In Wong v. Stoler, (2015) 237 Cal.App.4th 1375, the court of appeal reversed the trial court judgment denying rescission remedies to defrauded home buyers. The buyers purchased a hillside home for $2.35 million. The sellers failed to disclose and actively concealed the facts that: the home was on a private sewer system that went down a steep ravine through public open space; that the property was subject to an informal homeowners’ association to maintain the sewer system; and that the local government agency had issued a notice of abatement to fix leaks in the sewer system. Plaintiffs’ experts testified that the sewer system was susceptible to damage, and that system failure was inevitable and would cost $500k-$600k to replace two of the lines.
The trial did not occur until five years after the purchase, which was after the buyers did a total remodel of the house (down to the studs), and after the sellers spent $100k on improvements to their new house. The trial court concluded the sellers acted in reckless disregard of the truth in negligently misrepresenting the facts about the sewer system. However, it denied the buyers’ request that the sale be rescinded because of “the practicality of unwinding the transaction” and because of the undue burden it would place on the sellers. Instead, the trial court fashioned an alternative “equitable” remedy ordering the sellers to indemnify the buyers for all expenses they may incur with regard to the sewer system in the following 10 years over and above the $200k that the sellers’ real estate agent paid the buyers in settlement.
The court of appeal reversed and remanded the case back to the trial court to fashion a rescission remedy that restored the buyers to their condition prior to their purchase of the property, which was to include restitution (a reconveyance of the property and refund of the purchase price), and any consequential damages — even if doing so will be complicated. The court of appeal held that it was improper for the trial court to justify its denial of rescission based on potential prejudice to the sellers, because it was the sellers who committed the fraud and it was sellers who must suffer any consequences and inconveniences necessary to restore the buyers to their pre-sale condition.
©2015 Miles J. Dolinger. This article is not intended to and does not constitute legal advice or a solicitation for the formation of an attorney-client relationship.
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