CACI No. 4107. Duty of Disclosure by Real Estate Broker to Client

Judicial Council of California Civil Jury Instructions (2020 edition)

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4107.Duty of Disclosure by Real Estate Broker to Client
As a fiduciary, a real estate broker must disclose to the broker’s client
all material information that the broker knows or could reasonably
obtain regarding the property or relating to the transaction.
The facts that a broker must learn, and the advice and counsel required
of the broker, depend on the facts of the transaction, the knowledge and
experience of the client, the questions asked by the client, the nature of
the property, and the terms of sale. Brokers must place themselves in the
position of their clients and consider the type of information required for
the client to make a well-informed decision.
[A real estate broker cannot accept information received from another
person, such as the seller, as being true, and transmit it to the broker’s
client without either verifying the information or disclosing to the client
that the information has not been verified.]
New April 2008; Revised December 2012, June 2013, May 2020
Directions for Use
This instruction may be read after CACI No. 4101, Failure to Use Reasonable
Care - Essential Factual Elements, if a real estate broker’s duty of disclosure to the
broker’s own client is at issue. Give the second paragraph if relevant to the facts of
the case. For an instruction based on a broker’s breach of duty to the buyer with
regard to the property inspection required by Civil Code section 2079, see CACI
No. 4108, Failure of Seller’s Real Estate Broker to Conduct Reasonable
Inspection - Essential Factual Elements.
While a broker’s fiduciary duty to the client arises from the relationship and not
from contract (William L. Lyon & Associates, Inc. v. Superior Court (2012) 204
Cal.App.4th 1294, 1312 [139 Cal.Rptr.3d 670]), the scope of the duty may be
limited by contract. (See Carleton v. Tortosa (1993) 14 Cal.App.4th 745, 750751
[17 Cal.Rptr.2d 734] [broker-client agreement may relieve broker of any duty to
provide tax advice].) Any contractual limitations may be added to the second
paragraph regarding what facts a broker must learn.
Sources and Authority
• “Under the common law, . . . a broker’s fiduciary duty to his client requires the
highest good faith and undivided service and loyalty. ‘The broker as a fiduciary
has a duty to learn the material facts that may affect the principal’s decision. He
is hired for his professional knowledge and skill; he is expected to perform the
necessary research and investigation in order to know those important matters
that will affect the principal’s decision, and he has a duty to counsel and advise
the principal regarding the propriety and ramifications of the decision. The
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agent’s duty to disclose material information to the principal includes the duty to
disclose reasonably obtainable material information. [¶] . . . [¶] The facts that a
broker must learn, and the advice and counsel required of the broker, depend on
the facts of each transaction, the knowledge and the experience of the principal,
the questions asked by the principal, and the nature of the property and the terms
of sale. The broker must place himself in the position of the principal and ask
himself the type of information required for the principal to make a well-
informed decision. This obligation requires investigation of facts not known to
the agent and disclosure of all material facts that might reasonably be
discovered.’ ” (Field v. Century 21 Klowden-Forness Realty (1998) 63
Cal.App.4th 18, 25-26 [73 Cal.Rptr.2d 784], internal citations omitted.)
• “A fiduciary must tell its principal of all information it possesses that is material
to the principal’s interests. A fiduciary’s failure to share material information
with the principal is constructive fraud, a term of art obviating actual fraudulent
intent. (Michel v. Moore & Associates, Inc. (2007) 156 Cal.App.4th 756, 762 [67
Cal.Rptr.3d 797], internal citations omitted.)
• “ ‘[W]here the seller knows of facts materially affecting the value or desirability
of the property which are known or accessible only to him and also knows that
such facts are not known to, or within the reach of the diligent attention and
observation of the buyer, the seller is under a duty to disclose them to the
buyer. . . .’ When the seller’s real estate agent or broker is also aware of such
facts, ‘he [or she] is under the same duty of disclosure.’ ” (Holmes v. Summer
(2010) 188 Cal.App.4th 1510, 1518-1519 [116 Cal.Rptr.3d 419], internal
citations omitted.)
• “ ‘A broker who is merely an innocent conduit of the seller’s fraud may be
innocent of actual fraud [citations], but in this situation the broker may be liable
for negligence on a constructive fraud theory if he or she passes on the
misstatements as true without personally investigating them.’ ” (Salahutdin v.
Valley of Cal. (1994) 24 Cal.App.4th 555, 562 [29 Cal.Rptr.2d 463].)
• “[T]he broker has a fiduciary duty to investigate the material facts of the
transaction, and he cannot accept information received from others as being true,
and transmit it to the principal, without either verifying the information or
disclosing to the principal that the information has not been verified. Because of
the fiduciary obligations of the broker, the principal has a right to rely on the
statements of the broker, and if the information is transmitted by the broker
without verification and without qualification, the broker is liable to the principal
for negligent misrepresentation.” (Salahutdin, supra, 24 Cal.App.4th at pp.
562-563.)
• “[T]he fiduciary duty owed by brokers to their own clients is substantially more
extensive than the nonfiduciary duty codified in [Civil Code] section 2079 [duty
to visually inspect and disclose material facts].” (Michel, supra, 156 Cal.App.4th
at p. 763, original italics.)
• “The statutory duties owed by sellers’ brokers under section 2079 are separate
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and independent of the duties owed by brokers to their own clients who are
buyers.” (William L. Lyon & Associates, Inc. v. Superior Court (2012) 204
Cal.App.4th 1294, 1305 [139 Cal.Rptr.3d 670].)
• “[W]e are not persuaded by Defendants’ reliance on Civil Code section 2079.
Although we agree that that statute sets forth some of the duties of a real estate
broker, it is not the only source of a broker’s duties. ‘Real estate brokers are
subject to two sets of duties: those imposed by regulatory statutes, and those
arising from the general law of agency.’ Here, the [plaintiffs]’ claims are not
contingent on an expansion of the statutorily defined duties of a real estate
broker. Instead, their claim is more elementary. If a real estate broker has
information that will adversely affect the value of a property he or she is selling,
does that broker have a duty to share that information with his or her client? The
clear and uncontroversial answer to that question is yes.” (Ryan v. Real Estate of
the Pacific, Inc. (2019) 32 Cal.App.5th 637, 646 [244 Cal.Rptr.3d 129], internal
citation omitted.)
• “[Fiduciary] duties require full and complete disclosure of all material facts
respecting the property or relating to the transaction in question.” (Padgett v.
Phariss (1997) 54 Cal.App.4th 1270, 1286 [63 Cal.Rptr.2d 373].)
• “Real estate brokers are subject to two sets of duties: those imposed by
regulatory statutes, and those arising from the general law of agency.” (Coldwell
Banker Residential Brokerage Co. v. Superior Court (2004) 117 Cal.App.4th
158, 164 [11 Cal.Rptr.3d 564].)
• “[R]eal estate brokers representing buyers of residential property are licensed
professionals who owe fiduciary duties to their own clients. As such, this
fiduciary duty is not a creature of contract and, therefore, did not arise under the
buyer-broker agreement.” (William L. Lyon & Associates, Inc., supra, 204
Cal.App.4th at p. 1312, internal citations omitted.)
Secondary Sources
5 Witkin, Summary of California Law (11th ed. 2017) Torts, § 914
Greenwald & Asimow, California Practice Guide: Real Property Transactions, Ch.
2-C, Broker’s Relationship And Obligations To Principal And Third Parties, ¶ 2:164
(The Rutter Group)
California Real Property Sales Transactions (Cont.Ed.Bar 4th ed.) §§ 2.132-2.136
3 California Real Estate Law and Practice, Ch. 61, Employment and Authority of
Brokers, § 61.05, Ch. 63, Duties and Liabilities of Brokers, §§ 63.20-63.22
(Matthew Bender)
10 California Forms of Pleading and Practice, Ch. 103, Brokers, § 103.31 (Matthew
Bender)
CACI No. 4107 BREACH OF FIDUCIARY DUTY
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