject to this article shall be invalidated solely because of the failure of any person to comply with any provision of this article. However, any person who willfully or negligently violates or fails to perform any duty prescribed by any provision of this article shall be liable in the amount of actual damages suffered by a transferee.

In Saunders v. Taylor, 50 Cal.Rptr.2d 395, 42 Cal.App.4th 1538 (Cal. App. 1996), the plaintiffs alleged that the defendants either knew that their answers to the relevant questions on the statutorily required disclosure statement were false or gave those answers without reasonable grounds for believing them to be true, and sought compensatory and punitive damages for intentional fraud, suppression of fact, and negligent misrepresentation. The plaintiffs argued that damages for failing to comply with mandatory disclosures in a transfer of residential property as set forth in Cal. Civ. Code §§ 1102-1102.19 are measured by the benefit-of-the-bargain rule. The California Court of Appeal for the Fourth District disagreed and held that the term "actual damages," as used in Cal. Civ. Code § 1102.13, means compensatory damages as measured by Cal. Civ. Code § 3343 (at 1543-1545):

The Saunderses argue that section 3343 is not the correct measure of damages. At trial they cited to section 1102.13, which provides: "No transfer subject to this article shall be invalidated solely because of the failure of any person to comply with any provision of this article. However, any person who willfully or negligently violates or fails to perform any duty prescribed by any provision of this article shall be liable in the amount of actual damages suffered by a transferee." (Emphasis added.) The Saunderses contend that the reference to the recovery of "actual damages" means that, when prosecuting the statutory cause of action described by section 1102.13, a plaintiff's damages are measured by the benefit-of-the-bargain rule rather than by section 3343.

We reject that argument, for several reasons.

There is nothing in the words "actual damages" which supports the Saunderses' construction. "Damages" are monetary compensation for loss or harm suffered by a person, or certain to be suffered in the future, as the result of the unlawful act or omission of another. (§§ 3281-3283.) "Actual" is defined as "existing in fact or reality," as contrasted with "potential" or "hypothetical," and as distinguished from "apparent" or "nominal." (Webster's Third New Internat.Dict. (1964) p. 22.) It follows that "actual damages" are those which compensate someone for the harm from which he or she has been proven to currently suffer or from which the evidence shows he or she is certain to suffer in the future. They are to be distinguished from those which are nominal rather than substantial, exemplary or punitive rather [42 Cal.App.4th 1544] than compensatory, and speculative rather than existing or certain. (Beeman v. Burling (1990) 216 Cal.App.3d 1586, 1601, fn. 9, 265 Cal.Rptr. 719; Black's Law Dict. (6th ed. 1990) pp. 35 & 390; and cf. Weaver v. Bank of America (1963) 59 Cal.2d 428, 437, 30 Cal.Rptr. 4, 380 P.2d 644 [not speculative or punitive].) In short, " ' "[a]ctual damages" is a term synonymous with compensatory damages....' " (Weaver, p. 437, 30 Cal.Rptr. 4, 380 P.2d 644; Balmoral Hotel Tenants Assn. v. Lee (1990) 226 Cal.App.3d 686, 689, 276 Cal.Rptr. 640.)

It is in this sense--i.e., to denote compensatory damages for actual injuries, as opposed to other types of relief--that the term is repeatedly used in California's codified statutes. For instance, section 52, subdivision (b), distinguishes between actual damages and exemplary damages, civil penalties, and attorney's fees. The same section states that " 'actual damages' means special and general damages." (Id., subd. (h).) Section 987, subdivision (e), contrasts actual damages with injunctive relief, punitive damages, and attorney's fees. Section 1133, subdivision (d), distinguishes between actual damages on the one hand and attorney's fees and a penal fine on the other. Other examples in the Civil Code, the Business and Professions Code, and other codes are too numerous to mention. While we did not examine each of the more than 150 instances in which the term is employed, we found no instance in which the term "actual damages" was used to distinguish between different measures of compensatory damages.

Page 399

Nor does "actual damages" connote a different measure of damages in the specific context of actions for damages for deceit. In Ward v. Taggart (1959) 51 Cal.2d 736, 336 P.2d 534, the court held that a defrauded plaintiff could not recover damages for fraud because "recovery in a tort action for fraud is limited to the actual damages suffered by the plaintiff" (p. 741, 336 P.2d 534), and there was no evidence of any out-of-pocket loss as measured by section 3343 (p. 740, 336 P.2d 534). The Supreme Court thus equated "actual damages" with the measure of damages prescribed by section 3343, which is exactly the opposite connotation urged by the Saunderses.

In short, in urging that the term "actual damages" in section 1102.13 means damages as measured by the benefit-of-the-bargain rule, the Saunderses are arguing for (1) a return to a measure of damages which has been rejected since 1935, (2) a construction of the term which is contrary to that employed in scores of other statutes, and (3) an interpretation for which the Saunderses have offered no authority. Had the Legislature intended to resurrect such a remedy and to adopt such an unorthodox meaning, we have no doubt that it would have said so. However, our review of the legislative history surrounding the enactment of section 1102, et seq., reveals nothing to support such an intention.

[42 Cal.App.4th 1545] For all these reasons, we conclude that "actual damages," as used in section 1102.13, means compensatory damages as measured by section 3343. Since the Saunderses did not offer any evidence to show that they were damaged within the meaning of section 3343, the judgment of nonsuit must be affirmed.

Cal. Civ. Code § 3343 provides that where a person is defrauded in the purchase, sale, or exchange of property, they are entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which they received, as well as any additional damage arising from the particular transaction. Subdivision (a) of the statute provides a list of additional damages; this list includes amounts actually and reasonably expended in reliance on the fraud and compensation for loss of use and enjoyment of the property to the extent that any such loss was proximately caused by the fraud. Cal. Civ. Code § 3343 is listed under the title "Damages for Wrongs" in the Civil Code:

(a) One defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction, including any of the following:

(1) Amounts actually and reasonably expended in reliance upon the fraud.

(2) An amount which would compensate the defrauded party for loss of use and enjoyment of the property to the extent that any such loss was proximately caused by the fraud.

(3) Where the defrauded party has been induced by reason of the fraud to sell or otherwise part with the property in question, an amount which will compensate him for profits or other gains which might reasonably have been earned by use of the property had he retained it.

(4) Where the defrauded party has been induced by reason of the fraud to purchase or otherwise acquire the property in question, an amount which will compensate him for any loss of profits or other gains which were reasonably anticipated and would have been earned by him from the use or sale of the property had it possessed the characteristics fraudulently attributed to it by the party committing the fraud, provided that lost profits from the use or sale of the property shall be recoverable only if and only to the extent that all of the following apply:

(i) The defrauded party acquired the property for the purpose of using or reselling it for a profit.

(ii) The defrauded party reasonably relied on the fraud in entering into the transaction and in anticipating profits from the subsequent use or sale of the property.

(iii) Any loss of profits for which damages are sought under this paragraph have been proximately caused by the fraud and the defrauded party's reliance on it.

(b) Nothing in this section shall do either of the following:

(1) Permit the defrauded person to recover any amount measured by the difference between the value of property as represented and the actual value thereof.

(2) Deny to any person having a cause of action for fraud or deceit any legal or equitable remedies to which such person may be entitled.

In Garrett v. Perry, 53 Cal.2d 178, 346 P.2d 758 (Cal. 1959), the Supreme Court of California explained that Cal. Civ. Code § 3343 must be applied realistically to give the defrauded person their actual out-of-pocket loss, and courts should consider subsequent circumstances when necessary to reach that result (at 184-185):

The unqualified language of section 3343 indicates that the plaintiff should receive as damages the difference in value between everything with which he parted and everything the received, and the statute contains nothing to show that the difference must be calculated solely on the basis of the facts existing at the time the contract was made or performed. The section must be applied realistically so as to give the defrauded person his actual out-of-pocket loss, and, where necessary to reach that result, the court must consider subsequent circumstances. This principle was followed in Feckenscher v. Gamble, supra, 12 Cal.2d 482, 500, 85 P.2d 885, where, because of false representations, a buyer of real property was unable to meet the payments due upon an encumbrance she had assumed and lost the property by foreclosure. The court held that these subsequent circumstances required the disregarding of both the value of the property and the contract price in calculating damages, that she must be treated as having received nothing, and that she was entitled to recover the value of the consideration she had given.

In Townsend v. Jahr, supra, 147 Minn. 30, 179 N.W. 486, on the basis of facts similar to those involved here, the trial court awarded plaintiffs the difference between the contract price and the actual value of the land, and the reviewing court, in reversing the judgment, held that since the purchase price had not been paid and the obligation to pay had been discharged, the purchase price was not controlling and the recovery[53 Cal.2d 185] should be limited to the consideration the plaintiffs had actually given.

The Court explained that when a defrauded person made expenditures that were reasonable under the circumstances, these expenditures may be recovered if they have been lost or rendered fruitless because of the deceit. In this case, the trial court awarded the plaintiff consequential damages for expenditures the plaintiff made for the operation, care, and improvement of the ranch which were rendered worthless due to the falsity of the representations of the defendant (at 186-197):

Defendant's attack upon the allowance of $30,400 for consequential damages is based on the theory that the findings do not support the award because, he asserts, they show that the award includes compensation for expenditures not proximately caused by the fraud, within the meaning of the provision in section 3343 of the Civil Code allowing recovery of additional damage arising from the transaction. It is generally recognized, under both the benefit-of-the-bargain and the out-of-pocket-loss rules, that when, as a result of the fraud, the person defrauded has made expenditures which were reasonable under the circumstances, these may ordinarily be recovered, insofar as they have been lost or rendered fruitless because of the deceit. (See McCormick on Damages (1935) 458-459; Rest., Torts, § 549, Comment d, illus. 1-3; Prosser on Torts (2d ed. 1955) 570; 37 C.J.S. Fraud § 141, pp. 468-469.) In accordance with this principle courts in California have awarded consequential damages for losses suffered in the operation of a business. N. J. K. Corp. v. Pacific Vital Foods Stores, Inc., 159 Cal.App.2d 522, 525-526, 324 P.2d 96; Lawson v. Town and Country Shops, Inc., 159 Cal.App.2d 196, 204-205, 323 P.2d 843; Hover v. Harout, 123 Cal.App.2d 860, 864, 267 P.2d 823.

The court found that because of the falsity of the representations plaintiff was unable to operate the ranch in a profitable and expedient manner and suffered a great crop and cattle loss which caused him to become delinquent in his payments on the purchase price. The court further found that plaintiff, induced by the fraudulent representations, made expenditures for the operation, care, and improvement of the ranch and that expenditures for these purposes in the amount of $30,400 were totally lost to plaintiff. While the findings are not entirely clear, it appears that, when they are construed as a whole in support of the judgment, the amount of $30,400 was intended to include only such expenditures as were wholly lost to plaintiff as a result of the fraud and were not offset by any income. It follows that the award of this amount as consequential[53 Cal.2d 187] damages was proper under the general rule stated above.

In Cory v. Villa Properties, 225 Cal.Rptr. 628, 180 Cal.App.3d 592 (Cal. App. 1986), the California Court of Appeal for the Second District held that Cal. Civ. Code § 3343 codifies the "out-of-pocket" loss rule for fraud actions where a person was defrauded in the purchase, sale, or exchange of property, and awards the difference between what the defrauded party has expended and what they have received in value, plus additional damages arising from the transaction (at 599-600):

[180 Cal.App.3d 599] The Legislature responded in 1935 by the passage of Civil Code section 3343 and the Supreme Court in Bagdasarian v. Gragnon (1948) 31 Cal.2d 744, 192 P.2d 935 concluded that this statute provided the exclusive measure of damages thereby eliminating entirely the possibility of recovery based upon the "benefits of the bargain" measure. (See Adrian, Recovery for Fraud in a California Property Transaction (1978) 30 Hastings L.J. 475.) 1

In Bagdasarian v. Gragnon, supra, at pages 762-763, 192 P.2d 935, the Supreme Court recognized that "[t]he right to recover additional damages does not refer to the measure of damages, but, rather, to such matters as expenses or consequential

Page 632

injury resulting from the fraud." (Emphasis in original.) Hence, this interpretation is in accord with the general rule that a defrauded plaintiff may recover for all the detriment proximately caused, which must necessarily include necessary expenses and indirect injuries caused by the fraud. 2

As authority for this position, the Supreme Court cited Jacobs v. Levin (1943) 58 Cal.App.2d Supp. 913, 137 P.2d 500, wherein the illustration of the application of additional damages was plainly made by the court stating: "That latter provision was evidently intended to cover a situation where for example a buyer was obliged to move from the property that he had been fradulently induced to purchase on account of the dangerous character of the premises. In such a case he could not only recover the difference between the amount that he had paid for the property and its actual value but also recover the expense of moving." (Id., at p. 917, 137 P.2d 500.)

The Supreme Court then went on to elaborate on the recovery of expenditures by explaining that "[e]xpenditures which were reasonable under the circumstances, ... may ordinarily be recovered, insofar as they have been lost or rendered fruitless because of the deceit." (Garrett v. Perry (1959) 53 Cal.2d 178, 186, 346 P.2d 758.)

[...]

Hence, the California statutory law follows the "out of pocket rule." As indicated in 13 Santa Clara Law Review, supra, 140, "Civil Code § 3343 which states the rule of damage recovery for actions in fraud, awards the difference between what the defrauded party has expended and what he has received in value, plus additional damages arising from the transaction." (Emphasis added; fn. omitted.) We agree.

Even if a plaintiff shows no traditional "out-of-pocket" loss, that is they did not expend more than what they have received in value, the plaintiff can still recover consequential or additional damages as prescribed by Cal. Civ. Code § 3343. The Court provided some examples of expenditures that California courts have found to be recoverable if reasonably expended in reliance on the fraud including the sum expended in attempting to obtain a duly recorded subdivision map, amounts paid for escrow fees, moving to and from the property, building permits, telephone connections, fences, yard cleaning, garage materials, door locks, shrubbery, taxes, rent, and labor (at 601-603):

As the Supreme Court noted, "The statute awards damages for traditional 'out-of-pocket' loss 'together with any additional damage arising from the particular transaction, ...' If a plaintiff shows no traditional 'out-of-pocket' loss, that component of the award is zero. If, however, he goes on to show consequential or 'additional' damage of the type prescribed by the statute, the amount which he so demonstrates is recoverable. The only effect of his failure to show traditional 'out-of-pocket' loss is the necessity that a nullity be added to the amount shown to have been sustained as [180 Cal.App.3d 602] consequential damages." (Stout v. Turney (1978) 22 Cal.3d 718, 729-730, 150 Cal.Rptr. 637, 586 P.2d 1228; emphasis in original.)

As we have indicated herein, Civil Code section 3343 provides the exclusive measure of damages. The section reads as follows:

"3343. Fraud in purchase, sale or exchange of property; additional damages

"(a) One defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction, including any of the following:

"(1) Amounts actually and reasonably expended in reliance upon the fraud.

"(2) An amount which would compensate the defrauded party for loss of use and enjoyment of the property to the extent that any such loss was proximately caused by the fraud.

Page 634

"(3) Where the defrauded party has been induced by the reason of the fraud to sell or otherwise part with the property in question, an amount which will compensate him for profits or other gains which mightly reasonably have been earned by use of the property had he retained it.

"(4) Where the defrauded party has been induced by reason of the fraud to purchase or otherwise acquire the property in question, an amount which will compensate him for any loss of profits or other gains which were reasonably anticipated and would have been earned by him from the use or sale of the property had it possessed the characteristics fraudulently attributed to it by the party committing the fraud, provided that lost profits from the use or sale of the property shall be recoverable only if and only to the extent that all of the following apply:

"(i) The defrauded party acquired the property for the purpose of using or reselling it for a profit.

"(ii) The defrauded party reasonably relied on the fraud in entering into the transaction and in anticipating profits from the subsequent use or sale of the property.

"(iii) Any loss of profits for which damages are sought under this paragraph have been proximately caused by the fraud and the defrauded party's reliance on it.

[180 Cal.App.3d 603] "(b) Nothing in this section shall do either of the following:

"(1) Permit the defrauded person to recover any amount measured by the difference between the value of property as represented and the actual value thereof.

"(2) Deny to any person having a cause of action for fraud or deceit any legal of equitable remedies to which such person may be entitled."

It has been held that in an action by a plaintiff for fraud in the sale of real property, that the plaintiff may specifically recover the sum expended in attempting to obtain a duly recorded subdivision map. (Perkins v. Ketchum (1962) 211 Cal.App.2d 245, 253, 27 Cal.Rptr. 278.) Also, pursuant to Civil Code section 3343, amounts paid for escrow fees, moving to and from the property, building permits, telephone connections, fences, yard cleaning, garage materials, door locks, shrubbery, taxes, rent and labor are examples of recoverable damages when reasonably expended in reliance on the fraud. (Hardy v. Carmichael (1962) 207 Cal.App.2d 218, 228, 24 Cal.Rptr. 475.)

Likewise, appellants may be entitled to damages for the loss of profits or other gains reasonably anticipated from subdividing and selling off the acreage which appellants thought they had purchased, but which was in reality a myth. Civil Code section 3343, subdivision (a)(4), provides the statutory basis for damages for loss of profits. (Stout v. Turney, supra, 22 Cal.3d 718, 728, 150 Cal.Rptr. 637, 586 P.2d 1228.)

In Devin v. United Services Auto. Assn., 8 Cal.Rptr.2d 263, 6 Cal.App.4th 1149 (Cal. App. 1992), the California Court of Appeal for the Fourth District explained that damages for emotional distress do not constitute a recoverable item of damages for fraud. Additionally, fraud in the purchase, sale or exchange of property is limited to those damages specified by Cal. Civ. Code § 3343, which does not include emotional distress (at 1161-1162):

Yet another reason supports the conclusion there was no potential for the assertion of a covered claim: McNairs' complaint in fact did not assert a claim against the insureds for emotional distress which caused physical injury, 10 and as a matter of law McNairs could not recover such from the insureds. McNairs' claims rested on two theories: intentional [6 Cal.App.4th 1162] fraud and negligent misrepresentation. Devins concede the former allegations would not give rise to a duty to defend because of the intentional acts exclusion. We therefore examine only the negligent misrepresentation allegations. Numerous courts, beginning with Newman v. Smith (1888) 77 Cal. 22, 18 P. 791 and continuing through Sierra Nat. Bank v. Brown (1971) 18 Cal.App.3d 98, 95 Cal.Rptr. 742 and O'Neil v. Spillane (1975) 45 Cal.App.3d 147, 158-159, 119 Cal.Rptr. 245, have repeatedly advised that damages for emotional distress do not constitute a recoverable item of damages for fraud. (Newman, supra, 77 Cal. at p. 27, 18 P. 791; Sierra Nat. Bank, supra, 18 Cal.App.3d at p. 103, 95 Cal.Rptr. 742; O'Neil, supra, 45 Cal.App.3d at p. 159, 119 Cal.Rptr. 245; see also In re Marriage of McNeill (1984) 160 Cal.App.3d 548, 559, 206 Cal.Rptr. 641; Adriana Intern. Corp. v. Thoeren (9th Cir.1990) 913 F.2d 1406, 1415.) These authorities, among others, have consistently ruled that fraud in the purchase, sale or exchange of property is limited to those damages specified by Civil Code section 3343, which does not include emotional distress. (Stout v. Turney (1979) 22 Cal.3d 718, 725-726, 150 Cal.Rptr. 637, 586 P.2d 1228; see also Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 67, 248 Cal.Rptr. 217; Channell v. Anthony (1976) 58 Cal.App.3d 290, 315, 129 Cal.Rptr. 704.) The federal courts are in accord. (See American States Insurance Company v. Canyon Creek (March 25, 1992, C-90-2376, N.D.Cal.) [92 L.A.Daily J. D.A.R. 3958] [no coverage for fraud in sale of real property because no injury to tangible property and emotional distress not recoverable under Civ.Code, § 3343].)

Here, the negligent act (the misrepresentation) caused only economic harm.

Page 272

Even apart from the special limitations on fraud damages under Civil Code section 3343, it is the general rule that negligence which causes only monetary harm does not support an award of emotional distress damages. (See Quezada v. Hart (1977) 67 Cal.App.3d 754, 761-763, 136 Cal.Rptr. 815 [where gravamen of action is negligence, causing only monetary harm, damages do not include emotional distress]; Cooper v. Superior Court (1984) 153 Cal.App.3d 1008, 1012-1013, 200 Cal.Rptr. 746 [negligent infliction of property damage to home does not support award of emotional distress damages].)

In the unpublished case of Posada v. Stone Steps Props., LLC, (Cal. App. 2017), the California Court of Appeal for the Second District held that the buyer of residential property could recover damages where the seller failed to disclose to the buyer that an unlicensed contractor had performed renovations on the property. The buyer's damages were limited to the amount of the repair costs for defects in the work performed by the unlicensed contractors. The Court explained that under Cal. Civ. Code § 3343, a plaintiff who is defrauded in the purchase, sale, or exchange of property is entitled to their 'out-of-pocket' damages. The formula for determining 'out-of-pocket' losses under the statute is the difference between the actual value of what the defrauded person parted with and the actual value of what he received in return. The statute also allows a plaintiff under certain conditions to recover his lost profits as a form of consequential damages. In this case, the plaintiff's roofing repair costs and costs to replace the heating and air conditioning system represented the difference in what she paid for and the actual value of what she received (at 35-37):

Lucas and Stone Steps contend there is no substantial evidence to support finding they caused Posada's damages. We conclude their failure to disclose the use of unlicensed

Page 36

contractors proximately caused damages in the amount of the repair costs for defects in the work performed by the unlicensed contractors. The damages do not include repair costs for defects on the property that are not attributable to work performed by the unlicensed contractors.

"To recover damages for fraud, a plaintiff must have sustained damages proximately caused by the misrepresentation. (State Farm Mut. Auto. Ins. Co. v. Allstate Ins. Co. (1970) 9 Cal.App.3d 508, 528; [Civ. Code,] §§ 3333, 3343, subd. (a)(4)(iii).) A damage award for fraud will be reversed where the injury is not related to the misrepresentation. (Gray v. Don Miller & Associates, Inc. [(1984)] 35 Cal.3d 498, 504.) [¶] For fraud arising out of the purchase, sale, or exchange of property, [Civil Code] section 3343 provides that a plaintiff is entitled to his 'out-of-pocket' damages. The formula for determining 'out-of-pocket' losses under the statute is the difference between the actual value of what the defrauded person parted with and the actual value of what he received in return. The statute also allows a plaintiff under certain conditions to recover his lost profits as a form of consequential damages. ([Civ. Code,] § 3343, subd. (a)(4).)" (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1252 (Las Palmas).)

In this case, there was substantial evidence that the leaking roofs over the house and the garage were improperly installed by the unlicensed contractor hired by Stone Steps. Licensed roofing contractor Garcia viewed both roofs, including the portion of the roof over the house that was

Page 37

leaking. He explained that the roofing materials had been installed improperly and needed to be replaced entirely at a cost of $13,500. The defects in the roof were obvious to a licensed roofing contractor. Posada believed she was paying for new roofs constructed by licensed contractors, or at minimum in proper compliance with the permit process, and received roofs with defects constructed by unlicensed contractors that did not properly comply with the permit process.

Similarly, there was substantial evidence that the heating and air conditioning system was improperly installed by the unlicensed contractor. The unlicensed contractor performed work on the heating and ai

Alexsei publishing date:
126