Monday, November 5, 2012

Thompson v. Canyon Examines the Statute of Limitations in Actions against Realtors

By: Terry Rein
Bosso Williams, APC

In the recent case of Thomson v. Canyon (2011) 198 Cal.App.4th 594, Regina Thomson (“Seller”) agreed to sell her home to an investor (“Buyer”).  The Buyer verbally represented to the Seller that he would clear the liens for a service fee of $10,000, and then he would sell the home back to the Seller.  The sale was meant to “salvage” her home from foreclosure.

The Seller retained a real estate broker (“Broker”), to memorialize and close the transaction.  However, the Broker failed to include the sell-back agreement in the written contract executed by the Seller and the Buyer.  The Buyer purchased the property, refused the Seller’s demand that he convey the property back to her, and sold the property to a third party for a profit of $140,000.

After unsuccessfully suing the Buyer for fraud, the Seller sued the Broker for breach of fiduciary duty for failing to include the Buyer’s oral promise to reconvey the property to her in the written contract.  The Broker argued that the Seller’s claim was time-barred by the statute of limitations.

The Court of Appeal stated that a plaintiff is generally permitted to allege different causes of action—with different statutes of limitations—on the same underlying facts.  Here, the Court was comparing the statute of limitations in a cause of action for professional negligence with a cause of action for breach of fiduciary duty.

The elements of a cause of action for professional negligence are failure to use the skill and care that a reasonably careful professional operating in the field would have used in similar circumstances, which failure proximately causes damage to plaintiff.  A cause of action for professional negligence is governed by a two year statute of limitations (Code of Civil Procedure Section 339).  

The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.
The court found that there is no specific statute of limitation on claims for breach of fiduciary duty by a broker to a seller, and therefore California’s default limitations period of four years applies.  The Court of Appeal also found that the statute of limitations period begins to run at the time that the Seller suffers actual damages which in this case was when the Buyer sold the property to a third party for a significant profit.

The appellate court also considered whether the Seller’s verbal instructions to the Broker “to prepare the necessary paperwork” to implement her sell-back agreement were admissible to prove her claim.  Ordinarily, parties to a lawsuit may not introduce evidence to vary, alter, or add to the terms of a written agreement where the writing was intended to be the parties’ final, complete, and exclusive statement of the terms of the agreement (this is known as the parole evidence rule).  However, the court held that since the parole evidence was not being offered to reconstruct the contractual obligations of the Seller and the Buyer (the parties to the real estate sale contract), evidence of the Seller’s verbal instructions to the Broker, including references to the sell-back agreement, are admissible.

It is important to remember that other statutes of limitations apply to Brokers, including the two year statute of limitations applicable to a Broker’s duty to inspect and disclose (Civil Code Section 2079) and the three-year statute of limitations which applies in a buyer’s suit for breach of fiduciary duty against an exclusive buyer’s broker for failure to disclose material facts.  (See, Field v. Century 21 Klowden-Forness (1998)).  

In Thomson v. Canyon, the Court of Appeal allowed the Seller’s breach of fiduciary claim to proceed against the Broker because it had been filed within the four year statute of limitations from the date of the Buyer’s sale to the third party.  The Court also found that the time limit for filing a claim for professional negligence had passed.  Thomson v. Canyon is a reminder that a Broker may be confronted with a menu of possible causes of action, each with a different statute of limitations and each with a different time for calculating when the limitations period begins to run.


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