Opinion
Oct. 27, 1971.
Editorial Note:
This case has been marked 'not for publication' by the court.
Rector & Melat, Leo W. Rector, Colorado Springs, for plaintiffs-appellees.
Trott & Kunstle, Robert M. Isaac, Colorado Springs, for defendants-appellants.
Page 89
COYTE, Judge.
This is a fraud case dealing with questions of sufficiency of the evidence.
The parties appear here in the same order as in the trial court. The suit was brought by plaintiffs, Woodrow J. Sorensen and Bonnie Bee Sorensen, for actual and exemplary damages against Real Estate Management Corporation and three individually named officers of the corporation, Harry A. Scurr, Delbert A. Madsen and J. A. Mendenhall.
In the fall of 1968, the parties entered into a real estate contract under which the plaintiffs exchanged certain real property and a promissory note for the Valkyrie Apartment House owned by the defendant corporation. The complaint alleged that, prior to closing the transaction, defendants falsely and fraudulently represented or concealed material facts relating to the gross income and vacancy rate of the apartment building so as to induce plaintiffs to enter into the contract; and that the plaintiffs, relying on the misrepresentations, entered into the contract and suffered damages as a proximate result thereof. Plaintiffs further alleged that defendants' representations were attended by malice and asked for exemplary damages. Defendants generally denied any fraudulent representation or concealment and counterclaimed for the balance due on the promissory note.
Trial was to a jury and a verdict was returned awarding plaintiffs $21,250 compensatory damages against all defendants and punitive damages against the three named individual defendants in the sum of $12,500 each. The amount due defendant corporation on the promissory note was offset against the amount of the verdict and judgment was entered for plaintiffs.
Defendants claim the evidence was insufficient to support the jury's verdict.
I.
There is sufficient evidence in the record to support a finding of fraudulent misrepresentation. The three individually named defendants were officers of the Real Estate Management Corporation. In June of 1967, the corporation completed the construction of the Valkyrie Apartment Building and beginning in late 1967 entered into rental agreements. As an inducement to certain prospective tenants, written and oral riders to the leases were used which provided for rebates or free rent for a specified period. Mr. Madsen's testimony indicates that all three of the individually named defendants were aware that such rider agreements were being used. At no time before the apartment building was sold to the Sorensens was this arrangement disclosed to the Sorensens or to the real estate agents handling the transaction. Mr. Madsen's testimony further indicates that the individual defendants discussed whether to inform Mr. Sorensen of the riders and decided not to do so. It also appears that the rental income figures provided by Mr. Madsen to the real estate agents handling the transaction were based upon the value of existing leases showing no deductions for rebates or free rent.
The evidence bearing on whether a misrepresentation was made to the Sorensens regarding vacancy rates is conflicting. Mr. Jensen, one of the real estate agents handling the transaction, testified that when the apartments were shown to Mr. Sorensen 'several vacancies were inspected,' and that prior to closing Mr. Sorensen knew the actual vacancy rate. Mr. Sorensen denied knowledge of the actual number of vacancies and testified he was only aware of two. When the Sorensens took possession there were ten vacancies.
Representations of past and present earnings are clearly material. Zimmerman v. Loose, 162 Colo. 80, 425 P.2d 803. The possibility that the defendants believed the apartments could be rented as the face value of the leases does not relieve them of liability. See Meredith v. Ramsdell, 152 Colo. 548, 384 P.2d 941. The apartments were not, in fact, renting for the amount represented to the plaintiffs. The exact nature of the rebate agreement between Real Estate Management Corporation and the tenants of the Valkyrie should have been known to the plaintiffs. Corder v. Laws, 148 Colo. 310, 366 P.2d 369.
In addition to supporting a finding of fraudulent misrepresentation, the evidence warranted a finding of fraudulent concealment. The defendants characterized the rebates as an advertising expense but no indication of this 'expense' was made available to the Sorensens. This action could have been construed by the jury as creating a false impression of the actual expenses or income by an affirmative act of concealing the truth. See Meredith v. Ramsdell, Supra.
Mr. Mendenhall and Mr. Scurr contend that they can not be held liable because they did not personally make the misrepresentations upon which plaintiffs rely. The evidence supports a finding that there was a 'common design' among the defendants and is sufficient to charge each with the acts and statements of the others. Zimmerman v. Loose, Supra.
The evidence also supports a finding that the Sorensens justifiably relied upon the representations or concealment made by defendants. When Mr. Sorensen discussed the Valkyrie apartments with the real estate agents, he was shown a 'projection' of income and expenses based upon figures obtained from Mr. Madsen. This document, which purported to state the actual income and expense figures, did not reflect the amount of the rebates. Mr. Sorensen testified that he relied upon the figures in this document. Under these circumstances, the jury could conclude that sufficient reliance was shown. Zimmerman v. Loose, Supra.
II.
The most difficult issue presented by this case is that of damages. In cases of fraud, Colorado adheres to the 'loss of bargain' rule which allows a plaintiff to recover the difference between the actual market value of the property and what its value would have been had the representation been true. Otis and Company v. Grimes, 97 Colo. 219, 48 P.2d 788. We agree with defendants' contention that there is insufficient evidence of both actual and represented value in the record to support the jury's award of damages.
Plaintiffs' witnesses used an accounting system based upon an income approach as evidence of value. The difficulty in using this approach is that the amount of equity is determinative of the percentage realized on the investment, and doesn't necessarily have any reflection on the 'market value.'
As was stated in Shirley v. Merritt, 147 Colo. 301, 364 P.2d 192:
'We observe that market value is not synonymous with the amount of income, gross or net. While these criteria might well serve as guides to value, the final determinant is the reasonable market value, that is, the price which the property will bring on the open market, assuming a voluntary sale by a leisurely seller to a willing buyer.'
This method may be satisfactory when used to determine whether a certain property should be purchased but it is not sufficient evidence of market value in a fraud case.
Although plaintiffs were entitled to exemplary damages, this award cannot stand in view of the inadequate proof of actual damages. Armijo v. Ward Transport, Inc., 134 Colo. 275, 302 P.2d 517. Accordingly, we reverse the jury's award of damages and remand for a new trial limited to a determination of actual and exemplary damages.
DUFFORD and PIERCE, JJ., concur.