Daily Development for Friday, March 31, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

VENDOR/PURCHASER; MISREPRESENTATION; NON DISCLOSURE: News reports regarding passage of county bond measure do not constitute constructive notice to potential purchasers = of subdivision plots of county plan to expand state road adjacent to subdivision into freeway; consequently statute of limitations on developer's promises of quiet neighborhood does not run until lot purchasers actually find out about the expansion.

McGill v M.J. Brock & Sons, Inc., 91 Cal.Rep. 2d 135 (1999) =20

In 1987, plaintiffs purchased homes in a residential subdivision built = by Brock, which affirmatively represented that they would enjoy peace, tranquility, and a pleasant view. In 1994, plaintiff home purchasers = sued Brock for damages and rescission on various theories, including = mistake, intentional and negligent misrepresentation, and breach of contract alleging that Brock had failed to disclose that a nearby two-lane state road would be expanded to a six-lane freeway. Brock claimed that plaintiffs knew or should have known about the highway expansion because of a bond measure (and its attendant publicity) that was passed by the voters in November 1989. The trial court granted Brock's motion for summary judgment on the ground that the action was barred by the 3- year statute of limitations for actions based on mistake, fraud, misrepresentation, or breach of contract i.e., more than 3 years had passed since plaintiffs had constructive or inquiry notice of the = highway expansion.

The court of appeal reversed. Under CCP =A7338(d), the 3-year statute = of limitations begins to run, not when the mistake or misrepresentation is made, but on "discovery, by the aggrieved party, of the facts = constituting the fraud or mistake." Discovery, however, is not synonymous with actual knowledge; the victim will also be charged with discovery when actual notice of circumstances would put a prudent person on inquiry, i.e., a duty to investigate further. Defendant argued that the highway expansion was a matter of public record (the bond measure) and public knowledge (newspaper reports) sufficient to put a reasonable person on constructive or inquiry notice as a matter of law. The court found, however, that the trial record showed that plaintiffs possessed neither actual knowledge of the highway expansion nor sufficient notice (e.g., = as registered voters, from sample ballots or voters' pamphlets concerning the bond measure) to give rise to a duty of inquiry. Likewise, the = court rejected Brock's argument that newqspaper coverage of the bond measure gave plaintiffs notice of the planned road expansion. "[We] cannot say that the news media reporting of that project was so = pervasive that any reasonable person would have been aware of that project and would have been under a duty to investigate the potential impact of = that project on that person's property." 76 CA4th at 1407.

Reporter's Comment: In most real estate fraud cases, the hidden facts = are of the "on premises" variety, where it is fairly easy to determine when they came to the buyer's attention. When the facts are "off premises" = and publicly known, like the widening of an adjacent highway through voter- approved bond financing, how do you determine when the buyers had actual notice? An approach that equates public notoriety with the = trigger of discovery has the merit of common sense, but may fail to properly describe some insulated homeowner. On the other hand, if only = plaintiffs who admit they read the papers are barred, we know what kind of testimony to anticipate. It's too bad there isn't some kind of = rebuttable presumption in favor of probable discovery unless the plaintiffs can persuade a judge that they had some particular reason not to be = expected to know.=20

Even more complicating in this case is the fact that the plaintiffs are = a group of owners. In that situation, what happens if some knew and some didn't? Does each plaintiff stand on his or her own merits, or do some knowledgeable ones drag down the entire crowd? The Reporter for this case is Professor Roger Bernhardt of Golden Gate Law School.

Editor's Comment: Note that in this case the issue was not whether = the "defect" was "latent," but whether there was sufficient notice to = trigger the running of the statute of limitations. This is because the = allegations were that the developer had affirmatively warranted a quiet = environment.=20

If the only question were whether the developer had withheld information about a latent defect, the editor would conclude that the developer had not done so, since clearly the problem was discoverable.=20 On the other hand, where there is fraud or affirmative = misrepresentation, most jurisdictions permit recovery even where the victim might have discovered the true facts by further inquiry. Reasonable reliance on = the representations precludes such inquiry. =20 Because the question here is not one of reasonable inquiry, but of knowledge, the editor concurs with the court that a plaintiff should be protected by the "discovery doctrine." The party making the misrepresentation encouraged reliance upon it; let that party live with = the consequences.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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