PACIFIC SOUTHWEST DEVELOPMENT CORPORATION (a Corporation), Appellant,
v.
WESTERN PACIFIC RAILROAD COMPANY (a Corporation), Respondent.
Supreme Court of California. In Bank.
*63 Gregory M. Creutz for Appellant.
Smith, Van Dyke & Hildreth, H. Allen Smith and Jack E. Hildreth for Respondent.
*64 SPENCE, J.
Plaintiff, a licensed real estate broker, sought compensation for alleged services rendered in connection with defendant's procurement of an option to purchase certain real property. The amended complaint contained in evidentiary detail all the facts on which plaintiff based its right to compensation, including the correspondence between the parties, which was set out in haec verba. At the outset of the trial, the court declared its opinion that plaintiff could not recover because the pleaded agreement was not in writing as required by the statute of frauds. Plaintiff thereupon made an offer of proof, and it was stipulated that the documents pleaded in the amended complaint were deemed to have been offered in evidence, that an objection was made thereto and sustained by the court. Judgment was then entered for defendant, and plaintiff appeals.
As grounds for reversal, plaintiff contends: (1) that the pleaded agreement does not come within the statute of frauds; but (2) if the statute does apply, there was a sufficient writing as required; and (3) in any event defendant is estopped to rely on the statute as a defense. Our review of the record, in the light of the authorities hereinafter cited, leads to the conclusion that plaintiff's contentions cannot be sustained.
The substance of plaintiff's offer of proof is as follows: Cliff A. Nelson, then an employee of the Fortune Realty Company of San Jose, conducted certain negotiations with defendant's representative, F.B. Stratton, for the purchase of the property in question. Various propositions, offers, and counteroffers were discussed by the parties relating to the purchase but no definite arrangements were concluded as to the price to be paid, or concerning any employment of Nelson individually, or of Fortune Realty Company to represent defendant. While negotiations were still pending and on August 15, 1950, Nelson became an employee of plaintiff and remained in such employ until December 15, 1950. Meanwhile Nelson and Stratton continued to correspond. On August 29, Stratton wrote to Nelson suggesting a price of $3,000 per acre and $1,500 for an option. Nelson responded by letter of August 31, advising Stratton that a meeting should be arranged and proposing a 5 per cent commission as defendant's broker.
On September 6, 1950, Stratton met Nelson and plaintiff's president Creutz in Los Angeles. At that time Creutz examined a proposed option agreement submitted by Stratton, *65 subsequently redrafted it, and on September 8, he mailed it to Stratton. Defendant apparently was endeavoring to obtain an option for a purchase price of less than $3,000 per acre. Another meeting of Stratton, Nelson and Creutz was had on September 21, and the option agreement was revised to state the price of $2,500 per acre for the property and $1,500 payable for the option. A few days later Creutz and Nelson conferred with Lenfest, the owner of the property, and the latter's attorney concerning the option agreement. At that time Lenfest objected to the $2,500 per acre price contained in the option agreement and subsequently, on October 3, through his attorney, declined the offer. Nelson reported the outcome immediately to Stratton, who thereupon declared that there was "no hurry about the deal" and "just kind of let him (Lenfest) simmer along." Then without further call upon plaintiff or Nelson, and on October 5, 1950, Lenfest met Stratton and they orally agreed upon an option for a purchase price of $2,750 per acre. This oral agreement was reduced to writing and signed on December 15, 1950. Thereafter pursuant to its terms, defendant purchased the property for $204,517.50, escrow arrangements were concluded, and on June 25, 1951, Stratton forwarded to the Fortune Realty Company defendant's check for $5,112.94, "representing agreed to commission in connection with the purchase ... of the Lenfest property" and with the understanding that "one-half of the above amount, or $2,556.47, will be paid by you to Mr. Nelson." This reference to "agreed to commission" obviously related to the correspondence between Nelson, Stratton, and Fortune Realty Company in May and June, 1951, whereby those parties agreed upon a commission of 2 1/2 per cent of the purchase price to be divided equally between Nelson and Fortune Realty Company, which correspondence was written long after Nelson had left the employ of plaintiff and long after the time that Stratton had obtained the option from Lenfest. Now plaintiff by this action claims that 5 per cent of the total price, or $10,225.87, is owing for its alleged services to defendant.
Plaintiff contends that an agreement authorizing or employing a broker to obtain an option to purchase real property is not within the statute of frauds and therefore is not subject to the requirement that it or some note or memorandum thereof be in writing. (Civ. Code, § 1624, subd. 5; Code Civ. Proc., § 1973, subd. 5.) In support of its position, plaintiff relies on these settled principles: that an option to purchase *66 real property is a contract containing an irrevocable and continuing offer to sell at a stipulated price within a specified time; that it conveys no interest in land to the optionee but vests in him only a right in personam to buy at his election; and that such agreement relating to the sale of land is "by no means a sale of property, but is a sale of a right to purchase." (Warner Bros. Pictures, Inc. v. Brodel,
In California an option to purchase real property has been held to come within the statute of frauds and so must be in writing. (Bovo v. Abrahamson,
Plaintiff cites Howard v. D.W. Hobson Co.,
[1] The term "real estate" as used in our statute of frauds (Civ. Code, § 1624, subd. 5; Code Civ. Proc., § 1973, subd. 5) conforms with the common law definition of real property as including only a freehold interest in land, and excludes estates for years or lesser duration. (Dabney v. Edwards,
[2] In determining the nature of the services which will bring an employment contract within the statute, the phrase "to sell or purchase" includes "to aid or assist in the purchase or sale" of real estate. (Hooper v. Mayfield,
Plaintiff next claims that if the statute of frauds is held to apply to the contract of employment in procuring the option, there nevertheless was a sufficient writing to comply therewith "subscribed by the party to be charged, or his agent." (Civ. Code, § 1624, subd. 5; Code Civ. Proc., § 1973, subd. 5.) But an examination of the documents on which plaintiff relies to meet the specifications of the statute discloses their insufficiency.
[5] The chief element required to be shown in writing is the fact of employment of the broker to act for the principal in the transaction. (9 Cal.Jur.2d § 40, p. 185; Toomy v. Dunphy, supra,
The above letter merely states the terms and conditions on which defendant was willing to negotiate for the property, but it does not show employment of plaintiff to act for defendant. *69 (Morrill v. Barneson,
The only writing with which defendant can be charged here is the letter of August 29, 1950, by Stratton to Nelson, and as above quoted, it made no reference to the fact of employment by defendant of plaintiff or to any compensation. [7] True, the latter reference is not essential if there is a contract of employment, for a reasonable amount as a commission will be inferred. (Toomy v. Dunphy, supra,
[10] Nor is there any merit to plaintiff's contention that defendant is estopped to plead the statute of frauds by reason of the fact that Stratton, on behalf of defendant, finally concluded an option agreement with Lenfest for purchase of the property and the sale was subsequently consummated. This is not a case of unconscionable injury to plaintiff because of a change of position in reliance upon the alleged contract of employment (Le Blond v. Wolfe,
[11] Plaintiff is a licensed real estate broker and, as such, is presumed to know that contracts for real estate commissions are invalid and unenforceable unless put in writing and subscribed by the person to be charged. (Civ. Code, § 1624, subd. 5; Code Civ. Proc., § 1973, subd. 5; Steiner v. Rowley, supra,
In conclusion, it should be said that this case clearly illustrates the desirability of requiring a written memorandum of a contract employing any person as a broker in a transaction of the type involved. Prior to the time that Stratton *71 obtained the option directly from Lenfest at the price of $2,750 per acre, there was no memorandum signed by Stratton which unequivocally evidenced the employment, as defendant's broker, of Nelson individually or Fortune Realty Company, which was Nelson's former employer, or plaintiff, which was Nelson's subsequent employer. A reference to employment and compensation was contained in the above-mentioned letter from Nelson to Stratton dated August 31, 1950, which suggested that a 5 per cent commission be paid by defendant, but this was on the basis of securing an option from Lenfest, the seller, at the price of $2,500 per acre and subject to negotiations concerning certain further conditions. Prior to that letter, the correspondence between Nelson and Stratton is entirely consistent with the idea that Nelson or his employer should look to the owner of the property for any compensation which might be anticipated. Not only did Stratton never agree in writing to Nelson's suggestion of August 31, concerning employment or commission but furthermore, no option to purchase at $2,500 per acre was ever obtained. After Lenfest refused to grant an option at that price and on satisfactory conditions, Stratton and Lenfest negotiated directly, and without the aid of any broker, upon the final terms of an option at $2,750 per acre. In this situation, and without any showing in the record that there was any binding obligation on the part of defendant to pay a broker's commission to anyone, defendant finally agreed to, and did pay to, Fortune Realty Company and Nelson the sum of $5,112.94 for their services. There is therefore no legal or equitable basis shown to sustain plaintiff's action against defendant for its claimed compensation in said transaction.
The judgment is affirmed.
Gibson, C.J., Shenk, J., and Traynor, J., concurred.
McCOMB, J.
I dissent for the reasons set forth by Mr. Justice Fourt in the opinion prepared by him for the District Court of Appeal in (Cal. App.)
SCHAUER, J., Dissenting.
I agree with Justice McComb that the judgment should be reversed but I prefer to place the reversal on another ground.
Regardless of whether an agreement employing a real estate broker, for a commission, to secure an option to purchase real property does or does not come within the provisions *72 of subdivision 5 of section 1624 of the Civil Code (and Code Civ. Proc., § 1973, subd. 5), I am of the view that plaintiff is entitled to a hearing on the merits of his claim.
The amended complaint alleges, and the offer of proof comprehends a showing, that: (1) Nelson, the negotiating salesman, was, throughout most of the period he was rendering the service to defendant, an employe of plaintiff broker; (2) defendant was aware of the above stated relationship, and its dealings with salesman Nelson, under the circumstances, appear to be dealings with Nelson's employer, the broker-plaintiff; (3) defendant, through its authorized employe Stratton, wrote Nelson, "I think everything is in order for the acquisition of the property and as soon as the escrow is closed will get in touch with you so that the commission factor can be disposed of. Believe I told you we would pay 50% [sic] commission through Fortune with the understanding that you would receive half."
The above quoted writing, which is subscribed by Stratton with his signature over the designation of his office with defendant, "Industrial Commissioner," appears on its face to constitute "some note or memorandum" of employment and of obligation to pay a commission. Perhaps "Fortune," as well as plaintiff and Nelson, should be parties to the litigation with defendant, but defendant, having acknowledged the employment of an "agent or broker" and an obligation to pay a commission for Nelson's services as a real estate agent rendered during a time when he was employed by the plaintiff broker, is not in my view entitled to judgment on demurrer. A writing made subsequent to partial execution of the agreement meets the statute of frauds. (See Walsh v. Standart (1917),
In this connection it is further to be noted that Nelson on July 24, 1950, advised defendant that "Re my new connection, I will be in charge of the Industrial Department of Pacific Southwest Development Corporation ... Have written my superior, Mr. Gregory M. Creutz, who is President ... about our development deal here in San Jose. Haven't had a chance to discuss it with him personally yet but believe we will be interested." In response to the above mentioned letter defendant's representative addressed his letter as follows, "Mr. Cliff A. Nelson, Manager Industrial Department, Pacific Southwest Development Corp.," and stated therein that "I am in a position to take an option on the Lenfest property *73 at $3,000.00 per acre. We would not wish to pay more than $1,500.00 for the option ..." Thereafter, under date of September 8, 1950, Mr. Nelson on the letterhead of "Pacific Southwest Development Corporation" wrote to defendant's representative that "In keeping with our conversation of Wednesday it is our understanding that the five per cent commission on the final sale price of the properties mentioned ... would be paid to us by Western Pacific Railroad and we would not look to Lenfest or Cappelloni for any commissions. We prefer this since we are going to represent you rather than the sellers.... As mentioned, Pacific Southwest Development Corporation will take care of an equitable payment that may appear to be due to Fortune Realty for their work up to the date of my coming with this corporation and transferring my salesman's license down here from Fortune Realty Co."
In the light of the circumstances shown I am of the view that a question of mixed law and fact arises. Is it not permissible to construe defendant's admission of employment of a broker or agent, and admission of liability for a commission, as running in favor of plaintiff? It seems to me that we should not hold on demurrer (to the evidence as well as the pleading) that a construction in favor of plaintiff could not be supported.
For the reasons above stated I would reverse the judgment.
CARTER, J.
I dissent.
I agree with Mr. Justice McComb that an agreement to obtain an option to buy real property does not come within an agreement employing an agent "to purchase or sell real estate" within the statute of frauds inasmuch as it is nothing more than employing an agent to obtain personal property a chose in action. (Civ. Code, § 1624, subd. 5.) In addition to the discussion in the able and learned opinion prepared by Mr. Justice Fourt for the District Court of Appeal (Cal. App.)
I also agree with Mr. Justice Schauer in his dissent, that, assuming a writing is necessary the case should be tried to see if there is a sufficient memorandum here. The memorandum pleaded appears to be sufficient.
I further believe, however, that on the third ground urged by plaintiff, estoppel, the defendant could not rely on the statute of frauds. In Monarco v. Lo Greco,
I would reverse the judgment.
Appellant's petition for a rehearing was denied October 31, 1956. Carter, J., Schauer, J., and McComb, J., were of the opinion that the petition should be granted.
