Court holds buyer can apply the “discovery” rule to delay the statute of limitation in a suit against his broker for concealing construction defects.

Lyon & Associates v. Henley (Cal. Court of Appeal, 3rd District)

2012 DJDAR 4655 (April 12, 2012)

Lyon & Associates involved a claim by the buyer of a house against the broker acting as a dual agent for both buyer and seller in the context of a motion for summary judgment. Henley, the buyer, sued Lyon, his broker (which was acting as dual agent), for breach of contract for allegedly breaching duties as broker for the buyer.  Henley alleged Lyon failed to perform a reasonable inspection and disclose material facts concerning construction defects. Henley sued roughly three years after purchasing the property.

Lyon defended itself by claiming Henley had failed to file suit within the two-year statute of limitation found in Civil Code section 2079. 4. The Court of Appeal, however, found such section only applied to a breach by the seller’s broker to the buyer under section 2079 (the codified Easton rule). Here, Henley sued Lyon in its role as buyer’s broker.

The Court then considered whether the statutory four-year statute of limitation for contract actions applied or whether the more restrictive two-year limitation contained in the purchase contract applied. Because Henley alleged and presented some supporting (yet disputed) facts indicating Lyon may have concealed information about the defects, the Court reasoned that the “discovery rule” should apply in this case (meaning the statute of limitation only starts to run after the party reasonably should have discovered the facts essential to his claim). Such rule is regularly applied in tort cases but has limited application in contract cases where parties can contractually agree to shorten a statute of limitation if it is not unreasonable or does not reflect imposition or undue advantage.

Because Lyon was sued in its capacity as the Henley’s broker, in which a fiduciary duty was owed, and because the allegations and some evidence supported Henley’s claim that Lyon’s malfeasance contributed to the delay in discovering the injury, the Court concluded the discovery rule should apply in this case. By applying the discovery rule here, Henley’s suit was within the two-year contractual limitation in the contract and timely. The Court reversed the trial court ruling and sent Henley back to the trial court.


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