## Facts

- William R. Ward and other purchasers sought land to buy and worked through their broker, LeRoy Thomsen.
- Broker Marshall W. Taggart told Thomsen he was Sunset Oil Company’s exclusive agent for a Los Angeles County parcel and that Sunset would not accept less than $5,000 per acre after allegedly rejecting Ward’s $4,000 per acre offer.
- Acting on Taggart’s statements, Ward agreed to buy at $5,000 per acre and authorized terms including a 10% commission to be paid by Sunset, to be split between Taggart and Thomsen.
- Taggart presented escrow instructions naming his associate, H. M. Jordan, as the “seller,” explaining the structure was needed to resolve listing and encumbrance issues and other problems attributed to Sunset.
- Ward paid $360,246 for 72.0492 acres at $5,000 per acre.
- After closing, plaintiffs learned Taggart had no listing from Sunset, never presented (and never intended to present) Ward’s offers to Sunset, and instead bought from Sunset at $4,000 per acre and resold to plaintiffs at $5,000 per acre.
- Taggart used plaintiffs’ escrow funds to pay Sunset and kept the $1,000 per acre markup as a secret profit.

## Issues

1. Whether a defrauded purchaser may obtain restitution/disgorgement of a broker’s secret profit obtained through misrepresentations, despite Civil Code § 3343’s “out-of-pocket” fraud-damages measure and without a technical fiduciary relationship.
2. Whether exemplary damages may be awarded where the primary monetary recovery is restitution for fraud rather than conventional compensatory damages.
3. Whether Jordan could be held liable where she did not share in the profit and was not shown to have participated in the fraud.

## Decision

- The court held Taggart was required to disgorge the secret profit as restitution because it was obtained through fraud; § 3343 did not bar this remedy.
- The court held Taggart’s fraud supported an award of exemplary damages under Civil Code § 3294.
- The judgment against Jordan was reversed because she was not shown to have received the profit or to have engaged in the fraud.
- The judgment was otherwise affirmed as to Taggart, including equitable relief preventing transfer of the transaction notes and trust deeds.

## Legal Principles

- Civil Code § 3343’s “out-of-pocket” limitation on fraud damages in real-property transactions does not preclude restitutionary relief requiring a wrongdoer to surrender profits obtained by fraud.
- A defendant who secures a benefit through fraudulent conduct may be treated as an involuntary trustee (constructive trustee) and compelled to disgorge secret profits as unjust enrichment.
- Exemplary damages under Civil Code § 3294 may be imposed based on the defendant’s fraudulent conduct even if the plaintiff’s principal monetary remedy is restitution rather than traditional tort damages.
- Restitutionary liability generally requires receipt of a benefit; a person not shown to have obtained the benefit or participated in the fraud is not liable for disgorgement on that theory.

## Conclusion

The court required a broker who engineered a hidden markup through misrepresentations to return the secret profit and upheld punitive damages because the obligation arose from fraud, while reversing liability for an associate not shown to have received the profit or joined in the wrongdoing.


Ward v. Taggart, 51 Cal. 2d 736 (Cal. 1959)