CALIFORNIA LAW ON DISCLOSURE DUTIES IN THE SALE OF REAL ESTATE
CALIFORNIA LAW ON DISCLOSURE DUTIES IN THE SALE OF REAL ESTATE, AND LIABILITY AND DAMAGES FOR FRAUD, MISREPRESENTATION or NON-DISCLOSURE BY SELLERS of DISCLOSE MATERIAL FACTS AFFECTING THE VALUE OR DESIRABILITY OF REAL ESTATE 1. Sellers’ Duties in Real Estate Transactions to Disclose Property Defects. The common law has for decades imposed duties on sellers of real estate, particularly residential real estate such as homes, condominiums, etc., to disclose to the buyer “any material facts known to the seller affecting the value or desirability of the real estate “ being sold. In 1985 the California General Assembly added an article to the Civil Code, § 1102 et seq., entitled "Disclosures Upon Transfer of Residential Property." (Stats. 1985, ch. 1574, § 2, p. 5788.) Real Estate contracts also usually require disclosures pursuant to this statute, as well as other disclosures. Other statutes also impose other disclosure obligations in sales of this type. Before execution of a residential sales contract, the seller or his or her broker is required to deliver the statutory real estate transfer disclosure statement to the buyer, which contains a checklist to give notice of problems or potential problems with the property. Civil Code §§ 1102.3, 1102.6. The form Transfer Disclosure Statement (“TDS") disclosure shall be filled out and made in "good faith," which is expressly defined to mean "honesty in fact in the conduct of the transaction." Civ. Code § 1102.7 (emphasis added) In California, the seller of a residence has both a common law and statutory duty of disclosure to the buyer, and even full compliance with the statutory duty does not excuse the common law duty. 1 Miller & Starr, California Real Estate (3d ed. 2005) § 1:140. Under the Common Law, "where the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer." Lingsch v. Savage, supra, 213 Cal. App. 2d at 735. "A breach of this duty of disclosure will give rise to a cause of action for both rescission and damages. [Citation.]"'. Shapiro v. Sutherland, supra, 64 Cal.App.4th at p. 1544; Karoutas v. HomeFed Bank (1991) 232 Cal. App. 3d 767, 771. "A duty to disclose may also arise in the so-called half-truth' context--that is, when a speaker makes a representation which, though not false, he knows will be misleading absent full disclosure of additional facts known to him which qualify the initial representation." San Diego Hospice v. County of San Diego (1995) 31 Cal.App.4th 1048, 1055, fn. 4. Neither an "as is" sale nor the buyer's independent inspection exonerates a seller or the seller's agent from fraudulent misrepresentations concerning known defects not otherwise visible or observable to the buyer. Loughrin v. Superior Court (1993) 15 Cal.App.4th 1188, 1195; Shapiro v. Hu (1986) 188 Cal. App. 3d 324, 333-334, 233 Cal. Rptr. 470; Lingsch v. Savage (1963) 213 Cal. App. 2d 729,740-742,29 Cal. Rptr. 201; Greenwald & Asimow, Cal. Practice Guide: Real Property Transactions (The Rutter Group 2005) § 4:3 52, p. 4-86.10; 1 Miller & Starr, California Real Estate supra, §1:154. "[W]here the seller actively misrepresents the then condition of the property or fails to disclose the true facts of its condition not within the buyer's reach and affecting the value or desirability of the property, anas is' provision is ineffective to relieve the seller of liability arising from the concealed condition." Lingsch v. Savage, supra, 213 Cal. App. 2d at 742; Galen v. Mobil Oil Corp., 922 F. Supp. 318, 324 (C.D. Cal. 1996) (Emphasis added) B. Real Estate Broker Liability Additionally, listing and selling brokers or agents (salespersons) representing both the buyer and the seller owe higher “fiduciary" duties to their clients, or to both buyer and seller if there is a dual or joint agency. “A broker has a fiduciary duty to its client. (Civ. Code, § 2079.24; Field, supra, 63 Cal.App.4th at p. 25 [“a broker's fiduciary duty to his client requires the highest good faith and undivided service and loyalty"].) The fiduciary duty is greater than the negligence standard of due care under section 2079. (Civ. Code, § 2079.2 [standard of care is of a “reasonably prudent real estate licensee"].) Thus a broker can be professionally competent under section 2079 without satisfying the greater duty of a trusted fiduciary. As Field, explained, “the [***11] fiduciary duty owed by brokers to their own clients is substantially more extensive than the nonfiduciary duty codified in section 2079." (Field, at p. 25.)" “A fiduciary must tell its principal of all information it possesses that is material to the principal's interests. (L. Byron Culver & Associates v. Jaoudi Industrial & Trading Corp. (1991) 1 Cal.App.4th 300, 304 [1 Cal. Rptr. 2d 680]; 5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 794, p. 1149; 2 Miller & Starr, Cal. Real Estate (3d ed. 2000) §§ 3:25, p. 120, 3:27, p. 149, 4:17, p. 41.) A fiduciary's failure to share material information with the principal is constructive fraud, a term of art obviating actual fraudulent intent. (Civ. Code, § 1573.) “ Michel v. Moore & Associates, Inc. (2007) 156 Cal. App. 4th 756, 762. "Liability may . . . be imposed on one who aids and abets the commission of an intentional tort if the person . . . knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act." Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846; Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 579. "California courts have long held that liability for aiding and abetting depends on proof the defendant had actual knowledge of the specific primary wrong the defendant substantially assisted." Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1145. Aiding and abetting liability may: “‘be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person's own conduct, separately considered, constitutes a breach of duty to the third person.’ " Richard B. LeVine, Inc. v. Higashi, supra 131 Cal. App. 4th at 579. A real estate broker or agent representing the seller must also complete his or her portion of the TDS disclosure form, stating his or her observations based on an independent inspection of the property. Civil Code § 1102.6 (form, Part III). Robinson v. Grossman (1997) 57 Cal. App. 4th 634, 642; Civil Code §2079. The disclosures and acts required by the statutes "shall be made in good faith," which means "honesty in fact in the conduct of the transaction." Civil Code § 1102.7. See, Robinson v. Grossman supra 57 Cal. App. 4th at 641-642. "[T]he duty of a real estate broker, representing the seller, to disclose facts . . . includes the affirmative duty to conduct a reasonably competent and diligent inspection of the residential property listed for sale and to disclose to prospective purchasers all facts materially affecting the value or desirability of the property that such an investigation would reveal." Robinson v. Grossman, supra, 57 Cal. App. 4th at 640. "[T]he dual nature of this duty does not sound exclusively in negligence. While the first prong of the obligation (inspection) embodies traditional negligence concepts, breach of the second prong (disclosure of material facts) encompasses actionable conduct associated with both negligence and negligent misrepresentation." Loken v. Century 21-Award Properties (1995) 36 Cal. App. 4th 263, 271. “‘Real estate agents hold themselves out to the public as professionals, and, as such, are required to make reasonable use of their superior knowledge, skills and experience within the area of their expertise. [Citation.] Because such agents are expected to make use of their superior knowledge and skills, which is the reason they are engaged . . . .’" Robinson v. Grossman, supra, 57 Cal. App. 4th at 640, quoting Easton v. Strasburger. "One who assumes to act as an agent is responsible to third persons as a principal for his acts in the course of his agency, in any of the following cases, and in no others . . . ,when his acts are wrongful in their nature." Cal Civ Code § 2343. For further information on the subject of this article or for legal questions on Real Contracts, Transactions, or Real Estate Non-Disclosure or Fraud actions please call us at (415)788-1881, x 222, or Contact Us via email, or see www.wolfflaw.com.