REAL ESTATE BROKER EXCULPATORY CLAUSES: THEIR USE AND MISUSEby Edward W. Newman   |   (State Bar of California, California Real Property Journal, Vol. 32, No. 2, 2014)
I. INTRODUCTION

Real estate brokers[i] are understandably motivated to limit their exposure to lawsuits for negligence or other misconduct in transactions they handle. In furtherance of this objective, it is now common for brokers to incorporate for their own benefit a variety of exculpatory clauses and other provisions into agreements presented by brokers to their own clients and into transaction forms generated by brokers for execution by the principals.. This article examines both the legal validity and the propriety of such provisions in light of the recognized duties of real estate brokers to their clients and to third parties.

The California legislature and the California courts have not been reticent about the duties and responsibilities of real estate agents. As to his own clients, the real estate agent has “the same obligation of undivided service and loyalty that [the law] imposes on a trustee in favor of a beneficiary. Violation of this trust is subject to the same punitory consequences that are provided for a disloyal or recreant trustee.”[ii] This fiduciary relationship not only imposes upon the agent the duty of acting in the highest good faith toward his principal but precludes the agent from obtaining any advantage over the principal in any transaction had by virtue of his or her agency.[iii] California Civil Code section 2322, which dates back to 1872, prohibits an agent from violating any duty to which a trustee is subject under sections 16002, 16004, 16005, or 16009 of the Probate Code. Section 16002 requires a trustee to administer a trust solely in the interest of the beneficiaries (duty of loyalty), and section 16004 provides that any transaction by which the trustee obtains an advantage from the beneficiary is presumed to be a violation of the trustee’s fiduciary duties (conflicts of interest).[iv]

There is no fiduciary relationship to the other parties to a transaction who are not clients of the agent. As to those parties, the duties of a real estate agent are somewhat less demanding but also less clear. At a minimum, the agent has a duty to deal honestly and fairly with all parties to a transaction.[v] Civil Code section 2079(b) imposes on a real estate broker or salesperson the broad duty to comply not only with the detailed disclosure requirements of section 2079, et seq., in residential transactions, but also to comply with any regulations implementing Business and Professions Code sections 10176 and 10177 in all transactions. Those sections in turn prohibit any conduct which constitutes fraud or dishonest dealing, as well as negligence or incompetence in performing any act which requires a real estate license.

A broker who breaches any of the foregoing duties faces both possible suspension or revocation of his or her real estate license,[vi] and potential civil liability. To minimize the risks of civil liability, brokers and their trade organizations have developed a variety of exculpatory provisions that are often found in agreements between brokers and their own clients, such as listing agreements, and also in agreements furnished by brokers for use by the parties, such as purchase agreements or leases. One common approach is to limit by contract the role of the broker. As an example, the commercial property purchase agreement published by the California Association of Realtors[vii] provides:

SCOPE OF BROKER DUTY: Buyer and Seller acknowledge and agree that: Brokers: (i) do not decide what price Buyer should pay or Seller should accept; (ii) do not guarantee the condition of the Property; (iii) do not guarantee the performance, adequacy or completeness of inspections, services, products or repairs provided or made by Seller or others; (iv) shall not be responsible for identifying defects that are not known to Brokers(s); (v) shall not be responsible for inspecting public records or permits concerning the title or use of the Property; (vi) shall not be responsible for identifying location of boundary lines or other items affecting title; (vii) shall not be responsible for verifying square footage, representations of others or information contained in inspection reports, MLS or PDS, advertisements, flyers or other promotional material, unless otherwise agreed in writing; (viii) shall not be responsible for providing legal or tax advice regarding any aspect of a transaction entered into by Buyer or Seller in the course of this representation; and (ix) shall not be responsible for providing other advice or information that exceeds the knowledge, education and experience required to perform real estate licensed activity. Buyer and Seller agree to seek legal, tax, insurance, title and other desired assistance from appropriate professionals.

Other clauses are aimed at limiting the substantive rights of clients or parties to real estate transactions against the broker, and some even go so far as to provide for indemnification of the broker. As an example, the following clause is contained in the purchase agreement form used by a major commercial brokerage company:

LIMITATION OF AGENT’S LIABILITY: Except for Agent’s sole gross negligence for sole willful misconduct, Seller and Buyer agree to hold the agents harmless from any damages, claims, costs and expenses resulting from or related to any party furnishing to the Agents or Buyer any false, incorrect or inaccurate information with respect to the property or Seller’s concealing any material information with respect to the condition of the property. To the extent permitted by applicable law, the Agents’ liability for errors or omissions, negligence, or otherwise, is limited to the return of the fee, if any, paid to the responsible agent pursuant to this contract. In addition, Seller and Buyer agree to defend and hold the Agents participating in this transaction harmless from and against any and all liabilities, claims, debts, damages, costs, and expenses including, but not limited to, reasonable attorneys’ fees and court costs, related to or arising out of or in any way connected to representations about the property or matters that should be analyzed with experts.

Other clauses afford procedural advantages to the broker, such as the CAR residential purchase agreement, which obligates a client to mediate any dispute or claim with the broker solely at the broker’s election. The validity of these various exculpatory provisions runs the gamut from being fully enforceable to themselves constituting a breach of fiduciary duty and arguably a violation of professional ethics.

II. VALIDITY OF EXCULPATORY CLAUSES IN GENERAL
A. The Governing Statute: Civil Code Section 1668.

Section 1668 of the California Civil Code, also enacted as part of the original code in 1872, provides that “All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud or willful injury to the person or property of another or violation of law, whether willful or negligent, are against the policy of the law.” Civil Code section 1667 further provides that anything contrary to the policy of the law is unlawful.

The application of section 1668 to willful misconduct and to intentional fraud is obvious and has never been the subject of dispute. The extensions of the statutory bar to liability for negligent fraud and breach of fiduciary duty (constructive fraud) are also now settled.[viii] However, the validity of contracts exempting a party from responsibility for ordinary negligence or for “violation of law” has been far more troublesome, as discussed below.

B. Tunkl v. The Regents of the University of California.

In 1963, in a case concerning a release required as a condition for admission to a charitable research hospital, theCalifornia Supreme Court issued its landmark decision holding that a release from liability for future negligence can stand only if the public interest is not involved.[ix] The Supreme Court found that existing interpretations of section 1668 in the context of ordinary negligence were inconsistent. One line of cases held categorically that contracts seeking to relieve individuals from liability for their own negligence are always valid.[x] The only uniformity the court could discern in the remainder of the case law was that exculpatory clauses affecting the public interest are invalid.[xi] Acknowledging the difficulty in defining the concept of public interest, the court delineated the following six criteria to identify the kind of agreement in which an exculpatory clause is invalid as contrary to public policy:

The Tunkl criteria havebeen applied by the courts in numerous cases over the last 50 years.[xiii]

C. Violations of Law Under Section 1668.

Tunkl left unresolved issues regarding the application of section 1668 to “violations of law.” Courts have generally agreed that the term “violations of law” as used in section 1668 refers specifically to violations of applicable statutes or regulations.[xiv] Although the plain language of the statute provides that all contracts which exempt anyone from responsibility for a violation of law are invalid, in practice courts have not reached that result in all cases involving statutory or regulatory violations, and unfortunately, they have not yet articulated a clear conceptual basis for determining when such violations trigger the statutory nullification.

As an early example, in 1912, the section 1668 violation of law phrase was used to void a contract relieving a telegraph company from liability for violating a statute requiring care and diligence in the transmission of messages.[xv]

In 1963, a judgment in favor of a building owner denying tenants recovery for damages to their personal property caused by a sprinkler malfunction was reversed based on the section 1668 violation of law language. The exculpatory provisions in the leases were not a defense to the action because the plaintiffs’ claims were predicated upon violations of the Los Angeles Municipal Code.[xvi]

In a more recent example, a court of appeal held that the waiver and release in a health club membership agreement did not bar a cause of action for slip and fall injuries allegedly caused by violations of certain Health and Safety Code sections governing the maintenance of public swimming pools.[xvii] The plaintiff’s first cause of action for ordinary negligence was barred by the waiver and release under Tunkl because exculpatory clauses in the recreational sports context have consistently been upheld as not affecting the public interest.[xviii] However, the attempt to bar plaintiff’s second cause of action for negligence per se could not survive the “violation of law” language of section 1668, given the detailed and extensive regulatory scheme setting out construction standards, safety standards, and sanitation standards for public swimming pools.[xix]

In another case involving a heath care company and a state agency, a court of appeal applied the “violation of law” language to claims involving the assignment of Medi-Cal patients between two participating health care plans. At issue was a section of the Welfare and Institutions Code that required the equitable distribution of Medi-Cal beneficiaries among participating prepaid health plans, or managed care plans. The contract between the plaintiff and the state agency that contained a clause eliminating money damages for any violation of law was found to be unenforceable because it purported to exculpate the state for a violation of statutory law.[xx]

Other courts, however, have shown a distinct aversion to interfering with the allocation of risk between two contracting parties despite allegations of statutory or regulatory violations, at least in a commercial context where the parties have relatively equal bargaining power. For example, an oil company’s attempt to impose liability on a drilling company for economic loss and physical damage resulting from a blowout was rejected based on a contract clause that the oil company would bear responsibility and assume liability for all consequences of operations by both parties.[xxi] The court cited language in Tunkl that as a matter of contract interpretation, there is nothing to hinder “a voluntary transaction in which one party, for a consideration, agrees to shoulder a risk which the law would otherwise have placed upon the other party.”[xxii] The court emphasized that it was not concerned with a situation involving personal injury to a consumer, but rather a contract between two relatively equal business entities. Perhaps uncomfortable with how those factors logically negated the violation of law language in section 1668, the court also concluded that the oil company had failed to identify a specific law or regulation that would make the language of section 1668 applicable.[xxiii]

The equal bargaining power theme is predominant in another line of both federal and state cases involving airline accidents and the allocation of responsibility between the airline and the aircraft manufacturer. In one such case, Delta Air Lines sought damages against the manufacturer, Douglas Aircraft Company, resulting from a malfunction of a plane’s nose wheel.[xxiv] The state appellate court held that the claim was barred by an exculpatory clause in the contract between the two parties. The court emphasized that there was no element of inequality of bargaining, and two equal bargainers should be free to determine by contract which party should bear the risk of economic loss if the product proved to be defective. The court also hedged its logic by also finding that the evidence did not establish that Douglas in fact violated any statute.[xxv]

The distinction under section 1668 between violations of law resulting in injuries or losses to tenants, consumers, and in one case a health care company, on the one hand, and violations related to the allocation of risk between two large corporations with equal bargaining power, on the other hand, has not been fully explained in any opinion to date. However, a recent decision of the Supreme Court delineating when a violation of a state statute gives rise to a private cause of action offers some guidance. Whether a party has a right to sue under a statute depends on whether the Legislature has “manifested intent to create such a private cause of action under the statute.”[xxvi] That intent is gleaned from the language of the statute and, where appropriate, the expressed legislative intent behind it. Similarly the diverse decisions regarding validity of a contract clause which exculpates a party from a violation of law might be reconciled by considering whether the particular statute or regulation was intended to create a private cause of action.

D. Limitations on Liability Versus Complete Exemption.

The same considerations that have caused disparate application of section 1668 in cases involving violations of law also underlie the variation in treatment of contractual limitations on liability as opposed to full exemption from liability. For example, a contractual provision in which an employee waived any right to sue a corporation’s officers, directors, or shareholders, but retained his rights against the corporation itself has been upheld under section 1668.[xxvii] While the court found no useful precedent, it failed to discern any public policy or public interest to be served by invalidating the agreement between the parties, quoting Tunkl regarding voluntary transactions in which one party for a consideration agrees to shoulder a risk which the law would otherwise have placed on the other party.[xxviii] The reasoning and conclusion in that case were criticized inHealth Net of California v. Department of Health Services, a case holding that there was both precedent and good reason to void a limitation of liability clause under section 1668, at least in cases involving violations of law.[xxix] The Heath Net opinion was in turn criticized in CAZA Drilling (California), Inc. v. TEG Oil & Gas U.S.A.,[xxx] in which the court found additional support for its reluctance to interfere in the agreement between two large corporations because the clause in question represented a “valid limitation on liability rather than an improper attempt to exempt a contracting party from responsibility for violation of law within the meaning of section 1668.CAZA did not seek or obtain complete exemption from culpability on account of its potential negligence or violation of any applicable regulations. It merely sought to limit its liability for economic harm suffered by TEG.”[xxxi]

Section 1668 by its terms refers to contracts which exempt anyone from liability for fraud, willful injury to the person or property of another, or violation of law. Most of the cases which draw a distinction between a limitation on liability and a complete exemption from liability involve violations of statutory or regulatory law, which is the part of section 1668 that has led to diverse results in various circumstances. The problem with allowing limitations on liability for violations of law as long as there is no complete exemption is that the same logic would necessarily apply to uphold limitations on liability for fraud and other intentional wrongs. If “exempt” as used in section 1668 only refers to exemption from all liability, it opens the door to evading liability for fraud and intentional misconduct also. No case thus far has suggested that is a desirable result.

III. APPLYING EXCULPATORY CLAUSE LAW TO REAL ESTATE BROKERS
A. Real Estate Brokers Can Limit the Scope of their Services, But Cannot Negate their Fiduciary Duties of Loyalty and Good Faith.
1. Carlton v. Tortosa Opens the Door.

The seminal case on broker exculpatory clauses is Carlton v. Tortosa, which held that a real estate broker has no duty to advise her client regarding the tax consequences of the transaction.[xxxii] The plaintiff in Carlton was an experienced real estate investor who employed the defendant real estate broker to represent him in the sale of two residential rental properties and in the purchase of two residential rental properties. After the transactions were completed, the plaintiff’s accountant informed him that he had a tax liability because he failed to structure the transactions as tax-deferred exchanges. The plaintiff sued his broker for negligence in structuring the transactions and in failing to disclose his lack of expertise in tax-deferred exchanges. The listing agreement in Carlton warned the plaintiff that “A real estate broker is the person qualified to advise on real estate. If you desire legal or tax advice, consult an appropriate professional.” This advisory was reiterated in a written “Disclosure Regarding Real Estate Agency Relationships” and in the purchase contract, and is based on language contained in Civil Code section 2375[xxxiii] regarding the duties of a real estate broker. As to the broker’s specific services, the court observed:

Real estate brokers are subject to two sets of duties: those imposed by regulatory statutes, and those arising from the general law of agency. (2 Witkin, Summary of Cal. Law (9th ed. 1987) Agency and Employment, §253, pp. 245-246.) Plaintiff does not contend defendant failed to fulfill a duty imposed by statute or implementing regulation (e.g. Civ. Code, § 1102 et seq. [agent’s duty to inspect property; disclosure requirements]). Thus he must derive defendant’s duty form the general law of agency, i.e., from the agreement between the principal and agent. “The existence and extent of the duties of the agent to the principal are determined by the terms of the agreement between the parties, interpreted in light of the circumstances under which it is made, except to the extent that fraud, duress, illegality, or the incapacity of one or both of the parties to the agreement modified it or deprives it of legal effect.” (Rest 2d Agency, § 376,; Anderson v. Badger, (1948) 84 Cal.App.2d 736, 741, 191 P.2d 768; 3 Cal.Jur.3d, Agency, § 87; cf. Ahern, supra, 1 Cal.App.4th at p. 43, 1 Cal.Rptr.2d 339 [insurance agent owes duties normally found in agency relationship].)[xxxiv]

Citing Tunkl and Civil Code section 1668, plaintiff argued that the disclaimer language in the listing agreement, disclosure form, and purchase contract should be disregarded. The court rejected that contention because the contractual language in question did not exculpate the broker from her negligence, i.e. breach of a duty of care. Rather it specified that a real estate broker has no duty to provide legal or tax advice.[xxxv]

Two aspects of Carlton are significant to its value as precedent. First, the exclusion of tax advice from the broker’s services was specifically addressed in Civil Code section 2375 delineating the duties of a broker. Second, the limitation originated in a two-party listing agreement between the broker and her client, and was only reiterated, not created, in the subsequent purchase agreement and disclosure document.

Not surprisingly, the real estate industry quickly embraced the decision and sought to expand its application. In one unpublished decision[xxxvi] in which a buyer’s broker failed to include in the purchase contract a contingency for a septic percolation test, the broker successfully argued that his client’s claim for professional negligence in drafting the agreement was barred by language in that agreement stating that brokers will not provide legal or tax advice and will not provide other advice or information that exceeds the knowledge, education, and experience required to obtain a real estate license, and advising the parties to seek legal, tax, and other assistance from appropriate professionals. Citing Carlton, the appellate court concluded that the purchase agreement expressly disclaimed that the brokers undertook to provide legal services to the parties[xxxvii]There is no indication in the opinion that the brokers were parties to the purchase agreement, or that there was any contract between the buyer and his own broker.

In another unpublished case[xxxviii] the broker as dual agent for the buyer and the sellers of a six-unit apartment building provided in the purchase agreement presumably furnished by the broker that the broker “shall not be responsible for performing any due diligence or other investigation of the property on behalf of either Buyer or Seller, or for providing either party with professional advice with respect to any legal, tax, engineering, construction or hazardous materials issues.” The agreement also provided: “Buyer and Seller agree that their relationship with Agent is at arm’s length and is neither confidential nor fiduciary in nature.[xxxix]” The buyer in that case alleged that the broker had failed to discover a regulatory agreement that impaired the value of the property. The court observed that an agency relationship is contractual, and the existence and extent of the duties of the agent to the principal are determined by the terms of the agreement between the parties.[xl]The court pointed again to the purchase and sale agreement but did not refer to any specific contract between the buyer and the broker. The court cited Carlton and also noted Civil Code section 2079.23, which states: “A contract between the principal and agent may be modified or altered to change the agency relationship at any time before the performance of the act which is the object of the agency with the written consent of the parties to the agency relationship.” (The court’s reliance on section 2079.23 is curious, since the statute actually only applies to property with one to four dwelling units and the case involved a six-unit apartment building.)[xli]

2. Carlton v. Tortosa Notwithstanding, the Fiduciary Duties of Loyalty and Good Faith Owed by a Real Estate Broker to His or Her Client Cannot be Waived.

The foregoing unpublished decisions raise concerns that Carlton can be easily misunderstood and misapplied, especially in the broker fiduciary duty context. There is an important distinction between the scope of services to be provided by a real estate broker, and the professional responsibilities of the broker in connection with the services he or she does undertake to provide. An overbroad application of Carlton disregards this distinction and potentially allows brokers to escape liability for violations of their professional responsibilities.

It is undoubtedly true, especially in larger commercial transactions, that the services desired by the seller or the buyer from their real estate broker may be very limited, as their own attorneys and financial advisers take charge. However, as to those services a real estate broker does provide, the principles cited above regarding the obligations of undivided service and loyalty and good faith of a trustee may not be waived, regardless of the relative bargaining power of the parties. Any act or omission involving a breach of those obligations which results in damage to another is constructive fraud even though the conduct is not otherwise fraudulent,[xlii] and Civil Code §1668 categorically invalidates any contract that purports to exempt a party from fraud.

Thus California courts have consistently rejected attempts by parties to relieve themselves of liability for breach of fiduciary duty in other contexts, and it is unrealistic to expect anything different as to real estate brokers. In one case, the attempted waiver of corporate directors’ and majority shareholders’ fiduciary duties to minority shareholders in a private close corporation was voided.[xliii] The result has been the same in cases involving the fiduciary duties of a general partner to the other partners,[xliv] and the fiduciary duties of the officers and directors of a homeowners association to their members.[xlv] There is no conceptual or policy reason to expect a different result for real estate brokers.

B. Waiver of a Broker’s Liability for Negligence or Violation of Statute Remains an Open Question.

While the law in California appears to be settled as to real estate broker liability for fraud or breach of fiduciary duty, there is as yet no published appellate decision in the state considering the validity of a contractual provision exempting or limiting the liability of a broker for ordinary negligence or for violation of statutes such as Business and Professions Code sections 10176 and 10177, which govern the conduct of brokers.

As far as the buyer and seller are concerned, it has been held that a waiver of liability for negligence is effective in the context of a private sale of a residence between parties with equal bargaining power.[xlvi] The court in that case reasoned that in such a transaction the “public interest” considerations found in Tunkl were absent. In a footnote, the court contrasted a contract between a real estate buyer and seller with one between a real estate broker and his principal, observing that in the latter case “we do deal with parties not ordinarily in equal bargaining positions, the situation is usually adhesive in nature, and there is an evident public interest in protecting a class of consumers (principals not versed in real estate law) from professional providers (the brokers).”[xlvii] The court’s characterization of the relationship between broker and principal is true in some cases but not in others. Thus it is likely that such waivers as to ordinary negligence or violations of law will be upheld when the principal is sophisticated and capable of negotiating with the broker on equal footing, but not in the typical residential transaction where the brokers are professionals and the clients are not ordinarily experienced in real estate transactions.

C. Inserting Waivers for the Benefit of the Brokers in Contracts Solely Between the Principals Is Itself a Breach of Fiduciary Duty.

In the context of broker exculpatory clauses, there is a critical distinction to be recognized between clauses that are part of an agreement between the broker and his own client, such as a listing agreement, and forms furnished by the broker to create an agreement between the principals to the transaction. Generally real estate brokers are not themselves parties to the contract forms they provide for use by the parties. Most CAR forms, for example, specifically declare that real estate brokers are not parties to the agreement between buyer and seller.

The distinction between a contract between a broker and a client and a contract between principals was not noted in the Calton opinion, wherethe disclaimer regarding legal and tax advice was in the listing agreement between the broker and the client, in a disclosure form regarding real estate relationships, and also in the purchase contract between the buyer and seller. Given this redundancy, the distinction between contracts where the broker is a party versus agreements solely between the principals was not relevant.

That distinction was, however, recognized in Manderville v. PCG & S Group, where the court held that an exculpatory clause in a purchase agreement did not preclude the buyers’ showing of justifiable reliance in a claim for intentional fraud against their brokers.[xlviii] The brokers cited various provisions in a standard CAR purchase agreement intended to protect them from liability. The purchase agreement specifically stated that the brokers were not parties to that contract, and none of the exculpatory provisions were contained in any other agreement specifically between the buyers and the brokers. The court rejected the brokers’ argument on the ground that a party to a contract is precluded under section 1668 from contracting away his or her liability for fraud, and also quite properly questioned whether the brokers, not being parties to the purchase agreement, had any standing to invoke or rely on the exculpatory clauses in the first place.[xlix]

A valid waiver requires the knowing and intelligent relinquishment of a right.[l] Subject to the limitations of section 1668 and Tunkl, there is no reason why such informed consent could not exist when a broker and the client execute for example a listing agreement, to which the broker is a party. In that case, the client is obviously entering into an agreement with the broker. The client can and in some cases does obtain independent legal advice. A purchase agreement or a lease, in contrast, creates rights and obligations between a buyer and a seller or between a lessor and lessee. When a broker furnishes a form for use by the principals, the broker is doing so as a convenience to the principals and as part of the real estate services being provided to those principals. In doing so, the broker’s obligations are to the principals, not to himself. As to his client, the broker has a fiduciary duty of undivided loyalty and the highest good faith. Because he has the same obligation that the law imposes on a trustee in favor of his beneficiary, the broker must perform his services solely in the interest of the client and is absolutely precluded from obtaining any advantage over the client by virtue of his or her agency. However, when a broker inserts or includes clauses limiting his own liability in a contract that he is furnishing as a convenience for use by the principals, he is obtaining such an advantage. He is serving his own interests, while impairing the interests of his own client. Such clauses are designed to protect the broker from liability to his principal, i.e., to provide a benefit for the broker, even though the broker is not even a party to the agreement and even though the brokerprovides no separate consideration for the benefit conferred. As widespread as this practice is becoming, it cannot conceivably satisfy the broker’s fiduciary responsibilities of undivided service and loyalty to his or her principal.[li]

V. CONCLUSION

The proliferation of contract provisions seeking to exempt or limit the liability of real estate brokers to their principals is sure to generate litigation in the future over the validity of those defenses. Clauses by which a client knowingly and intelligently consents to narrow the scope of services to be provided should be upheld. However, claims against brokers for intentional fraud, negligent misrepresentation, or breach of fiduciary duty with respect to the broker’s services should withstand any attempted exculpatory language. The viability of claims against brokers based on ordinary negligence or violation of law will depend on the characteristics of the parties and the circumstances, particularly the relative bargaining power as between the broker and the client.

Finally, the growing practice of including broker protections into contracts furnished by a broker for use by the principals and for which the broker gives no consideration is a violation of the broker’s fiduciary duties and should be put to a hasty and definitive end.



1 A real estate agent in California can be licensed either as a broker (Cal. Bus. & Prof. Code §10131) or as a salesperson, who must be employed by a licensed real estate broker (Cal. Bus. & Prof. Code §10132). The acts of a salesperson are in legal effect the acts of the broker. See Montoya vs. McLeod (1985) 176 Cal. App. 3rd 57, 63. In its Code of Ethics and Standards of Practice, the National Association of Realtors defines “agent” as any real estate licensee acting in an agency relationship as defined by state law or regulation, and defines “broker” more broadly as any real estate licensee acting as an agent or in a legally recognized non-agency capacity. For purposes of this article, “agent” and “broker” are synonymous.

2 Rattray v. Scudder (1946) 28 Cal.2d 214, 222-223.

3 Batson v. Strehlow (1968) 68 Cal.2d 662.

4 See Beaver v. Continental Building & Loan Assn. (1911) 15 Cal App. 190, 195; Leimert v. Woodson (1954) 125 Cal. App. 2d 186, 189;Jorgensen v. Beach ‘N’ Bay Realty, Inc. (1981) 125 Cal. App. 3rd 155, 161.

5 Norman I. Krug Real Estate Investments, Inc. v. Praszker (1990) 220 Cal App. 3rd 35, 42; Nguyen v. Scott (1989) 206 Cal. App. 3rd 725, 735.  

6 California Business and Professions Code §§10176 & 10177.

7 Referred to hereinafter as “CAR.”

8 Blankenheim v. E.F. Hutton & Company, Inc. (1990) 217 Cal App. 3rd 1463, 1472-1473; Cohen v. Kite Hill Community Association (1983) 142 Cal App3rd 642, 654-655; Neubauer v. Goldfarb (2003) 108 Cal App4th 47, 55-57.

9 Tunkl v. The Regents of the University of California (1963) 60 Cal2d 92.

10 Werner v. Knoll (1948) 89 CalApp.2d 474, 476; Mills v. Ruppert (1959) 167 Cal. App. 2d 58, 62-63.

11 Ibid. at 96.

12 Ibid. at 98-101.

13 See, e.g., Henrioulle v. Marin Ventures, Inc. (1978) 20 Cal.3d 512 (provision in residential rent agreement exculpating landlord from injury to tenant due to negligence of landlord invalid); Akin v. Business Title Corporation (1968) 264 Cal.App.2d 153 (exculpatory clause in escrow agreement did not relieve escrow company of liability for its own negligence); Rooz v. Kimmel (1997) 55 Cal.App.4th 573 (accommodation recording by escrow company did not involve public interest); Gardner v. Downtown Porsche Audi (1986) 180 Cal.App.3d 713 (automobile repair contract affected the public interest); Healthnet of California, Inc. v. Department of Health Services (2003)113 Cal. App.4th 224 (exculpatory clause that is part of a transaction that provides managed healthcare for medical beneficiaries affects the public interest); Capri v. LA Fitness International, LLC (2006) 130 Cal.App.4th 1078 (exculpatory agreements in the recreational sports context do not implicate the public interest); CAZA Drilling (California), Inc. v. TEG Oil and Gas USA, Inc. (2006) 142 Cal.App.4th 453 (contract clause between two large, sophisticated corporations with relatively equally bargaining power was valid).  

14 See Health Net of California, Inc. v. Department of Health Services (2003), supra at 244.

15 Union Construction Company v. Western Union Telegraph Company (1912) 163 Cal. 298.

16 Hanna v. Lederman (1963) 223 Cal. App. 786

17 Capri v. L.A. Fitness, LLC (2006) 136 Cal. App.4th 1078

18 Ibid. at 1084

19 Ibid. at 1085

20 Health Net of California v. Department of Health Services, supra.

21 CAZA Drilling (California), Inc. v. TEG Oil and Gas USA, Inc., supra.

22 Tunkl v. The Regents of the University of California, supra at 101.

22 CAZA Drilling (California), Inc. v. TEG Oil and Gas USA, Inc., supra at 476.

24 Delta Air lines, Inc. v. Douglas Aircraft Company, Inc. (1965) 238 Cal. App.2d 95.

25 Ibid at 106. Airline cases to the same effect include Philippine Airlines, Inc. v. McDonnell Douglas Corporation (1987) 189 Cal. App.3rd 234; Delta Airlines v. McDonnell Douglas Corporation (5th Cir. 1974) 503 F.2d 239; Airlift Intern., Inc. v. McDonnell Douglas Corp (9th Cir. 1982) 685 F.2d 267; and Continental Airlines v. Goodyear Tire and Rubber Co. (9th Cir. 1987) 819 F.2d 1519.

26 Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal. 4th 592, 596.

27 Farnham v. Superior Court (Sequoia Holdins, Inc.) (1997) 60 Cal. App4th 69.

28 Ibid. at 77.

29 Health Net of California v. Department of Health Services, supra at 239-241.

30 CAZA Drilling (California), Inc. v. TEG Oil and Gas USA, Inc., supra at 471-472.

31 Ibid. at 475.

33 Former section 2375 is now section 2079.16.

34 Carlton v. Tortusa, (1993)14 Cal. App4th 745, 755.

35 Ibid. at 757.

36 Morgano v. Hank Sybrandy, Inc. (2004) 2004 WL 1759180.

37 Ibid. at p.6.

38 Wurtzel v. Marcus & Millichap Real Estate Inv. Brokerage Co. (2007) 2007 WL 2430012.

39 at p. p. 7

40 Ibid at p. 6.

41 Section 2079.23 is part of the article that deals with the duties of a real estate broker. The sections that are only applicable to properties with one to four dwelling units include Civil Code §2079.16 and §2079.23. Section 2079.16 specifies the duties, including fiduciary duties, owed by a seller’s agent and by a buyer’s agent. There is nothing to suggest that section 2079.23 was intended to allow for nullification of those duties even in the context of transactions involving properties with one to four dwelling units.

42 Salahutdin v. Valley of California, Inc. (1994) 24 Cal. App.4th 555, 562.

43 Neubauer v. Goldfarb (2003) 108 Cal. App. 4th 47.

44 BT-1 v. Equitable Life Assurance Society of the United States (1999) 75 Cal. App. 1406, 1411.

45 Cohen v. Kite Hill Community Assn. (1983) 142 Cal. App..3rd 642, 654.

46 Loughrin v. Superior Court (Barr) (1993) 15 Cal. App. 4th 1188, 1193.

47 Ibid. at 1196.

48 Manderville v. PCG & S Group (2007) 146 Cal. App. 4th 1486.

49 Ibid. at 1501.

50 Neubauer v. Goldfarb, supra at 57.

51 Aside from the propriety of including clauses in a proposed contract between buyer and seller or lessor and lessee which are solely for the benefit of the broker, doing so also potentially raises many issues of contract law between the principals.. For example, if the seller accepts all the other terms of an offer, but crosses out a clause providing indemnity to a broker or relieving a broker from liability, is there a binding contract between the principals?

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