In a recent case arising out of Ventura County, California, the Court of Appeal was required to examine the duties of real estate brokers and home inspection companies to residential purchasers. The case initially got under way because the purchaser of a home brought an action against the seller and the real estate broker, alleging undisclosed property defects.
The broker filed a cross-complaint for equitable contribution against two home inspection companies. One company had inspected property for the plaintiff purchaser, while the other company had inspected the property for a prior prospective purchaser. The inspection company for the prior prospective purchaser had prepared a report which was shown to the plaintiff by an agent of the broker. The plaintiff’s purchase of the property took place approximately one month after the prior deal fell through.
The Court of Appeal concluded that a reasonable judge or jury could infer that when the prior home inspection company provided its report to the listing agent on the property, it "knew with substantial certainty that those reports would be transmitted to other prospective purchasers if the pending deal fell through. . . . This inference may be drawn even though [the home inspection company’s] written contract . . . stated that the report could not be used by or transferred to other persons without [its] consent."
The court also noted that a broker may not rely on a home inspection report to avoid his own statutory duty to conduct a reasonable inspection.
The duties to inspect and disclose defects are somewhat similar between real estate brokers and home inspection companies. Real estate agents and brokers involved in the sale of a residence owe the purchaser a statutory duty to conduct a "reasonably competent and diligent inspection of the property offered for sale and to disclose to [a] prospective purchaser all facts materially affecting the value or desirability of the property that an investigation would reveal . . . . The purchaser’s agent also owes the purchaser a higher fiduciary duty to act with the utmost care, integrity, honestly and loyalty."
A home inspection company simply owes the purchaser who contracts for an inspection a statutory duty to "conduct home inspection with the degree of care that a reasonably prudent home inspector would exercise."
When two or more parties have the same obligation to disclose and discover the same defect, the failure of each to perform their duty will result in both parties being jointly and severaly liable to the person to whom the disclosure should have been made. The Court of Appeal thus determined that the broker was entitled to pursue his cross-complaint for equitable contribution against both home inspection companies since all were responsible to the purchaser.
The court noted that a "supplier of commercial information" does not owe a general duty of care to everyone, but could be held liable to "intended beneficiaries" i.e., those third parties whom the supplier "knows with substantial certainty" will rely on the information during the course of a transaction.
The moral of the story? If you have a duty to disclose information, do so fully and completely. If you approach this obligation casually, you may find yourself casually looking for the courtroom in which the lawsuit resulting from your failure to disclose will be tried!