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Easton v. Strassburger - 152 Cal. App. 3d 90, 199 Cal. Rptr. 383 (1984)

Rule:

The 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.

Facts:

Plaintiff Leticia Easton, the purchaser of a home, brought a negligence action in California state court against defendant Valley of California, Inc., doing business as Valley Realty, the listing real estate broker and others after a massive earth movement on the parcel shortly after the time of purchase significantly reduced the value of the property. The evidence at trial did not establish that Valley Realty had actual knowledge of the property's past history of slides and soil problems, but there was evidence that one or both of the broker's agents knew the residence was built on fill and that settlement and erosion problems were commonly associated with such soil. There was also evidence that one agent had observed an uneven floor, which was a "red flag" indicator of soil problems. Despite this notice, the agents did not request a soil report or take any other significant steps to determine whether there had been slides or other soil problems. The trial court instructed the jury that a real estate broker had a duty to investigate and to disclose defects in property he lists for sale. The jury thereafter returned a verdict in favor of Easton. The jury also found against Valley Realty with respect to its cross-complaint for partial indemnity against the sellers.

Issue:

Did Valley Realty have a duty to disclose facts to Easton which affected the property's value and was discoverable by reasonable diligence?

Answer:

Yes.

Conclusion:

The court reversed the judgment denying Valley Realty a right to partial indemnity, entered judgment in favor of Valley Realty, and otherwise affirmed the judgment. The court found that the disputed jury instruction was correct because Valley Realty had a duty to disclose facts materially affecting the value or desirability of the property which through reasonable diligence should have been known. There was substantial evidence to support the trial court's judgment because a number of red flags indicated problems with the property. The court held that the issue was not within the knowledge of experts only. The court did not address Valley Realty's argument that the wrong measure in awarding damages was used because Valley Realty did not preserve the issue for appeal. Because Valley Realty sought partial indemnity based on comparative fault, it was error to instruct without qualification that a party seeking indemnity could not recover if his negligence was deemed active.

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