Real estate buyers, renters, sellers, and brokers all rely on pre-printed contracts. It is practically impossible to conduct a real estate transaction without them. However, even after a contract is signed, one question always remains – is it enforceable? The answer often depends on the facts of the case.
On May 2, 2006, Ted and Patti Henley signed a buyer-broker agreement with William L. Lyon & Associates, giving them the exclusive right to represent the Henleys in the purchase of a new home. The agreement was a pre-printed form issued by the California Association of Realtors, and it contained the following Statute of Limitations clause:
“ 10. TIME TO BRING LEGAL ACTION: Legal action for breach of this Agreement, or any obligation arising therefrom, shall be brought no more than two years from the expiration of the Representation Period or from the date such cause of action may arise, whichever occurs first.” (Emphasis added).
A week later, the Henleys were moving into their new home. However, by the end of 2006, paint blisters started popping up on the back of the house. By March 2007, the Henleys noticed paint peeling and powdery, crystalline efflorescence on the back of the house. All of the Henley’s attempts at repair were washed away with the first winter rains, and the problems persisted. Their brokers denied any knowledge of bubbling paint or irrigation problems.
In January 2008, the Henleys discovered photos from the original online listing of their home, which showed the back of the house being painted over in dark brown paint. It was not until this point that the Henleys suspected any wrongdoing by their brokers. Mediation efforts failed, and the Henleys filed suit against their brokers in May 2009 for breach of contract.
The brokers then moved for summary judgment, arguing that the Henleys were too late: the two-year statute of limitations, contained in the pre-printed form, expired by May 2008.
Resoundingly, the California Court of Appeals disagreed. The court held that the breach of contract cause of action was subject to the Discovery Rule. Under this rule, the statute of limitations does not begin to accrue until the plaintiff discovers or should have discovered his injury. Without the discovery rule, plaintiffs would be precluded from filing a lawsuit even before they realize they have been harmed. The rule operates where a breach of contract is committed in secret; where the harm is inherently difficult to detect; and especially where there is a fiduciary relationship between the parties.
In this case, the court prioritizes equity over agreement. Although the parties arguably made a valid agreement for a two-year statute of limitations, the surrounding events made that agreement manifestly unjust. Under a different set of facts, the two-year limit contained in the pre-printed form may very well be enforceable. However, identical forms can yield vastly different results. By retaining effective legal counsel as soon as problems arise, you can predict those results and protect your rights.