Arecent decision by the Court of Appeal underscores the importance of the oft-repeated admonishment to “Get it in Writing!” In this case, the failure to do so had particulary drastic consequences for the real estate agent who did not get the buyer’s oral agreement to reconvey the property back to the seller reduced to writing. More significantly, the Court held that the four (4) year statute of limitations allowed the Seller to proceed against the Agent for Breach of Fiduciary Duty. Most real estate agents rely with false confidence on the more commonly-applied two (2) year statute of limitations for professional negligence. Here, the Court agreed that the plaintiff’s action against the agent for negligence was barred by the statute of limitations, but ruled that the failure of the agent to carry out the client’s specific request to get the oral agreement reduced to writing constituted a breach of the real estate agent’s fiduciary duty, allowing the plaintiff to proceed with the lawsuit for damages.
The facts are simple. The Seller made arrangements to sell her house in San Francisco to an investor to avoid foreclosure. The Investor/Buyer agreed to buy the house, pay off the liens, then reconvey the property back to the Seller in six months for a $10,000 profit. The Seller insisted that the real estate agent get the agreement to reconvey the property in writing, but the agent kept putting her off, eventually preparing a purchase and sale agreement but did not include the agreement to reconvey.
The Seller sued the Buyer for fraud, but the Court ruled in favor of the Buyer. The Seller then sued the Agent for negligence and breach of fiduciary duty, arguing that the failure of the Agent to follow the Seller’s request to get the agreement in writing resulted in her damages (loss of the house). The trial court ruled that the Seller’s cause of action against the Agent for professional negligence was barred by the 2-year statute of limitations, and also ruled that the cause of action for breach of fiduciary duty was also barred because the complaint had not been filed within four years of the close of escrow (June, 2004).
The Court of Appeal agreed that the Seller’s action for negligence was barred by the 2-year statute, but ruled that the gravamen of the complaint was not negligence or fraud, but the Agent’s failure to draft documents necessary to the real estate transaction. The Court declared that the “fiduciary duties of a real estate agency include the duties to obey the instructions of the clinet, and to provide diligent and fiathrufl service.” The Court went on to declare that the cause of action accrued, not when escrow closed, but when the Investor/Buyer sold the property to a third party – effectively denying the Seller the benefit of the agreement to reconvey. Since this occurred in or around November, 2004, and the Complaint had been filed in July, 2008, the Court ruled that the Seller could proceed since the four-year staute applied.
Obviously, this ruling, which was certified for publication on August 17, 2011, will create a stir among real estate agents who had been counting on the two-year statute as the upper limit of liability for any damages resulting from a real estate transaction they had been involved in. But it also sends a clear and unambiguous message that, to the extent reasonably possible, all essential terms of an agreement should be put into writing for the parties to review and make certain there is no misunderstanding of those terms. More importantly, the ruling underscores the importance of Agents to recognize that their primary duty is to their client, and a failure to heed that warning carries a very long tail — 4 years from the date any resulting damages might take place.