Carleton v. Tortosa (1993) 14 Cal. App. 4th 745 held essentially that fiduciary duties can be limited by agreement. In that case, a real estate agent was sued for not providing proper advice concerning an IRC 1031 exchange. The Court held that due to statements in the residential purchase agreement that “a real estate broker is the person qualified to advise on real estate transactions. If you desire a legal or tax advice, consult an appropriate professional,” demonstrated that brokers do not provide tax advice and found therefore there was no duty to provide the same. In turn, the Court found that the agent had no liability in that matter.
In Urban Sunrise, plaintiff contracted to buy 5 off market properties, canceled and lost over $1 million in deposit money. It then sued the defendant dual agent claiming that there was a lack of disclosure of a prior relationship with the seller and the agent failed to investigate the availability of insurance and advise regarding the same. Finally, the buyer claimed that the agent engaged in the unauthorized practice of law by drafting custom terms to an addendum relating to extensions to close escrow.
The Court granted the agent’s summary judgment (dismissal) for the broker finding that there was no basis to allege that the agent had any obligation to advise or investigate insurance, reasoning as the Court did in Carleton and citing the contract which stated “Buyer agrees to seek legal, tax, insurance, title or other desired assistance from appropriate professionals.”
As to the claim that the agent failed to disclose a prior relationship with the seller, the Court noted that the buyer signed five Agency Disclosure statements which explained that a real estate agent can act as a dual agent and further identified the confirmation of the agencies in the contract. It also noted that the duties of a dual agent “do not relieve a seller or buyer from the responsibility to protect his or her own interests” and recommended that they “carefully read all agreements to ensure they adequately express…” their understanding of the transaction.
The Court found that the agents adequately disclosed their relationship between the agent and the seller. Apparently, this broker had represented the seller in 12 to 15 prior transactions. While the Court recognized that a fiduciary agent must disclose all facts which are relevant in enabling the principal to make an intelligent determinations in a transaction, such as prior relations between the agent and the other part, (citing Rest. Second Agency Section 392, Com. b.) the fact must be material to that buyer. Here, the Court noted the buyer was an experienced real estate investor with a team of advisors, including an attorney, signed the agency disclosure statements, and that the buyer knew of facts relating to the agent and seller’s prior relationship. As such, there was no reason to elaborate on the extent of said relationship. The Court also found that the prior relationship between the broker and the seller actually benefited the buyer as these were off-market deals. Also evidence produced by plaintiff that knowing the extent of the business relationship between the broker and the seller was really material to the buyer.
As to the claim that the agent acted as an attorney by drafting an addenda, the Court felt that the agent acted essentially a scribe outlining the seller’s terms for the extensions. The Court felt that an agent who merely adopted the seller’s terms did not provide “legal services.”
It should be noted that the broker also was an attorney, but the Court did not rule that an attorney who is also acting as a real estate broker has to comply with the attorney ethical obligations in terms of conflicts of interest. While this presents an interesting issue, it was not addressed in this case. (The Court did reference but did not apply State Bar of California formal ethics opinion #1982-69 relating to a broker/attorney’s conduct in a real estate transaction.)
Finally, the Court did not find that the broker provided advice and counsel regarding the terms of the addenda to the buyer, by discussing it with him. Again, the buyer was represented by his own lawyer which probably influenced the court as well.
The plaintiffs were seeking return of a $1 million deposit when they canceled the deal because they could not procure adequate insurance. They ultimately lost $1 million, and to add insult to their injury, the Court awarded the broker $492,000.00 in lost commissions based on the Buyer Broker Agreements
This case obviously is helpful to brokers in that it clarifies issues relating to limitations of fiduciary duties based on contractual language. Some of the other issues however are fact-specific, but could be helpful in making arguments with respect to a broker’s obligations to disclose prior relationships to the other party.