Buyers and Sellers Beware – Part 3

Part 3:   Buyer’s Duty To Exercise Due Diligence

Carpenter v. Hamilton (1936) 18 Cal.App.2d 69

California Civil Code Section 2079.5 (“Buyers or Prospective Buyers; Duty of Reasonable Care”) provides:

“Nothing in this article relieves a buyer or prospective buyer of the duty to exercise reasonable care to protect himself or herself, including those facts which are known to or within the diligent attention and observation of the buyer or prospective buyer.”  

Further, Section B of the California Association of Realtors (CAR) Buyer’s Inspection Advisory (“Buyer Rights and Duties”) explains: 

“You have an affirmative duty to exercise reasonable care to protect yourself, including discovery of the legal, practical and technical implication of disclosed facts, and the investigation and verification of information and facts that you know or that are within your diligent attention and observation.”

One case that perhaps best illustrates a buyer’s duty to exercise reasonable care is Carpenter v. Hamilton (1936) 18 Cal.App.2d 69.  Plaintiff Carpenter (Buyer) sued to recover damages for the alleged fraud inducing him to purchase a house.   Plaintiff claims he bought the property because he believed and relied upon Defendant Hamilton’s (Seller) disclosures that the house and garage were in good condition and not in need of paint and repairs; that the walls were in good condition; that the floors were level; and that the house and garage had new roofs.  However, Carpenter submitted evidence that the floors were not level; that the foundation sunk; that numerous cracks existed in the plaster on the walls; and that the roofs on the house and garage were old. 

Plaintiff (Buyer) had an opportunity to inspect the property before escrow closed and he took title—and he did, in fact, inspect the property.  The court ruled in favor of Defendant (Seller), explaining: “Having inspected the property to be purchased with ample time and opportunity to judge of its condition they (Buyers) must be charged with knowledge of what they learned and what they would have learned in the exercise of ordinary care and diligence.  They may not deny knowledge of facts which would have been known to them but for their negligence…If they neglected to discover what was in plain sight the law will nevertheless charge them with knowledge of what they should have discovered.”

In short—Buyers Beware.  Buyers must exercise reasonable care in conducting due diligence before removing contingencies and closing escrow.  Engaging a professional to conduct a thorough inspection is often effective, but Buyers should not blindly rely on an inspection report before closing escrow.