Easton v. Strassburger152 Cal.App.3d 90, 199 Cal. Rptr. 383 (1984)

FACTS:

In 1976, Leticia Easton purchased a 3,000 square foot home, complete with swimming pool and guesthouse, located in Diablo, California, for $170,000from the Strassburgers. Valley of California, Inc. was the licensed real estate broker that handled the transaction. Neither the Strassburgers, nor the real estate brokers, informed Easton of "red flags" indicating erosion or settlement problems, such as netting on the slope of the property, uneven floors, etc., evidence indicating that the residence was built on fill. Neither party ordered soil stability tests and did not inform respondent of potential soil problems.

Shortly after Easton purchased the property, there was a massive earth movement on the parcel. As a result, part of the driveway was destroyed, the home's foundation settled, walls cracked, and doorways warped, and the damaged property was estimated to be worth at the low end only about $20,000. Estimates of the cost to repair the damage caused by the slides and prevent recurrence ranged as high as $213,000. Both the slides and the earth movement occurred because the builders had not properly engineered and compacted the landfill.

Easton brought a lawsuit against Valley of California, the Strassburgers, and the builders. The judge instructed the jury that a real estate broker has a duty to prospective purchasers to investigate the state of the property offered for sale and to reveal any property defects. A verdict was returned by the jury for $197,000 in favor of Easton. Valley Realty appealed.

DECISION: KLINE, Presiding Justice

Appellant challenges the court's instruction to the jury that: "A real estate broker is a licensed person or entity who holds himself out to the public as having particular skills and knowledge to disclose facts materially affecting the value or desirability of the property that are known to him or which through reasonable diligence should be known to him."

It is not disputed that current law requires a broker to disclose to a buyer material defects known to the broker but unknown to and unobservable by the buyer.

Admittedly, no appellate decision (in this state)has explicitly declared that a broker is under a duty to disclose material facts, which he should have known. We conclude, however, that there is such a duty.

The primary purpose of existing state case laws are to protect the buyer from the unethical broker and seller and to insure that the buyer is provided sufficient accurate information to make an informed decision as to whether to purchase. If a broker were required to disclose only known defects, but not also those that are reasonably discoverable, he would be shielded by his ignorance of that which he holds himself out to know. Such a construction would not only reward the unskilled broker for his own incompetence, but might provide the unscrupulous broker the unilateral ability to protect himself at the expense of the inexperienced and unwary who rely on him.

In some respects, the broker-buyer relationship is akin to the attorney-client relationship; the buyer, like the client, relies heavily on another's acquired skill and knowledge, first because of the complexity of the transaction and second because of his own dearth of experience.

It seems relevant to us that the duty to disclose that which should be known is a formally acknowledged professional obligation that it appears many brokers customarily impose upon themselves as an ethical matter. Thus, the Code of Ethics of the National Association of REALTORS (NAR)includes the provision that a broker must not only "avoid ... concealment of pertinent facts: but "has an affirmative obligation to discover adverse factors that a reasonably competent and diligent investigation would disclose."

This implicit duty of all real estate agents, regardless whether they are members of the aforementioned association and bound by its Code of Ethics, is reflected in the law.

[We] hold that 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. Judgment of the trial court is affirmed.

1. Wasn't it unfair to hold Valley of California responsible since its agent had no knowledge of the slides?