Appellate Court Holds That Two-year Civil Code Section 2079.4 Statute Of Limitations Does Not Apply To The Buyers' Agent

In a surprising, and in my opinion erroneous, decision, a California Appellate Court, in the FIELD V. CENTURY 21 KLOWDEN-FORNESS REALTY case, has recently ruled that the two-year "EASTON duty" statute of limitations set forth in Civil Code Section 2079.4 does not apply to the buyers' broker. The following will summarize the FIELDS case.

FACTUAL BACKGROUND

In 1988, Robert and Betty Field purchased a rural residential property in Southern California. They were represented in their purchase by Century 21 Klowden-Forness Realty and its agent, Shirley Hays. In September of 1992, the Fields sued Century 21, the sellers and the listing agent. He sellers and the listing agent settled with the plaintiffs. However the case went to trial against Century 21.

The Fields alleged negligence, negligent misrepresentation and breach of fiduciary duty. They maintained that Century 21 failed to inspect title documents and determine the scope of an easement in favor of the Otay Water District. They alleged further that Century 21 falsely represented that Otay had an easement only for use of the driveway, although in fact the easement prevented the Fields from exclusively using a major portion of their property.

The trial did establish that the Otay Water District easement was more extensive than what had been represented to the Fields. The easement was substantially more intrusive, covered more area and included the right to "spill" water onto the Fields' land, including some area occupied by the residence. Further, the acreage of the property was less than represented. Although Century 21 was aware that an easement existed, the agent neither verified the extent of the easement (or represented the acreage of the property), nor did she advise the Fields to do so. Rather, the court held that the conduct of the agent implied both the acreage and the extent of the easement were as erroneously represented. In addition, the house violated a set-back requirement and Century 21 did not inquire whether permits or variances had been obtained for the addition or advise the Fields to do so. Although the septic system was inadequate and not in code compliance and the house suffered from various physical defects, Century 21 did not recommend an inspection of the septic system for code compliance or alert the buyers to signs of obvious physical defects.

TRIAL COURT RULING

The court also found that not only did the Fields' real estate agent not inspect the preliminary title report in a timely manner, she did not even receive it from the title company until after escrow closed. Both the plaintiffs' and defendants' experts agreed that the buyers' representative had breached her fiduciary relationship with the Fields by not reviewing the preliminary title report before the close of escrow to verify, among other things, the scope of the easement revealed in the Transfer Disclosure Statement. The jury found in favor of the buyers and against Century 21.

APPELLATE COURT RULING

On appeal the only issue was whether the claims were barred by the statute of limitations. The court concluded that the fiduciary duty is much more expansive than the inspection duties, and, therefore, should not be limited to the two-year statute of limitations. The court further held that they did not interpret Civil Code Section 2079.4 as applying to the buyers' broker. The court noted that "the statute of limitations in Section 2079.4 should only apply in negligence or negligent misrepresentation actions brought against a non-fiduciary broker for failure to visually inspect or disclose. It should not apply to the actions brought against a fiduciary broker, even if some allegations include a failure to visually inspect."

COMMENT

Case law is clear that the fiduciary duty is broader than the duty to inspect and disclose. The fiduciary needs to counsel and advise and to verify material information -- or to disclose that material information is not being verified. However, this court went further, unnecessarily, and held that the two-year statute of limitations set forth in Civil Code Section 2079.4 does not apply to the buyers' broker.

I believe the portion of the decision relating to the 2079.4 statute of limitations not applying to the buyers' broker is erroneous. Unfortunately, the case was not decertified by the California Supreme Court. Although a cause of action for breach of fiduciary duty is at least three years from the time of discovery, a cause of action based on the duty to inspect and disclose should be two years -- regardless of whether the agent represents the buyer or seller.

LOKEN V. CENTURY 21 AWARD PROPERTIES (1995) 36 Cal.App.4th 463, 442 Cal.Rptr. 683; Civil Code Section 2079, et seq.

K.P. Dean Harper has tried and arbitrated over forty cases. He specializes in real estate and broker liability litigation and edits the Bowles & Verna Real Estate Bulletin, a periodic newsletter for real estate brokers. To contact Mr. Harper by email, click here.