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District Court of Appeal, First District, Division 2, California.


Civ. 13005.

Decided: November 20, 1946

Nathan Frankel and Sloss & Turner, of San Francisco, for appellant. Fitzgerald, Abbott & Beardsley, of Oakland, for respondent.

Plaintiff Leo Palmtage a duly licensed real estate broker was awarded a commission of $1,750 by the court sitting without a jury and defendant Carl E. Danielson appeals. The complaint is in two counts: The first is in indebitatus assumpsit in the sum of $1,750, which sum it is alleged defendant agreed in writing to pay for plaintiff's services; the second count pleads a special agreement in writing of the 29th of April, 1943, in which defendant employed plaintiff to procure a purchaser for defendant's property in Hayward, California, promising him to pay a commission of 5% of the selling price for his services for finding a purchaser, whereas the property was sold on the 4th of October, 1943, to a purchaser procured by the plaintiff in the month of May, 1943.

The answer denies the material allegations of the complaint. The evidence shows that in response to an inquiry by respondent, appellant on the 29th of April, 1943, wrote a letter to respondent of whaich the following parts are relevant:

‘Yes, I am interested in selling my property in Hayward providing that I can get my price. * * * I have a price of $40,000.00 on the property and if you should arrange the sale, I will pay you 5% commission or a net to me of $38,000.00. * * * I am not overly anxious to sell the property, but, however, as above stated, I would consider a sale.’

This letter together with the acknowledgement of it by respondent dated May 1, 1943, form the contract in writing between the parties. Respondent's acknowledgement contains the sentence, * * * ‘I do think there should be only one price on the property, regardless of whether you sell it or we, the price being $40,000.’

In the month of May, 1943, respondent contacted different people, among whom was Elwood Johnson, a partner of the Arthur C. Day Implement Co. who until then did not know that the property was for sale. He had some conversations with respondent and received information from him but at that time was not interested in purchasing. In September, 1943, the tenancy of the premises then occupied by the Arthur C. Day Implement Co. was terminated and Elwood Johnson called on respondent to discuss buying the property. Respondent gave Johnson information and with him inspected the property and visited the local banker to discuss the advisability of the purchase. Elwood Johnson was then very much interested, mentioned a price of $35,000, but still did not make any definite offer. On or about the 4th day of October, 1943, Johnson made an appointment direct with appellant; he informed respondent of this fact and promised him to tell appellant that respondent had worked with him on the property. Respondent himself called appellant by telephone to tell him it was he who had spoken to Mr. Johnson about the property. Until this telephone call respondent had not communicated with appellant since the month of May, 1943. There is a sharp conflict in the evidence with respect to the further contents of this telephone conversation, respondent's version of it being that he told appellant that he felt that he had sold Johnson the property, to which appellant responded that if he sold the property to Mr. Johnson he would pay respondent a 5% commission. Respondent did not mention that Johnson had told him that he did not intend to pay more than $35,000.

In the direct conversation between Johnson and appellant the latter in answer to a question as to what he wanted for the property said: ‘he wanted $40,000; he was asking $40,000 and he would be willing to take $38,000 net to himself.’ When Johnson in response thereto mentioned a price of $35,000, appellant suggested the possibility of splitting the difference, subject to the consent of his wife, but Johnson did not commit himself. He said he did not think he would be interested at $36,500 and could not even conclude at $35,000 without consulting his partner. The conversation ended with the arrangement that appellant would consult his wife and Johnson his partner about the price, and that appellant was to contact Johnson again. Before appellant did so he sent a wire to respondent, saying that he had decided to sell the property direct that therefore there would be no commission to any broker.

Shortly after sending this telegram appellant communicated to Johnson his willingness to sell for $36,500, not for $35,000, and the negotiations continued—the parties stalling alternately—until on November 10 they concluded the sale for the price of $35,000. In the meantime appellant had tried to sell to others at a higher price and given a 10 days' exclusive agency to another broker at the price of $40,000 minus 5% commission, but no other broker had contacted Johnson with respect to the property.

The court found in substance in accordance with the complaint that by the writing dated April 29, 1943, defendant had agreed to pay a commission of 5% of the selling price to plaintiff for his services in procuring a purchaser for the property, that commencing in the month of May, 1943, plaintiff had rendered services in interesting Arthur C. Day Implement Co. in the purchase of the property, in negotiating with that company and in bringing it together with defendnat and that said company had all the time been ready, able and willing to purchase that property for $35,000 and did purchase said property on or about the 10th of November, 1943, and that on that day the agree commission of 5% of the selling price became due and payable by defendant to plaintiff.

Appellant contends that the court's finding as to the character of the agreement existing between the parties is not supported by the evidence and that the court failed to give due effect to the termination of the agency by appellant, before respondent had fulfilled his contract.

The relations of the parties is governed solely by their written agreement. Their telephone conversation in the beginning of October, 1943, cannot have altered it, as a contract in writing can only be altered by a contract in writing or by an executed oral agreement (sec. 1698, Civil Code); neither can appellant by promising 5% commission have waived any existing restrictions on respondent's authority as respondent did not tell appellant that Johnson's offer would not meet the price desired by appellant.

The terms of the letter of appellant as quoted above clearly show that respondent's authority was limited to the bringing about of a sale at the price of $40,000 minus 5% commission or $38,000 net to appellant.

However, such limitation of the broker's authority does not necessarily exclude his right to a commission when the owner concludes at a lower price a sale of which the broker is the procuring cause. ‘The rule is well established that if property is placed in the hands of a real-estate broker for sale at a certain price or upon certain terms, and a sale is brought about through the broker as a procuring cause, he is entitled to commissions on the sale even though the final negotiations are conducted through the owner, who in order to make a sale accepts a price less than that stipulated to the broker or terms more liberal than those the latter was authorized to accept. This rule applies where the broker sends his customer direct to the owner who carries on the negotiations himself.’ 8 Am.Jur. 1101–1102, Brokers, sec. 190; to the same effect 12 C.J.S., Brokers, § 86, subsec. b, p. 196; 43 A.L.R. 1104.

An exception to this rule is generally recognized: The broker is not entitled to a commission on a transaction consummated by the principal at a lesser price than that stipulated to the broker, if the broker's contract of employment expressly makes the payment of commissions dependent on the obtaining of a certain price for the property. 8 Am.Jur. 1102; 12 C.J.S., Brokers, § 86, p. 197; 43 A.L.R. 1111; Restatement of the Law of Agency, sec. 447, page 1048. A special aspect of this exception is, that if the broker is to have as commissions only what is received by the principal above a specified net price and the principal closes with the broker's customer for a sum not in excess of such stated net price the broker is entitled to no commission. Restatement of the Law of Agency, sec. 447, comment b, page 1049; 12 C.J.S., Brokers, § 78, p. 172.

The cases in our jurisdiction follow both the general rule (United States Farm Land Co. v. Darter, 42 Cal.App. 292, 303, 183 P. 696; Twogood v. Monnette, 191 Cal. 103, 108, 215 P. 542; Roth v. Thomson, 40 Cal.App. 208, 180 P. 656) and the exceptions Backman v. Guadalupe Realty Co., 78 Cal.App. 347, 248 P. 296.

In the more recent case of Haigler v. Donnelly, 18 Cal.2d 674, 679, 117 P.2d 331, 334, our supreme court adheres to the rules mentioned above. It states the rule applicable to a broker who undertakes to sell property under an agreement whereby he is to receive as commission a certain percentage of the sale price obtained as follows: ‘In such a case a seller cannot defeat the right of a broker to his commission by consummating a sale with the purchaser at a smaller price than that originally proposed. Boland v. Ashurst Oil, etc. Co., 145 Cal. 405, 78 P. 871; Wetzell v. Wagoner, 41 Mo. App. 509; cases cited in 9 C.J. 600, 601.’ As to the exception it states: ‘These cases also recognize, however, that the broker is not entitled to any recovery if his right to a commission is conditional on a sale at the price mentioned in his authorization (see cases cited in 9 C.J. 602; 12 C.J.S. Brokers, § 86). A broker under a net contract is entitled to no compensation unless he successfully negotiates a sale for more than the net amount.’

The only reasonable interpretation of the contract involved here is that it was an authorization to sell for a net amount. The words ‘I have a price of $40,000’ merely fixed an asking price. The words ‘I will pay you 5% commission’ merely stated the usual commission payable for such sales. But the words ‘net to me of $38,000’ plainly and clearly specify that whatever sale the broker ‘should arrange’ his commission would be dependent upon a net of $38,000 to the seller. That the broker so interpreted the contract is shown by his letter of acceptance of May 1, 1943, stating: ‘* * * I do think there should be only one price on the property, regardless of whether you sell it or we, the price being $40,000.’ Having accepted the contract with these terms the broker knew that he must produce a buyer ready to pay more than $38,000 before he would be entitled to any commission. That he did not do so is conceded. He sent to the owner a prospective customer whom he knew would not pay any amount near that sum. He did not inform his principal that he knew the prospective customer would not be willing to purchase under the terms of the contract and did nothing further to bring about a sale.

For these reasons we are satisfied that our case is controlled by Haigler v. Donnelly, supra, and that respondent is not entitled to recover.

But the judgment must be reversed for another reason which is equally controlling—the broker's contract was terminated before any sale was made. At the time of the revocation telegram, respondent had not earned his commission. The prospective purchaser procured by him was not willing to pay the price stipulated in respondent's authority, no sale at a lesser price had been concluded, and the prospective buyer was not even willing to pay a price which at that time was satisfactory to the appellant. Hence appellant argues that independent of the question of the interpretation of the contract, the respondent is not entitled to any commission unless he had proved that the revocation was not in good faith but was made to defeat his rights. ‘The contract not specifying its duration, either party was at liberty to terminate it at will, subject only to the ordinary requirements of good faith. * * *. It was essential to plaintiff's success, under his contract and his right to any commission thereunder, that he should furnish, during the lief of the contract, a customer ready, able, and willing to take defendant's property upon terms satisfactory to the latter.’ Ernst v. Ganahl, 166 Cal. 493, 499, 137 P. 256, 259.

‘Subject to the requirement of good faith, the principal, by revoking an ordinary contract of employment and giving notice thereof, may prevent the broker from recovering commissions not previously earned, but not commissions already earned.’ 12 C.J.S., Brokers, § 66, p. 150. ‘The rule is that the revocation must be made in good faith and not for the purpose of defeating the agent's rights * * *.’ Elms v. Merryman Fruit etc. Co., 207 Cal. 747, 751, 279 P. 781, 783.

Appellant contends that the question whether the termination was in good faith cannot be considered on appeal as it was not involved in the pleadings on the trial of the action and the trial court did not make any findings about it.

It is true that the issue was not involved in the pleadings and could not be involved as the complaint, which was not amended, incorrectly alleged that the sale and conveyance on which the right to commission was based took place on or about the fourth day of October, 1943, a date prior to the revocation of October 9.

However, in the opening statement in behalf of plaintiff his attorney declared: ‘Now, we contend that, under the law, we are entitled to a commission, particularly since we expect that either the direct evidence in this case, or every reasonable inference to be drawn from it, will incline this Court to the view that the cancelation, or the attempted cancelation, by Danielson, of my client's brokerage, or his agency to handle that property, was prompted by a fraudulent motive on the part of Mr. Danielson, namely, to take advantage of my client's services and avoid payment of the brokerage commission.’ Appellant, Carl E. Danielson, called by plaintiff under section 2055 of the Code of Civil Procedure, was questioned at length by plaintiff's attorney with respect to his motives in terminating the agency at that particular time. No objection was made by defendant's attorney and he himself later questioned his client with respect to the reason for the termination and related facts giving as the reason, ‘Your Honor, the good faith of the defendant has been called into question here.’

‘It has been frequently held that, where a cause is tried upon the theory that certain facts are in issue, after judgment the cause will be considered as though such issues were correctly tendered by the pleadings.’ Starkweather v. Eddy, 87 Cal.App. 92, 98, 261 P. 763, 765. In that case the issue not sufficiently presented by the complaint was one of fraud.

In Wagner v. McManus, 2 Cal.App.2d 544, 38 P.2d 204, this court refused to entertain objections to the form of pleading of fraud where evidence of fraud and misrepresentations was not objected to by appellant and the cause was tried on the theory that the issue was properly before the court.

In the cae at bar the issue tried without sufficient pleading is not even that of actual fraud but only of good faith in terminating an agency. The general rule that appellant cannot for the first time on appeal claim that a question was not raised by the pleadings, when the trial proceeded without objection on the theory that that question was at issue, is too well known to require citation of authority.

The fact that the trial court did not make any express finding as to the question of appellant's good faith in terminating the agency is immaterial, as the evidence is before this court and we conclude that as a matter of law it would be insufficient to support a finding that the termination was not in good faith but for the purpose only of defeating respondent's rights.

Although as a rule the question as to whether the revocation was in good faith or for the purpose of defeating the agent's commission is a matter of fact it becomes a matter of law for the court when there is no evidence in the record upon which a jury would be justified in finding bad faith or fraud on the part of the principal in revoking the authority of the broker. Elms v. Merryman Fruit, etc., Co., supra.

The only circumstance, shown by the evidence, which could at all be argued as an indication of bad faith is that appellant terminated the agency at a time at which he was negotiating with Mr. Johnson, who had been interested in the property by respondent, and to whom he sold the property a month later at a price Mr. Johnson had from the beginning been willing to pay. But such an inference is negatived by the fact that at the time of the revocation there was not the least indication that the negotiations would lead to a sale or what time and efforts they still might require. Appellant had desired a price of $40,000 gross or $38,000 net to him, and was pondering to offer to sell at $36,500. Mr. Johnson had not mentioned more than $35,000 and had declared that he did not think he would be interested at a price of $36,500. Appellant at the time was so little inclined to accept a bid of $35,000 that during a month after the revocation he endeavored to sell at a higher price to third parties and gave a 10 days' exclusive agency at the price of $40,000 less 5% commission to another broker who thought he could sell it at that price.

There is nothing in the evidence that negatives appellant's explanation of the revocation, that he had not heard from respondent from the month of May to the day he telephoned after Mr. Johnson had made an appointment and that he had never sent him anybody else who was interested in the property. These circumstances combined with the fact that the bid of the only prospect interested by respondent remained far below the price desired by appellant could very well lead appellant in good faith to the conclusion that it was more to his interest to try to sell himself or to take another broker than to continue respondent's agency.

Respondent relies for the contention of bad faith also on the fact that appellant early in his conversation with Johnson declared himself willing to accept a price of $38,000 which, if respondent, in accordance with appellant's view, were only entitled to a commission out of the excess over $38,000, would have deprived respondent of any and all remuneration. Although this may show little concern for the broker's interest it has no relation whatever to the facts which respondent had to prove, to wit, that the revocation, which took place some days later, was done in bad faith and for the purpose of depriving respondent of his commission. If appellant's theory as to the contract had been correct, and he had good reason to believe it was correct, respondent would not have been entitled to any commission even if no revocation had taken place.

The burden of proof was on the respondent to show that he had a valid contract in force at the time the sale was made. He pleaded the letter of April 29, 1943. The appellant pleaded the revocation of October 8, 1943, following his discovery of appellant's failure to disclose to him that Johnson would not pay more than $35,000. The right of appellant to revoke the agency is not denied—except that respondent says it must be done in good faith. This becomes the controlling issue on this phase of the appeal. If appellant revoked in good faith respondent cannot recover on the contract. Here the burden of proof of bad faith was on the appellant who asserted it. Everett v. Standard Acc. Ins. Co., 45 Cal.App. 332, 187 P. 996; Estate of Ross, 199 Cal. 641, 250 P. 676, citing 12 Cal.Jur. 817. All the presumptions of law are against fraud and bad faith and in favor of fairness and regularity in private transactions. Code of Civil Procedure, sec. 1963, subds. 1, 19; Truett v. Onderdonk, 120 Cal. 581, 588, 53 P. 26. No facts were proved from which an inference of bad faith could be reasonably drawn. The trial court did not make any finding on the issue of bad faith, whereas, on all the evidence a finding should have been made that the termination was made in good faith before the sale was made. For these reasons we conclude that the evidence was insufficient as a matter of law; the termination was rightful, and respondent is not entitled to recover.

Judgment reversed.

NOURSE, Presiding Justice.

GOODELL and DOOLING, JJ., concur.