This lawsuit arises out of the purchase and botched remodel of a fixer-upper house in the Pacific Heights neighborhood of San Francisco. Plaintiff Justin Moore alleges he was fraudulently induced by his real estate agent Richard Burden Teed to purchase and renovate the property based on Teed’s assurances that he and his team of experienced contractors could deliver a set of high-end improvements for only $900,000.
Moore sued after the installed foundation proved defective and the promised renovations were far more costly than what Teed had represented they would be. The jury returned a verdict in favor of Moore on his tort claims and awarded him his out-of-pocket expenses for replacing the foundation and benefit-of-thebargain damages for the additional cost he incurred in obtaining the renovations that had been promised to him.
Conceding liability, Teed challenges the award of benefit-of-the-bargain damages and statutory attorney fees on various grounds. Courts of Appeal are divided over the question whether benefit-of-the-bargain damages may be recovered in fraud claims involving real property transactions where the fraud is perpetrated by a fiduciary.
“There are two measures of damages for fraud: out-of-pocket and benefit of the bargain. [Citation.] The ‘out-of-pocket’ measure of damages ‘is directed to restoring the plaintiff to the financial position enjoyed by him prior to the fraudulent transaction, and thus awards the difference in actual value at the time of the transaction between what the plaintiff gave and what he received.
The ‘benefit-of-the-bargain’ measure, on the other hand, is concerned with satisfying the expectancy interest of the defrauded plaintiff by putting him in the position he would have enjoyed if the false representation relied upon had been true; it awards the difference in value between what the plaintiff actually received and what he was fraudulently led to believe he would receive.’ ” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240 (Alliance Mortgage); see Lazar v. Superior Court (1996) 12 Cal.4th 631, 646 (Lazar) [“Because of the extra measure of blameworthiness inherent in fraud, and because in fraud cases we are not concerned about the need for ‘predictability about the cost of contractual relationships’ [citation], fraud plaintiffs may recover ‘out-of-pocket’ damages in addition to benefit-of-thebargain damages.”].)
As a general matter, in fraud claims involving the purchase, sale or exchange of property, the Legislature has directed that the “out-of-pocket” rather than the “benefit-of-the-bargain” measure of damages should apply. Civil Code section 3343, subdivision (a), provides, “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 certain enumerated damages such as lost profits. Our high court has clarified that “[t]his section does not apply, however, when a victim is defrauded by its fiduciaries. In this situation, the ‘broader’ measure of damages provided by [Civil Code] sections 1709 and 3333 applies.” (Alliance Mortgage, supra, 10 Cal.4th at p. 1241, italics added.)
Section 7160, part of the Contractors’ State License Law, provides as follows: “Any person who is induced to contract for a work of improvement, 20 including but not limited to a home improvement, in reliance on false or fraudulent representations or false statements knowingly made, may sue and recover from such contractor or solicitor a penalty of five hundred dollars ($500), plus reasonable attorney’s fees, in addition to any damages sustained by him by reason of such statements or representations made by the contractor or solicitor.”
Moore is the prevailing party on appeal, and thus he is entitled to fees under section 7160. “Although this court has the power to fix attorney fees on appeal, the better practice is to have the trial court determine such fees . . . .” (Security Pacific National Bank v. Adamo (1983) 142 Cal.App.3d 492, 498.)
The California Court of Appeal was persuaded by those authorities which have concluded that benefit-of-the-bargain damages are available to fully compensate a plaintiff for all the detriment proximately caused by a fraudulent fiduciary’s actions.
The California Court of Appeal also concluded that the jury properly awarded statutory attorney fees and costs. Accordingly, they affirmed the judgment above.
See Moore v Teed.
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