NATURE OF PROCEEDINGS: Hearing on Defendant's Demurrer

Defendant's Demurrer is sustained in part and overruled in part.

 

BACKGROUND

Plaintiff Chris Choy filed this action against Daniel John Bowyer, Trustee of the Dian Vail Bowyer Living Trust, and Ceasar Garza (Defendants), alleging Defendants concealed a leak in the garage of the property that Defendants agreed to sell to Plaintiff.

The causes of action are: (1) Fraud; (2) Deceit; (3) Breach of Contract; (4) Negligence (5) Intentional Misrepresentation; (6) Negligent Misrepresentation; (7) Breach of Implied Covenant of Good Faith and Fair Dealing; and (8) Declaratory and Injunctive Relief.

Defendant Ceasar Garza (Defendant) filed a Demurrer. Plaintiff filed an Opposition.

 

LEGAL STANDARD

When considering demurrers, courts read the allegations liberally and in context. Wilson v. Transit Authority of City of Sacramento (1962) 199 Cal.App.2d 716, 720-21. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994. “A demurrer tests the pleading alone, and not on the evidence or facts alleged.” E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315. As such, courts assume the truth of the complaint’s properly pleaded or implied factual allegations. Ibid. However, it does not accept as true deductions, contentions, or conclusions of law or fact. Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 (court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”); Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 (“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”). The burden is on the complainant to show the Court that a pleading can be amended successfully. Blank v. Kirwan (1985) 39 Cal.3d 311, 318.

 

ANALYSIS

Defendant demurs to the first, second, third, fifth, sixth, and seventh causes of action.

I. Fraud and Intentional Misrepresentation

Defendant argues that Plaintiff fails to state claims for fraud and intentional misrepresentation.

“The elements of fraud, which give rise to the tort action for deceit, are (1) a misrepresentation, (2) with knowledge of its falsity, (3) with the intent to induce another's reliance on the misrepresentation, (4) justifiable reliance, and (5) resulting damage(6) The tort of negligent misrepresentation, a species of the tort of deceit, does not require intent to defraud but only the assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true.” Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1255 (citations omitted). “Fraud must be specifically pleaded; a general pleading of the legal conclusion of fraud is insufficient. Every element of the cause of action must be alleged in full, factually and specifically.” Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1249. “The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage” Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230-231.

“‘A real estate seller has both a common law and statutory duty of disclosure. … “In the context of a real estate transaction, ‘[i]t is now settled in California that where the seller knows of facts materially affecting the value or desirability of the property … and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer.’ Undisclosed facts are material if they would have a significant and measurable effect on market value.” … Where a seller fails to disclose a material fact, he may be subject to liability “for mere nondisclosure since his conduct in the transaction amounts to a representation of the nonexistence of the facts which he has failed to disclose.”’” RSB Vineyards, LLC v. Orsi (2017) 15 Cal.App.5th 1089, 1097 (RSB Vineyards) (quoting Calemine v. Samuelson (2009) 171 Cal.App.4th 153, 161) (citations omitted).

Here, Plaintiff alleges that Plaintiff and Defendants executed an agreement for Defendants to sell him real property located at 4640 Glencoe Avenue, #7, Marina Del Rey, CA 90202. Compl. ¶ 10. On November 20, 2024, Plaintiff’s inspector attempted to inspect the garage but could not conduct a full inspection because “There are stored items in the garage that limit the ability to do a full visual inspection. Walls and areas of the floor were not seen.” Compl. ¶ 16. On November 25, 2024, Defendants submitted their formal disclosures, but they failed to disclose the existence of mold or mildew in the garage. Compl. ¶ 21. On December 11, 2024, Plaintiff’s inspector noticed the garage ceiling has major water damage with signs of mold or mildew. Compl. ¶ 25.

Plaintiff alleges that “Defendants blocked the garage walls with piled up boxes to prevent Plaintiff to conduct a comprehensive examination.” Compl. ¶ 17. However, this is a conclusory allegation that is not entitled to a presumption of truth. Likewise, Plaintiff’s allegations that “Defendant knew or should have known there was a prior leak of the garage ceiling” and “Defendants knew that the garage ceiling’s leak had caused mold or mildew in that area” are conclusory. Compl. ¶¶ 18, 19. The Complaint's factual allegations do not show that Defendants knew about the garage’s defects when they submitted the disclosures. Plaintiff’s claim for intentional misrepresentation likewise fails to allege facts showing Defendants’ knowledge of falsity. Accordingly, Defendant’s demurrer to the first and fifth causes of action are sustained with leave to amend.

II. Deceit and Negligent Misrepresentation

Plaintiff distinguishes between “fraud” and “deceit,” with the former serving as a basis for rescission of a contract based on lack of valid consent and the latter as the basis for recovering damages. Opp. at p.7:9-13. Plaintiff recognizes that California courts frequently do not acknowledge this distinction and use the terms interchangeably when referring to the common law tort. Opp. at p. 7:13-16.

Civil Code section 1709 provides “One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers. Deceit is defined as “ 1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true; [or] [¶] 2. The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true….”

These definitions correspond with fraudulent (intentional) misrepresentation and negligent misrepresentation. As explained above, no facts show knowledge of falsity, so the first definition of deceit fails. However, negligent misrepresentation does not require knowledge of falsity.

“The elements of negligent misrepresentation are (1) the defendant made a false representation as to a past or existing material fact; (2) the defendant made the representation without reasonable ground for believing it to be true; (3) in making the representation, the defendant intended to deceive the plaintiff; (4) the plaintiff justifiably relied on the representation; and (5) the plaintiff suffered resulting damages.” Majd v. Bank of America, N.A. (2015) 243 Cal. App. 4th 1293, 1307. “The tort of negligent misrepresentation is similar to fraud, except that it does not require scienter or an intent to defraud.” Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 845. Like fraud claims, negligent misrepresentations claims are subject to heightened pleading standards. See Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.

The facts pleaded show that the garage roof leaked, and the ceiling has major water damage with signs of mold or mildew. Defendants failed to include this in their disclosures, which amounts to a representation that these defects were not present. RSB Vineyards, supra, 15 Cal.App.5th at 1097. Had Defendants conducted a proper inspection, they likely would have uncovered these defects. Therefore, the demurrer to Plaintiff’s second and sixth causes of action are overruled.

III. Breach of Contract

Defendant argues that Plaintiff fails to state a claim for breach of contract because there is no contract between Plaintiff and Garza. Defendant cites “Ex. ‘A’ to Complaint” for the proposition that “there was no contract between Plaintiff and Garza, only between Plaintiff Buyer and Defendant Seller.” Demurrer at p. 7:18-19. But the Complaint filed with the Court has no “Ex. A” nor any other exhibits attached. Therefore, the Court accepts as true Plaintiff’s allegation that “Plaintiff and Defendants executed a Residential Purchase Agreement….” Compl. 10.

To properly plead breach of contract, “[i]f the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference.” Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 459. Alternatively, “in an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language.” Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199. “‘In order to plead a contract by its legal effect, plaintiff must “allege the substance of its relevant terms. This is more difficult, for it requires a careful analysis of the instrument, comprehensiveness in statement, and avoidance of legal conclusions.”’”  Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 993 (quoting McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489) (citations omitted).

Because Plaintiff did not attach the purchase agreement, he was required to plead the substance of its relevant terms. However, Plaintiff alleges only that he “did all, or substantially all, of the significant things that the contract required him to do or was excused from doing those things[,]…all conditions required by the contract for Defendants’ performance had occurred…[and] Defendants failed to comply with the terms and conditions of the contract, including, but not limited to, the full disclosure of material defects.” Compl. ¶¶ 47-49. These vague and conclusory allegations are insufficient to plead the legal effect of the contract. Accordingly, the demurrer is sustained with leave to amend.

IV. Breach of Implied Covenant of Good Faith and Fair Dealing

To establish a claim for breach of the implied covenant of good faith and fair dealing, a plaintiff must show (1) that the plaintiff and defendant entered into a contract; (2) that the plaintiff substantially performed or was excused from performance; (3) all conditions required for defendant’s performance occurred; (4) that defendant engaged in conduct which prevented plaintiff from receiving the benefits under the contract; (5) that by doing so defendant did not act fairly and in good faith; and (6) that plaintiff was harmed by defendants conduct. CACI 325.

Because Plaintiff failed to attach the contract or plead its legal effect, the demurrer to the seventh cause of action is sustained with leave to amend.

CONCLUSION

Defendant's Demurrer is sustained as to the first, third, fifth, and seventh causes of action and overruled as to the second and sixth causes of action. Plaintiff has 20 days leave to amend.