Wong v. Stoler CA1/1
237 Cal. App. 4th 1375
| Cal. Ct. App. | 2015Background
- The Wongs bought a San Carlos hillside home in 2008 from the Stolers for $2.35M and later learned the house (and 12 neighbors) were served by a privately maintained sewer running 1,000 feet down a steep hillside rather than the city system.
- Sellers’ written disclosures and seller statements represented the property was on public sewer and denied the existence of a homeowners’ association; the Stolers failed to disclose a recorded cross-easement and a City abatement/notice about the private sewer’s problems.
- The Wongs began major remodeling (≈$300,000) before discovering the private sewer; neighbors had an informal sewer association but no formal HOA or reserve fund; experts estimated major replacement costs (hundreds of thousands).
- The Wongs sued for rescission and multiple tort and contract claims; after settling the brokers for $200,000, the bench trial addressed only rescission.
- Trial court found negligent misrepresentations made with reckless disregard and that the Wongs would not have purchased had they known, but declined to effectuate rescission due to alleged practical difficulties and prejudice to the Stolers; instead it ordered declaratory relief and an equitable indemnity capped at $360,000 for up to 10 years.
- The trial court denied attorney fees to both parties as neither was the "prevailing party." The Wongs appealed; the Court of Appeal reversed and remanded to effectuate rescission and award "complete relief."
Issues
| Issue | Plaintiff's Argument (Wong) | Defendant's Argument (Stoler) | Held |
|---|---|---|---|
| Whether Wongs validly rescinded the purchase | Complaint served + pleaded fraud/negligent misrep = effective unilateral rescission under Civ. Code §§1691–1692 | Court may refuse rescission on equitable grounds and instead grant alternative equitable relief | Court: Wongs effectually rescinded; trial court abused discretion by denying rescission and must effectuate rescission and provide complete relief |
| Whether negligent misrepresentation suffices as "actual fraud" for rescission | Negligent misrep is a form of actual fraud sufficient to support rescission | Stoler argued lack of actual (intentional) fraud undermines rescission | Court: Negligent misrepresentation (reckless disregard) qualifies as a ground for rescission |
| Whether trial court may deny rescission based on prejudice to seller / difficulty unwinding | Prejudice to seller cannot outweigh seller’s fraudulent conduct; equity should restore status quo as nearly as possible | Trial court relied on prejudice to Stolers and transaction complications to deny rescission | Court: Prejudice to a fraudulent seller is improper decisive factor; complications do not justify refusing rescission here |
| Whether attorney fees should be denied | If rescission is granted, Wongs may recover attorney fees as part of complete relief under §1692 | Trial court found no prevailing party, so no fees for either side | Court: Reverse denial of Wongs’ fees — remand to determine fees as part of rescission relief (trial court’s denial reversed) |
Key Cases Cited
- Akin v. Certain Underwriters at Lloyd’s London, 140 Cal.App.4th 291 (discusses rescission vs. damages as alternative remedies)
- Runyan v. Pacific Air Industries, Inc., 2 Cal.3d 304 (explains modern rescission procedure and equitable powers in rescission cases)
- Sharabianlou v. Karp, 181 Cal.App.4th 1133 (rescission requires court to award complete relief, including restitution and consequential damages)
- Snelson v. Ondulando Highlands Corp., 5 Cal.App.3d 243 (status quo impossibility does not bar rescission where fraud exists)
- Arthur v. Graham, 64 Cal.App. 608 (equity should not spare fraudulent defendant from consequences because of defendant's prejudice)