STEVENSON v. BAUM
65 Cal.App.4th 159 (1998)

Action for damages for fraud.

In 1980, Plaintiffs, Ted and Alice Stevenson, bought a mobilehome park in Contra Costa County from Defendant, James Baum.

In December, 1945, the Standard Oil Company recorded an easement affecting the property as the servient tenement. The easement was for underground pipeline purposes, with rights of ingress and egress for inspection, maintenance, and repair.

Defendant Baum acquired the mobilehome park in 1968, apparently without the benefit of title insurance.

Three years later -- in 1971 -- Standard Oil notified Baum that it intended to inspect its easement, and to "service" the pipeline. In response to the oil company's request, Baum relocated five (5) of the mobilehomes. Baum returned the mobilehomes to their original location after completion of the inspection.

The property was refinanced in 1978, and Baum obtained an owner's policy of title insurance from First American Title Insurance Company. First American's policy identified the Standard Oil Co. easement as an exception from coverage, and provided the following description:

Easement for ingress and egress and pipeline purposes, and incidents thereto, granted a Standard Oil Co. of California in the instrument

     Recorded:     December 24, 1945, Book 857, page 400,
                         Official Records
     Affects:         the northerly portion of the premises. See map for approximate location.
                         [Emphasis added]

First American attached to the policy a plat depicting the approximate location of the easement.

Baum listed the property for sale in 1980. He did not inform the listing broker that title to the property was subject to an easement, or that several of the mobilehomes had been moved in 1971 to accommodate Standard Oil's inspection request.

The Stevensons responded to ads placed by Baum's broker. They were informed by the broker that the property had 44 "approved" mobilehome spaces. This representation was correct: the property was approved for 44 spaces under Contra Costa County land use ordinances.

The Stevensons offered to purchase the mobilehome park in November, 1980. Their offer to purchase, presented on a broker's preprinted form, contained the following language regarding title to the property:

1. Title is to be free of liens, encumbrances, easements, restrictions, rights and conditions of record or known to seller other than the following:

     Those of record.
          [Emphasis added.]

[The parties understood the term "Those of record" to mean documents recorded in the Office of the County Recorder of Contra Costa County].
Baum accepted the offer. There was no dialogue between Baum and the Stevensons concerning the transaction -- all communications were through the parties' brokers.

The Stevensons did not review the preliminary report which was issued during escrow, and made no attempt during escrow to investigate matters which affected, or may have affected, title to the mobilehome park. However, after escrow closed the Stevensons read their policy of title insurance, and noted an easement for "ingress and egress" in favor of the Standard Oil Company. In the policy the easement was described as follows:

2. An easement affecting the portion of said land and for the purposes stated herein, and incidental purposes,

In favor of:     Standard Oil Company, a corporation
For:               Ingress and Egress
Recorded:     December 24, 1945, in Book 857, Page 400,
                    Official Records
Affects:          Premises
                    [Emphasis added.]

The write-up in the Stevensons' policy, and in the preliminary report which preceded it, made no mention of a "pipeline," and the Stevensons believed that the language in their policy ("ingress and egress") meant that Standard Oil was only entitled to enter and travel across the property.
In 1993 the Stevensons received a letter from Chevron stating that it was the current owner of the easement, and that it was necessary for the Stevensons to remove several mobilehomes which were encroaching on the easement and blocking access to the pipeline.

The Stevensons sued Baum and his broker for intentional fraud and fraudulent concealment. The broker was voluntarily dismissed. Baum moved for summary judgment, arguing that he had not made any affirmative misrepresentations, and that the purchase and sale agreement relieved him from any duty to disclose the recorded easement. The trial court granted the motion. On appeal, HELD, affirmed.

1. Fraud: Requirement of Misrepresentation.

The Court of Appeal (3rd. Dist.) rejected -- for lack of evidence -- the Stevensons' claim of affirmative misrepresentation. The mobilehome park had 44 county-approved spaces, which is precisely what Baum's broker represented to the Stevensons.

The Stevensons contended that an "approved" space means a "usable" space, and that five of the spaces were not usable because they were burdened by the pipeline easement. However, according to the Court, the Stevensons adduced no evidence or authority to show that an "approved" space necessarily means a "usable" space. 65 Cal.App.4th at 165.

2. Fraud; Concealment: Contractual Term Obligating Buyer To Take Title Subject To Easements of Record Satisfies Seller's Duty To Disclose Rights of Easement Owner.

According to the Stevensons, the contract term obligating them to take title subject to easements of record served merely to put them on notice of prior recorded interests, and was independent of Baum's duty of disclosure. According to the Stevensons, that duty required Baum (1) to disclose the actual location of the easement; and (2) to reveal that he had formerly relocated five mobilehomes because they encroached on the easement.

The Court was not persuaded:

[A]lthough it would no doubt have interested the Stevensons to learn of the 1971 incident, the primary material fact which potentially affected the value of the property was the "underlying" fact of the pipeline itself - a fact immediately ascertainable from the public records. A reasonable person in the Stevensons' position, knowing that the oil company's easement was for pipeline purposes, would have realized that the easement holder might exercise its right to access to the pipeline at any time. Moreover, it is undisputed that the recorded easement accurately described where the pipeline was; thus, if the Stevensons had consulted the public records, they would have learned that the pipeline underlay mobile home spaces.

By warning the Stevensons in the purchase contract that they took title subject to easements of record, Baum put them on notice of the above materials facts, which satisfied his duty of disclosure under the express terms of the contract. Because Baum did not breach that duty, the Stevensons cannot state a cause of action for fraudulent nondisclosure as a matter of law. Id. at 166.

The Court distinguished Seeger v. O'Dell, 18 Cal.2d 409 (1941), a Supreme Court case on which the Stevensons substantially relied. The essence of Seeger is that a party charged with affirmative misrepresentations cannot rely on his accuser's constructive notice (of facts disclosed by a recorded document), to prove that the accuser had knowledge of matters which are inconsistent with facts represented to the accuser. "Seeger is a case of active, affirmative, intentional misrepresentation, not the mere alleged failure to disclose; moreover, Seeger did not involve facts which were just as accessible to the plaintiff as to the defendant. For both reasons, it is not on point." Id. at 166-167.

The Court also rejected the Stevensons' argument that a legal description of an easement's location may not reveal its actual, exact location, and that it is the duty of a seller to explain any variance which exists.

[S]o far as these assertions amount to an argument that a legal description of an easement is insufficient as a matter of law to give a buyer notice of its true location, we reject the argument as unsupported by authority and contrary to law. (Cf. Civ.Code, § 1213; Evid.Code § 664.) Id., at 166, Fn. 7.

COMMENT.

In Warner Construction Corp. v. City of Los Angeles, 2 Cal.3d 285 (1970), the Supreme Court indicated that a cause of action for non-disclosure of material facts may arise in "at least" three instances:

1. Where the seller makes a partial representation without disclosing facts which materially qualify the representation;

2. Where only the seller knows the facts or said facts are only accessible to the seller, and the seller knows that those facts are not known to or reasonably discoverable by the buyer; or

3. The seller actively conceals facts from the discovery of the buyer.

In terms of these three "accepted" scenarios, Baum couldn't have been liable to the Stevensons for fraud. With the exception of the statement made by Baum's broker regarding the number of county-approved spaces, no representations -- partial or otherwise -- were made by Baum to the Stevensons.

Regarding the second category (facts known only to the seller), as a matter of law all persons had constructive notice of the contents of Standard Oil's easement. CC § 1213; Hochstein v. Romero, 219 Cal.App.3d 447, 452 (1990).

Finally, there was no evidence that Baum in any way prevented discovery of information regarding the easement. See, e.g., Herzog v. Capital Co., 27 Cal.2d 349, 352-353 (1945).

Significantly, the Baum/Stevenson contract was a commercial transaction to which the transfer disclosure statement legislation did not apply. While the Court noted that CC § 1102 et seq. does not apply to a transaction involving real property improved with more than four dwelling units [Id., at 165, Fn. 6], it also observed that there is no "lesser duty to disclose" in a commercial real estate transaction than in a residential transaction. Nevertheless, if this had been a residential transaction, could Baum have avoided liability to the Stevensons if he had failed to reveal the 1971 "replacements" in Section II of the TDS?