MURRAY v. HAYDEN (1989)

Appellants suffered damages as a result of concealed defects in a single family residence they purchased.   Among the defendants named in a complaint to recover appellants' damages, was respondent, who acted as appellants' “agent and broker” for the purchase of the residence.   Appellants alleged respondent was negligent in that she failed diligently to inspect the residence.   The trial court sustained respondent's demurrer.

The order sustaining the demurrer and dismissing the action against respondent is affirmed.

Statement of Facts and Procedural History

This appeal is taken from an order sustaining a demurrer without leave to amend, and dismissing the action as to respondent Holly Hayden.   Therefore, the allegations in the complaint must be regarded as true.  (Rader Co. v. Stone (1986) 178 Cal.App.3d 10, 20, 223 Cal.Rptr. 806.)   The complaint reveals the following set of facts.

Appellants Mark and Roberta Murray purchased and thereafter occupied a single family residence in Walnut Creek, on or about September 18, 1979.   Sometime after moving into the residence, the Murrays began to notice “cracks, distress and deterioration.”   In October or November, 1985, they submitted a claim to their homeowner's insurance carrier.   A consultant retained by the insurance carrier reported:  1) The residence had been built over expansive clay without making adequate provision for surface drainage;  2) a severely distressed original foundation was incorporated into the newly built residence;  and, 3) two different foundation systems had been used, which acted differently, resulting in “undue distress and deterioration.”

The Murrays sued the group of individuals who built and then sold the residence.   The Murrays also sued “Stephen R. Payne, Realtors,” a “real estate brokerage” firm that acted for both them and the sellers.   The Murrays' complaint, in the Sixth Cause of Action for “Real Estate Agent/Broker Negligence,” named as defendants, several agents who worked for Stephen R. Payne, Realtors, including respondent Hayden.   Hayden acted as the Murrays' “agent and broker.” ¹  The other agents acted for the sellers.   The Sixth Cause of Action alleged the real estate agent defendants were negligent in that they failed to conduct a reasonably competent and diligent inspection of the residence before its sale.

The trial court sustained Hayden's demurrer to the complaint and dismissed the action as to Hayden.   The court found no duty on the part of Hayden, acting as the buyer's broker, to conduct an inspection.

The Murrays appeal.²

Duty to Inspect

 “[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.”  (Easton v. Strassburger (1984) 152 Cal.App.3d 90, 102, 199 Cal.Rptr. 383, fn. omitted.)

The Murrays seek to extend the holding in Easton to include a duty on the part of the real estate broker representing the buyer to conduct a reasonably competent and diligent inspection.   Whether Hayden owed a duty to the Murrays to conduct an inspection is a question of law.  (Easton v. Strassburger, supra, 152 Cal.App.3d at p. 98, 199 Cal.Rptr. 383.)

The facts in Easton are similar to those in the present case.   Earth movement caused damage to a single family residence.   The homeowners sued the sellers, the builders, and the listing broker (a corporation).   All defendants were found negligent.   The broker's negligence was premised on its agents' failure to conduct further investigation after their inspections revealed certain “red flags” which indicated there might be soil problems.  (Id. at p. 96, 199 Cal.Rptr. 383.)

In affirming the finding of broker negligence, the Easton court reasoned “the seller's broker is most frequently the best situated to obtain and provide the most reliable information on the property and is ordinarily counted on to do so.”  (Id. at p. 100, 199 Cal.Rptr. 383.)   Imposing a duty to inspect on the seller's broker would protect buyers from unethical brokers and provide accurate information to make an informed decision.  (Id. at pp. 99–100, 199 Cal.Rptr. 383.)   Many buyers “justifiably believe the seller's broker is also protecting their interest․”  (Id. at p. 101, 199 Cal.Rptr. 383, emphasis in original.)   A significant benefit is conferred on buyers, with relatively little burden placed on the broker.  (Id. at p. 101, 199 Cal.Rptr. 383.)

 The Murrays point out that Hayden, as their agent, had certain fiduciary obligations to them, including the duty to use reasonable care, diligence and skill in carrying out her duties.  (Citing Civ.Code, § 2322, subd. (c);  Montoya v. McLeod (1985) 176 Cal.App.3d 57, 64–65, 221 Cal.Rptr. 353.)   The buyer's agent has a duty to investigate before making any representations.  (Citing Ford v. Cournale (1973) 36 Cal.App.3d 172, 180, 111 Cal.Rptr. 334;  Schoenberg v. Romike Properties (1967) 251 Cal.App.2d 154, 162, 59 Cal.Rptr. 359.)

 There is some support for the Murrays' position in the recent case, Smith v. Rickard (1988) 205 Cal.App.3d 1354, 254 Cal.Rptr. 633.   Though whether a buyer's broker owed a duty to inspect was not the issue before the Smith court, the opinion did state the duties of an agent representing a buyer “may include inspecting the property and disclosing any material defects to the principal.  [Citations.]”  (Smith, supra, at p. 1364, 254 Cal.Rptr. 633.)   The Smith court did not have to decide whether such a duty actually does exist.

Hayden notes the buyer's broker usually does not have easy access to the property, or to information about the property.   Since the seller's broker already has a duty to inspect pursuant to Easton, it would be a duplication of effort to impose the same duty on the buyer's broker, according to Hayden.

The Legislature reacted to Easton by adding Civil Code sections 2079–2079.5.  (Stats.1985, ch. 223, § 2, pp. 12221–1222.) ³  Civil Code section 2079 provides, in relevant part:  “It is the duty of a real estate broker ․ to a prospective purchaser of residential real property ․ to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to that prospective purchaser all facts materially affecting the value or desirability of the property that such an investigation would reveal, if that broker has a written contract with the seller to find or obtain a buyer or is a broker who acts in cooperation with such a broker to find and obtain a buyer.”  (Emphasis added.) ⁴

Civil Code section 2079 does not expressly impose any obligations on brokers representing the buyer.   It does impose the duty to inspect on “cooperating” brokers, also known as “selling” brokers.  “A ‘selling agent’ is an agent participant in a multiple listing service who acts in cooperation with a listing agent and who sells, or finds and obtains a buyer for, the property.”  (Civ.Code, § 1086, subd. (g);  see 1 Miller & Starr, Current Law of California Real Estate, § 4:8, pp. 17–20.)   Cooperating brokers are considered subagents of the seller though it is possible for a cooperating broker to be also an agent for the buyer.  (Hale v. Wolfsen (1969) 276 Cal.App.2d 285, 290, 81 Cal.Rptr. 23.)

In the final analysis, we can find no compelling reason for extending the duty to conduct an inspection to a broker representing the buyer.   Hayden's points have merit.   The seller's broker is in a better position to conduct an inspection, and there would be a duplication of effort were such a duty imposed on the buyer's broker.   The trial court's conclusion that Hayden had no duty to conduct an inspection of the Walnut Creek residence will be affirmed.

Leave to Amend

 The Murrays also contend they should have been allowed to amend their complaint to allege a cause of action against Hayden for fraud or negligent misrepresentation.   They provide no citation to authority for their contention.

Normally leave to amend will be granted, unless it is clear from the face of the complaint that it is incapable of amendment.  (Rader Co. v. Stone, supra, 178 Cal.App.3d at p. 20, 223 Cal.Rptr. 806.)   However, nothing in the record shows that the Murrays made such a request in the trial court.   They did make a general request to amend, but they stated no ground for their request.   The complaint could not have been amended to state a cause of action for a negligent failure to inspect.

Since they apparently did not raise this argument below, it cannot be considered now.  (See 9 Witken, Cal.Procedure (3d ed. 1985) Appeal, § 311, pp. 321–322, and cases cited therein.)

3

The order is affirmed.

FOOTNOTES

1.   The complaint refers to Hayden and the other individual defendants employed by Stephen R. Payne, Realtors, as “licensed residential real estate agents and/or brokers.”   The complaint does not state whether Hayden is a licensed broker (Bus. & Prof.Code, § 10131), or a licensed “salesman” (Bus. & Prof.Code, § 10132).   The distinction does not appear to be material for the purposes of this appeal.

2.   An order of dismissal may be treated as a judgment for the purpose of taking an appeal, when it is a final adjudication of a party's rights.  (Herrscher v. Herrscher (1953) 41 Cal.2d 300, 303–304, 259 P.2d 901.)

3.   “It is the intent of the Legislature that this act codify and make precise the holding in Easton v. Strassburger (152 Cal.App.3d 90, 199 Cal.Rptr. 383).   The Legislature finds that the imprecision of terms in the Easton case and the absence of a comprehensive declaration of duties, standards, and exceptions has caused insurers to modify professional liability coverage of real estate licensees and has caused confusion among real estate licensees as to the manner of performing the duty ascribed to them by the court, and that it is necessary to resolve and make precise these issues in an expeditious manner.   The Legislature finds that it is desirable to facilitate the issuance of professional liability insurance as a resource for aggrieved members of the public, and declares that the provisions of this act are, and shall be interpreted as, a definition of the duty of care found to exist by Easton v. Strassburger, and the manner of its discharge.”  (Stats.1985, ch. 223, § 4, pp. 1222–1223.)

4.   Civil Code section 2079 would normally be effective January 1, 1986, after the date of the transaction at issue here, and the parties do not suggest section 2079 should be applied retroactively.   However, an argument could be made that it should be since the Legislature's stated intent was to clarify existing case law.  (See Balen v. Peralta Junior College Dist. (1974) 11 Cal.3d 821, 828, fn. 8, 114 Cal.Rptr. 589, 523 P.2d 629;  Smith v. Rickard, supra, 205 Cal.App.3d at pp. 1361–1362, fn. 4, 254 Cal.Rptr. 633.)

HOLMDAHL, Associate Justice.

RACANELLI, P.J., and NEWSOM, J., concur.