Two appellate court cases have recently addressed the contractual language in C.A.R.’s standard-form purchase agreements. One case involved the mediation and attorney fees clauses and the other case considered the buyer’s investigation clause.
Van Slyke v. Gibson: Under C.A.R.’s mediation and attorney fees clauses, the prevailing party in any action is entitled to reasonable attorney fees and costs, except when that party fails to attempt mediation or refuses to mediate before commencing an action. In this case, a potential buyer wrote an offer using the C.A.R. Residential Purchase Agreement. The sellers made a counter offer requiring the buyer, upon acceptance, to provide written confirmation from his lender that it would lend on the property, which was a large acreage with a modular home. The buyer accepted the counter offer, but never provided the confirmation letter and his deposit check had insufficient funds. The transaction never closed.
When the sellers then accepted another buyer’s offer, the first buyer sued for breach of contract and specific performance. The sellers filed a cross-complaint for wrongful interference with an economic relationship, but later dismissed their cross-complaint. Before filing the cross-complaint, the sellers’ attorney allegedly telephoned to request mediation, but the buyer denied this happened. The parties went to trial on the buyer’s specific performance claim and the sellers won. As the prevailing party, the sellers were awarded $94,974 in attorney fees and costs for defending the specific performance claim. The buyer appealed the $94,974 award, arguing that the sellers failed to propose mediation before filing their cross-complaint. The buyer lost on appeal.
The appellate court in Van Slyke pointed out that the $94,974 attorney fees and costs were incurred for defending against the buyer’s claim, not for pursuing the sellers’ cross-complaint. Moreover, the court held that, as stated in the C.A.R. agreement, seeking mediation is a prerequisite for the recovery of attorney fees by the party who commences the action, not the party defending against the action. Finally, the court awarded the sellers their attorney fees incurred for the appeal.
Manderville v. PCG & S Group, Inc.: A listing agent listed a vacant lot in the MLS, indicating that “COUNTY STATES [LOT] COULD BE SPLIT.” This information piqued the interest of the buyers in this case who wanted to subdivide a piece of land to build two adjacent homes. The buyers knew the property was previously listed in the MLS by another agent for almost a year, with nothing said about whether the property could be subdivided.
The buyers’ agent allegedly confirmed with the listing agent over the phone that the property could be subdivided, but the parties later disputed what was said in that phone conversation. The buyers then agreed to buy the property using a previous version of the C.A.R. Vacant Land Purchase Agreement. During escrow, the listing agent provided the buyers with various documents pertaining to the property, including disclosures that the property’s general plan designator number was “24.” It was, however, only after close of escrow when the buyers discovered that the “24″ designation essentially meant the property could not be subdivided.
The buyers sued the listing agent and broker (“brokers”) for intentional misrepresentation, negligent misrepresentation, and suppression of facts. The brokers requested dismissal of the intentional misrepresentation claim through summary judgment without a trial. The judge granted the summary judgment, but the decision was reversed on appeal.
The brokers in Manderville argued that the C.A.R. agreement contained language holding the brokers harmless, including a statement that brokers did not guarantee or assume responsibility for the condition of the property. In rejecting this argument, the appellate court followed well-established law disallowing someone who commits fraud (or intentional misrepresentation in this case) to absolve himself or herself by a stipulation in a contract.
The brokers in Manderville also argued that the buyers did not justifiably rely on the alleged misrepresentation because, if the buyers conducted a more diligent investigation, they would have discovered that subdividing was inconsistent with general plan designation “24.” Again, the appellate court rejected this argument and followed the well-established law that a plaintiff’s own negligence in failing to discover the falsity of a defendant’s statement is no defense for a claim of fraud. Furthermore, the court pointed out that the C.A.R. agreement conferred upon the buyers the contractual right, and not the contractual duty, to conduct an investigation. As a result, the court held that the intentional misrepresentation claim had disputed issues of material fact to be decided by trial, not summary judgment.
Sources: Van Slyke v. Gibson (2007 WL 117424) (dated January 18, 2007) and Manderville v. PCG & S Group, Inc. (2007 WL 163076) (dated January 24, 2007).
