213 Cal. App. 2d 729, 29 Cal. Rptr. 201 (1963)
Plaintiffs acquired ownership of the real property located in San Francisco on or about July 10, 1961, from defendants Nicholas Kotoff and Nell Kotoff.1 Defendant George Savage, a real estate broker, represented the sellers in the transaction.2 The sale was memorialized in a uniform agreement of sale and deposit receipt, attached to the complaint as Exhibit 1.3 This document acknowledged receipt of $1,000 toward a $21,000 purchase price for the property in its present state and condition.4 It contained a provision stating that no representations, guaranties or warranties of any kind or character have been made by any party hereto, or their representatives which are not herein expressed.5 Savage was to receive a commission of $1,000 from the sellers for his services.6
The complaint filed on February 13, 1962, alleged that the defendants knew at the time of the sale that the building was in a state of disrepair, that the units contained therein were illegal, and that the building had been placed for condemnation by the proper officials of San Francisco.7 The plaintiffs did not know these facts.8 They did not discover them until November 1961.9 The defendants willfully and fraudulently failed to reveal the information.10 The plaintiffs purchased the property justifiably relying on the nondisclosure in the belief that the property was in legal tenantable and properly repaired condition as required by law.11 The complaint sought $5,000 in general damages and $10,000 in punitive damages based on the claim that the actual market value of the property was $5,000 less than it would have been in the condition as represented.12
Defendant Savage filed a demurrer.13 The demurrer asserted that the complaint failed to state facts sufficient to constitute a cause of action. It also asserted that the complaint was ambiguous, unintelligible and uncertain.14 The demurrer specifically attacked the legal sufficiency of the facts pleaded on the ground that the exhibit showed the plaintiffs had offered to purchase the property in its present state and condition with no unexpressed representations.15 The trial court sustained the demurrer without leave to amend and entered judgment in favor of Savage.16
Plaintiffs appealed from the judgment entered after the sustaining of the demurrer without leave to amend.17
Whether the complaint alleges facts sufficient to state a cause of action for fraud based on nondisclosure against the real estate broker?18
To state a cause of action for fraud based on mere nondisclosure without a confidential relationship, the complaint must allege five elements.19 Element (1) is nondisclosure by the defendant of facts materially affecting the value or desirability of the property.20 Element (2) is Defendant’s knowledge of such facts and of their being unknown to or beyond the reach of the plaintiff.21 Element (3) is Defendant’s intention to induce action by the plaintiff.22 Element (4) is Inducement of the plaintiff to act by reason of the nondisclosure.23 Element (5) is resulting damages.24 A real estate broker representing the seller who possesses the requisite knowledge is under the same duty of disclosure as the seller.25 The broker is jointly and severally liable with the seller for damages.26
No. Applying the elements to the facts alleged in the complaint filed on February 13, 1962, the complaint alleges that defendants knew the building was in a state of disrepair, units were illegal, and the building had been placed for condemnation, that plaintiffs did not know these facts until November 1961, and that defendants willfully and fraudulently failed to reveal the information while plaintiffs justifiably relied on the nondisclosure.27 The allegations are deficient because the bare allegation of disrepair is inadequate to show materiality or that the condition was beyond the reach of the buyers, the illegal units allegation is conclusionary and nonfactual, the condemnation allegation is uncertain, and there is no allegation that defendants knew the matters were unknown to plaintiffs so as to establish exclusivity of knowledge.28
The complaint does not allege facts sufficient to state a cause of action for fraud based on nondisclosure against the real estate broker.29
Whether the provision in the sales contract that the property was purchased "in its present state and condition" precludes a claim for fraudulent nondisclosure?30
An "as is" provision in a contract for the sale of real property means the buyer takes the property in the condition visible to or observable by him.31 Such a provision does not relieve the seller or his agent from liability for fraudulent nondisclosure of facts materially affecting the value or desirability of the property.32 These facts must be known to the seller but not within the buyer’s reach or observation.33
No. Applying the rule to the facts alleged in the uniform agreement of sale and deposit receipt, the document acknowledged receipt of $1,000 toward the $21,000 purchase price for the property "in its present state and condition" and Savage received a $1,000 commission, yet such a provision is ineffective to relieve the broker of liability for nondisclosure of hidden facts such as the building being placed for condemnation by San Francisco officials or the presence of illegal units, because the provision does not protect against nondisclosure of conditions not observable by the buyers.34
The provision in the sales contract that the property was purchased "in its present state and condition" does not preclude a claim for fraudulent nondisclosure.35
Whether the clause in the sales agreement stating that no representations not expressed therein have been made bars liability for nondisclosure of material facts?36
A party under a positive duty to make a disclosure cannot escape liability for failure to do so.37 The party cannot rely on a provision in the agreement of sale that there are no other representations except those expressed therein.38 This is because a party cannot contract against his own fraud under Civil Code section 1668.39
No. Applying the rule to the facts alleged in the uniform agreement of sale and deposit receipt, the document contained the clause that no representations, guaranties or warranties of any kind or character have been made by any party hereto, or their representatives which are not herein expressed, but this clause does not bar liability for the broker because the sellers could not escape liability for their duty to disclose and Savage is not even a party to the agreement.40
The clause in the sales agreement stating that no representations not expressed therein have been made does not bar liability for nondisclosure of material facts.41
Whether the trial court abused its discretion in sustaining the demurrer without leave to amend?42
Yes. Applying the rule to the facts alleged in the complaint filed on February 13, 1962, although the complaint has not been carefully drawn and contains deficiencies in the allegations of nondisclosure and scienter, there is a reasonable possibility that the defects can be cured by amendment through additional factual averments showing materiality, observability, and exclusivity of knowledge.45
The trial court abused its discretion in sustaining the demurrer without leave to amend.46