DAVID E. PHILLIPPE, Plaintiff and Appellant, v. SHAPELL INDUSTRIES, INC., Defendant and Appellant.
L.A. No. 32034
Supreme Court of California
Oct. 29, 1987.
43 Cal. 3d 1247
Fleischman & Rigdon and Robert N. Rigdon for Plaintiff and Appellant.
William M. Pfeiffer, Stephen A. Groome and Steven A. Sokol as Amici Curiae.
OPINION
EAGLESON, J.—A jury found in favor of plaintiff, a licensed real estate broker, in his action to recover a broker‘s commission from defendant, a real property buyer. Defendant appeals. The primary issue before us is whether a licensed real estate broker may assert equitable estoppel against a statute of frauds defense in an action by the broker to recover a real estate commission.
We conclude that a licensed real estate broker cannot invoke equitable estoppel to avoid the statute of frauds unless the broker shows actual fraud. To decide otherwise would be contrary to nearly unanimous precedent spanning several decades and to the purpose of the statute of frauds. The trial court‘s judgment in favor of plaintiff is reversed with directions to enter judgment in favor of defendant.
FACTS
Viewed on appeal in a light most favorable to plaintiff David E. Phillippe (hereafter Phillippe) the evidence establishes the following: Phillippe is a real estate broker licensed for 20 years by the State of California. Defendant Shapell Industries, Inc. (hereafter Shapell) is a corporation engaged in the construction of residential housing tracts and periodically purchases land for such construction. Shapell is also a licensed California real estate broker.
Phillippe was first contacted by Shapell in early 1972 in connection with its efforts to acquire a 78-acre parcel of land in the San Diego area. Phillippe was the listing agent for the landowner. Shapell purchased the property in December 1972 and paid Phillippe $153,100 for his services as a broker.
In January 1973, Prince, then Shapell‘s director of land acquisition, contacted Phillippe to determine if he would be willing to work with Shapell on additional land acquisitions. They orally agreed that Phillippe would assist Shapell in finding suitable land in the Palos Verdes Peninsula area in Southern California. Phillippe explained to Prince that Phillippe then had no
Phillippe wrote to Prince on April 5, 1973, about a parcel of land owned by the Filiorum Corporation. Phillippe stated that he was “waiting for a price quote on the property” and suggested that Prince take a look at it. He also stated in this letter: “We present the property to Shapell with the understanding that Buyer will pay our firm a commission, which, when added to the net price of the land, will equal 6% of the total consideration.”
By letter from Prince dated May 4, 1973, Shapell submitted to Phillippe an offer to purchase the Filiorum property and stated that “Buyer agrees to pay the Management Trend Company [Phillippe‘s firm] a commission [which] when added to the net price of the land will equal 6% of the total consideration. This commission should be paid at the close of escrow.” The sale of the Filiorum property was not consummated due to geological problems. No commission was paid to Phillippe.
On August 9, 1973, Phillippe again wrote to Prince, this time informing Shapell of the locations and owners of 4 properties on the Palos Verdes Peninsula including a 94-acre parcel owned by Great Lakes Properties, Inc. (hereafter the Great Lakes property). Phillippe also stated in this letter that “[i]n the event properties are purchased from any of the above companies, these properties are presented with the understanding that Buyer agrees to pay Management Trend Company, or assignee, a commission which when added to the net purchase price of the land will equal 6% of the total consideration to be paid at close of escrow.” Shapell did not respond in writing to Phillippe‘s letter. Shapell did not purchase the Great Lakes property at that time because the zoning of the property was too restrictive for Shapell‘s construction purposes.
Throughout late 1973 and early 1974, Phillippe continued to try to bring about a sale of the Great Lakes property to Shapell. He discussed a sale with the owner of the Great Lakes property. Phillippe suggested a price formula and noted Shapell‘s financial ability to purchase the property. Phillippe also wrote several letters to Shapell, the last of which was dated April 30, 1974, and was addressed to Joseph Aaron, a Shapell vice president. In this letter, Phillippe reviewed prior negotiations for the Great Lakes property and in connection with commissions stated: “The commission arrange-
In February 1974, the Great Lakes property was rezoned from one dwelling unit per two acres to two dwelling units per acre. Nothing more happened regarding the Great Lakes property until late 1975 when Aaron telephoned the property owner and learned that 63 acres were still available for sale. Direct negotiations between Shapell and the owner followed, and in March 1976 Shapell signed a purchase and sale agreement for 63 acres. The sale closed on August 27, 1976. The sale price was $2,718,750. Shapell‘s written purchase offer did not provide for any commission to Phillippe.
When Phillippe learned that Shapell had agreed to buy the Great Lakes property, he wrote to Aaron on June 9, 1976, and requested a commission on the purchase. Phillippe reminded Aaron that Phillippe had agreed to work for Shapell “on the condition and with the understanding that our firm was working for and represented Shapell, the buyer, as brokers and would be paid a brokerage commission from buyer of 6% of the total consideration paid for the acquired property.” Phillippe also reviewed his efforts regarding the Great Lakes property.
On June 16, 1976, Aaron responded by letter informing Phillippe that Shapell would not pay him a commission. Aaron claimed that there had been no mutual agreement of representation and that Shapell had been negotiating for the Great Lakes property “prior to and independent of any representations” by Phillippe.
In April 1977, Phillippe filed suit against Shapell to recover a 6 percent broker‘s commission for the sale of the Great Lakes property and other alleged damages. The case was tried in February 1982 and went to the jury on three theories of recovery. First, Phillippe sought recovery of a 6 percent broker‘s commission on the basis of either a written agreement of employment, a memorandum of employment sufficient to satisfy the statute of frauds, or an equitable estoppel to preclude Shapell from asserting the statute of frauds as a defense. Second, Phillippe sought a 6 percent finder‘s fee based on an alleged agreement with Shapell. Third, he sought a 6 percent commission based on an alleged agreement between himself and Shapell as brokers to share a commission.
The jury found by special verdict that Phillippe was the procuring cause of the purchase of the Great Lakes property by Shapell and awarded Phillippe $125,000 on his first theory of recovery but rejected his other two
Shapell appeals on the grounds, inter alia, that Phillippe‘s claim is barred by
DISCUSSION
The Agreement Between Phillippe and Shapell Is Subject to the Statute of Frauds.
Phillippe argues that the statute is inapplicable because he was not acting as a broker for the Great Lakes property purchased by Shapell, but only as a “professional consultant in the field of subdivision land acquisition.” A licensed broker may be able under appropriate circumstances to recover under an oral agreement or in quantum meruit for certain services other than the purchase, sale, or leasing of real property. (Owen v. National Container Corp. of Cal. (1952) 115 Cal.App.2d 21, 25-26; Carey v. Cusak (1966) 245 Cal.App.2d 57, 69.) Phillippe fails to cite, and we are unable to find in the record, any evidence of professional services rendered to Shapell other than those a
Phillippe‘s own evidence makes clear that he was acting as a broker. In his April 5, 1973, letter to Prince, Phillippe stated that he was “waiting for a price quote on the property.” When Phillippe wrote to Aaron on June 9, 1976, requesting a commission, Phillippe described his relationship with Shapell and the nature of his services as follows: “Early in 1973 our firm was asked by Ron Prince of Shapell to do an extensive survey of properties available for sale on the Palos Verdes Peninsula. We agreed to do so on the condition and with the understanding that our firm was working for and represented Shapell, the buyer, as brokers and would be paid a brokerage commission from buyer of 6% of the total consideration paid for the acquired property.” (Italics added.) Phillippe viewed himself as a broker. The nature of his claimed compensation was that of a broker‘s fee—it was contingent on a sale, and it was in the customary amount charged by brokers. We agree with the observation that, “if an object looks like a duck, walks like a duck and quacks like a duck, it is likely to be a duck.” (In re Deborah C. (1981) 30 Cal.3d 125, 141 [conc. opn. of Mosk, J.].) It is clear that Phillippe was acting as a broker.
We view Phillippe‘s characterization of himself as other than a broker as semantic sleight-of-hand. Phillippe tried this case on the primary theory that he is entitled to a broker‘s commission. The jury found in Phillippe‘s favor only on his claim for a broker‘s commission. He now says he was never acting as a broker. Even if that were so, the general rule is that a party may not for the first time on appeal change his theory of recovery. (Bogacki v. Board of Supervisors (1971) 5 Cal.3d 771, 780.)
Phillippe also contends
First, the primary purpose of
Second, if Phillippe means the statute does not apply because there was an agreement with Shapell to share a broker‘s commission, we reject that argument as well. Shapell was acting as a principal, not as a broker. The jury found by special verdict that there was no valid agreement between Phillippe and Shapell to share a broker‘s commission. Substantial evidence supports that finding. It must not be disturbed on appeal. (Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660.) Thus, we need not decide whether such commission-sharing agreements are within the ambit of
The Agreement Between Shapell and Phillippe Does Not Meet the Requirements of Section 1624.
A broker‘s real estate commission agreement is invalid under
To satisfy this requirement, Phillippe relies on the considerable correspondence between Shapell and himself. “It is for the court to determine whether letters which have passed between parties constitute an agreement between them.” (Wristen v. Bowles (1889) 82 Cal. 84, 87; Niles v. Hancock (1903) 140 Cal. 157, 163.) We have carefully reviewed the record. We find no written agreement or memorandum sufficient to comply with
The only writings that relate to a commission on the Great Lakes property are from Phillippe to Shapell. There is no evidence of a writing signed by Shapell showing the fact of Phillippe‘s employment to act as a broker for Shapell as to the Great Lakes property. There is only one letter in the exchange of correspondence referring to Phillippe‘s employment that is signed by Shapell. That is the letter of May 4, 1973, from Prince, Shapell‘s director of land acquisition, to Phillippe in which Shapell offered to buy the
Where a broker‘s only agreement with his principal relates solely to specifically described property, the principal is not liable to the broker for a commission on the purchase of different property unless the broker‘s written employment agreement covers the other property. (Frederick v. Curtright (1955) 137 Cal.App.2d 610, 614.) The only writing signed by Shapell referred to the Filiorum property, not to the Great Lakes property, and is not sufficient under
A writing signed by Shapell is not all that is lacking. The alleged oral commission agreement entered into in January 1973 was devoid of specifics. For example, there was no agreement as to the price range of properties that Phillippe would present to Shapell. There was no agreement as to geographic location other than the possible limitation to the Palos Verdes Peninsula, an area so large and loosely defined as to be almost meaningless. Nor was there any time specified within which Phillippe was to present the properties. We need not decide whether the absence of one or more such specifics would be fatal to the alleged agreement. The total lack of meaningful terms and conditions is the problem. Under the oral agreement, Shapell could have been charged with a commission for any property presented at any time by Phillippe. Such open-ended liability is unacceptable.
We hold there was no writing sufficient under the statute of frauds.
The Doctrine of Equitable Estoppel Does Not Prohibit Shapell From Asserting the Statute of Frauds as a Defense.
Phillippe argues that Shapell should be estopped from asserting the statute of frauds as a defense even if the agreement between them was oral and thus invalid under the statute. Phillippe contends estoppel is proper because he changed his position by performing services in reliance on Shapell‘s oral promise to pay a commission on the Great Lakes property. Phillippe correctly cites Monarco v. Lo Greco (1950) 35 Cal.2d 621 for the proposition that estoppel is proper to avoid unconscionable injury or unjust enrichment that would result from refusal to enforce an oral promise. The principle set forth in Monarco does not, however, support the application of equitable estoppel in the present case.
We held in Tenzer that an unlicensed real estate finder was entitled to invoke the doctrine of equitable estoppel against a statute of frauds defense in his action to recover a commission under an oral finder‘s fee agreement. (Id., at p. 28.) Because real estate brokers must be licensed to conduct business (
In allowing equitable estoppel in Tenzer, we carefully distinguished between unlicensed finders and licensed brokers. “The rationale for the rigorous application of the statute of frauds to bar claims by licensed real estate brokers is related to the statutory licensing requirements. ‘Real estate brokers are licensed as such only after they have demonstrated a knowledge of the laws relating to real estate transactions (
The courts have long had little sympathy for the broker who fails to adhere to the statute of frauds. In Marks v. Walter G. McCarty Corp., supra, 33 Cal.2d 814, the plaintiff broker had dealt for several months with the owner of a hotel without obtaining a signed employment agreement. The hotel was eventually sold as a result of the broker‘s efforts, but he was not paid a commission. This court accepted the trial court‘s findings that the defendant had promised to pay the broker a commission and that the broker was the procuring cause of the sale, but decided that the broker was not entitled to recover a commission because his agreement did not comply with the statute of frauds. “The plaintiff, a man of experience in this line of business, knew how to protect himself in the transaction but failed to do so.” (Id., at p. 823.)
We believe the distinction between licensed brokers and unlicensed finders remains valid. We are not alone. Many “courts distinguish between persons in the traditional categories [of the statute of frauds] and brokers, who are assumed to be familiar with the laws governing their occupation.” (Rest.2d Contracts (1981) § 126, reporter‘s note, p. 317.) An applicant for a broker‘s license must demonstrate by written examination that he or she has an understanding of “the general purposes and general legal effect of agency contracts.” (
What is the effect of this presumed knowledge? In Monarco v. Lo Greco, supra, 35 Cal.2d 621, 623, the court observed that estoppel can be applied “to prevent fraud.” The court explained that it was not speaking of actual fraud but of the “fraud” that inheres in situations where there is an unconscionable injury to the promisee under an invalid oral contract or unjust enrichment to the promisor. (Ibid.; see generally 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 325, p. 305.)
In Pacific Southwest, supra, 47 Cal.2d 62, decided after Monarco, the court held that a licensed real estate broker seeking to recover a commission under an oral agreement could not assert equitable estoppel to avoid the statute of frauds. The court addressed both factors set forth in Monarco—unconscionable injury and unjust enrichment. The court determined that the mere fact that the broker had rendered services under an oral agreement did not constitute a change of position to his detriment. (Id., at p. 70.) He suffered no unconscionable injury. Stated another way, the broker‘s reliance on the oral contract was not reasonable in light of the broker‘s presumed knowledge of the requirements of the statute of frauds. To give rise to equitable estoppel, the promisee‘s reliance must be reasonable. (See Bigelow, Law of Estoppel (6th ed. 1913) p. 682; Note, Part Performance, Estoppel and the California Statute of Frauds (1951) 3 Stan.L.Rev. 281, 289.) We agree with the statement in Pacific Southwest that the broker “assumed the risk of relying upon claimed oral promises of defendant, and it [the broker] has no cause for complaint if its efforts go unrewarded.” (47 Cal.2d at p. 70; Marks v. Walter G. McCarty Corp., supra, 33 Cal.2d 814, 823.) Phillippe did nothing more than perform services pursuant to an invalid agreement. Phillippe‘s reliance on the oral contract was not reasonable, and he therefore suffered no unconscionable injury. (Colburn v. Sessin (1949) 94 Cal.App.2d 4, 6.)
In accord with our analysis that a licensed broker cannot reasonably rely on an unenforceable oral promise of compensation, we disapprove of Le Blond v. Wolfe, supra, 83 Cal.App.2d 282, to the extent that the court allowed a licensed broker to assert equitable estoppel. The broker contended that he had suffered an unconscionable injury by cancelling an otherwise valid contract with a real estate seller in reliance on the buyer‘s oral promise that he would pay the broker‘s commission. A broker cannot create an unconscionable injury by taking extreme action. If it is unreasonable to
Phillippe‘s reliance was especially unreasonable in light of his knowledge that Shapell is also a licensed broker. Phillippe had to have known that Shapell was aware that commission agreements must be in writing. That Shapell never confirmed in writing any agreement regarding the Great Lakes property should have indicated to Phillippe that Shapell believed either there was no such agreement or that it would not be enforceable. (We do not suggest that Shapell secretly intended to rely on
The alternate basis for estoppel is unjust enrichment. Phillippe has not shown any unjust enrichment of Shapell. The most Phillippe has shown is that Shapell did not pay for his services. The fact that a broker‘s principal does not pay for the broker‘s services under an unenforceable oral contract does not constitute unjust enrichment sufficient to support equitable estoppel. In Marks v. Walter G. McCarty, supra, 33 Cal.2d 814, the court denied recovery to a broker under an oral contract despite having accepted the trial court‘s finding that the broker was the procuring cause of the sale. Likewise here, the jury‘s finding that Phillippe was the procuring cause of the sale to Shapell does not by itself establish unjust enrichment sufficient to give rise to equitable estoppel.11
To determine that mere nonpayment constitutes unjust enrichment sufficient for estoppel would also conflict with consistent holdings that licensed brokers, who cannot recover under oral agreements invalid under the statute of frauds, are also prohibited from recovery in quantum meruit
There would be no point in deciding, as we have, that a licensed broker cannot show an unconscionable injury sufficient to assert estoppel based only on the fact that the broker performed services without payment, but then to conclude that the nonpayment constitutes unjust enrichment sufficient to allow estoppel. A dissatisfied broker could prevail by merely labeling his theory of recovery as unjust enrichment rather than unconscionable injury.
We hold that a licensed real estate broker or salesperson cannot assert equitable estoppel against a statute of frauds defense to an oral commission agreement that is subject to
The original statute of frauds was enacted in England more than 300 years ago. (An Act for the Prevention of Frauds and Perjuries, 1677, 29 Car. 2, ch. 3.) Variations of the original English statute have been widely enacted in the United States. The State of California first enacted its version in 1872. The Legislature expanded the statute in 1878 to include real estate commission agreements. Despite much criticism,
The statute of frauds is also indisputably significant. It has been characterized as, “the most important statute ever enacted in either country [England and the United States], relating to civil affairs.” (Bishop, Law of Contracts (1878) § 498, p. 177.) By acknowledging the statute‘s importance, we do not express our opinion as to its worth. Whether this court likes
We believe the legislative preference for written contracts is stronger than ever before. The Legislature has demonstrated with increasing frequency its desire to provide consumers with the security and certainty of written contracts in a wide variety of transactions. This legislative trend is not new. More than 20 years ago, a commentator noted that, “[n]otwithstanding what appears to be a disfavorable attitude of the courts towards the Statute [of Frauds], the legislative trend has been in the direction of expanding rather than restricting the scope of the writing requirement.” (Comment, Equitable Estoppel and the Statute of Frauds in California, supra, 53 Cal.L.Rev. 590, 592, fn. 15.) A brief list of consumer contracts now required to be in writing demonstrates this clear legislative purpose: home improvement contracts in excess of $500; (
It is not unfair to require licensed brokers to comply with the statute of frauds. Only those persons licensed by the California Department of Real Estate may lawfully act as real estate brokers in this state. ( Section 1624(d) is perhaps more fairly applied now against brokers than when first enacted. Brokers were not then required to be licensed, and they may have had little or no legal knowledge. Application of section 1624(d) might have come as a surprise a century ago. In view of the current educational requirements, a broker cannot be surprised by section 1624(d). Phillippe, the California Association of Realtors as amicus curiae, and various commentators contend that brokers are often not in sufficiently strong bargaining positions to obtain written employment contracts from their principals and suggest that this disparity of bargaining power is most common in the commercial real estate market. Phillippe urges that section 1624(d) should not bar recovery on an oral contract in that situation because the statute is contrary to industry custom and practice. We reject that contention for several reasons. Section 1624(d) does not include an exception based on the relative bargaining strength of the parties to a contract. Any such exception must be created by the Legislature, not by this court. If the Legislature believes that section 1624(d) is not workable in the real estate marketplace, the Legislature can act accordingly.13 Even if we had the prerogative and inclination to The lack of evidence aside, we are not persuaded that section 1624(d) is inappropriate merely because there may be a disparity of bargaining power between a broker and his principal. The resolution of disputes would be complicated. Even defining bargaining power would be troublesome. Would it include legal knowledge and commercial sophistication? If so, how would a court measure those factors? Would it include financial strength? If so, to determine whether there was a disparity, a court would likely have to conduct a detailed examination of the parties’ respective financial conditions thus creating a need for considerable pretrial discovery and protracted litigation. Those engaged in real property transactions ordinarily desire certainty in their financial dealings. If bargaining power were relevant, the parties would not know (and could not know) at the time of entering into an oral agreement whether it would be an enforceable contract. Each party would have to speculate as to whether he possessed some quality, e.g., finances, knowledge, or even better negotiating skills, that created an imbalance in bargaining power. Whenever a dispute arose, a court would then have to determine whether there was a disparity of power. To hold that the validity of a commission agreement depends on relative bargaining power would lead to great uncertainty. We believe a distinction based on disparity of bargaining power would lead to unnecessary complexities. We are also not persuaded that section 1624(d) should be disregarded in a commercial setting. That suggestion is premised on the unsupported allegation that written commission agreements are often not used in commercial real estate transactions.14 No evidence is before us regarding industry cus We are inclined to believe that the business community in general may favor written contracts. They provide certainty and predictability. In the only empirical study we have been able to locate, more than half of the businesses (manufacturers) surveyed favored enforcement of only those agreements that comply with the statute of frauds, and almost two-fifths favored a change in the law to make even fewer agreements enforceable. (Comment, The Statute of Frauds and the Business Community: A Re-appraisal in Light of Prevailing Practices (1957) 66 Yale L.J. 1038, 1058.) More than 50 years ago, one of the leading commentators on contracts observed that the statute of frauds was even then becoming more useful due to the increasing volume and complexity of commercial transactions. (Llewellyn, What Price Contract?—An Essay in Perspective (1931) 40 Yale L.J. 704, 747.) The commercial world is now even more complex, and Llewellyn‘s observation appears to remain sound, perhaps more so than when he made it. The business community‘s preference for written contracts was stated most colorfully in the memorable malaprop attributed to motion picture producer Samuel Goldwyn: “An oral contract isn‘t worth the paper it‘s written on.” (Shavelson, Hollywood Signs: Movie Moguls Who Gave the Golden Era Its Shine, L. A. Times (July 27, 1986) Calendar Section, p. 24.) Written contracts appear to have diverse, substantial support. Last and most important, there is no exception for commercial transactions stated in the statute. An unequivocal statute must take precedence over mere custom. Indeed, the widespread custom of not using written contracts in real estate transactions was apparently a reason why section 1624(d) was enacted in the first instance. In Tenzer v. Superscope, supra, 39 Cal.3d 18, the court held that the statute of frauds does not preclude an action for actual fraud. (Id., at pp. 28-31.)16 Although the plaintiff in Tenzer was an unlicensed real estate finder, the Tenzer court did not distinguish in its discussion of actual fraud between unlicensed finders and licensed brokers and did not suggest that its holding regarding actual fraud should be limited to unlicensed finders. (This lack of Phillippe did not plead a cause of action for actual fraud. We believe it necessary, however, to explain how our present holding necessarily would affect an action by a licensed broker for actual fraud. To recover for fraud in any case the plaintiff must show that he reasonably relied on the defendant‘s misrepresentations. The plaintiff cannot recover if his reliance was not justified or reasonable. (Wagner v. Benson (1980) 101 Cal.App.3d 27, 36 [161 Cal.Rptr. 516]; see generally 4 Witkin, Summary of Cal. Law (8th ed. 1974) Torts, § 475, p. 2734; 3 Pomeroy, Equity Jurisprudence (5th ed. 1941) § 891, pp. 505-510.) As discussed above, a broker‘s presumed knowledge of the statute of frauds precludes him from showing the reasonable reliance on an oral agreement that is necessary to assert equitable estoppel. (Pac. etc. Dev. Corp. v. Western Pac. R. R. Co., supra, 47 Cal.2d 62, 70; Marks v. Walter G. McCarty Corp., supra, 33 Cal.2d 814, 823; Osborne v. Huntington Beach etc. School Dist. (1970) 5 Cal.App.3d 510, 515 [85 Cal.Rptr. 793].) Likewise, an oral promise by a broker‘s principal to execute the required writing at a later date will not give rise to estoppel. (Colburn v. Sessin, supra, 94 Cal.App.2d 4, 5.) By parity of reasoning, a broker‘s reliance on an oral promise to pay a commission or an oral promise to execute the required writing at a later date cannot be sufficiently reasonable to support an action for fraud. A broker‘s reliance, however, on a representation that the necessary contract has in fact been executed may be reasonable and thus support an action for fraud or the assertion of equitable estoppel. ( There may be other types of promises on which a broker could reasonably rely. We do not purport in this opinion to identify every such promise. We believe, however, that a licensed broker‘s reliance can be reasonable only in rather limited circumstances. Whether a broker‘s reliance is reasonable must be determined on the facts of each case. We hold that Phillippe‘s alleged oral commission agreement is invalid under section 1624(d). Phillippe cannot avoid the requirements of section 1624(d) by asserting equitable estoppel. We reverse the judgment in all Lucas, C. J., Arguelles, J., Roth (Lester Wm.), J.,* and Woods (Arleigh M.), J.,† concurred. KAUFMAN, J.—I respectfully dissent. The majority opinion broadly holds that except in cases of actual fraud, a licensed real estate broker may not assert equitable estoppel to avoid the statute of frauds—regardless of the particular facts and circumstances of the case, of the relative equities of the parties, or of the injustice that may result absent an estoppel. Neither settled law nor sound public policy supports such a harsh and inflexible rule. My views on the matter are set forth below. The first statute of frauds was enacted several hundred years ago to prevent “many fraudulent practices . . . .” (An Act for Prevention of Frauds and Perjuries, 1677, 29 Car. 2, ch. 3 (1677).) Its function in modern society has been described as two-fold: first, “evidentiary,” in the sense that a writing obviates the opportunity for fraud through perjury and limits disputes over whether a contract has been formed or over the terms thereof; and second, “cautionary,” on the theory that a writing serves to prevent hasty bargains and impresses upon the parties the solemnity of the agreement. (See Comment, Equitable Estoppel and the Statute of Frauds in California (1965) 53 Cal.L.Rev. 590, 591.) Thus as the majority opinion points out, the statute of frauds enjoys continued vitality today in the form of numerous and varied consumer protection statutes. (Majority opn., ante, at p. 1265.) And both evidentiary and cautionary functions are clearly well served by provisions such as the one at issue here, subdivision (d) of The doctrine of equitable estoppel developed out of the recognition that equity must occasionally estop the assertion of the statute of frauds precise Under the broad equitable principles set forth in Monarco, the trier of fact exercises considerable discretion in determining whether to enforce the statute of frauds or to estop its effect in the interests of justice. (See Mehl v. People ex rel. Dept. Pub. Wks. (1975) 13 Cal.3d 710, 715-716 [119 Cal.Rptr. 625, 532 P.2d 489] [“Estoppel is a question of fact, and the determination of the trier of fact is binding on appeal unless the contrary conclusion is the only one that can reasonably be drawn from the evidence.“].) Each case requires a balancing of the interests of the plaintiff that would be lost through enforcement of the statute against the interests of the state that the statute was designed to protect. (Tri-Q, Inc. v. Sta-Hi Corp. (1965) 63 Cal.2d 199, 219-220 [45 Cal.Rptr. 878, 404 P.2d 486]; Macaulay, Justice Traynor and the Law of Contracts (1961) 13 Stan.L.Rev. 812, 828, fn.46 [“The new position [under Monarco] calls for a case-by-case definition of when reliance is ‘unconscionable’ and when enrichment is ‘unjust.‘“].) Nothing in the holding or the reasoning of Monarco, supra, 35 Cal.2d 621, suggests that the general equitable principles set forth therein were meant to be limited to any particular class of contracts or group of plaintiffs. Indeed, as this court wrote years earlier in Seymour v. Oelrichs (1909) 156 Cal. 782 at page 795 [106 P. 88]: “We can see no good reason for limiting the operation of this equitable doctrine to any particular class of contracts included within the statute of frauds, provided always the essential elements of an estoppel are present, or for saying otherwise than as is intimated by Mr. Pomeroy in the words already quoted, viz., that it applies Nevertheless, the notion has gained currency among the Courts of Appeal, partly in reliance on this court‘s decision in Pacific etc. Dev. Corp. v. Western Pacific R. R. Co. (1956) 47 Cal.2d 62 [301 P.2d 825], and partly on the basis of the public policy underlying section 1624(d), that licensed real estate brokers are precluded as a matter of law from invoking equity to estop the assertion of section 1624(d). Neither settled law nor sound public policy supports this conclusion. Since Monarco, supra, 35 Cal.2d 621 this court has considered a licensed broker‘s suit on an oral employment contract in three cases. The first of these, Pacific etc. Dev. Corp. v. Western Pac. R. R. Co., supra, 47 Cal.2d 62, involved a broker‘s suit for a 5 percent commission on an oral contract to procure an option to purchase certain land. Nelson, the broker, had engaged in negotiations with the defendant, the prospective buyer, over various propositions and offers that might be made for the purchase, but no final arrangements were made for Nelson‘s employment or for the final terms of any offer. During the course of negotiations, Nelson left his employer, the Fortune Realty Company, to become an employee of plaintiff, the Pacific Southwest Realty Corp. Subsequent negotiations between Nelson, plaintiff‘s president and defendant resulted in an offer of $2,500 per acre and $1,500 for the option, but the owner of the property declined the offer. One month later, without further call on Nelson or plaintiff, defendant purchased the property for $2,750 an acre and forwarded a check representing a 2 1/2 percent commission to Nelson‘s former employer, Fortune Realty, with the understanding that half of the commission was to go to Nelson. Plaintiff thereupon sued defendant on an alleged oral agreement to pay it a 5 percent commission. The trial court entered judgment in favor of defendant on the ground that the agreement was not in writing as required by the statute of frauds. We affirmed, holding, inter alia, that defendant was not estopped to plead the statute of frauds merely “by reason of the fact that [defendant] . . . finally concluded an option agreement with [the owner] for purchase of the property and the sale was subsequently consummated.” (47 Cal.2d at p. 70.) We further stated: “The fact that plaintiff rendered services and conducted unsuccessful negotiations with [the property owner] does not constitute a change of position to plaintiff‘s detriment, nor does the fact that defendant The foregoing language from Pacific has been cited as the basis for a strict application of section 1624(d) (see, e.g. Jaffe v. Albertson Co. (1966) 243 Cal.App.2d 592, 605 [53 Cal.Rptr. 25]), and indeed, constitutes the principal authority in the majority opinion in support of that proposition (majority opn. ante at p. 1260). Such reliance is misplaced. Nothing in Pacific suggests that this court was announcing an ironclad rule of law prohibiting the use of equitable estoppel in any action by a licensed real estate broker on an oral contract. Rather, it is reasonably clear from the court‘s extensive recitation of the facts in its discussion of estoppel, that the decision was based simply on the grounds that the facts did not establish an estoppel. (47 Cal.2d at pp. 70-71.) The equities in favor of the plaintiff brokerage firm were not compelling: it had entered the negotiations late and apparently had contributed little to what Nelson had already accomplished while employed by Fortune Realty; furthermore, as the court noted, “no option to purchase at $2,500 per acre was ever obtained,” and finally, there was no unjust enrichment, since defendant had paid a broker‘s commission, albeit to the original parties, Nelson and Fortune Realty, rather than to the plaintiff. (47 Cal.2d at p. 71.) Since the 1956 decision in Pacific, this court has considered a broker‘s suit on an oral contract in two cases, Beazell v. Schrader (1963) 59 Cal.2d 577 [30 Cal.Rptr. 534, 381 P.2d 390] and Franklin v. Hansen (1963) 59 Cal.2d 570 [30 Cal.Rptr. 530, 381 P.2d 386]. Although neither case involved an assertion of equitable estoppel, both cases clearly suggest that such a claim would not have been precluded. In Beazell, the plaintiff broker had actually received a 2 1/2 percent commission provided for in the escrow instructions but sued the seller for a 5 percent commission based on an oral agreement. We held that the broker was limited to the amount set forth in the escrow agreement by reason of the statute of frauds, but noted: “The complaint fails to charge defendant with any improprieties other than his failure to perform the oral contract.” (59 Cal.2d at p. 582.) Clearly, there would have been little point in noting that plaintiff had failed to allege a basis for equitable relief, if such relief were unavailable as a matter of law. Similarly, in Franklin v. Hansen, supra, 59 Cal.2d 570, the plaintiff failed to allege estoppel, although unlike in Beazell the facts might have supported a claim of unconscionable injury, because plaintiff had clearly relied on an oral agreement to his serious detriment. However, as the Franklin court Notwithstanding the absence of any compelling legal authority, the majority opinion concludes that a rigid application of section 1624(d) is nevertheless compelled by reasons of public policy. Because of their training and experience, licensed brokers are presumed to know that contracts for real estate commissions must be in writing. (Pacific, supra, 47 Cal.2d at p. 70.) Section 1624(d) is thus designed to protect buyers and sellers of property from possible exploitation by licensed brokers asserting false claims for commissions. (Pacific, supra, 47 Cal.2d at p. 70.) I certainly have no quarrel with either of these propositions; the relative sophistication of the broker and the prophylactic purposes underlying the statute are undeniably relevant factors to be considered in balancing the respective equities in any given case. However, as this court has recently recognized in circumstances strikingly similar to those in the case at bar, the policies underlying the statute of frauds are not uniformly implicated in every case, and in any event such policies must be considered in light of the equitable interests of the plaintiff and the economic realities of the particular transaction. (See Asdourian v. Araj (1985) 38 Cal.3d 276, 292 [211 Cal.Rptr. 703, 696 P.2d 95].) The majority opinion cites a number of consumer-oriented statutes to demonstrate the continued vitality of the statute of frauds in modern society. Among the statutes cited is Applying these principles in Asdourian, we found that the policy behind section 7159—to protect “unsophisticated consumers“—did not apply to the defendant, a relatively knowledgeable real estate investor. (38 Cal.3d at p. 292.) We also noted that the parties “had had business dealings in the past,” that plaintiff had “fully performed according to the oral agreements” and that defendants had “accepted the benefits” of the agreements and would be unjustly enriched if allowed to retain such benefits without being required to compensate the plaintiff. (Id. at p. 293.) While conceding that, “[a]s a contractor, plaintiff should have been aware that the contracts were required to be in writing,” we nevertheless concluded: “The penalty which would result from the denial of relief would be disproportionately harsh in relation to the gravity of the violations.” (Id. at p. 294.) Thus, even where a licensed contractor brings suit on an illegal oral contract, we have recognized that the countervailing facts may be so compelling as to preclude the court or jury in good conscience from enforcing the statute. A fortiori, where the failure to execute a writing violates public policy but the contract is not otherwise illegal, I can perceive no reason to categorically deny equitable relief if the facts otherwise warrant it. As Asdourian, supra, 38 Cal.3d 276, further demonstrates, the theoretical underpinnings of the statute of frauds cannot be viewed in isolation. Occasionally, as in Asdourian, the economic realities are such that the defendant is simply not a member of the class which the statute was designed to protect. This point has been stressed by a number of commentators critical of the view that equitable relief should not be extended to licensed real estate brokers. (See Comment, Equitable Estoppel and the Statute of Frauds in California (1965) 53 Cal.L.Rev. 590, 602, 609; Note, Oral Employment Contracts and Equitable Estoppel: The Real Estate Broker as Victim (1975) 26 Hastings L.J. 1503, 1524-1526; 1 Miller & Starr, Current Law of Cal. Real Estate (1975) § 1.54, pp. 69-74, fn. 8.) As we noted in Tenzer v. Super-scope, Inc. (1985) 39 Cal.3d 18, 28, fn. 6 [216 Cal.Rptr. 130, 702 P.2d 212], these critics have pointed out that “[i]n today‘s market . . . brokers often deal with sophisticated principals in superior bargaining positions.” In such circumstances, the broker may be powerless to compel the principal‘s cooperation in executing a written commission agreement, and the refusal to grant equitable relief from the statute of frauds may be unjust. (Ibid.) Indeed, as the record in the matter before us reveals, this was precisely such a case. The majority opinion recites the facts well enough, but because of its conclusion that section 1624(d) precludes equitable relief as a matter of law, it ignores the story they tell. Defendant, Shapell Industries, Inc., is a publicly traded corporation engaged in the development of residential subdivisions and, as such, is continually engaged in the acquisition of land for that purpose. Although Shapell employed a well-trained staff to locate and acquire property (both Shapell and its vice president, Joseph Aaron, were licensed brokers), it relied to a large extent on outside brokers for leads. Because of its experience and expertise, however, Shapell generally used its own staff to negotiate the terms of sale directly with the property owners. Shapell became acquainted with Phillippe, a licensed real estate broker, in 1972 when it purchased a 78-acre parcel of land on which Phillippe was the listing agent and paid Phillippe $153,100 for his services as broker. Thereafter, in January 1973, Shapell contacted Phillippe to engage his services in locating parcels in excess of 50 acres on the Palos Verdes Peninsula. Phillippe explained that he had no listings in that area and that his commission would have to be paid by Shapell as the buyer. Shapell agreed, orally promising to pay Phillippe a commission for any land submitted by him and purchased by Shapell, and also promising that his commission would be stated in any written offer made by Shapell to a seller. Phillippe thereupon proceeded to familiarize himself with the Palos Verdes Peninsula, inspecting the area for vacant parcels, researching the land records and establishing contact with property owners and their representatives. In April 1973, Phillippe wrote to Shapell about a parcel of land owned by the Filiorum Corporation, stating in conformity with the master oral agreement his “understanding that Buyer will pay our firm a commission, which, when added to the net price of the land, will equal 6% of the total consideration.” Shapell responded in early May with an offer to purchase the Filiorum property that faithfully conformed to the oral agreement, stating as promised that the buyer, Shapell, agreed to pay a commission to Phillippe‘s firm equal to 6 percent of the total consideration. Although the Filiorum deal eventually fell through, Shapell asked Phillippe to continue his work on the Palos Verdes Peninsula. Several months The primary obstacle to the Great Lakes purchase proved to be not the asking price but the fact that the property was zoned for low density housing. Accordingly, Phillippe continued to work on the Great Lakes deal throughout 1973 and early 1974, meeting or talking on a regular basis with representatives of Shapell, the planning and zoning department of the City of Rolling Hills and the owner of the property. Phillippe‘s contact at Shapell during this period was Bill Snow, vice president of land acquisitions. Snow testified that in one of his early meetings with Phillippe the latter had reminded him that he had no listing with the seller and expected to receive payment from Shapell; Snow recalled that he told Phillippe such payment was “not a problem as long as the deal [was] otherwise satisfactory.” He recalled: “We occasionally pa[id] the broker‘s commission, the buyer did . . . if a broker brought a good piece of land to me and I ended up buying it, I saw to it that he got compensated.” It was Snow‘s specific understanding that “there was an agreement to pay [a] commission [to Phillippe] if we bought the property.” Phillippe continued his efforts to facilitate a sale during the early months of 1974. In January, he met with the representative of the property owner and obtained a copy of an engineering study showing the feasibility of a higher density project, which he passed on to Shapell together with a cover letter updating Shapell as to the current status of negotiations and progress before the planning commission. Phillippe continued to monitor the planning commission and in February informed Shapell of the commission‘s decision to grant the rezoning. In April, Ron Prince, an employee of Shapell, called Phillippe for an update on the property and mentioned that the project was being turned over to Joseph Aaron, a vice president of Shapell and a licensed broker himself. In a letter dated April 22, 1974, addressed to Mike Steponovich, vice president of Great Lakes Properties, Phillippe stressed that Shapell was interested in the purchase and “ha[d] the full capability to close the escrow.” The letter closed as follows: “You may want to remind Joe Aaron that we have been working with you at the request of In late April, Phillippe phoned Aaron to explain what had transpired in the negotiations thus far. In a followup letter addressed to Aaron and dated April 30, 1984, Phillippe reviewed the prior negotiations concerning the Great Lakes property and reminded him of the commission agreement, stating: “The commission arrangement on these properties between our firm and Shapell is spelled out in the August 9, 1973, letter [to Prince].” Several subsequent attempts by Phillippe to discuss the sale with Aaron were rebuffed. Shapell eventually purchased the Great Lakes property in August 1976; the offer did not provide for any commission to Phillippe. The story that emerges from these facts may be summarized as follows: Shapell, a major firm engaged in the acquisition and development of real property, contacted Phillippe, the proprietor of a small brokerage firm; Shapell engaged Phillippe to locate properties on the Palos Verdes Peninsula pursuant to a general oral agreement to pay a commission for any property that Phillippe located and Shapell purchased; in reliance on the agreement, Phillippe engaged in a concentrated effort to locate properties in the area with Shapell‘s full knowledge and implied encouragement; although no purchase resulted from Phillippe‘s locating the Filiorum property, Shapell did, as promised, provide in its offer for a 6 percent commission to be paid to Phillippe; thereafter, Shapell reaffirmed its desire for Phillippe to continue his efforts to locate properties and, through its employee Bill Snow, reconfirmed the master oral agreement to pay a commission with respect to the Great Lakes property; in reliance thereon, Phillippe continued to work on facilitating the Great Lakes deal, meeting or talking regularly with representatives of the city, the property owner and Shapell; Shapell employees were kept informed of and encouraged Phillippe‘s efforts to facilitate its purchase of the Great Lakes property; Phillippe, both orally and in writing, frequently reminded Shapell of the terms of the oral commission agreement, yet Shapell never once demurred to Phillippe‘s repeated affirmations of the oral commission agreement until shortly before the Great Lakes purchase was consummated. It is difficult to conceive a more suitable occasion for the assertion of equitable estoppel. Clearly, both tests of estoppel, unconscionable injury and unjust enrichment, are present. The principal, Shapell, initiated the contact with Phillippe and not only induced reliance, but continually monitored and encouraged his performance. Furthermore, Shapell reaffirmed its original commitment to the general oral agreement, first in writing (in connection with the Filiorum deal), then orally (in connection with the It is true that Phillippe, as a licensed broker, must be presumed to have been aware of the requirement of a written contract. As we recognized in Asdourian, however, such presumed knowledge merits far less consideration when the principal, as here, is not only as sophisticated as the broker, but exercises even greater economic leverage. In this factual context, enforcement of the oral contract does not impair the policy of the statute. (Asdourian v. Araj, supra, 38 Cal.3d at pp. 292-294.) Moreover, it is clear that Phillippe fully performed according to the oral agreement, and that Shapell richly profited from that performance. Under the circumstances, if Shapell is allowed to retain the benefits of Phillippe‘s performance without paying the agreed upon commission, Shapell will be unjustly enriched. (Monarco v. Lo Greco, supra, 35 Cal.2d at pp. 623-634; Asdourian v. Araj, supra, 38 Cal.3d at p. 293.) As I stated in the beginning, it is axiomatic that the statute of frauds “is for the prevention, not in aid of the perpetration, of fraud. It is to be used as a shield, not as a sword.” (Colin v. Tosetti, supra, 14 Cal.App. at p. 695, italics supplied.) The holding of the majority opinion inverts this principle, wielding the statute as a sword in the name of “public policy” to condone an obvious injustice. As the facts in this case demonstrate, however, public policy is not seriously implicated and “would not be effectively served by allowing such an inequity.” (Asdourian v. Araj, supra, 38 Cal.3d at p. 294.) Accordingly, I would affirm the judgment. Broussard, J., concurred.Our Decision Does Not Leave Licensed Brokers Unprotected.
CONCLUSION