Supreme Court to Decide Dispute Between Sellers and Brokers

September 2, 2011

Daily Journal

On Aug. 17, a "double scoop" decision by the 1st District Court of Appeal expanded the discussion regarding statutes of limitation in California and the permitted use of parol evidence in a particular type of claim by a seller of real estate against the seller's broker.

In the case of Thomson v. Canyon, 2011 DJDAR 12447 (1st Dist. Aug. 17, 2011) Regina Thomson agreed to sell her home in return for the buyer's oral promise to pay off her debts secured by the home, and to reconvey the property back to Thomson for a refund of the purchase price, plus a service fee. Thomson retained Lewis Canyon, a broker, to memorialize and close the transaction.

The written contract executed by Thomson and the buyer, however, did not contain the oral promise to reconvey the property. Some time after the sale closed, the buyer sold the property to a third-party instead. Thomson sued Canyon after unsuccessfully suing the buyer for breach of the oral promise. Thomson claimed that Canyon breached his fiduciary duty to her by failing to include the buyer’s oral promise in the written contract. Canyon argued that Thomson's claim for breach of fiduciary duty was time-barred by the statute of limitations, and to the extent that the claim was not time-barred, evidence of the oral agreement was inadmissible.

The court found that there is no specific statute of limitation on claims for breach of fiduciary duty by a broker to a seller, and therefore California’s default limitations period of four years applied.

In finding that the statute of limitations had not yet run on Thomson's claim against Canyon, the court held the limitations period began on the date that Thomson suffered damage as a result of Canyon's alleged breach of fiduciary duty - not the closing date of the property sale. According to the court, since the damage did not occur until the buyer sold the property to the third-party, the closing date of the sale from Thomson to the buyer was not relevant.

The court next considered whether Canyon's agreement to include the buyer's oral promise in the contract was properly admissible as evidence of Thomson's claim against Canyon. On this issue of parol evidence - oral and written evidence, which is not included in the written contract signed by the parties - the court acknowledged that there is no settled rule on whether a stranger to the written sale contract (in this case, Canyon) is entitled to prevent the admission of parol evidence in connection with a dispute arising out of the contract. The court ruled that since the parol evidence was not being offered to reconstruct the contractual obligations of the Thomson and the buyer (the parties to the real estate sale contract), evidence of Canyon's promise to include the buyer's promise in the contract was admissible.

Today the state Supreme Court granted review of this case. Stay tuned.