Many standard real estate contracts contain exculpatory clauses -- clauses that are designed to relieve a broker or agent from responsibility for one thing or another. Typically, such sections or clauses may aim to (a) take responsibility away from the broker for any claims or representations made about the property, and to (b) place responsibility on the buyer to investigate and/or verify for himself matters relating to the size, condition, and suitability of the property to be purchased.

Do these sections work? Would they prevent a buyer from later successfully bringing an action against a broker because he, the buyer, had relied on false information or claims provided by the broker? Not in California's Fourth Appellate District they wouldn't. The recent case of Manderville v. PCG&S Group, Inc. is instructive in this regard.

The action arose out of the sale of a parcel of land located in the city of El Cajon. The Mandervilles, along with their daughter and son-in-law, sought to purchase a property on which they could both build homes. Their agent found a multiple listing service advertisement (the term used by the court) whose description stated in part, "All useable 2.62 acres county states 1 acre min. lot size could be split"

You guessed it. After the close of escrow, the Mandervilles hired a civil engineer to process the application for a lot split, only to learn that the property could not be split, and that it was zoned for only one dwelling unit.

Deposition testimony showed that the Mandervilles' agent had called the listing agent to verify that the lot could be split. There were differences in their respective testimonies. However, the listing agent did acknowledge that his source of information was only someone "from the County" whom he could not identify, and to whom he had spoken over the phone.

Testimony also showed that the buyers had reviewed a disclosure package that they received from the listing agent which showed that the property was zoned "RR-1" and the minimum lot size was one acre. It also showed that the property in question had a special general plan designator (one which turned out to imply that it was "Impact Sensitive" and that only one dwelling unit per four acres was permitted there.)

The trial court granted summary judgment on behalf of the defendants, essentially dismissing the case. The defense argument rested primarily on language in the California Association of Realtors® (CAR) standard form contract that had been used in the sale. Paragraph 7 of that contract stated that "... buyers had the 'right' to conduct inspections and investigations" and they were strongly advised "to investigate the condition and suitability of all aspects of the property, as well as all matters affecting the value or desirability of the property, including ordinances affecting the future development and zoning of the property." That paragraph also indicated that "Buyers and Sellers were aware that Brokers did not guarantee and in no way assumed responsibility for the 'condition' of the property."

On appeal, though, the summary judgment was rejected, and the case sent back for trial. The appellate court held "that neither the exculpatory clauses in the CAR form agreement, nor Buyers' alleged lack of due diligence … bars Buyers' cause of action against Brokers for intentional misrepresentation … ."

Whether or not there was intentional misrepresentation depends on, among other things, two issues: (1) did the defendant know that the representation was false when the defendant made it, or did the defendant make the representation recklessly and without regard for its truth, and (2) did the plaintiff reasonably rely on the defendant's representation? Both of those issues are matters of fact which the appellate court said needed to be tried.

The court made two main points. The first is that the buyers did not have a contractual duty to make a thorough and complete investigation. They only had the right to do so. So it may have been reasonable for them to rely on the listing agent's representation.

Secondly, California Civil Code Section 1668, as well as a number of cited cases, establishes that "a party to a contract is precluded … from contracting away his or her liability for fraud or deceit."

Suppose that the listing agent had committed fraud (I am not saying he did), he couldn't then depend on an exculpatory clause in the contract to relieve him of responsibility for that act. The court is not going to put up with that idea.