Daily Development for Monday, December 20, 1999

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

BROKERS; NEGLIGENCE; WAIVERS; VALIDITY: Arizona strikes down waiver of liability for brokers in Realty Board form buy/sell contract.

Aranki v. Realty Investments, Inc., 979 P.2d 534 (Ariz. App. 1999)

Buyers purchased a home and found numerous latent defects. Buyers sued their brokers and seller's brokers. The trial court granted summary judgment for both brokers.

The appeals court affirmed summary judgment as to Seller's brokers. Buyers introduced no allegations of any affirmative representations from those brokers to Buyers. The trial court noted that under Arizona law the Seller's brokers had no duty to inspect for defects for the Buyer and no duty for failure to disclose information so long as they did not participate in misleading the Buyer. The court stated that brokers for the other side "are merely bound to disclose circumstances that a reasonable agent would perceive as evidence of fraud."

The appeals court, however, reversed the grant of summary judgment for Buyers' brokers. These brokers, Buyers alleged, had in fact made affirmative representations to Buyers. According to Buyers, their own brokers failed to identify defects they reasonably should have discovered, minimized defects that were discovered, including those discovered by an inspector Buyers hired, advised Buyers' to delete the warranties of quality from the contract and accept the property "as is," and advised Buyers specifically that all evident defects could be resolved for $2000.

The Buyers' brokers had relied in the trial court on excuplatory language contained in the printed real estate contract form:". . . a preprinted provision under which Buyers expressly released "all brokers ... from any and all liability and responsibility regarding the condition" of the property, and another pre printed provision under which Buyers represented that they would "conduct [ ] all desired independent investigations of any and all matters concerning this purchase" prior to closing. The trial court granted the motion on this ground.

On appeal, the Arizona Court of Appeals reversed the granting of summary judgment, viewing the waiver language as a waiver of negligence, which Arizona courts permit only when the waiver language is specific and narrowly focussed. It stated:

The exculpatory provisions appear in six lines on the sixth page of a seven page standard form contract "approved" by the Arizona Association of Realtors. The parties did not initial this provision. There is no evidence that this provision was discussed or negotiated. There may be evidence to the contrary but, at this point, we do not know what proof exists as to this material fact issue."

The brokers attempted to distinguish authority giving a narrow reading to clauses excuplating the a party to a contract for its own negligence. They pointed out that they were not "parties" to the contract in question. The court held simply that there is no good reason not to extend the same principle concerning excuplatory provisions to non parties, and noted that the brokers had in fact produced the contract form themselves.

Comment 1: A good, strong case striking down the kind of self serving waiver language brokers frequently slip into contract forms they produce for their buyers. In the Kansas City example, the exculpatory language appears halfway through a fine print paragraph entitled "Parties."

Comment 2: But is the case strong enough? It suggests that things might have been different if the Buyers had initialed the contract provision or if there was evidence that it had been separately negotiated. Let us keep in mind that these Buyers, at this point, have already found "the house of their dreams" and are relying entirely upon their brokers, normally without legal counsel, to deliver this house to them. In the Editor's experience, most buyers in these circumstances will sign anything, trusting the brokers implicitly with their future a trust normally induced by lots of legwork and happy faces provided by the agent during the search period.

But it is not the agent, Mr. or Ms. "Happy," who is behind this tough language. It is the back office folks at "BigBroker Central," who are instructing these brokers to bring back those waivers signed. There is little doubt in the editor's mind that 99% of homebuyers would initial these things when presented simply because Happy has told them that this is "standard procedure." Sometimes the brokers even say something like: "Of course it's OK it was drafted by a lawyer." But they neglect to point out that the lawyer was not a lawyer for the buyers, but rather a lawyer retained by and serving the interests of the Board of Realtors, who would have difficulty discerning the best interests of the buyers on this issue.

Comment 3: The editor has seen Sellers go right to the wall on this issue refusing to sign a contract with the broker waivers eliminated even when this might mean the loss of a sale. The editor, an attorney, never gets to see these sellers and discover what their motivation is. They are hidden behind the screen erected by the two brokerage offices. But how could a broker in good conscience advise sellers to reject a contract on these grounds when the terms are in every other way acceptable? How does this meet the broker's fiduciary responsibility? Mind boggling.

Comment 4: Has anyone thought of alleging that these clauses constitute unfair consumer practices under one or another of the state laws outlawing such activities? It is possible that the brokers would come back with the argument of preemption by the State Board of Realtors.

Comment 5: DIRT has many fine broker participants. The editor loves 'em all, and acknowledges that they play a vital role in our industry, and do it well. The editor is far less hostile to brokers than most brokers are hostile to lawyers. But valuable doesn't mean infallible. Brokers are very successful and very powerful these days, and sometimes this can lead to overreaching.

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