Key Decisions

September 2013 – A Tenant Could Sue For Fraud

(filed under: Key Decisions | September 24, 2013)

A Tenant Could Sue For Fraud

Thrifty Payless, Inc. v. The Americana at Brand
(Cal. Ct. of App., 2d Dist.), filed July 19, 2013, published August 14, 2013

KEY FACTS

Thrifty/Payless, Inc. sought to rent space at Americana at Brand’s shopping center. During negotiations held through letters of intent, Americana provided per square foot estimates concerning Thrifty’s probable pro rata share of property taxes, insurance, and common area maintenance.

The final lease stated that Thrifty would pay its pro rata share of such expenses and did not contain any formulas, figures or percentages regarding Thrifty’s share of such expenses.

After Thrifty moved into the shopping center, its share of these expenses substantially exceeded Americana’s estimates and Thrifty sued for fraud, rescission based on mutual mistake and mistake of fact, breach of lease and breach of the implied covenant of good faith and fair dealing. Americana challenged the legal sufficiency of Thrifty’s legal theory by filing a demurrer.

The trial court sustained Americana’s demurrer without leave to amend. It found that the prior negotiations constituted estimates and could not be statements of fact upon which a claim of fraud could be based, and that Thrifty failed to allege facts establishing innocent misrepresentation, mistake, breach of lease, or breach of the implied covenant of good faith and fair dealing.

HOLDING & REASONING

The Court of Appeal reversed.

The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage. In contrast, a claim for negligent misrepresentation does not require knowledge of falsity. Rather, the plaintiff must show (1) the misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damages.

The court found that under existing precedent, Americana’s grossly inaccurate estimates satisfied the element of a misrepresentation. Those estimates induced Thrifty to enter into the lease. As a result, the fact that the integration clause contained in the lease did not preclude the introduction of evidence of those estimates. Thus, Thrifty could state a viable cause of action for fraud and misrepresentation.

ANALYSIS

It is important to remember that demurrers admit the truth of the pleaded facts and even the reasonable inferences to be drawn from those facts.