Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of San Bernardino County. Super. Ct. No. RCVRS086912, Martin A. Hildreth, Judge. (Retired judge of the former San Bernardino County Municipal Court, West Valley Division, assigned by the Chief Justice pursuant to art. VI, § 6, of the Cal. Const.)
Shustak Frost & Partners and Robert L. Hill for Defendants and Appellants.
Law Offices of Douglas B. Spoors and Douglas B. Spoors for Plaintiffs and Respondents.
OPINION
Gaut J.
1. Introduction
Defendants Romeo Salapare and Ester Salapare appeal from a judgment after a court trial. The Salapares sold an offset printing business, Color Copy X-press, to plaintiffs Keith Leonin and Lourdes Leonin. The Leonins sued the Salapares for fraud and declaratory relief. The Salapares filed a cross-complaint for breach of contract and related causes of action. The trial court found in favor of plaintiffs, ordering rescission of the sale and awarding them damages of $224,744, plus attorney’s fees and costs and punitive damages of $25,000.
The business is also identified in the record as Color Copy X-press & Mailboxes.
Because no evidence was presented about defendants’ financial worth, the judgment is reversed insofar as the punitive damages award is concerned. (Kelly v. Haag (2006) 145 Cal.App.4th 910, 915-916, 921.) As discussed below, we also order a modification of the judgment to include the return of defendants’ leased equipment.
2. Factual and Procedural Background
a. The Trial
We recite the facts in a style generally favorable to the judgment.
The Salapares owned the printing business for seven years but it was managed by their daughter, Rowela Salapare. The accounting was performed by Fe Pruedente. In March 2004, the Salapares decided to sell the business and Rowela, acting as her parents’ agent, handled the negotiations.
The Leonins wanted to purchase a business that generated about $40,000 annually as income for Lourdes. As part of the sale, Rowela prepared a business disclosure statement listing the net profits for 2001 and 2002 as $33,580.85 and $45,991.64. Rowela did not review any tax returns when she completed the disclosure statement. The amounts she used for net profits were good-faith estimates. She confirmed to the Leonins that the profit figures were accurate. The disclosure statement included a statement: “OWNER DECLARES THAT The INFORMATION PROVIDED HEREIN IS BASED ON FIGURES SUPPLIED BY OWNER AND THAT OWNER INTENDS THAT BROKERS AND PROSPECTIVE BUYERS RELY ON SUCH INFORMATION.”
The Leonins testified that Rowela told them the business attracted daily walk-in traffic of $200 to $500 a day in addition to corporate business. Rowela denied making any representations about the amount of walk-in traffic. Rowela and her brother provided some in-store training to the Leonins. The Leonins relied on Rowela’s representations about profitability in deciding to purchase the business. The buyers paid the sellers $80,000 and a promissory note for $35,000. The buyers took possession on May 21, 2004.
The sales prices on the purchase agreement was $112,000.
During the 18 months the Leonins operated the business, they never made a monthly profit. The daily walk-in traffic was rarely more than $200 and usually it was less than $20. In July 2004, the Leonins determined it was not a profitable business. In July, August, and September 2004, they contacted the Salapares about reversing the sale and letting the Salapares keep the $84,000 already paid. One reason given by the Leonins was the extreme depression suffered by Lourdes, possibly related to a car accident, as well as “the financial bleeding.” The Leonins said Rowela assured them the business had been profitable and the figures on the disclosure statement were accurate. The Salapares refused the Leonins’ offer to rescind.
In November 2004, when he was cleaning up the store, Keith Leonin found the monthly ledger for the business. The ledger showed profits of much less than were represented to the Leonins by Rowela.
Based on the federal income tax profit or loss statement, Schedule C, the business actually lost $47,478 in 2000. In 2001, it lost $44,665. In 2002, it lost $40,968.
Rowela testified that she did not know the tax returns showed a loss. She thought the 2001 discrepancy was caused by not providing the figure of $66,316 for costs of goods sold on the disclosure statement. Additionally, the tax returns did not recognize a value for good will or assets. Neither of these points, however, explain the amount of the discrepancies between the profits stated on the disclosure statement and losses on the tax returns.
During the sale, the Salapares had agreed to disclose their tax returns for the years 2000 through 2003. Romeo Salapares testified that Rowela provided the tax returns to the Leonins at his direction. Rowela contradicted herself about whether she did or did not give them the returns. The real estate broker for the transaction testified the tax returns were delivered to the Leonins. The Leonins deny they were given the tax returns until after litigation had commenced.
Copies for Less, another business, purchased Color Copy X-press from the Leonins in October 2005 for $5,000.
The Leonins described their losses as being $92,500 in purchase money and money paid for equipment leases minus $5,000 for selling the business. The operational losses were about $60,000 and the loss of income from the job Lourdes Leonin quit to run the business was about $84,000 for 18 months. In their trial brief, plaintiffs listed their losses as $87,524 on the contract, operational losses of $41,887, and lost income of $83,701. In closing argument, plaintiffs’ counsel asserted the contract loss was $87,524, the operational loss was $53,519, and the lost income was $83,701.
b. Statement of Decision
In the court’s written statement of decision, it found that the Leonins were the more credible witnesses. It also found that Rowela, acting for defendants, had committed fraud by misrepresenting the business profits on the disclosure statement and regarding walk-in business. The court specifically found the tax returns were not given to the Leonins.
The court determined the Leonins were entitled to recover $87,524 on the contract, operational losses of $53,519, and $83,701 in lost income for Lourdes. The damages were $224,744 and the court awarded additional punitive damages of $25,000 for total damages of $249,744. Subsequently the court made an award of attorney’s fees and costs of $23,186.11. The final judgment was entered in the amount of $272,903.11
c. Judgment
Because of plaintiffs’ counsel’s delay in preparing the final judgment, it was not entered until July 17, 2008, almost two years after the trial in September 2006. Defendants filed objections to the judgment but the court ordered the judgment to stand.
3. Fraud
The trial court rejected the Salapares’ defense that the Leonins were negligent in investigating the profitability of the business. The court reasoned, “it is not a defense to a fraud to assert that it was Plaintiffs’ (buyers) negligence in not investigating the sale that is legally blameworthy here. The buyers’ negligence is not, in law, a defense to sellers’ fraudulent representations upon which the Plaintiffs relied on in reaching the agreement.”
The Salapares rely on Knerr v. Baruch Corporation (1941) 47 Cal.App.2d 601, 604, a construction contract dispute, which held: “It was incumbent upon plaintiff to make his own investigation and calculations and to exercise his own judgment before executing his contract. The means of determining the extent of the labor and the amount of materials required for construction, as well as the cost of each, obviously was as available to plaintiff as it was to defendant. When one enters into a contract which proves unprofitable because of his negligence in failing to ascertain the essential facts concerning it from sources readily available, he cannot thereafter throw the burden of his negligence upon the shoulders of the other contracting party by asserting that the latter had been guilty of misrepresentation and fraud in not furnishing him with facts and figures which he made no effort to secure for himself, even though the latter may have expressed an opinion or voiced an estimate as to elements in question.”
The present case differs from Kerr because this is not a situation in which the buyers failed to ascertain the essential fact from sources readily available. The Leonins reasonably relied on the sellers’ written and oral representations about the profitability of the business. The true information was not available to the Leonins because it was contained in the tax returns, which the trial court found they never received, and the monthly ledger, which they did not discover until months after the sale.
We determine there is substantial evidence—reasonable, credible, and of solid value—to support the trial court’s finding that plaintiffs were not given the tax information by defendants. (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633, citing Estate of Teed (1952) 112 Cal.App.2d 638, 644.) We reject defendants’ contention that it was incumbent upon the Leonins to ferret out the information that would disprove the sellers’ false assertions regarding profitability.
We also reject defendants’ related protest that the trial court failed to consider evidence about the reasonableness of plaintiffs’ investigation of profitability. Most of defendants’ argument is based on their version of the evidence without acknowledging evidence that contradicts their position and favors the plaintiffs and without affording the proper deference to the judgment. Defendants accuse the trial court of disregarding evidence. But they ignore it is the trial court’s function to weigh all the evidence and resolve any issues of credibility. (Beck Development Co. v. Southern Pacific Transportation Co. (1996) 44 Cal.App.4th 1160, 1203-1204, citing Estate of Teed, supra, 112 Cal.App.2d at p. 644; Estate of Teel (1944) 25 Cal.2d 520, 526- 527.)
For the same reasons, factual and legal, we conclude there is substantial evidence of fraud. The trial court could properly find that the sellers made intentionally false representations, which were not supported by the information known to the Salapares and which information was not known to the Leonins. (Civ. Code, § 1542; Hodgeson v. Brant (1958) 156 Cal.App.2d 610, 616, citing Muller v. Palmer (1904) 144 Cal. 305, 312 and McMahon v. Grimes (1929) 206 Cal. 526, 535.)
4. Damages
Defendants challenge the award of damages for operational losses of $53,519, $83,701 for lost income, and the punitive damages of $25,000.
Defendants argue that, in the absence of any evidence of damages whatsoever, the trial court cannot make an award. (Carpenter Foundation v. Oakes (1972) 26 Cal.App.3d 784, 799-800; Fields v. Riley (1969) 1 Cal.App.3d 308, 313; Taliaferro v. Hoogs (1963) 219 Cal.App.2d 559, 560.) But those are not the present circumstances.
a. Operational Losses
Regarding the operational losses, Keith Leonin testified that he performed a detailed analysis of the profitability of the business over the 18 months of operation and concluded the amount lost during that period was about $60,000. The foregoing offered substantial evidence of the damages sustained by the Leonins. (Fields v. Riley, supra, 1 Cal.App.3d at p. 314.) The trial court, at the suggestion of their counsel, reduced the amount of damages to $53,519. In doing so, the court hardly abused its discretion: “The amount of damages to be awarded in a particular case should be left to the trier of fact and should depend on the circumstances presented.” (Syah v. Johnson (1966) 247 Cal.App.2d 534, 547.)
It was not necessary, as defendants maintain, for plaintiffs to offer “arithmetical evidence” of the exact amount of damages. (Drouet v. Moulton (1966) 245 Cal.App.2d 667, 672.) All that was required was the damages be the foreseeable result of the misrepresented facts. (OCM Principal Opportunities Fund v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 872.) In this case, we find no difficulty in concluding that it was foreseeable the buyers would lose money operating a business that the sellers had misrepresented to them as being profitable.
b. Lost Income
Keith Leonin testified that the lost income to his wife was about $84,000, or $7,000 a month for 18 months. In their trial brief and oral argument, plaintiffs’ counsel offered the more precise figure of $83,701, which the trial court adopted in its statement of decision.
Defendants argued the lost income was not foreseeable because they did not know Lourdes Leonin planned to quit her job to run the business. Substantial evidence contradicts this assertion. Keith Leonin testified that he told the real estate broker, who represented both the buyers and the sellers, that his wife would manage the business to replace her current employment. Furthermore, Rowela trained Lourdes to operate the store.
The broker’s knowledge was attributable to the sellers: “Knowledge acquired by an agent while acting within the course and scope of his employment is chargeable to his principal, his employer. Civil Code section 2332 provides:
“‘Notice to Agent, When Notice to Principal. As against a principal, both principal and agent are deemed to have notice of whatever either has notice of, and ought, in good faith and the exercise of ordinary care and diligence, to communicate to the other.’ [¶]... [¶]
“Whether the facts known to the agent were communicated to his principal [from the broker to the sellers] is immaterial since the law charges the principal with knowledge acquired by his agent in the course and scope of the agency. [Citations.]” (Mountain Copper Co. v. Welcome Growers Gin Co. (1961) 197 Cal.App.2d 253, 256-257.)
The trial court properly found that the broker, Rowela, and her parents knew that Lourdes was quitting her work to operate the business. Substantial evidence supported the award and amount of damages.
c. Punitive Damages
No evidence was presented about defendants’ financial condition to support the $25,000 award for punitive damages. The California Supreme Court “has held that actual evidence of the defendant's financial condition is essential. [Citation.] A punitive damages award is based on the defendant’s financial condition at the time of trial. [Citations.]
“In Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 57, this court held ‘that in most cases there must be evidence of the defendant’s net worth to support the punitive damage award.’ We explained that in examining assets without examining liabilities, or without ‘evidence of the entire financial picture,’ there was a risk of ‘crippling or destroying the defendant.’ (Ibid.)... ‘Without evidence of the actual total financial status of the defendants, it is impossible to say that any specific award of punitive damage is appropriate.’ (Id. at p. 58.) [¶]... [¶]
“As the court explained in Lara v. Cadag [(1993) 13 Cal.App.4th 1061,] 1064, because punitive damages are intended to deter wrongful conduct and not destroy the defendant, ‘the Supreme Court articulated a standard calling for meaningful evidence of a defendant’s financial condition.... [T]he high court consistently speaks in terms of “financial condition” [citation] or “net worth?” [citation] or the “defendant’s ability to pay.”’ [Citation.]
“Under Evidence Code section 500 and in consideration of fundamental fairness, it is the plaintiff’s burden to establish the defendant’s financial condition. [Citation.] ‘It is not too much to ask of a plaintiff seeking such a windfall to require that he or she introduce evidence that will allow a jury and a reviewing court to determine whether the amount of the award is appropriate and, in particular, whether it is excessive in light of the central goal of deterrence.’ [Citation.] Further, it ‘is inherently prejudicial to require a defendant to introduce evidence of personal finances.’ [Citation.]” (Kelly v. Haag, supra, 145 Cal.App.4th at pp. 915-916.)
The judgment is reversed insofar as the punitive damages award is concerned.
5. The Judgment
On December 12, 2006, the court ordered counsel for the Leonins to prepare a judgment. As of June 30, 2008, the judgment still had not been prepared. Plaintiffs’ counsel explained he believed another lawyer was handling the case. The court granted plaintiffs 30 days to prepare and submit the proposed judgment. The judgment was signed and filed on July 17, 2008. On the same date, defendants filed objections to the judgment because of the 19-month delay and because it did not include an order that plaintiffs return the leased business equipment to defendants. Ultimately, the court reviewed the objections and allowed the judgment to stand but advised defendants they could seek to amend the judgment. The register of actions contains an entry stating the amended judgment was rejected but does not explain why.
There is no law governing the time period for the submission of a proposed judgment. But “... the action of the trial court will not be disturbed except upon a showing of a clear abuse of discretion.” (Schmidt v. Schmidt (1941) 45 Cal.App.2d 730, 733, citing Smith v. Riverside Groves& Water Co. (1912) 19 Cal.App. 165, 166.) Under the circumstances here, the record does not show an abuse of discretion by the trial court in allowing additional time to submit a judgment.
The record, however, is clear enough to allow us to order the judgment modified: “Whenever an appellate court may make a final determination of the rights of the parties from the record on appeal, it may, in order to avoid subjecting the parties to any further delay or expense, modify the judgment and affirm it, rather than remand for a new determination.” (Sagadin v. Ripper (1985) 175 Cal.App.3d 1141, 1170, citing Fox v. Hale & Norcross S. M. Co. (1898) 122 Cal. 219, 221-222; AB Cellular LA, LLC v. City of Los Angeles (2007) 150 Cal.App.4th 747, 767-768.)
6. Disposition
The parties agree the judgment should be amended to include the following language from the statement of decision: “Plaintiffs shall return all of Defendants’ leased business equipment they possess.” We modify the judgment in lieu of remanding this matter for further proceedings.
We reverse the judgment for punitive damages. In all other aspects, the judgment is affirmed as modified. Plaintiffs are entitled to their costs on appeal.
We concur: Richli Acting P. J. Miller J.