Field v. Century 21 Klowden-Forness Realty: California Court Distinguishes Between Limited Inspection Duties Owed to Buyer by Seller’s Broker and Fiduciary Duties Owed by Buyer Broker

The California case, Field v. Century 21 Klowden-Forness Realty, found that a broker in a fiduciary relationship with the buyer may be required to examine such things as public records and title documents for the buyer, as opposed to a seller’s broker, who has no such duty.

In 1988, Robert and Betty Field (the “Buyers”) purchased rural residential property in California. Real estate broker Century 21 Klowden-Forness, and its salesperson, Shirley Hays (collectively referred to as the “Broker”) represented the Buyers in the purchase. Several years later, the Buyers discovered that a water district easement on the property was significantly greater than what they had understood it to be, and also that the property’s acreage was less than they had thought. In 1992, they sued their Broker for negligence, negligent misrepresentation, and breach of fiduciary duty, claiming that the Broker had not inspected title documents nor determined the extent of the easement.

At trial, the scope of the easement was established as being significantly more extensive than what had been represented to the Buyers, and the acreage was less than had been represented to them. While the Broker had been aware of the existence of an easement, she had not verified its extent, or the size of the property, nor had she advised the Buyers to do so. The Broker could not have examined the title documents, since she did not even receive them until after the closing. The Broker asserted that the Buyers’ claims were barred by California’s two year statute of limitations, contained in Civil Code Section 2079, for breach of duties owed to purchasers by seller’s brokers and cooperating brokers. The Buyers won the jury trial, and the Broker appealed.

The Court explained that, under Section 2079, there is a two year statute of limitations, from the date of possession, for actions against sellers’ real estate brokers and their cooperating brokers, for breach of their responsibility to conduct a “reasonably competent and diligent visual inspection of the property, and to disclose all material facts such an investigation would reveal to a prospective buyer.” This law was enacted to codify the holding of the well-known California case, Easton v. Strassburger. The statute expressly states that a seller’s broker does not have a duty to investigate public records or title matters for the purchaser. While the statute of limitations for a seller’s broker’s breach of duty to a purchaser is two years from the possession date, the statute of limitations for actions involving a fiduciary duty usually begins to run on the date the negligence is discovered.

The Court explained that the fiduciary duty owed by a broker to a client is much greater than the non-fiduciary duty owed to a customer, which is codified in Section 2079. “Under the common law, unchanged by Easton and section 2079, a broker’s fiduciary duty to his client requires the highest good faith and undivided service and loyalty.” The court also stated that, depending on the circumstances of a given situation, “a broker’s fiduciary duty may be much broader than the duty to visually inspect and may include a duty to inspect public records or permits concerning title or use of the property, a duty which is expressly excluded from Section 2079.” Also that, “a broker has a fiduciary duty to his own client to refrain from making representations of facts material to the client’s decision to buy the property without advising the client that he is merely passing on information received from the seller without verifying its accuracy.”

The court rejected the Broker’s argument that it was a cooperating broker and that its responsibilities to the Buyers were governed by Section 2079. Finding that the statute only addressed the responsibilities of brokers acting in a non-fiduciary relationship with the buyer, it affirmed the lower court’s holding that the two-year statute of limitations did not prevent the Buyers’ suit against the Broker.

Field v. Century 21 Klowden-Forness Realty, 63 Cal.App.4th 18, 73 Cal. Rptr.2d 784 (1998).