FRAUD

Brokers are liable for fraud. A person commits fraud when he or she misrepresents a material fact to another, with the intention of deceit, and the other relies upon the false information to his or her damage. California Civil Code Section 1572. Fraud law is complex and technical. To prove fraud is difficult; the law erects many barriers to a fraud verdict, requiring very specific evidence and permitting many defenses.

Many of these rules, making it hard to prove fraud, may be relaxed when a broker is involved. A good example is Salahutdin v. Valley of California, Inc., (1994) 24 Cal. App. 4th 555. The buyers had to find a property, which was at least one acre. They wanted to sub-divide and to leave one lot to each of their two children; one acre was the minimum size, which could be sub-divided. Their broker found a listing in the Multiple Listing Service, which said that it was more than one acre. Without verifying this information, he told them that they would be able to sub-divide. Also based on nothing but looking at the property, he told them that the fence on the south end of the lot was the boundary line.

The broker was mistaken. The lot was 0.998 acres, so it could not be sub-divided. Further, the fence was not on the border. The clients were damaged, and they sued.

The Court found that the broker had been negligent, that he had made a mistake, as opposed to acting wrongfully on purpose. Ordinarily, that finding would preclude a fraud verdict.

The broker was held liable for constructive fraud. The broker was a fiduciary. By transmitting false information, without either verifying it, or telling the client that it was not verified, he committed constructive fraud

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