Free Appendix - District Court of California - California

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216 CaL. App. 3d 13 10, *; 265 CaL. Rptr. 525, **; 1989 CaL. App. LEXIS 1341, ***

privileges. Such conditions do not amount (* 1319) to compulsion because the propert owner remains free
either to accept or to reject them. (Cf. South Dakota v.

Wis.2d 193 at pp. 198-199 (124 N.E.2d 90 at pp. 92-93); Major-Blakeney Corp. v. Jenkins, supra, 121 CaL.App.2d

Dole (1987) 483 U.S. 203, 210 (97 L.Ed.2d 171, 180,
107 S.Ct. 2793) and authorities cited; Ivanhoe Irrig. Dist.
v. McCracken (1958) 357 U.S. 275, 295 (2 L.Ed.2d

325 at pp. 340-341.) (***19) Plaintiff must view the expense of ensurg "legal access" required as the unavoidable cost of offcial approval for its proposed project. "(W)ith the limits of the police power some un-

1313,1327-1328,78 S.Ct. 1174).

5 Because the Departent is not a part to ths
litigation between private parties, we express no

compensated hardships must be borne by individuals as the price of living in a modem enlightened and progressive cornunity.'" (Morse v. County of San Luis Obispo

opinon regarding whatever remedies, if any, plaintiff may have against any agency to the
County of Contra Costa.

(1967) 247 CaL.App.2d 600, 603 (55 CaL.Rptr. 710) (cit-

ing and quoting Metro Realty v. County of El Dorado
(1963) 222 CaL.App.2d 508, 518 (35 CaL.Rptr. 480); ac-

Viewed from this perspective, the issue of whether

cord HFH, Ltd. v. Superior Court (1975) 15 Cal.3d 508, 516 (125 Cal.Rptr. 365, 542 P.2d 237).)
6 Plaintiffs allegation that compliance with the

defendants have been benefited at plaintiffs expense
must be subordinated to the cold hard fact of governental power that has been deployed to safeguard defencondition imposed by the Departent wil benefit

dants' right of access to the nearest public thoroughfare.
(See Bacich v. Board of Control (1943) 23 CaL.2d 343, 349-350 (144 P.2d 818); (***18) Lexington Hils Assn.
v. State of California (1988) 200 CaL.App.3d 415, 431

only defendants loses much of its force when
considered in conjunction with the fuher allega-

tion that defendants intend to constrct a development similar to that contemplated by plaintiff.

(246 CaL.Rptr. 97). Once that power is conceded, the

question of precisely how or by whom it is trggered becomes irelevant. Accordingly, the fact that the Department acted "as a directed result of defendants' demand,"

If plaintiff completes its project and the access road, the benefits of the latter will inure to the
advantage to purchasers of residences built on defendants' parcel, the public who may use the road

as plaintiff alleges, is not important. What is important

to go to and from those residences, and quite pos-

is that it was a governental agency which acted withi the scope of its powers, and that its action arose withn the context of an offcial proceeding initiated by plaintiffs request to be allowed to develop its propert in a specified manner. If plaintiff complies with the Department's condition for approval of the subdivision, defen-

sibly to purchasers of residences built on plain-

tiffs parcel who may see their propert values
enhanced by the adjacent development.

dants wil benefit. 6 But because the benefit wil be incidental to plaintiffs proposed development, it wil not be unjust enrichment requirng defendants to make restitution. ( Rest., Restitution, § 1, com. c, § 2, com. a, § 106;

Green Trees Estates, Inc. v. Furstenburg, supra, 21

judgment, the order entered on December 23, 1988 (see fn. 1, ante) is modified by adding the following (*1320) paragraph: "Plaintiffs First Amended Complaint on file herein is dismissed as against defendants Lewis H. Whte and Elma Ruth Whte." As so reconstituted, the judgment of dismissal is affumed. Defendants shall recover their
costs.

(***20) In order to constitute it an appealable

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EXHIBIT 12

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LEXSEE 21 CAL 4TH 543

BARY ERLICH et ai', Plaintiffs and Respondents, v. JOHN MENEZES, Defendant, Cross-complainant and Appellant; RON REBALDO et ai', Cross-defendants and Respondents.
No. S068325.

SUPREME COURT OF CALIFORNIA
21 Cal. 4th 543; 981 P.2d 978; 87 Cal. Rptr. 2d 886; 1999 Cal. LEXIS 5530; 99 Cal. Daily Op. Service 6808; 99 Daily Journal DAR 8687

August 23,1999, Decided

PRIOR HISTORY: Superior Cour of San Luis
Obispo County. Super. Ct. No. CV70302. Paul H. Coffee, Judge, and Jay R. Ballantye, Judge. .
* Retied Associate Justice of the Cour of Appeal, Fift Distrct, assigned by the Chief Justice

The Supreme Cour reversed the judgment of the

Cour of Appeal and remanded for fuher proceedings.
The cour held that since defendant's negligence directly
caused only economic injur and propert damage and

breached no duty independent of the contract, plaintiffs

pursuant to artcle VI, section 6 of the Californa
Constitution.
DISPOSITION: The judgment of

the Cour of Appeal

is reversed and the matter is remanded for fuher proceedings consistent with this opinon.

could not recover damages for emotional distress based upon breach of the contract to build the house. Contract damages are generally limited to those within the contemplation of the partes when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectation of
the partes are not recoverable. Conduct amounting to a

breach of contract becomes tortous only when it also
SUMMARY:
violates a duty independent of the contract arising from

principles of tort law. The cour held that even assuming
defendant's negligence constituted a breach of a suff-

CALIFORNIA OFFICIAL REPORTS SUMMARY

Homeowners fied an action against the contractor who built their new house for breach of contract, fraud,
negligent misrepresentation, and negligent constrction.

cient independent duty to plaintiffs, such a finding would

not entitle them to emotional distress damages on the facts alleged. The breach--the negligent constrction of
the house--did not cause physical injur. The only physical inur alleged was one plaintiffs heart disease, which

Plaintiffs testified that they suffered emotional distress as

a result of the defective condition of the house and defendant's invasive and unsuccessful repair attempts. The
jur found that defendant breached his constrction con-

flowed from the emotional distress and not directly from

the negligent constrction. The cour held that the balance of policy considerations--the potential for significant increases in liability in amounts disproportionate to

tract by negligently constrcting the house but was not guilty of fraud or negligent misrepresentation. The jur awarded plaintiffs the cost of repairs and damages for emotional distress. (Superior Cour of San Luis Obispo County, No. CV70302, Paul H. Coffee, Judge, and Jay
R. Ballantye, Judge. .) The Cour of Appeal, Second

Dist., Div. Six, No. B105675, affumed.
* Retired Associate Justice of the Cour of Ap-

peal, Fifth District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

culpability, the cour's inability to formulate appropriate limits on the availability of claims, and the magnitude of the impact on stability and predictability in commercial affairs--counseled against expanding contract damages to include mental distress claims in negligent constrction cases. (Opinion by Brown, J., with George, C. J., Kennard, Baxter, and Chin, JJ., concuring. Concuring and dissenting opinion by Werdegar, J., with Mosk, J., concuring (see p. 562).)

HEADNOTES

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87 CaL. Rptr. 2d 886, ***; 1999 CaL. LEXIS 5530

CALIFORNIA OFFICIAL REPORTS HEADNOTES Classified to California Digest of Offcial Reports
(la) (1

siderations may dictate that a cause of action should not be sanctioned no matter how foreseeable the risk.
(4a) (4b) Damages § 15--Measure of Damages--

b) Damages § 15--Measure of Damages--

Breach of Contract--Distinction From Torts. Contract damages are generally limited to those within
the contemplation of the partes when the contract was

Breach of Contract--Defective Construction of House-Mental Distress. --In an action by homeowners against

the contractor who built their new house for breach of contract, fraud, negligent misrepresentation, and negligent constrction, in which the jur found that defendant

entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectation
of the parties are not recoverable. This limitation on

breached his constrction contract by negligently con-

available damages serves to encourage contractual rela-

tions and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise. In contrast, tort damages are awarded to fully compensate the victim for all injury suffered. The distinction

strcting the house but was not guilty of fraud or negligent misrepresentation, plaintiffs were not entitled to recover damages for mental distress. A claim for negligent breach of a contract is not suffcient to support tort
damages for violation of an independent tort duty. Even
assumig defendant's negligence constituted a breach of a suffcient independent duty to plaintiffs, such a finding

between tort and contract is well grounded in common

law, and divergent objectives underlie the remedies created in the two areas. Whereas contract actions are created to enforce the intentions of the partes to the agree-

ment, tort law is primarily designed to vindicate social
policy.

would not entitle them to emotional distress damages on the facts alleged. The breach--the negligent constrction of the house--did not cause physical injury. The only physical injur alleged was one plaintiffs heart disease,

which flowed from the emotional distress and not di-

rectly from the negligent constrction. A preexistig
(2) Damages § 15--Measure of Damages--Breach of
Contract--Breach of Legal Duty. --The same wrongful

act may constitute both a breach of contract and an inva-

sion of an interest protected by the law of torts. A contractual obligation may create a legal duty and the breach of that duty may support an action in tort. However, conduct amounting to a breach of contract becomes tortous only when it also violates a duty independent of the contract arising from principles of tort law. An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty. Tort dam-

contractual relationship, without more, wil not support a recovery for mental suffering where the defendant's tortious conduct has resulted only in economic injur to the plaintiff. Also, the general measure of damages where injur to propert is capable of being repaired is the reasonable cost of repair together with the value of lost use during the period of injury.
(See 6 Witkin, Summary of CaL. Law (9th ed. 1988)
Torts, § 1462.)

ages have been permtted in contract cases where a
breach of duty directly causes physical injur, for breach

(5) Damages § 15--Measure of Damages--Tortious

Breach of Contract. --Generally, outside the insurance
context, a tortous breach of contract may be found when (1) the breach is accompanied by a traditional common

of the covenant of good faith and fair dealing in insur-

ance contracts, for wrongful discharge in violation of fudamental public policy, or where the contract was
fraudulently induced. In each of these cases, the duty that gives rise to tort liability is either completely independ-

law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or
undue coercion or; (3) one part intentionally breaches

ent of the contract or arises from conduct that is both
intentional and intended to harm.
(See 3 Witki, CaL. Procedure (4th ed. 1996) Actions, § 141.)

the contract intending or knowing that such a breach wil

cause severe, unrtigable harm in the form of mental
anguish, personal hardship, or substantial consequential

damages. Focusing on intentional conduct gives substance to the proposition that a breach of contract is tortious only when some independent duty arising from tort law is violated.
(6a) (6b) Damages § 15--Measure of Damages--

(3) Negligence § 9--Elements--Duty of Care--Rules--

Foreseeabilty. --Foreseeability alone is not suffcient to

create an independent tort duty. Whether a defendant owes a duty of care is a question of law. Its existence
depends upon the foreseeability of the risk and a weighing of policy considerations for and against imposition of

liability. Because the consequences of a negligent act must be limited to avoid an intolerable burden on society, the determnation of duty recognes that policy con-

Breach of Contract--Defective Construction of House-Mental Distress as Consequential Damages. --In an action by homeowners against the contractor who built
their new house for breach of contract, fraud, negligent

misrepresentation, and negligent constrction, in which the jury found that defendant breached his constrction

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21 CaL. 4th 543, *; 981 P.2d 978, **;

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contract by negligently constrcting the house but was
not guilty of fraud or negligent misrepresentation, plain-

tiffs were not entitled to recover damages for mental
distress as consequential or special damages. In California, damages for mental suffering and emotional distress are generally not recoverable in an action for breach of an ordinary commercial contract. Recovery for emotional
distubance wil be excluded unless the breach also

Morgenstein & Jubelirer, James 1. McGinnis and Laura E. Gasser for Centex Homes as Amicus Curiae on behalf
of

Defendant, Cross-complainant and Appellant.

mas D. Deardorff

Songstad, Randall & Ulich, Andrew K. Ulich and ThoII for Taylor Woodrow Homes, Inc., as

Amicus Curiae on behalf of Defendant, Cross-

complainant and Appellant.

caused bodily harm or the contract or the breach is of such a kind that serious emotional distubance was a particularly likely result. To permt emotional distress damages in cases of negligent constrction of a personal residence when the negligent constrction causes gross interference with the norml use and habitability of the residence would make the financial risks of constrction agreements diffcult to predict. Contract damages must be clearly ascertainable in both natue and origin. A rule
focusing not on the risks contracting partes voluntarily

Chapin Flemig McNitt Shea & Carter, Craig H. Bell
and Keith A. Turer for Truck Insurance Exchange as

Amicus Curiae on behalf of Defendant, Cross-

complainant and Appellant. John R. DeLoreto; Law Offces of Victor G. Zilinskas, Zilinskas & Jacobs, Victor G. Zilinskas and Michael L. Smith for Plaintiffs and Respondents.

assume, but on one part's reaction to inadequate performance, cannot provide any principled limit on liability.

Wiliams, Wester & Hall and Scott A. Wiliams as Amici Cuae on behalf of Plaintiffs and Respondents.

(See 1 Witki, Summary of CaL. Law (9th ed. 1987)
Contracts, § 815.)

Kasdan, Simonds, McIntye, Epstein & Mart and
David G. Epstein for Consumer Attorneys of Californa as Amicus Curiae on behalf of Plaintiffs and Respondents.

COUNSEL: Edward J. Horowitz, Claudia Ribet; Knapp, Petersen & Clarke, Daniels, Baratta & Fine, Alan J. Carnegie, James 1. Hsu and Stephen M. Harris for Defendant, Cross-complainant and Appellant.

Keppleman & Associates and Richard D. Keppleman for
Cross-defendant and Respondent Ron Rebaldo.

Sonnenschein Nath & Rosenthal, Paul E. B. Glad, Paula M. Yost and Cheryl Dyer Berg for American Insurance Association and Crum & Forster Insurance Company as
Amici Curiae on behalf of

Borton, Petrin & Conron, Craig R. McCollum and Gary A. Bixler for Cross-defendant and Respondent John Cravens Plastering, Inc.

Defendant, Cross-complainant

and Appellant.

JUGES: Opinon by Brown, J., with George, C. J., Kennard, Baxter, and Chin, JJ., concuring. Concurg
and dissenting opinion by Werdegar, J., with Mosk, J., concuring (see p. 562).
OPINION BY: BROWN

Alister McAlister for National Association of Independent Insurers as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant.

Crosby, Heafey, Roach & May, Kathy M. Banke and Kay Long-Marin for Continental Metroplex as Amicus
Curiae on behalf of Defendant, Cross-complainant and

OPINION

Appellant.
Fred J. Hiestand for the Association for California Tort Reform as Amicus Curiae on behalf of Defendant, Crosscomplainant and Appellant.

(*548) (**980) (***888) BROWN, J.
We granted review in this case to determne whether emotional distress damages are recoverable for the negli-

gent breach of a contract to constrct a house. A jury
awarded the homeowners the full cost necessary to repair

Cox, Castle & Nicholson, Sandra C. Stewart and Debbie
1. Freedman for the Building Industr Legal Defense Foundation and the Californa Building Industr Asso-

their home as well as damages for emotional distress caused by (***889) the contractor's negligent performance. Since the contractor's negligence directly caused

only economic injury and propert damage, and

ciation as Amici Curiae on behalf of Defendant, Crosscomplainant and Appellant.

breached no duty independent of the contract, we conclude the homeowners may not recover damages for emotional distress based upon breach of a contract to
build a house.

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something related to framing," stucco, or the walking deck.

i. FACTUAL AND PROCEDURL BACKGROUND

Both parties agree with the facts as ascertained by the Cour of AppeaL. Barr and Sandra Erlich contracted with John Menezes, (**981) a licensed general contractor, to build a "dream house" on their ocean-view lot. The Erlichs moved into their house in December 1990.
In February 1991, the rains came. "(T)he house leaked

Both of the Erlichs testified that they suffered emotional distress as a result of the defective condition of the
house and Menezes's invasive and unsuccessful repair attempts. Barr Erlich testified he felt "absolutely sick" and had to be "carted away in an ambulance" when he

learned the full extent of the strctual problems. He has
a permnent heart condition, known as superventricular

from every conceivable location. Walls were satuated in

(an upstairs bedroom), two bedrooms downstairs, and the

pool room. Nearly every window in the house leaked. The living room filled with three inches of standing water. In several locations water 'poured in in streams' from the ceilings and walls. The ceiling in the garage became

tachyarrhythra, attibutable, in part, to excessive stress. Although the condition can be controlled with medication, it has forced him to resign his positions as athetic director, departent head and track coach.
Sandra Erlich feared the house would collapse in an
eartquake and feared for her daughter's safety. Stickers
were placed on her bedroom windows, and (***890)

so satuated. . . the plaster liquefied and fell in chunks to
the floor."

Menezes's attempts to stop the leaks proved ineffectual. Caulkig placed around the windows melted, " 'ran down (the) windows and stained them and ran across the drveway and ran down the house (until it) . . . looked

alarm and emergency lights installed so rescue crews would find her room first in an emergency.

Plaintiffs sought recovery on several theories, including breach of contract, fraud, negligent misrepresen-

like someone threw balloons with paint in them at the
house.' " Despite several repair efforts, which included

tation, and negligent constrction. Both the breach of
contract claim and the negligence claim alleged numerous constrction defects.
Menezes prevailed on the fraud and negligent mis-

using sledgehammers and jackhammers to cut holes in the exterior walls and ceilings, application of new waterproofing materials on portions of the roof and exterior walls, and more caulk, the house continued to leak--from

the windows, from the roofs, and water seeped between the floors. Fluorescent light fixtues in the garage filled with water and had to be removed.
"The Erlichs eventually had their home inspected by
another general contractor and a strctual engineer. In

representation claims. The jury found he breached his
contract with the Erlichs by negligently constrcting

their home and awarded $ 406,700 as the cost of repairs. Each spouse was awarded $ 50,000 for emotional distress, and Barr Erlich received an additional $ 50,000 for physical pain and sufferig and $ 15,000 for lost

addition to confumng defects in the roof, exterior stucco, windows and waterproofing, the inspection revealed (*549) serious errors in the constrction of the home's strctual components. None of the 20 shear, or load-bearing walls specified in the plans were properly
installed. The three tuets on the roof were inadequately connected to the roof beams and, as a result, had begu

earngs.
(*550) By a two-to-one majority, the Cour of Appeal affumed the judgment, including the emotional distress award. The majority noted the breach of a contrac-

tual duty may support an action in tort. The jur found Menezes was negligent. Since his negligence (**982)
exposed the Erlichs to "intolerable living conditions and a constant, justifiable fear about the safety of their home," the majority decided the Erlichs were properly compensated for their emotional distress.

to collapse. Other connections in the roof framig were
also improperly constrcted. Three decks were in danger

of 'catastrophic collapse' because they had been finshed

with mortar and ceramic tile, rather than with the light-

weight roofing material originally specified. Finally, the foundation of the main beam for the two-story living room was poured by digging a shallow hole, dumping in 'two sacks of dry concrete mix, putting some water in the
hole and mixing it up with a shoveL.' " This foundation,
required to carr a load of 12,000 pounds, could only

The dissent pointed out that no reported Californa case has upheld an award of emotional distress damages based upon simple breach of a contract to build a house. Since Menezes's negligence directly caused only economic injury and propert damage, the Erlichs were not entitled to recover damages for their emotional distress.
We granted review to resolve the question.
II. DISCUSSION
A.

support about 2,000. The beam is settling and the surrounding concrete is crackig.

According to the Erlichs' expert, problems were ma-

jor and pervasive, concernng everyhing "related to a
window or waterproofing, everyhere that there was

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In an action for breach of contract, the measure of damages is "the amount which wil compensate the part
aggrieved for all the detriment proximately caused
thereby, or which, in the ordinary course of thigs,

In concluding emotional distress damages were
properly awarded, the Cour of Appeal correctly observed that "the same wrongful act may constitute both a breach of contract and an invasion of an interest protected by the law of torts." ( North American Chemical

would be likely to result therefrom" (Civ. Code, § 3300), provided the damages are "clearly ascertainable in both
their natue and origin" (Civ. Code, § 3301). In an action

not arising from contract, the measure of damages is "the

Co. v. Superior Court (1997) 59 Cal. App. 4th 764, 774 (69 Cal. Rptr. 2d 466), citing 3 Witkn, Cal. Procedure
(4th ed. 1996) Actions, § 139, pp. 203-204.) Here, the

amount which wil compensate for all the detriment
proximately caused thereby, whether it could have been
anticipated or not" (Civ. Code, § 3333).
(1 a) "Contract damages are generally limited to those within the contemplation of the pares when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond

cour permtted plaintiffs to recover both full repair costs
as norml contract damages and emotional distress dam-

ages as a tort remedy. i

1 At oral argument, plaintiff cited Sloane v.
Southern Cal. Ry. Co. (1896) 111 Cal. 668 (44 P.
320), a case involving a passenger wrongly

the expectation of the parties are not recoverable. (Cita-

ejected from a train, for the proposition that emo-

tions.) This limitation on available damages serves to encourage contractual relations and commercial activity
by enabling parties to estimate in advance the financial

tional distress damages arising out of breach of

contract have been permtted in Californa for
many years. In fact, Sloane specifically recognied the distinction between contract and tort

risks of their enterprise." ( Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal. 4th 503, 515 (28
Cal. Rptr. 2d 475, 869 P.2d 454) (Applied Equipment).)

remedies and held plaintiff could either "bring an

action simply for the breach of . . . contract, or
she could sue. . . in tort" for the carrier's violation of the duty, as a common carrier, which it as-

"In contrast, tort damages are awarded to (fully) compen-

sate the victim for (all) injur suffered. (Citation.)" ( /d.

atp.5l6.)
" '(T)he distiction between tort and contract is well
grounded in common law, and divergent objectives un-

sumed upon entering into the contract. ( /d. at p.
677.)

derlie the remedies created in the two areas. Whereas contract actions are created to enforce the intentions of
the parties (*551) to the agreement, tort law is primarily

(**983) (2) The Cour of Appeal also noted that "(a) contractual obligation may create a legal duty and
the breach of that duty may support an action in tort."
This is tre; however, conduct amounting to a breach of

designed to vindicate "social policy." (Citation.)' " (
Hunterv. Up-right, Inc. (1993) 6 Cal. 4th 1174,1180 (26 Cal. Rptr. 2d 8, 864 P.2d 88), quotig Foley v. Interactive Data Corp. (1988) 47 Cal. 3d 654, 683 (254 Cal. Rptr. 211, 765 P.2d 373) (Foley).) Whle the puroses

contract becomes tortous only when it also violates a duty independent of the contract arising from priciples of tort law. (Applied Equipment, supra, 7 Cal. 4th at p.
515.) " , "An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty." , " (Ibid., quotig Jones v. Kelly (1929) 208 Cal. 251, 255 (280 P. 942).

behid contract and tort law are distict, the boundary line between them is not ( Freeman & Mils, Inc. v.
Belcher Oil Co. (1995) 11 Cal. 4th 85, 106 (44 Cal. Rptr. 2d 420, 900 P.2d 669) (conc. and (***891) dis. opn. of

Mosk, J. (Freeman & Mils)) and the distinction between the remedies for each is not" 'found ready made.'

" (Ibid., quoting Holmes, The Common Law (1881) p.
13.) These uncertain boundaries and the apparent breadth

of the recovery available for tort actions create pressure to obliterate the distinction between contracts and torts-an expansion of tort law at the expense of contract principles which Grant Gilmore aptly dubbed "contorts." In
ths case we consider whether a negligent breach of a

Tort damages have been permtted in contract cases where a breach of duty directly causes physical injur ( Fuentes v. Perez (1977) 66 Cal. App. 3d (*552) 163, 168, fn. 2 (136 Cal. Rptr. 275)); for breach of the covenant of good faith and fair dealing in insurance contracts ( Crisci v. Security Ins. Co. (1967) 66 Cal. 2d 425, 433434 (58 Cal. Rptr. 13, 426 P.2d 173)); for wrongful discharge in violation of fundamental public policy (

Tameny v. Atlantic Richfeld Co. (1980) 27 Cal. 3d 167, 175-176 (164 Cal. Rptr. 839,610 P.2d 1330, 9 A.L.RAth
314)); or where the contract was fraudulently induced. (
Las Palm as Associates v. Las Palm

contract wil support an award of damages for emotional distress--either as tort damages for negligence or as consequential or special contract damages.
B.

as Center Associates

(1991) 235 Cal. App. 3d 1220, 1238-1239 (1 Cal. Rptr. 2d 301).) In each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional
and intended to harm. (See, e.g., Christensen v. Superior

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Court (1991) 54 Cal. 3d 868, 885-886 (2 Cal. Rptr. 2d
79,820 P.2d 181).)

building single-family homes. He is one among thousands of contractors who provide the same service, and
the Erlichs could take their choice among any contractors
wiling to accept work in the area where their home

Plaintiffs theory of tort recovery is that mental distress is a foreseeable consequence of negligent breaches of standard commercial contracts. (3) However, foreseeability alone is not suffcient to create an independent

would be constrcted. Although they undoubtedly relied on his claimed expertse, they were in a position to view,

tort duty. " 'Whether a defendant owes a duty of care is a question of law. Its existence depends upon the foresee-

inspect, and criticize his work, or to hie someone who
could. Most significantly, there is no indication Menezes
sought to frstrate the Erlichs' enjoyment of contracted-

ability of the risk and a weighing of policy considerations for and against imposition ofliability.' (Citation.)" (
Burgess v. Superior Court (1992) 2 Cal. 4th 1064, 1072

for benefits. He did build a house. His ineptitude led to
numerous problems which he attempted to correct. And he remains ultimately responsible for reimbursing the

(***892) (9 Cal. Rptr. 2d 615,831 P.2d 1197).) Because the consequences of a negligent act must be limited to
avoid an intolerable burden on society ( Elden v. Sheldon (1988) 46 Cal. 3d 267,274 (250 Cal. Rptr. 254, 758 P.2d 582)), the determation of duty "recognes that policy considerations may dictate a cause of action should not be sanctioned no matter how foreseeable the risk." (Ibid., fn. omitted.) "(T)here are clear judicial days on which a

cost of doing the job properly.

Moreover, since, as Foley noted, the inurance cases represented "a major departe from traditional principles of contract law," any claim for automatic extension

of that exceptional approach whenever "certain hallmarks and similarities can be adduced in another contract
settng" should be carefully considered. (Foley, supra, 47

cour can foresee forever and thus determe liability but
none on which that foresight alone provides a socially

Cal. 3d at p. 690.)

and judicially acceptable limit on recovery of damages for (an) injur." ( Thing v. La Chusa (1989) 48 Cal. 3d 644, 668 (257 Cal. Rptr. 865, 771 P.2d 814). In short, foreseeability is not synonymous with duty; nor is it a
substitute.
(4a) The question thus remains: is the mere negli-

Our previous decisions detail the reasons for deny-

ing tort recovery in contract breach cases: the different
objectives underlying tort and contract breach; the im-

portance of predictability in assuring commercial stability in contractual dealings; the potential for convertng
every contract breach into a tort, with accompanying

gent breach of a contract suffcient? The answer is no. It may admittedly be diffcult to categorie the cases, but to state the rule succinctly: "(C)ours wil generally enforce
the breach of a contractual promise through contract law, except when the actions that constitute the breach violate

puntive damage recovery, and the preference for legislative action in affording appropriate remedies. (Freeman

& Mils, supra, 11 Cal. 4th at p. 98, citig approvingly App. 4th 70, 81-82 (17 Cal. Rptr. 2d 649). The same
concern support a cautious approach here. Restrictions on contract remedies serve to protect the " 'freedom to bargain over special risks and (to) promote contract for-

(***893) Harris v. Atlantic Richfield Co. (1993) 14 Cal.

a social policy that merits the imposition of tort remedies." (Freeman & Mils, supra, 11 Cal. 4th at p. 107 (conc. and dis. opn. of Mosk, J.).) The familiar paradigm oftortious breach of contract in this state is the insurance
contract. There we rely on the covenant of good faith and fair dealing, implied in every contract, to justify tort liability. (Foley, supra, 47 Cal. 3d at pp. 689-690.) In

mation by limiting liability to the value of the promise.' "
(11 Cal. 4th at p. 98, quoting Harris, supra, 14 Cal. App. 4th at p. 77.)

(5) Generally, outside the insurance context, "a tortious breach of contract. . . may be found when (1) the

holding that a tort action is available for breach of the covenant in an insurance contract, (*553) we have "emphasized the 'special relationship' between insurer and

insured, characterized by elements of public interest,
adhesion, and fiduciary responsibility." (Freeman &

breach is accompanied by a traditional common law tort, such as fraud or conversion; (2) the means used to breach (*554) the contract are tortious, involving deceit or undue coercion or; (3) one part intentionally breaches the

Mils, supra, 11 Cal. 4th at p. 91; see Louderback &
Jurika, Standards (**984) for Limiting the Tort of Bad
Faith Breach of Contract (1982) 16 U.S.F. L.Rev. 187,

contract intending or knowing that such a breach will cause severe, unrtigable harm in the form of mental
anguish, personal hardship, or substantial consequential

227.)
The special relationship test, which has been criticized as ilusory and not suffciently precise (Putz &

damages." (Freeman & Mils, supra, 11 Cal. 4th at p.
105 (conc. and dis. opn. ofMosk, l).) Focusing on intentional conduct gives substance to the proposition that a breach of contract is tortious only when some independent duty arising from tort law is violated. (Applied

Klippen, Commercial Bad Faith: Attorneys Fees--Not Tort Liabilty--Is the Remedy for "Stonewallng" (1987) 21 U.S.F. 1. Rev. 419, 478-479), has little relevance to the question before us. Menezes is in the business of

Equipment, supra, 7 Cal. 4th at p. 515.) If every negli-

gent breach of a contract gives rise to tort damages the

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limitation would be meaningless, as would the statutory distinction between tort and contract remedies.
not act intentionally; nor was he guilty of fraud or mis-

(4b) In ths case, the jury concluded Menezes did

Although the Cour of Appeal, plaintiffs, and their amici curae rely substantially on Potter v. Firestone Tire & Rubber Co. (1993) 6 Cal. 4th 965 (25 Cal. Rptr. 2d 550, 863 P.2d 795) (Potter), that case does not assist our
inquiry. Potter, a toxic tort case, is readily distinguish-

representation. This is a claim for negligent breach of a contract, which is not sufficient to support tortous damages for violation of an independent tort duty.

able. First, the analysis there was narrowly circumscribed
by the issue presented: "whether. . . emotional distress

engendered by the fear of developing cancer in the futue

It may ultimately be more useful, in attempting to
develop a common law of tortious breach, to affuma-

as a result of a toxic exposure is a recoverable item of damages in a negligence action." ( Id. at p. 981.) Thus,
the language of Potter cannot be read in support of some larger proposition affording emotional distress damages

tively identify specific practices utilized by contracting
partes that merit the imposition of tort remedies (Free-

man & Mils, supra, 11 Cal. 4th at p. 107 (conc. and dis. opn. of Mosk, l)), instead of comparing each new claim to a template for exceptions. In the interim, however, it is sufficient to note that more than mere negligence has
been involved in each case where tort damages have been permtted. The benefits of broad compensation

for any other tye of fear of futue harm in actions involving negligent breach of contract.

must be balanced against the (**985) burdens on commercial stability. "(C)ours should be careful to apply

tort remedies only when the conduct in question is so clear in its deviation from socially useful business practices that the effect of enforcing such tort duties wil be .
. . to aid rather than discourage commerce." ( Freeman & Mils, supra, 11 Cal. 4th at p. 109 (conc. and dis. opn. of Mosk, J.).)

Second, the water supply of the plaintiffs in Potter had already been contaminated. The prolonged exposure could not be undone. In contrast, the Erlichs could have avoided the threatened injury by moving out of the house until necessary repairs had been completed. If they had, relocation expenses would have been part of their damages. In any event, the general measure of damages

where injur to propert is capable of being repaired is the reasonable cost of repair together with the value of lost use durng the period of injury. (6 Witk, Sumary
ofCal. Law (9th ed. 1988) Torts, § 1462, pp. 934-935.)

c.
Even assuming Menezes's negligence constituted a suffcient independent duty to the Erlichs, such a finding would not entitle them to emotional distress damages on these facts. "The fact that emotional distress damages

In short, Potter permtted recovery, within stringent

limits, for emotional distress resulting from a personal
injur directly caused by the defendant's tortous con-

duct. The Erlichs seek recovery for emotional distress engendered by an injur to their propert.

may be awarded in some circumstances (see Rest.2d
Torts, § 905, pp. 456-457) does not mean they are avail-

To the extent Potter is relevant here, it reiterates
that "uness the defendant has assumed a duty to plaintiff

able in every case in which there is an independent cause of action founded upon negligence." ( Merenda v. Supe-

in which the emotional condition of the plaintiff is an
object, recovery is available only if the emotional dis-

rior Court (1992) 3 Cal. App. 4th 1, 7 (4 Cal. Rptr. 2d 87) (Merenda).) "No California case has allowed recovery for emotional distress arising solely out of propert damage" ( Cooper v. Superior Court (1984) 153 Cal. App. 3d 1008, 1012 (200 Cal. Rptr. 746)); moreover, a preexisting contractual relationship, without more, wil
not support a recovery for mental suffering (*555)

tress arises out of the defendant's breach of some other

legal duty and the emotional distress is proximately
caused by (breach of the independent duty J. Even then,

with rare exceptions, a breach of the duty must threaten physical injur, not simply damage to propert or financial interests. (Citations.)" (Potter, supra, 6 Cal. 4th at p. 985.) Although the Erlichs feared (*556) physical injur, Menezes's negligent breach of contract resulted in

where the defendant's tortious conduct has resulted only

in economic injury to the plaintiff. ( Smith v. Superior Court (1992) 10 Cal. App. 4th 1033,1040, fn. 1 (13 Cal.
Rptr. 2d 133); Mercado v. Leong (1996) 43 Cal. App. 4th

only damage to their propert, and they could have
avoided any threat of

harm.

The question was thoroughly explored in Merenda,
supra, 3 Cal. App. 4th 1, (**986) a legal malpractice

317,324 (50 Cal. Rptr. 2d 569) (emotional distress damages are unlikely when (***894) the interests affected are merely economic); Camenisch v. Superior Court

action in which the plaintiff sought damages for the severe emotional distress she suffered when her attorney's

(1996) 44 Cal. App. 4th 1689, 1691 (52 Cal. Rptr. 2d 450) (Camenisch) (emotional distress damages are not recoverable when attorney malpractice leads only to economic loss).

negligence caused the loss of expected damages from her
claim for sexual assault and battery. "It is tre that the

'transaction,' a contract for legal services, was intended to

affect the plaintiff. However, the foreseeability of serious
emotional harm to the client and the degree of certainty

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that the client suffered such injury by loss of an economic claim are tenuous. Litigation is an inherently un-

their home and destroyed personal possessions. The Wyoming Supreme Cour held that, absent physical injur, emotional distress damages can be recovered only

certain vehicle for advancing one's economic interests. The expectation of a recovery is rarely so certain that a litigant would be justified in resting her peace of mind upon the assurance of victory." (Id. at p. 10.)

in limited circumstances involving intentional torts, constitutional violations, and the breach of the covenant of

good faith and fair dealing in insurance contracts, and
concluded a contrary rule would be poor public policy.

In Camenisch, supra, 44 CaL. App. 4th 1689, the plaintiff sought emotional distress damages because the
lawyer's negligent estate planning advice thwarted his tax

"In deciding whether the plaintiffs interests are entitled to legal protection against the defendant's conduct,

avoidance goals. The complaint alleged the attorney had providing for (the plaintiffs' family) and obtaining repose regarding their financial (***895) security.''' (/d. at p. 1692.) The trial
been hied" 'for the express purose of

we must balance the interest of the injured parties against the view that a negligent act should have some end to its
legal consequences. . . . Weare persuaded that the con-

cour overrled the attorney's demurer. The Cour of
Appeal rejected the claim for emotional distress damages. Acknowledging that Merenda dealt with malpractice related to litigation, the cour nevertheless found its reasonig dispositive. "Public policy reasons do not support a different result when the alleged malpractice is commtted in a tax advice context, even if the tax advice
is part of an estate plan. (P) As in a litigation context, the client's primary protected interest is economic in a tax

cern which have acted to prevent recovery for emotional distress when propert is damaged remain relevant and

weigh against permttng recovery. While we do not
doubt that the Blagroves were justifiably and seriously distressed over the damage to (their home), adoptig a rule allowing tral on the issue and recovery if (**987)
proved would result in unacceptable burdens for both the judicial system and defendants. We therefore hold that emotional distress damages in connection with propert
damages are not compensable." (Blagrove, supra, 934 P.2d at pp. 1276-1277; see also Caradonna v. Thorious

plannng situation. The prospect of paying taxes is generally considered distressing, and the prospect of paying
a greater levy than necessary is even more disquieting.

(1969) 17 Mich.App. 41 (169 N.W.2d 179, 182);
Jankowski v. Mazzotta (1967) 7 Mich.App. 483 (152

However, the emotional upset derives from an inherently economic concern." (Id. at p. 1697.)

N.W.2d 49) (no mental anguish remedy available for ineptly constrcted home).)
Here, the breach--the negligent constrction of the

In Lubner v. City of Los Angeles (1996) 45 Cal.
App. 4th 525 (53 CaL. Rptr. 2d 24), two artists lost a sub-

stantial porton of their life's work when a city trash trck, which had been parked on a hilltop, rolled down and crashed into their home, damaging the house, two cars, and much of their artork. The Lubners fied a negligence action and sought damages for their emotional distress. Recognizing that the artork may have been
extremely important to the Lubners, the cour neverthe-

Erlichs' house--did not cause physical injur. No one was

hit by a falling beam. Although the Erlichs state they feared the house was strctually unsafe (***896) and might collapse in an earthquake, they lived in it for five
years. The only physical injur alleged is Barr Erlich's

heart disease, which flowed from the emotional distress
and not directly from the negligent constrction.

less found they were not entitled to recover for emotional
distress caused by injur to propert. (/d. at p. 532.) The

The Erlichs may have hoped to build their dream home and live happily ever after, but there is a reason
that tag line belongs only in fairy tales. Building a house

cour based its ruling primarily on the absence of a preexisting relationship between the parties, but separately
considered whether the defendant breached a duty of

may tu out to be a stress-free project; it is much more
likely to be the stuff of urban legends--the cause of

bank-

care to the plaintiffs. Noting that the moral blame on the (*557) defendant was only that which attends ordinary negligence and nothing in the record indicated bad faith
or reckless indifference to the Lubners' emotional tranquility, the cour concluded liability for negligent inflic-

ruptcy, marital (*558) dissolution, hypertension and

tion of emotional distress was unwarranted. ( Id. at p.
534.)

Public policy supports a similar limit where the negligence concerns the constrction of a home. In Blagrove
v. JB Mechanical, Inc. (Wyo. 1997) 934 P.2d 1273

fleeting fantasies ranging from homicide to suicide. As Justice Yegan noted below, "No reasonable homeowner can embark on a building project with certainty that the project will be completed to perfection. Indeed, errors are so likely to occur that few if any homeowners would be justified in resting their peace of mind on (its) timely or correct completion. . . ." The connection between the
service sought and the aggravation and distress resulting

from incompetence may be somewhat less tenuous than in a malpractice case, but the emotional suffering stil
derives from an inherently economic concern.
D.

(Blagrove), the homeowners sued a plumbing contractor
to recover damages for mental anguish caused when

flooding from a faulty plumbing connection damaged

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(6a) Having concluded tort damages are not available, we finally consider whether damages for emotional
distress should be included as consequential or special

damages in a contract claim. (lb) "Contract damages are
the parties when the contract was entered into or at least reasonably foreseeable by them at the time; consequential
generally limited to those within the contemplation of

contract is the mental and emotional well-being of one of the contracting parties, the breach of the contract may give rise to damages for mental suffering or emotional distress. (See Wynn v. Monterey Club (1980) 111 CaL. App. 3d 789, 799-801 (168 CaL. Rptr. 878) (agreement of
two gambling clubs to exclude husband's gamblingaddicted wife from clubs and not to cash her checks);

damages beyond the expectations of the partes are not
recoverable. (Citations.) This limitation on available

Ross v. Forest Lawn Memorial Park (1984) 153 CaL.

App. 3d 988, 992-996 (203 CaL. Rptr. 468, 42 A.L.RAth

damages serves to encourage contractual relations and

commercial activity by enabling partes to estimate in
advance the financial risks of their enterprise." (Applied
Equipment, supra, 7 CaL. 4th at p. 515.)

1049) (cemetery's agreement to keep burial service private and to protect grave from vandalism); Windeler v.

Scheers Jewelers (1970) 8 CaL. App. 3d 844, 851-852

" '(W)hen two parties make a contract, they agree upon the rules and regulations which wil govern their relationship; the risks inherent in the agreement and the likelihood of its breach. The parties to the contract in essence create a mini-unverse for themselves, in which
each voluntarily chooses his contractig parter, each

jewelr's great sentimental value was made known to
bailee). )

(88 CaL. Rptr. 39) (bailment for heirloom jewelry where

Cases from other jurisdictions have formulated a similar rule, barring recovery of emotional distress damages for breach of contract except in cases involving

trsts the other's wilingness to keep his word and honor

his commtments, and in which they define their respective obligations, rewards and risks. Under such a scenario, it is appropriate to enforce only such obligations as
each part voluntarily assumed, and to give him only

contracts in which emotional concerns are the essence of the contract. (See, e.g., Hancock v. Northcutt (Alaska 1991) 808 P.2d 251, 258 ("contracts pertainng to one's

dwelling are not among those contracts which, if
breached, are partcularly likely to result in serious emotional distubance"; tyical damages for breach of house
constrction contracts can appropriately be calculated in

such benefits as he expected to receive; this is the function of contract law.' " (Applied Equipment, supra, 7 CaL.

4thatp.5l7.)
(6b) Accordingly, damages for mental sufferig and

term of monetary loss); McMeakin v. Roofing & Sheet
Metal Supply (1990) 1990 Okla.Civ.App. LOl (807 P.2d

288) (affumg order granting summary judgment in

emotional distress are generally not recoverable in an
action for breach of an ordinary commercial contract in

Californa. ( Kwan v. Mercedes-Benz of North America,
Inc. (1994) 23 CaL. App. 4th 174, 188 (28 CaL. Rptr. 2d

favor of defendant roofing company after it negligently stacked too many brick tiles on roof, causing roof to collapse and completely destroy home, leading to plaintiffs
heart attack one month later); Day v. Montana Power Co. rest au(1990) 242 Mont. 195 (789 P.2d 1224) (owner of

371) (Kwan); Sawyer v. Bank of America (1978) 83 CaL.

App. 3d 135, 139 (145 CaL. Rptr. 623).) "Recovery for

emotional distubance will be excluded uness the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional distubance was a

rant that was destroyed in gas explosion allegedly caused by negligence of utility company employee not entitled
to recover damages for emotional distress); Creger v. Robertson (La.Ct.App. 1989) 542 So.2d lO90 (reversing

partcularly likely result." (Rest.2d (*559) Contracts, §
353.) The Restatement specifically notes the breach of a

award for emotional distress damages caused by foul
odor emanating from a faulty foundation, preventing plaintiff from entertaining guests in her residence); Groh

contract to build a home is not "partcularly likely" to
result in "serious emotional distubance." (Ibid.)

v. Broadland Builders, Inc. (*560) (1982) 120
Mich.App. 214 (327 N.W.2d 443) (reversing order denying motion to stre allegations of mental anguish in case

Cases permtting recovery for emotional distress tyically involve mental anguish stemmg from more personal undertakings the traumatic results of which
were (**988) unavoidable. (See, e.g., Burgess v. Superior Court, supra, 2 CaL. 4th lO64 (inant injured durng
childbir); Molien v. Kaiser Foundation Hospitals

involving malfunctioning septic tank system, and noting adequacy of monetary damages to compensate for pecuniary loss of "having to do the job over," as distiguished

from cases allowing recovery because situation could
never be adequately corrected).

(1980) 27 CaL. 3d 916 (167 CaL. Rptr. 831, 616 P.2d 813,

16 A.L.RAth 518) (misdiagnosed venereal disease and

subsequent (***897) failure of marriage); Kately v.
Wilkinson (1983) 148 CaL. App. 3d 576 (195 CaL. Rptr.

902) (fatal waterskiing accident); Chelini v. Nieri (1948)
32 CaL. 2d 480 (196 P.2d 915) (failure to adequately pre-

Plaintiffs argue strenuously that a broader notion of damages is appropriate when the contract is for the constrction of a home. Amici curiae urge us to permt emotional distress damages in cases of negligent constrction of a personal residence when the negligent constrction

serve a corpse). Thus, when the express object of the

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causes gross interference with the norml use and habitability of the residence.
Such a rule would make the financial risks of constrction agreements diffcult to predict. Contract dam-

mobile repaired. While (the) purchase of an automobile

may sometimes lead to severe emotional distress, such a result is not ordinarily foreseeable from the natue of the contract." (Kwan, supra, 23 Cal. App. 4th at p. 190.)
Most other jurisdictions have reached the same conclusion. (See Sanders v. Zeagler (La. 1997) 686 So.2d 819, 822-823 (principal object of a contract for the con-

ages must be clearly ascertainable in both natue and origin. (Civ. Code, § 3301.) A contracting part cannot
be required to assume limitless responsibility for all consequences of a breach and must be advised of any special harm that might result in order to determne whether or not to accept the risk of contracting. (1 Witk, Summary ofCal. Law (9th ed. 1987) Contracts, § 815, p. 733.)

strction of a house was to obtain a place to live and
emotional distress damages were not recoverable); Hancock v. Northcutt, supra, 808 P.2d at pp. 258-259 (no
recovery for emotional distress as a result of defective
constrction; tyical damages for breach of house constrction contracts can appropriately be calculated in

Moreover, adding an emotional distress component
to recovery for constrction defects could increase the

already prohibitively high cost of housing in Californa,

affect the availability of insurance for builders, and
greatly diminish the supply of affordable housing. The
potential for such broad-ranging economic conse-

term of monetary loss); City of Tyler v. Likes (Tex. 1997) 962 S.W.2d 489,497 (mental anguish based solely

on propert damage is not compensable as a matter of law).
We agree. The available damages for defective constrction are limited to the cost of repairing the home,

quences--costs likely to be paid by the public generally-means the task of fashioning (***898) appropriate limits on the availability of emotional distress claims

including lost use or relocation expenses, or the dimiution in value. ( Orndorf v. Christiana Community Build-

(**989) should be left to the Legislatue. (See Tex.
Prop. Code An. § 27.001 et seq. (1999); Haw. Rev. Stat. § 663-8.9 (1998).)

ers (1990) 217 Cal. App. 3d 683 (266 Cal. Rptr. 193).
The Erlichs received more than $ 400,000 in traditional

Permtting damages for emotional distress on the
theory that certain contracts carr a lot of emotional

contract damages to correct the defects in their home.
Whle their distress was undoubtedly real and serious, we conclude the balance of policy considerations--the poten-

freight provides no useful guidance. Cours have carved out a narrow range of exceptions to the general rule of exclusion where emotional tranquility is the contract's essence. Refusal to broaden the bases for recovery reflects a fundamental policy choice. A rule which focuses
not on the risks contracting partes voluntarily assume

but on one part's reaction to inadequate performnce,

cannot provide any principled limit on liability.

tial for signficant increases in liability in amounts disproportionate to culpability, the cour's inability to formulate appropriate limits on the availability of claims, and the magnitude of the impact on stability and predictability in commercial affairs--counsel against expanding contract damages to include mental distress claims in negligent constrction cases.
DISPOSITION

The discussion in Kwan, a case dealing with the
breach of a sales contract for the purchase of a car, is

instrctive. "(A) contract for (the) sale of an automobile
is not essentially tied to the buyer's mental or emotional well-being. Personal as the choice of a car may be, the

The judgment of the Cour of Appeal is reversed and the matter is remanded for fuer proceedings consistent
with this opinion.

central reason for buying one is usually transportation. . . . (P) In spite of America's much-discussed (*561) 'love affair with the automobile,' disruption of an owner's rela-

George, C. J., Kennard, J., Baxter, J., and Chi, J.,
concured. (*562)

tionship with his or her car is not, in the norml case,
comparable to the loss or mistreatment of a family member's remains (citation), an invasion of one's privacy (ci-

CONCUR BY: WERDEGAR
DISSENT BY: WERDEGAR

tation), or the loss of one's spouse to a gambling addiction (citation J. In the latter situations, the contract exists
primrily to fuher or protect emotional interests; the

DISSENT

direct and foreseeable injuries resulting from a breach
are also primarily emotionaL. In contrast, the undeniable
aggravation, irtation and anxiety that may result from

(***899) WERDEGAR, J.,
Concuring and Dissenting.--I concur in the majority

(the) breach of an automobile warranty are secondary
effects deriving from the decreased usefulness of the car
and the frequently frstrating process of having an auto-

opinon insofar as it holds that a plaintiff may not recover damages for emotional distress based on a defendant's negligent breach of a contract to build a house

when the defendant has breached no duty independent of the contract. Although I read the record differently as to

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whether these plaintiffs did, in fact, (**990) present an independent claim for negligence, in view of the majority's conclusion that plaintiffs did not present such a claim (see maj. opn., ante, at pp. 548, 554), the discussion in part C of the majority opinion (id., at pp. 554-

558) is unnecessary. I therefore express no opinon on the circumstances under which a tort plaintiff may recover damages for emotional distress.
Mosk, J., concured.

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EXHIBIT 13

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LEX

SEE 89 CAL APP 4TH 731

FIRST COMMERCIAL MORTGAGE COMPANY, Plaintiff and Appellant, v. DONALD R. REECE et aI., Defendants and Respondents.
No. BI37132.

COURT OF APPEAL OF CALIFORNIA, SECOND APPELLATE DISTRICT, DI-

VISION THRE
89 CaI. App. 4th 731; 108 CaL. Rptr. 2d 23; 2001 CaL. App. LEXIS 414; 2001 CaL. Daily Op. Service 4472; 2001 Daily Journal DAR 5481

May 31, 2001, Decided

PRIOR HISTORY: (***1) APPEAL from a judgment of the Superior Cour of Los Angeles County. Super. Ct. No. BC186570. Ronald E. Cappai, Judge.

be fraudulent or not in compliance with industry under-

DISPOSITION:
SUMMARY:

writing requirements; however, the loan broker had refused to repurchase the subject loan. The full credit bid rule did not preclude a claim by plaintiff that it suffered
damages as a consequence of defendant's breach of this

Reversed.

agreement. (Opinion by Klein, P. J., with Croskey and
Kitching, JJ., concuring.)

CALIFORNIA OFFICIAL REPORTS SUMARY
A lender that was compelled to repurchase propert after foreclosure and a successful full credit bid by the mortgage company to which it intially sold the loan, brought an action against the appraiser, who purortedly inflated the propert's value, and the loan broker. Plaintiffs lawsuit included causes of action for fraud, negligent misrepresentation, and breach of contract. Defen-

HEADNOTES

CALIFORNIA OFFICIAL REPORTS HEADNOTES Classified to Californa Digest of Offcial Reports

dants moved for summary judgment on the basis that
plaintiffs claims were barred by the mortgage company's full credit bid. The trial cour granted the motion. (Superior Cour of Los Angeles, No. BC186570, Ronald E.

(1) Summary Judgment § I--Purpose--Burden of Proof. --Summary judgment motions are to expedite litigation and elimiate needless trials. They are granted if all the papers submitted show that there is no triable
issue as to any material fact and that the moving part is entitled to a judgment as a matter of law. A defendant meets its burden upon such a motion by negating an essential element of the plaintiffs case, by establishing a

Cappai, Judge.)

The Cour of Appeal reversed. The cour held that
the trial cour erred in granting summary judgment for

complete defense, or by demonstratig the absence of
evidence to support the plaintiffs case. Once the moving defendant has met its initial burden, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists.

defendants. Plaintiffs damages resulting from the compelled repurchase were incured as a direct consequence of the fraud, and neither the repurchase nor the full credit bid by the purchaser precluded plaintiff from pursuing a

fraud claim against defendants. The cour fuer held that plaintiff was not precluded from claiming that it
suffered damages as a consequence of the alleged negligent misrepresentation and breach of contract by the appraiser. As for the breach of contract claim, plaintiff al-

(2) Summary Judgment § 26--Appellate Review-Scope of Review. --The appellate cour reviews the trial

cour's ruling on a motion for summary judgment under the independent review standard.
(3) Deeds of Trust § 38--Sale Under Power--Effect of
Sale--Full Credit Bid. --At a nonjudicial foreclosure

leged that prior to fuding the loan, it entered into a written agreement with the loan broker wherein the loan broker agreed to indemnify plaintiff for any loans found to

sale, if the lender chooses to bid, it does so in the capacity of a purchaser. The only distinction between the

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89 Cal. App. 4th 731, *; 108 CaL. Rptr. 2d 23, **;

2001 CaL. App. LEXIS 414, ***; 2001 CaL. Daily Op. Service 4472

lender and any other bidder is that the lender is not required to pay cash, but is entitled to make a credit bid up to the amount of the outstanding indebtedness. The pur-

fraud by the appraiser, who purortedly inflated the propert's value, and the loan broker. Thus, the trial cour

pose of this entitlement is to avoid the ineffciency of requiring the lender to tender cash that would only be immediately retued to it. A full credit bid is a bid in an
amount equal to the unpaid principal and interest of the mortgage debt, together with the costs, fees, and other
expenses of the foreclosure. If the full credit

erred in granting summary judgment for defendants.
Plaintiff alleged it was fraudulently induced to make the loan, it sold the loan to a mortgage company that foreclosed and made a successful full credit bid at the trstee's sale, it was contractually obligated to indemnfy the mortgage company for its losses on the loan, and that in doing so it was damaged by defendants' fraud. Plaintiffs damages resulting from the compelled repurchase were incured as a direct consequence of the fraud, and neither
the repurchase nor the full credit bid by the purchaser

bid is suc-

cessful, the lender pays the full outstanding balance of
the debt and costs of foreclosure to itself and takes title
to the security propert, releasing the borrower from
fuher obligations under the defaulted note. Under the

full credit bid rule, when a lender makes such a bid, it is precluded for puroses of collecting its debt from later

precluded plaintiff from pursuing a fraud claim against defendants. Irrespective of whether the repurchase is
compelled by federal regulations or by contract, the criti-

claiming that the propert was actually wort less than
the bid. Thus, the lender is not entitled to insurance proceeds payable for prepurchase damage to the propert,

cal factor is whether the damages resulting from the
compelled repurchase were incured as a direct result of
the fraud. To the extent a lender justifiably relies on a
defendant's misrepresentations in selling the loans, its

prepurchase net rent proceeds, or damages for waste,
because the lender's only interest in the propert, the

repayment of its debt, has been satisfied, and any fuher payment would result in a double recovery.

damages resulting from any compelled repurchase are incured as a direct result of the fraud. Thus, defendants' reliance on the full credit bid made by the purchaser was
misplaced.

Sale--Full Credit Bid--Fraud Exception. --There is a limited exception to the full credit bid rule where the lender was fraudulently induced to make the full credit bid. In order to establish reliance, which is an essential
element of fraud, the lender must demonstrate that its full
credit bid was a proximate result of

(4) Deeds of Trust § 38--Sale Under Power-Effect of

(See 3 Witki, Summary of CaL. law (9th ed. 1987)
Securty Transactions in Real Propert, § 173.)

the defendant's fraud,

and that in the absence of such fraud it would not, in all reasonable probability, have made the bid. To the extent the lender's full credit bids were proximately caused by the defendant's fraudulent misrepresentations, and this reliance without independent or additional inquir was eith