Filed 4/14/98

CERTIFIED FOR PARTIAL PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Harrison R. Hollywood, Judge. Affirmed with directions.

Ault, Davis & Schonfeld, Alan H. Schonfeld and Jeffrey H. Bogart for Appellants.

Asaro and Murray, Paul S. Murray and John J. Henley for Respondents.

In this decision, we hold the two-year statute of limitations established by Civil Code section 2079.4 does not apply to claims for a breach of fiduciary duty brought against real estate brokers by purchasers whom they exclusively represent.

Real estate broker Century 21 Klowden-Forness Realty and its agent Shirley Hays (collectively Century 21) appeal a judgment awarding damages to Robert and Betty Field, whom Century 21 exclusively represented in their purchase of a rural residential property. Century 21 does not claim the evidence of breach is insufficient, but challenges the trial court's failure to find the Fields' action time-barred under section 2079.4.

For the following reasons, we conclude actions by buyers against brokers who exclusively represent them in real estate purchase transactions are not limited by the two-year time-bar of section 2079.4 which, by its terms, is limited to claims for breaches of duty imposed by sections 2079 through 2079.24. (Tit. 6, ch. 3, art. 2.) We reject the argument that because a portion of the buyers' claims were based on their broker's failure to determine the extent of an easement was substantially more burdensome than represented and the acreage of the property was not accurate, that their action is one for breach of the duties imposed on sellers' brokers by section 2079.

We conclude the fiduciary duty of a broker, who contracts to exclusively represent a purchaser of real property to investigate for its client, is independent of the separate obligation imposed on a seller's broker to conduct a reasonable visual inspection of the marketed property for a buyer’s protection, as announced in Easton v. Strassburger (1984) 152 Cal.App.3d 90 and incorporated into section 2079.

We also reject Century 21’s claim the trial court erred in refusing to give comparative negligence instructions, BAJI No. 12.53 (pertaining to the effect of an independent investigation by the plaintiff), and BAJI No. 6.37.2 which would have advised jurors that one who acts as a professional need not be perfect. Thus, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A.

In September 1992, the buyers, the Fields, sued their real estate agent Century 21 and others for negligence and negligent misrepresentation arising from their 1988 purchase of a rural residence. They alleged Century 21 breached its statutory duty by failing to conduct a reasonably competent and diligent visual inspection on their behalf as required by section 2079, and also had falsely represented the residence’s physical condition. After demurrers challenged the section 2079 allegations as barred by the special two-year limitations period enacted in section 2079.4, they were eliminated from superseding pleadings.

The Fields' third amended complaint alleged negligence, negligent misrepresentation, and breach of fiduciary duty, citing Century 21’s failure to inspect related title documents and to determine the scope of an easement in favor of Otay Water District. This pleading alleged defendants falsely represented 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.

Although the conduct was no longer alleged as a section 2079 violation, Century 21 continued to contend the claims were time-barred by section 2079.4 for all allegations based on a failure to inspect.

B.

Trial established the Otay Water District easement was more extensive than what had been represented to the Fields, i.e., 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 buyers' agent was aware an easement existed, she neither verified the extent of the easement or the represented acreage of the property, nor did she advise the Fields to do so. Rather, the conduct of the agent implied both the acreage and the extent of easement were as erroneously represented. Further, an addition to the house violated setback requirements 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 inspection of the septic system for code compliance or alert the buyers to signs of obvious physical defects.

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 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 real estate agent testified she did not recall asking anyone about the easement, did not explain the Fields could have the title company come out and mark the easement, did not recall verifying the acreage information presented in the multiple listing service, and did not recall checking the preliminary title report for acreage information. Plaintiffs’ expert testified the agent fell below the standard of care by, among other things, failing to advise the Fields that, since the property was in a rural area, they should consult with the title officer to review the title report before the close of escrow and to explain and plot the easement, and by failing to investigate the status of permits for the room addition or advise the Fields to do so.

The case was submitted to the jury with instructions regarding negligence, and negligent misrepresentation based on fiduciary or confidential relationship.

The court denied motions for new trial or judgment notwithstanding the verdict which were based on the two-year-from-date-of-possession limitations of section 2079.4.

DISCUSSION

I

SECTION 2079.4 STATUTE OF LIMITATIONS

Section 2079 requires sellers’ real estate brokers, and their cooperating brokers, 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. Section 2079.4 establishes a statute of limitations for breaches of those duties imposed by section 2079 of two years from the date of possession.

Section 2079 was enacted to codify and focus the holding in Easton v. Strassburger, supra, 152 Cal.App.3d 90. In Easton, the court recognized that case law imposed a duty on sellers’ brokers to disclose material facts actually known to the broker. Easton expanded the holdings of former decisions to include a requirement that sellers’ brokers must diligently inspect residential property and disclose material facts they obtain from that investigation. Further, the case held sellers' brokers are chargeable with knowledge they should have known had they conducted an adequate investigation. (Id. at p. 99.)

Section 2079 statutorily limits the duty of inspection recognized in Easton to one requiring only a visual inspection. (See Wilson v. Century 21 Great Western Realty (1993) 15 Cal.App.4th 298, 308.) Further, the statutory scheme expressly states a selling broker has no obligation to purchasers to investigate public records or permits pertaining to title or use of the property. That is, section 2079.3 states the inspection required under section 2079 "does not include or involve an inspection of areas that are reasonably and normally inaccessible to such an inspection, nor an affirmative inspection of areas off the site of the subject property or public records or permits concerning the title or use of the property . . . ." (Italics added.)

The statutory scheme includes an expression of legislative intent. "It is the intent of the Legislature to codify and make precise the holding of Easton v. Strassburger, 152 Cal.App.3d 90. It is not the intent of the Legislature to modify or restrict existing duties owed by real estate licensees." (§ 2079.12, subd. (b), italics added.) The statute also provides: "[n]othing in this section is intended to affect the court’s ability to interpret Sections 2079 to 2079.6, inclusive." (§ 2079.12, subd. (a)(4).)

While the statute of limitations for the duty delineated in section 2079 is two years from the date of possession (§ 2079.4), the statute of limitations for actions involving a fiduciary obligation is normally triggered on the date the plaintiff discovers, or should have discovered, the negligence. (See Lee v. Escrow Consultants, Inc. (1989) 210 Cal.App.3d 915, 921; Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 186-190; see generally, 3 Witkin, Cal. Procedure (4th ed. 1996) Actions, § 463, p. 583; § 619, pp. 795-796.)

As we will explain, an examination of the law existing before Easton and the enactment of section 2079 shows the fiduciary duty owed by brokers to their own clients is substantially more extensive than the non-fiduciary duty codified in section 2079. Moreover, since the triggering event for the statute of limitations applicable to fiduciaries is more flexible than the two-year-from-possession limitation set forth in section 2079.4, to apply section 2079.4 to fiduciary duties of a buyer’s broker would, contrary to the Legislature’s express statement of intent, restrict the ability of buyers to obtain redress for duties owed by their own real estate licensees which existed before section 2079.4 was enacted.

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. (Stiefel v. McKee (1969) 1 Cal.App.3d 263, 266; Timmsen v. Forest E. Olsen, Inc. (1970) 6 Cal.App.3d 860, 871; Ford v. Cournale (1973) 36 Cal.App.3d 172, 180.)

Thus, depending on the circumstances, 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.

For example, in Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, 562, the buyer’s broker was found liable for damages resulting from a failure to tell the buyer he had not verified the accuracy of the acreage and boundary information obtained from the seller, although the broker knew this information was material to the buyer’s decision to purchase. (Id. at p. 563.)

The distinction between the limited section 2079 visual inspection duty imposed on brokers selling to a buyer with whom there is neither a contractual nor fiduciary relationship, as compared to the broader fiduciary duty imposed on the broker vis-à-vis the party he represents, is explained by the facts and analysis in Salahutdin. There, it is noted that under section 2079, "[a]bsent ‘red flags’ visible from a reasonably diligent visual inspection indicating the property was not the size represented, that duty would not encompass a duty to survey the property to make sure it was the size represented." (Salahutdin, supra, 24 Cal.App.4th at p. 562, fn. 3.) In contrast, 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." (Ibid.; see also Wilson v. Hisey (1957) 147 Cal.App.2d 433, 439 [substantial evidence supported trial court’s finding that buyer’s brokers were negligent in failing to ascertain truth of seller’s statements pertaining to title and encumbrances].)

This distinction between the limited duty imposed by section 2079 and the broader fiduciary duty is also apparent by examining the disclosure form requirements mandated by section 2079.16, which defines brokers' duties to their own clients as a "fiduciary duty of utmost care, integrity, honesty, and loyalty . . . ." In contrast, section 2079.16 defines the duty brokers owe to persons who are not their clients in non-fiduciary terms as the "[d]iligent exercise of reasonable skill and care", "honest and fair dealing and good faith", and "duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of the parties. . . ." Thus, section 2079 confirms the common law recognition of fiduciary duties brokers owe their own clients, which in context may require more than the cursory type of visual inspection required of sellers' brokers to benefit non-client buyers.

The Legislature has explicitly stated its statutory scheme was not to restrict the existing duties owed by real estate licensees. (§ 2079.12, subd. (b); see Williams v. Wells & Bennett Realtors (1997) 52 Cal.App.4th 857, 863-865 [section 2079.4 statute of limitations not applicable to causes of action against broker for intentional fraud, which liability pre-existed Easton and section 2079].) Thus, we cannot properly interpret section 2079.4 as applying to a buyer’s broker. (Contrast situation in Blake v. Wernette (1976) 57 Cal.App.3d 656, 660 where a plain reading of statute showed legislative intent to modify discovery rule statute of limitations by putting cap on time limits in medical malpractice cases.)

Century 21 cites section 2079's inclusion of cooperating brokers and contends the section applies to it (and all buyer's brokers), because it "cooperated" with the seller's broker in completing the sales transaction. However, the case law and statutory scheme make it apparent that section 2079’s reference to brokers who cooperate with a seller’s broker is not intended to encompass brokers who exclusively represent a buyer as a direct fiduciary. The "cooperating broker" encompassed by section 2079 is one who "acts in cooperation with [a seller's] broker to find and obtain a buyer." (§ 2079.) Here, Century 21 contracted to act as sole agent for the Fields in their search for a residence to purchase, not to find a buyer for the seller's broker. The trial court correctly held the two-year statute of limitations of section 2079.4 did not bar the Fields' action.

II

INSTRUCTIONAL ERROR

A. Comparative negligence and BAJI No. 12.53 (effect of independent investigation)

Century 21 asserts the trial court erred in refusing to give BAJI No. 12.53 pertaining to the negligent misrepresentation cause of action. That instruction would have stated there is no recovery when parties make an independent investigation and decide to act based on that investigation rather than in reliance on another’s false representation. The jurors were instructed in the language of BAJI No. 12.51, regarding the requirement of reliance, and BAJI No. 12.52, regarding the requirement that under the circumstances it must be reasonable to rely on the representations without pursuing an independent investigation. The trial court determined the record did not fairly support giving BAJI No. 12.53 which could cause the jury to think that mere visits to the property by the buyer before close of escrow could constitute an independent investigation barring recovery.

Further, Century 21 complains about the trial court’s refusal to instruct on contributory or comparative negligence. (See BAJI Nos. 3.50, 14.90, 14.91.) The trial court found these instructions inapplicable because there was no evidence the Fields conducted an independent investigation, and no evidence of comparative fault.

Century’s 21 challenge raises the issue of to what extent a buyer has a duty to inspect independently of his own broker’s inspection. Section 2079.5 states: "Nothing in this article relieves a buyer or prospective buyer of the duty to exercise reasonable care to protect himself or herself, including those facts which are known to or within the diligent attention and observation of the buyer or prospective buyer." Similarly, Easton v. Strassburger, supra, 152 Cal.App.3d at page 103, acknowledges the applicability of comparative negligence principles when evaluating the seller’s broker liability to a buyer, stating:

However, as indicated above, section 2079 and the Easton case encompass the duty nonfiduciary brokers owe to buyers who are not their clients. In the context of a fiduciary broker, the buyer’s duty to investigate is not as stringent. Generally, a principal (the buyer) is entitled to rely on the superior knowledge of his agent (the buyer’s broker) and need not conduct an independent investigation. (See Schoenberg v. Romike Properties (1967) 251 Cal.App.2d 154, 162.)

This general rule must be read in light of the element of justifiable reliance required in a cause of action for misrepresentation. Even in a case against a fiduciary, the element of justifiable reliance may be defeated by such factors as the principal’s knowledge of actual facts which would cause suspicion and trigger a duty to investigate (see Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 55, fn. 10, citing a statute of limitations case, Miller v. Bechtel Corp. (1983) 33 Cal.3d 868, 875), or the unreasonableness of the reliance given the principal’s knowledge, experience, intelligence, or information (Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 503; see also Van Meter v. Bent Construction Co. (1956) 46 Cal.2d 588, 595).

Decisions addressing the commencement of the running of a statute of limitations based on discovery of the cause of action recognize a principal’s duty to investigate is relaxed because of the fiduciary relationship. (Lee v. Escrow Consultants, Inc. (1989) 210 Cal.App.3d 915, 921; Eisenbaum v. Western Energy Resources, Inc. (1990) 218 Cal.App.3d 314, 324-325.) Thus, given the right to rely on the fiduciary, awareness of facts which ordinarily call for an investigation in nonfiduciary relationships might not excite suspicion in a fiduciary relationship. (Lee v. Escrow Consultants, Inc., supra, 210 Cal.App.3d at p. 921.) Although reliance must be reasonable, a fiduciary relationship allows for a higher threshold of justifiable reliance, and a lesser duty of inquiry, than in a nonfiduciary relationship.

Turning to negligence causes of action premised on a fiduciary’s duty to investigate, it is appropriate to apply the above-delineated standards to determine the extent to which the principal may have a duty to investigate, and therefrom give rise to issues of comparative negligence. That is, generally a principal may rely on his fiduciary’s investigation, unless in light of the principal’s actual information, knowledge, or experience such reliance would be irrational. In the absence of such irrational reliance, issues of comparative negligence would not be relevant since the principal otherwise has no duty to investigate independently of his agent. (Cf. Van Meter v. Bent Construction Co., supra, 46 Cal.2d at p. 595 [contributory negligence should not bar relief in negligent misrepresentation suit unless reliance "in the light of his [plaintiff’s] intelligence and information, is preposterous or irrational . . . ."]; see also Neff v. Bud Lewis Company (1976) 548 P.2d 107, 110 [contributory negligence not a defense to negligent misrepresentation claim against fiduciary broker].) Absent peculiar facts indicating reliance on the broker would be irrational, comparative negligence instructions in a case involving a fiduciary relationship would improperly infuse a duty to investigate under circumstances where none exists.

Century 21 argues comparative negligence instructions were necessary based on the evidence the Fields were negligent in failing to follow the written recommendations for professional inspection (contained in the preprinted contract language) and Mr. Field did not conduct a reasonable inspection given his background in architecture.

As to the failure to hire a professional inspector, we do not believe a buyer is obligated to do so merely based on a standard written advisement in the sales contract. Although a jury may consider a recommendation to hire a professional inspector when evaluating whether brokers have fulfilled their duties to investigate and communicate to their clients, the buyer’s failure to follow such a standardized recommendation does not alone impute negligence to the buyer. We note this is not a case, for example, where a broker noticed "red flags" and advised the client to investigate further by hiring a professional inspector. Rather, the Fields were merely given the advice via standard language in a real estate contract. Under these circumstances, there are no peculiar facts suggesting an independent duty to investigate.

As to Mr. Field’s knowledge of architecture, we do not view that fact alone as altering the normal rule a principal may rely on the expertise of his agent and need not conduct an independent investigation. Certainly the Fields were entitled to rely on the expertise of an agent from a reputable firm like Century 21, and Mr. Field’s knowledge of architecture did not make such reliance irrational so as to trigger a duty of independent investigation.

A trial court should not give instructions which, although a correct statement of the law, are not supported by the evidence in the case and which may mislead the jury. (Graham v. Mead (1958) 159 Cal.App.2d 301, 303; Hom v. Clark (1963) 221 Cal.App.2d 622, 650.) Here, since there were no peculiar facts indicating the Fields had a duty to investigate independently of their own broker’s investigation, the trial court properly concluded the contributory/comparative negligence instructions were not relevant to this case.

Finally, regarding the negligent misrepresentation cause of action, Century 21 argues that BAJI 12.53 was necessary based on the evidence Mr. Field had a background in architecture and inspected each room at the property. BAJI No. 12.53 states reliance on an independent investigation rather than the defendant’s representation precludes recovery. We agree with the trial court’s determination BAJI No. 12.53 was unnecessary and could confuse the jury. Since the requirement of reliance on the defendant’s representation was already covered in BAJI No. 12.51, the instruction was not necessary and could have misled the jury by improperly suggesting the Fields’ own inspection of the property overrode their right to rely on their fiduciary’s duty to conduct a full investigation.

B. BAJI 6.37.2 (perfection not required)

Century 21 argues the trial court should not have refused its requested instruction stating that a real estate licensee is not necessarily negligent because she errs in judgment or because her efforts prove unsuccessful, but rather is negligent if she fails to perform her duties. (See BAJI No. 6.37.2.) Assuming arguendo the instruction was appropriate to fully define the standard of care applicable to a real estate agent, we find the concept adequately covered in other instructions and it is not reasonably probable that any error affected the verdict. (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580-581.)

Initially, we note that even though the trial court had ruled against giving the "perfection not required" instruction, Century 21’s counsel during closing argument, referring to the standard negligence instruction (BAJI No. 6.37), argued that reasonableness, not perfection, was required. Later, during discussions outside of the presence of the jury when plaintiffs’ counsel objected to what it perceived as Century 21’s reference to the "perfection not required" instruction, Century 21’s counsel conceded the instruction was mere common sense and not required, stating he did not "imagine the jury needs to be instructed that perfection is not required. I hope that they would know that . . . ." We agree with that concession.

Further, the jury was advised, in the language of BAJI No. 6.37, that a real estate agent has the duty to use "reasonable diligence and best judgment in the exercise of professional skill . . . ." Implicit within the concepts of reasonable diligence and best judgment, is the concept that the judgment need not be perfect, but only the best possible under the circumstances, and that mistakes can be made which do not rise to the level of negligence. This, as recognized by Century 21’s trial counsel, is common sense.

Finally, our conclusion of no error is buttressed by the fact Century 21’s expert testified that perfection was not required under the standard of care applicable to a real estate agent, and there was no evidence to the contrary.

III

Century 21 also argues that if the negligence cause of action must be reversed based on the refusal to give contributory/comparative negligence instructions, there is insufficient evidence to support the judgment based on the negligent misrepresentation cause of action standing alone. We need not evaluate this contention, since we find no instructional error.

DISPOSITION

The judgment is affirmed. Costs and attorney fees on appeal to respondents, the Fields, with the amount of attorney fees to be determined by the trial court upon remand.

CERTIFIED FOR PARTIAL PUBLICATION.

______________________________

WORK, Acting P.J.

WE CONCUR:

_______________________________

NARES, J.

_______________________________

McINTYRE, J.