IKOLA, J.
In 2000, plaintiffs Jerald M. Dick and STH Limited Partnership purchased a residential property in Laguna Beach, California from defendants Kenneth L. Beall and Cheryl S. Beall. In 2009, plaintiffs sued defendants for breach of contract, intentional misrepresentation, and negligent misrepresentation in connection with the sale of the property. We affirm the trial court's grant of summary judgment in favor of defendants. There is no triable issue of material fact as to whether defendants knew about any of the defects alleged in the complaint.
In August 2000, defendants executed a California Association of Realtors standard form contract for the sale of real property at 227 Emerald Bay Drive, Laguna Beach, California. The total purchase price was $2,050,000. The purchase agreement provided: "In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney's fees and costs from the non-prevailing Buyer or Seller, except [with regard to mediation]."
As to the condition of the property, the purchase agreement provided: "
Defendants also executed a real estate transfer disclosure statement. (See Civ. Code, § 1102 et seq.) Defendants represented they were not "aware of any significant defects/malfunctions in any of" the major features of the property, including interior walls, ceilings, floors, exterior walls, insulation, roofs, windows, doors, foundation, slabs, driveways, sidewalks, walls/fences, electrical systems, plumbing/sewers/septics, or other structural components.
Defendants checked several boxes on the form pertaining to certain issues at the property. Defendants made specific disclosures concerning these issues in an attachment to the form disclosure statement. "A portion of the railroad ties that were used to stabilize the slope behind the house encroaches on the neighbor's property. Seller has signed a License Agreement with neighbor to allow this encroachment." "The playhouse in backyard was built without a permit and will be removed prior to the sale of the house." "Some fill was used in conjunction with the railroad ties during the back yard slope stabilization work." "The Emerald Bay Homeowners' Association has jurisdiction over the Property and the various common areas in Emerald Bay. The Association has cited the property for several setback and unapproved improvement violations and has filed a lawsuit seeking to correct these same violations. Sellers intend to correct all violations and obtain a clearance from the Association before close of escrow."
Two real estate agents also executed their portion of the inspection disclosure. (See Civ. Code, § 1102.6.) One agent noted "some dry rot" and "cracked tiles on roof." The other agent noted: "No additional items other than those mentioned in this disclosure and the physical inspection reports performed and produced concerning the property."
Plaintiffs hired a firm to perform a physical examination of the property. The written report prepared by the inspector stated, in relevant part (the report included four pages of comments noting issues with the property): "Poor drainage noted at front court yard area"; missing window screens and window cranks; "Exterior stucco terminates below grade and or brick flat work, (Causes abnormal wear, deterioration and or water intrusion)"; and "Structural damage noted at multiple locations of the rear deck sub area framing (Termite Report)."
On July 8, 2008, Dick wrote a letter to defendants informing them of the discovery of certain alleged "latent defects" at the property. Dick identified the following alleged defects: (1) "The front deck was improperly installed and materials used were not to Code, with the result that the deck was rotting away"; (2) "The deck was supporting the window of the downstairs front bedroom, which is not a proper anchor"; (3) "The newer windows did not have flashings and there were no flashings around any of the chimneys";
On February 26, 2009, plaintiffs filed a complaint for breach of contract, intentional misrepresentation, and negligent misrepresentation against defendants.
The complaint alleged defendants failed to disclose various "defects in construction and violations of the Uniform Building Code" at the time of the sale, which were discovered by Dick during a subsequent remodel of the property. Specifically, plaintiffs alleged the following eight nondisclosures: "At no time did Defendants disclose to Plaintiffs that the Emerald Bay Property was structurally unsound with respect to the front deck, in violation of the Uniform Building Code with respect to several structural components, in violation of the Uniform Plumbing Code, had unsupported and non-waterproofed windows, had significant damage to exterior stucco and flashing due to wet soil, had a defective chimney flashing on the lower roof, had significant drainage problems, and was not built in accordance with the minimum standard of care of the region."
Plaintiffs also alleged: "The representations set forth in the [transfer disclosure statement] were false. There were significant defects in the interior walls, exterior walls, roof, foundation, windows, driveways, plumbing/sewers/septics, and other structural components of the home; room additions, structural modifications, or other alterations or repairs not in compliance with building codes; the home was in violation of setback requirements, and suffered from settling and drainage problems."
Plaintiffs were asked by special interrogatory to identify all defects that should have been disclosed by defendants. Plaintiffs responded: "The deck was improperly installed, not constructed in compliance with building code requirements and was rotting. [¶] The deck served as the structural support for the bay window of the downstairs front bedroom. That method of support is neither in compliance with building code requirements, nor a prudent construction technique. [¶] Windows were installed without flashings. [¶] There was no flashing or defective flashing around the chimneys. [¶] The front steps from the street to the patio were of different heights and widths, and not in compliance with the building code. [¶] Various plumbing and drainage defects existed, including drains that were plumbed into abandoned pipes not connected to any sewer or storm drain system. [¶] There was damage to the exterior stucco and existing flashing at the deck, side yard, and courtyard."
In response to an interrogatory requesting the identification of all facts supporting the allegation defendants failed to disclose known defects in the property, plaintiffs responded they were "informed and believe[] that Defendants knew the Property suffered from defects" that were not disclosed by defendants. Defendants cited two pieces of evidence to support such belief: (1) "Prior to the sale of the Property in 2000, Defendants hired a contractor to perform various remodeling projects on the Property. The remodeling performed was substandard, and violated the Uniform Building Code in several respects"; and (2) defendants had been sued by the Emerald Bay Community Association for various breaches of the association covenants, conditions, and restrictions, and the existence of these violations suggests there were other defects not listed in the association's lawsuit.
Defendants moved for summary judgment in November 2009. The only fact of consequence disputed by the parties in their respective separate statements was whether defendants disclosed all material defects that they were aware of at the time of the sale of the property. We describe hereinafter each of the evidentiary submissions that bear on this issue.
Defendants purchased the property in late 1995 or early 1996 at which time they resided in Austin, Texas. Although Kenneth works in real estate finance, he has no "construction expertise or working knowledge of construction techniques or building codes." Defendants hired Steve Sloan to complete "extensive remodeling before moving in" to the property. "At no time during or after the remodeling did anybody tell or inform me that any inspection found that there was poor construction or building code violations on any part of the remodeling." Kenneth visited the property from Texas only once every six weeks during the initial stages of the remodel. Kenneth relied on Sloan to "do the job right" and "obtain all necessary permits" during the process.
Defendants moved to an apartment in Newport Beach, California in the summer of 1996. Kenneth then visited the property more often, but "never saw or heard anything that would have suggested . . . that there were problems with the construction or building code violations." "The total cost of the remodeling was roughly $400,000." Defendants had a legal dispute with Sloan over billing practices, delay in completing the job, and "minor cosmetic issues, such as finish carpentry," but such dispute was settled shortly after Sloan filed a lawsuit.
Defendants "intended to live in the house with [their] children. As a result, it was very important to me that the remodeling work was done correctly. I never instructed Sloan to cut any corners to save on costs. I never instructed him to violate building codes or consented to any violations of any building codes. I never asked him to use cheap or inadequate materials. And, if I knew that he had done something incorrectly, or used inadequate materials or construction techniques, I would have demanded that he fix the problem." Defendants moved in after the completion of the remodeling, and lived at the property from late 1996 to late 2000.
Kenneth had no knowledge of any defects other than those disclosed in the property sale documents. As to the specific alleged defects, Kenneth declared in relevant part: "I never saw any rotting on the deck and never experienced any problems with the deck whatsoever." "I did not know that the deck served as the structural support for the bay window, and to this date, I have no idea whether that is a proper construction technique or not." "I did not know that the windows were installed without flashings, and in fact, to this day, I have no idea whether Plaintiffs' contention is even true. During the four years I lived at the property, I never noticed any water leaking into the house through the windows or window frames." "I did not know whether or not the chimneys had flashing . . . . I never saw any water leaking in from the roofs or through the chimneys, and . . . I never even went on the roof." "I never had any problems with the steps . . . . [T]he steps were there when we bought the house. The support for the steps was not part of the remodeling, and I had no knowledge that the steps were not properly waterproofed against the house. . . . I did not see any water leaking into the house from the steps." "I did not know [about any of the plumbing problems] . . . . I never saw any drainage problems." "I never saw any problems that led me to believe that the fill may have been improperly installed." "To the extent there was damaged stucco that was visible, we fixed it as best we could prior to selling the house . . . ."
Cheryl submitted a declaration largely replicating the statements attested to by her husband. We therefore set forth only the statements that add to the record. Cheryl has no "construction expertise or working knowledge of construction techniques or building codes." "I met with a county inspector at the final inspection, who reported that only a few minor things needed to be completed, such as log lighters for the fireplace. We completed those minor issues, and shortly after meeting the county inspector, the entire remodeling was finally approved." "[T]he back deck was at the house when we purchased it — it was not added during the remodeling."
After plaintiffs contested the accuracy of Cheryl's statement about the "back deck"
Plaintiffs submitted several excerpts of Kenneth's deposition in opposition to the summary judgment motion. With regard to the nature of the remodel of the property with Sloan, Kenneth stated: "We added a second story to the house and the second story had a master bedroom and we added stairs going up to the second story and we changed . . . some of the bedrooms [and] . . . we allowed entrance from the house directly from the garage, which wasn't there before. We . . . increased the height of the ceiling [in the living room] and in the family room and kitchen it was totally remodeled and expanded a little bit." Kenneth was not involved in obtaining any permits.
When asked about subsidence, Kenneth responded: "I don't remember which year the El Nino rains hit there, but we, along with other people in Emerald Bay community, had issues with their slopes and so we hired a contractor to stabilize the slope behind our house. Not because we ever had any issues with the house moving, but . . . we wanted to ensure that the slope . . . would be maintained." The contractor "installed some railroad ties, they installed some gravel, they installed some of those landscape blocks that kind of stair step up . . . ." "[W]e did that work because we saw that there was some erosion on the slope, but there wasn't any subsidence at the house or where you walk around the house . . . ." The erosion of the soil on the slope was "moderate."
Plaintiffs also submitted several excerpts of Cheryl's deposition in opposition to the summary judgment motion. Cheryl described the work done by Sloan as "updating, put in hardwood floors, gutted the kitchen and the bathrooms, things like that." Defendants added "a master bedroom and bath." Cheryl claimed Sloan completed the work he was hired to do. She noted there were also "some landscape things, so I don't know if that was general contractor or not . . . ." Cheryl characterized work on the slope as "landscape work." She noted the replacement of "[o]ne window in the family room and . . . we made it a bay window . . . ."
Defendants took Dick's deposition in August 2009. As to the deck, Dick testified: "[T]here was plywood, that phony plywood. You know that pressed wood that they use in place of ply — well, and it's just compressed together. They used that as the base underneath the tile, and that's not to code; you can't use that outside. It rotted away just from being outside in the . . . sea air, just rotted away." The deck "started to fall" when Dick began construction in April 2008. Dick learned the deck was serving as a structural support for the bay window from his contractor; this fact was not visible. Dick did not notice anything wrong with the deck prior to remodeling the property in April 2008.
Dick thought defendants knew about problems with the deck because "they built it," by which he meant their contractor built the deck while the Bealls owned the property.
Dick discovered the lack of flashing in the windows in April 2008, when he took out the windows during remodeling. When asked why he thought the Bealls knew about the lack of flashing, Dick responded, "I have no idea."
Dick discovered the lack of flashing in the chimneys at the property when Dick's contractor took the roof off the house. Dick thought the Bealls knew about the lack of flashing because they "[p]ut a new roof on the house."
As to the steps leading to the patio, Dick admitted the steps were visible to the naked eye and that he had never noticed any discrepancy. He thought the Bealls would have known about this issue because they (and their contractor) built the steps.
With regard to the plumbing and drainage defects, Dick testified neither he nor his gardener or housekeeper noticed any problems that occurred as a result of such defects. Dick did not know why the Bealls would know about this defect.
Finally, Dick testified that the Bealls, in trying to repair slope issues with "fill," shut off the "weep scree[d]," which is "a little screen . . . that lets the air in so your house can breathe." This problem was not visible because it was under the ground. Dick did not know why the Bealls knew they blocked the weep screed.
Dick added some new information in his declaration. "At the time I purchased the [property], my principal place of residence was Arizona. I purchased the [property] as a vacation home. Although I visited the house on occasion from October 2000 through 2007, I never stayed at the house for an extended period of time." "I hired Goodell Construction to perform a remodeling project. The work began in April 2008 and was completed in February 2009."
After again noting the seven defects previously noted in his discovery responses, Dick authenticated copies of photographs he took showing the defects. Dick attested STH Limited Partnership "has incurred approximately $146,422.00 in repairing the defects."
Dick also raised a new issue: "After filing this lawsuit, I learned from my neighbor James Hawk that a landslide had occurred at the rear of the lot in March 1995."
Sloan, a general contractor and licensed architect hired to work for defendants at the property in 1996, submitted a declaration through counsel for plaintiffs. Sloan authenticated a May 1996 letter in which he explained to the Bealls that their preferred slope erosion solution was not approved by the authorities and required additional geological investigation. Sloan explained, "The project consisted primarily of a remodel of the existing lower floor and the addition of a second story master suite."
Sloan also declared: "The rear of the property had a deck. The Bealls wanted to replace the bay window above the deck. At the time, there was no flashing between the deck and the house. I expressed my view to the Bealls that flashing should be installed between the deck and the house. My involvement with the project ended before anything was done about the issue."
Sloan further declared: "During the remodel, Cheryl Beall asked me if I would construct a playhouse in the backyard, without a permit. I declined and informed her I would not perform unpermitted work."
Defendants terminated Sloan before the completion of the project and the parties engaged in litigation before the outstanding payment obligations to Sloan were settled. In a November 1996 letter to Sloan, Kenneth Beall wrote: "At the beginning of October, we mutually terminated our agreement. The reason for our decision to terminate was continuing delays in completion, negligent workmanship and unauthorized charges."
Plaintiffs submitted with their opposition excerpts of the deposition of Robert McDaniel, a building inspector employed by the Emerald Bay Community Association. McDaniel recalls there was "some type of a drainage problem in the back [of the property] going down to the highway." He does not recall soil going down to the highway. This occurred when McDaniel was performing an inspection on the rear of the house when additions to the deck were being built; McDaniel explained the deck was built "into the five-foot easement, which was not allowable and I had to crawl under the deck to get around it. The way she built it, there was no way to just walk around it. That's when I . . . observed some drain problems underneath the deck." McDaniel did not inform defendants of the water and moisture problems he observed.
McDaniel did inform the defendants they needed to remove certain unauthorized improvements on the property, which defendants did. But defendants resisted such action and the association sued and put a lien on the home until the offending conditions were removed. Defendants also constructed an unapproved playhouse, which the association requested they remove from the property.
The court ruled on the motion orally. As to Dick, his counsel stipulated that he did not "have any problem if Mr. Dick is not a plaintiff" because the actual party in interest is STH Limited Partnership.
As to slope stabilization issues, when informed by counsel that Mr. Beall testified in his deposition that he did stabilize the slope, the court added: "Well, I don't think you can bring it in for the first time at this late stage. You could have filed a motion to amend the complaint to include the soil problems. There were eight allegations, conditions, that were at issue, but none of them dealt with soils."
The court subsequently granted defendants' motion for attorney fees and approved defendants' request for costs. The court entered judgment for defendants, awarding attorney fees in the amount of $46,000 and costs in the amount of $2,452.02.
"We review a grant of summary judgment de novo. [Citation.] We assume the role of the trial court and redetermine the merits of the motion." (Calemine v. Samuelson (2009) 171 Cal.App.4th 153, 160-161.)
A cause of action has no merit if "[o]ne or more of the elements of the cause of action cannot be separately established . . . ." (Code Civ. Proc., § 437c, subd. (o)(1).) "A defendant . . . has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action . . . cannot be established . . . . Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to that cause of action . . . . The plaintiff . . . may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action . . . ." (Code Civ. Proc., § 437c, subd. (p)(2).)
"The motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. In determining whether the papers show that there is no triable issue as to any material fact the court shall consider all of the evidence set forth in the papers, except that to which objections have been made and sustained by the court, and all inferences reasonably deducible from the evidence, except summary judgment may not be granted by the court based on inferences reasonably deducible from the evidence, if contradicted by other inferences or evidence, which raise a triable issue as to any material fact." (Code Civ. Proc., § 437c, subd. (c).)
"Generally, where one party to a transaction has sole knowledge or access to material facts and knows that such facts are not known or reasonably discoverable by the other party, then a duty to disclose exists. [Citation.] In the context of a real estate transaction, `[i]t is now settled in California that where the seller knows of facts materially affecting the value or desirability of the property . . . and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer. [Citations.]' Undisclosed facts are material if they would have a significant and measurable effect on market value." (Shapiro v. Sutherland (1998) 64 Cal.App.4th 1534, 1544 (Shapiro).)
"[T]he common law disclosure requirements imposed upon the seller of real estate and his broker, as well as the more recent statutory disclosure requirements (Civ. Code, § 1102 et seq.) require revelation of all factual matters bearing upon the quality of the property being sold which might be detrimental to value. Such factual matters would include, for instance, that the property was constructed on filled land, that the structure was in violation of building codes or zoning ordinances, that the structure had been condemned, and that it was termite ridden." (Sweat v. Hollister (1995) 37 Cal.App.4th 603, 608, fn. omitted, disapproved on other grounds in Santisas v. Goodin (1998) 17 Cal.4th 599, 609, fn. 5.) But generally, "whether the undisclosed matter was of sufficient materiality to have affected the value or desirability of the property is a question of fact." (Calemine v. Samuelson, supra, 171 Cal.App.4th at p. 161.)
For purposes of the summary judgment motion, the existence and materiality of the defects alleged in the complaint are not in issue. Defendants' motion is based on the assertion that there is no triable issue of material fact with regard to their knowledge of the defects at the time of the property sale to plaintiffs. Defendants claim they did not know about any of the defects discovered by plaintiffs in 2008 and therefore cannot be held liable for not disclosing such defects. Plaintiffs agree with the framing of the issue on summary judgment, but contend there is a question of material fact as to the state of defendants' knowledge at the time of the transaction.
Pursuant to a home seller's common law duty of disclosure, "[t]he seller . . . must have actual knowledge in order to be liable for failing to disclose a material fact." (Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 410.) Moreover, the contract signed by the parties required the disclosure of known material facts and defects; defendants did not warrant that the property did not have any undisclosed defects. Plaintiffs had the right to inspect the property (which they did) and were specifically warned that defendants might not be aware of defects in the property. We thus agree with the parties' framing of the issue: if there is no triable issue of fact as to defendants' knowledge of the alleged defects, we must affirm summary judgment in favor of defendants.
"Whether or not the seller has actual knowledge of an undisclosed fact is obviously a question of fact . . . ." (Shapiro, supra, 64 Cal.App.4th at p. 1544.) But a defendant can receive summary judgment based on a showing there is no triable issue of material fact as to defendants' knowledge. (Id. at p. 1547 ["Prudential made it clear that it had no such awareness. No evidence to the contrary was presented by plaintiff and thus no triable issue of fact was raised with respect to Prudential's liability"].)
Both defendants attested in their declarations that they had no knowledge of the alleged defects. While such direct denial of knowledge may be sufficient to meet a moving party's initial burden, such evidence does not entitle the moving party to summary judgment if other evidence is submitted creating an inference of knowledge. (See Code Civ. Proc., § 437c, subd. (p)(2).) "[A] defendant's actual knowledge may be shown, not only by direct evidence, but also by circumstantial evidence. Hence, his denial of such knowledge will not, per se, prevent liability. [Citations.] However, actual knowledge can be inferred from the circumstances only if . . . such inference is not based on speculation or conjecture." (Uccello v. Laudenslayer (1975) 44 Cal.App.3d 504, 514, fn. 4 [case discussing actual knowledge standard in an other context].) We must ascertain whether the evidence in the record supports a reasonable inference of knowledge, despite defendants' protestations to the contrary.
Having reviewed the entire record, we conclude there is no triable issue of material fact and summary judgment for defendants must be affirmed. Defendants deny knowledge of any of the defects pleaded in the complaint, and such denial is supported by the circumstantial evidence. Defendants had no special knowledge of construction techniques or standards. Defendants hired professionals to remodel the property and provided minimal oversight of the remodel project. There is no evidence suggesting defendants were notified of any of the hidden shortcomings in the property by their contractors (i.e., documentary evidence or testimony that any contractor notified defendants of the defects).
It is undisputed that the defects were not discovered until plaintiffs conducted a major renovation of the property eight years after the sale of the property. There is no evidence of visible leakage or other problems from 1996 to 2008. Dick specifically testified he did not notice (or hear about from his domestic employees) any of the defects until the 2008 remodel. The undisputed circumstantial evidence leads to one inference: the construction defects alleged in the complaint, whether created before or after defendants purchased the property in 1995 or 1996, were hidden and unknown to defendants.
Plaintiffs arguably landed some blows with regard to defendants' overall credibility by dredging up details of defendants' disputes with Sloan, a neighbor, and the association. But such attacks do not amount to evidence defeating defendants' summary judgment motion. (Code Civ. Proc., § 437c, subd. (e) ["If a party is otherwise entitled to a summary judgment pursuant to this section, summary judgment may not be denied on grounds of credibility"].)
Plaintiffs also tried to inject the question of the adequacy of defendants' disclosures regarding slope stabilization/soil erosion/subsidence issues
But, as the trial court properly noted, such defect is outside the scope of the pleadings and therefore cannot defeat defendants' summary judgment motion. "To create a triable issue of material fact, the opposition evidence must be directed to issues raised by the pleadings. [Citation.] If the opposing party's evidence would show some factual assertion, legal theory, defense or claim not yet pleaded, that party should seek leave to amend the pleadings before the hearing on the summary judgment motion." (Distefano v. Forester (2001) 85 Cal.App.4th 1249, 1264-1265.) Plaintiffs are "limited to [the] specific allegation[s] of misrepresentation" included in the complaint; they cannot defeat summary judgment by expanding the scope of alleged misrepresentations through affidavit. (Sweat v. Hollister, supra, 37 Cal.App.4th at p. 607 [affirming summary judgment for sellers and broker in real property transaction].) Thus, we need not address whether defendants provided an adequate disclosure (as a matter of law) with regard to slope stabilization issues.
Plaintiffs also claim the court erred by granting summary adjudication of plaintiffs' claims for punitive damages and for attorney fees. But the trial court granted summary judgment to defendants, and we affirm. Thus, defendants' alternative request for summary adjudication with regard to these issues is moot. Plaintiffs do not appeal the amount of attorney fees awarded by the court.
The judgment is affirmed. Defendants shall recover costs incurred on appeal.
WE CONCUR.
BEDSWORTH, ACTING P. J.
FYBEL, J.
