It is well established under California law that a seller or the seller’s broker for that matter, owes a legal duty to disclose all known material facts to a buyer in a real estate transaction. See Cal. Civ. Code § 1102 et seq.; see also Holmes v. Summer (2010) 188 Cal.App.4th 1510, 1519. The question that our real estate fraud attorneys in Los Angeles recently faced is whether that duty would support a claim by the buyer against the seller and/or listing broker for constructive fraud.
To state a claim for constructive fraud, a plaintiff must establish that defendant was under a legal duty and in any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him…. See Cal. Civ. Code § 1573. see also Alfaro v. Community Housing Imp. System & Planning Ass’n, Inc., (2009) 171 Cal. App. 4th 1356, 1382-83 (“A claim of fraud based on mere nondisclosure may arise when there is a confidential relationship, when the defendant has made a representation that is likely to mislead absent a disclosure, when there is active concealment of the undisclosed matter, or ‘when one party to a transaction has sole knowledge or access to material facts and knows that such facts are not known to or reasonably discoverable by the other party.’”) (internal citations omitted); see also Bynum v. Brand, (1990) 219 Cal. App. 3d 926, 937 (“The breach of duty referred to in section 1573 must be one created by the confidential relationship, which is one of the facts constituting the fraud.”); see also Martin v. Martin, (1952) 110 Cal. App. 2d 228, 233 (“’ Where there exists a relation of trust and confidence, it is the duty of the one in whom the confidence is reposed to make full disclosure of all material facts within his knowledge relating to the transaction in question, and any concealment of material facts is a fraud.’”) (internal citations omitted); see also In re Rugani’s Estate, (1952) 108 Cal. App. 2d 624, 631 (Confidential relations are said to exist whenever trust and confidence is reposed by one person in the integrity and fidelity of another.)
Thus, the argument can be made that a buyer can allege a constructive fraud claim against the seller or seller’s broker premised on the legal duty owed in a real estate transaction.