David E. PHILLIPPE, doing business under the firm name and style of Management Trend Company, Plaintiff, Respondent and Cross-Appellant, v. SHAPELL INDUSTRIES, INC., a corporation, Defendant, Appellant and Cross-Respondent.
Defendant, Shapell Industries, Inc., (hereafter Shapell), appeals from a judgment of $125,000 in favor of plaintiff, David E. Phillippe, doing business as Management Trend Company (hereafter Phillippe), entered after a jury verdict which found Shapell liable for breach of an agreement to pay a real estate broker's commission, one of three theories of recovery presented. The other two theories, which were rejected by the jury in special findings, were (1) an oral agreement to pay a finder's fee, and (2) an oral agreement to share a real estate broker's commission.
Shapell contends on appeal that: (1) enforcement of the oral agreement between Shapell and Phillippe is barred by the statute of frauds in that, (a) Phillippe acted as a real estate broker in the instant case to assist in the purchase of the Great Lakes property, (b) the statute of frauds applies in the instant case even though Shapell was a buyer rather than a seller, and was also a licensed real estate broker, and (c) the written correspondence between Shapell and Phillippe, taken as a whole, does not establish Phillippe's employment to act as a real estate broker in connection with the Great Lakes property; (2) under the circumstances of this case, Shapell is not estopped from asserting the statute of frauds; and (3) the trial court erroneously instructed the jury on estoppel.1
Phillippe cross-appeals from the judgment, claiming that the jury failed to award him all the damages to which he is entitled.2
We have concluded that the contentions of Shapell have merit and will accordingly reverse the judgment with directions.
Statement of the Facts
Viewed in a light most favorable to Phillippe, who prevailed, the evidence at trial established the following:
Shapell is a corporation engaged in the construction of housing tracts and is constantly in the market to buy land for such construction. Shapell is also licensed as a real estate broker.
In early 1972, Shapell first came in contact with Phillippe in its efforts to acquire 78 acres of land located in the San Diego area and owned by a limited partnership in which Phillippe had an interest. Tom Sifferman of Shapell dealt with Phillippe who was acting as the real estate broker for the limited partnership in the sale of this land. Later, Ron Prince, an employee in the land acquisition department of Shapell, helped Sifferman in connection with the purchase of this land from the limited partnership. Escrow on this purchase closed in December 1972. Shapell paid Phillippe $153,100 for his services.
In January 1973, Shapell through Prince orally employed Phillippe to assist it in locating and purchasing property on the Palos Verdes Peninsula. At the time, Phillippe explained to Prince that he had no listings on the Peninsula and that, if he were to accept the employment, his commission was to be paid by Shapell as buyer. Prince orally promised Phillippe that Shapell would pay him a commission of 6 percent of the total cost of any land submitted by Phillippe and purchased by Shapell, and that his commission would be included in any written offer made by Shapell.
In April 1973, Phillippe wrote to Prince about a parcel of land owned by Filiorum Company. He informed Prince that he was “waiting for a price quote on the property” and suggested that Prince take a look at the property. In connection with his commission, Phillippe stated: “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.” Thereafter, Shapell submitted to Phillippe a written offer in letter form dated May 4, 1973, to purchase the Filiorum property and stated in connection with Phillippe's commission that “Buyer agrees to pay the Management Trend Company a commission 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.” However, the sale fell through because of geology problems and no commission was paid to Phillippe.
On August 9, 1973, Phillippe again wrote to Prince informing him about the location of four properties on the Palos Verdes Peninsula and their owners, including a 94–acre parcel owned by Great Lakes Properties (hereafter Great Lakes property). He 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.” However, Shapell did not go forward with the purchase of the Great Lakes property at that time because the zoning on the property was too restrictive for Shapell's construction purposes.
However, throughout the late 1973 and early 1974 period, Phillippe continued in his efforts to structure a deal between Shapell and the owner of Great Lakes property. He continued to negotiate with M.J. Steponovich, the owner of the Great Lakes property, by suggesting prices which would be acceptable to Shapell and by pointing out the strength of Shapell to close a deal. He also wrote several letters to Shapell, the last of which was on April 30, 1974, and addressed to Joe Aaron, Vice-President of Shapell. In this April letter, Phillippe reviewed his efforts to assist Shapell in its attempt to locate and purchase land on the Peninsula, including the Great Lakes property, and, in connection with his commission, stated: “The commission arrangement on these properties between our firm and Shapell is spelled out in the August 9, 1973 letter.” Also, 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 until the end of 1975, when Aaron telephoned Steponovich and learned that 63 acres of the Great Lakes property were available. After some discussions and negotiations, in March 1976, Shapell signed a purchase and sale agreement for 63 of the 94 acres. This sale closed on August 27, 1976, for $2,718,750.
When Phillippe learned that Shapell had agreed to purchase 63 acres of the Great Lakes property, he wrote to Aaron on June 9, 1976, requesting his commission. In this letter, he reminded Aaron that he had agreed to work for Shapell “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.” He also reviewed the efforts his firm had made. Thereafter, on June 16, 1976, Aaron responded by letter in which he informed Phillippe that Shapell would not pay him a commission. Nor did Shapell include Phillippe's commission in its written offer to purchase the 63 acres.
The case went to the jury on three theories of recovery. First, Phillippe sought recovery of a 6% commission on the basis of either a written agreement of employment or memorandum thereof sufficient to satisfy the statute of frauds or an estoppel to bar Shapell from asserting the statute of frauds. Second, Phillippe sought to recover a 6% finder's fee based on an alleged agreement. Third, Phillippe sought to recover a 6% commission based on an alleged agreement between brokers to share a commission.
The jury by special verdict found in favor of Phillippe on the first theory of recovery, but rejected the other two theories of recovery and awarded him $125,000.
Thereafter, the trial court denied Shapell's motion for a new trial and these appeals followed.
IENFORCEMENT OF THE ORAL AGREEMENT BETWEEN SHAPELL AND PHILLIPPE IS BARRED BY THE STATUTE OF FRAUDS
An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where such lease is for a longer period than one year, for compensation or a commission, is invalid, unless the same, or some note or memorandum thereof, is in writing and subscribed by the party to be charged. (Civ.Code, § 1624, subd. 5; see, e.g., Pac. etc. Dev. Corp. v. Western Pac. R.R. Co. (1956) 47 Cal.2d 62, 301 P.2d 825.)
With this principle in mind, we will now consider Shapell's first contention that its agreement to pay Phillippe a commission is barred by the statute of frauds.
A. Phillippe Acted as a Real Estate Broker in the Instant Case to Assist in the Purchase of the Great Lakes Property
Phillippe argues that Shapell did not employ him to negotiate or to assist in effecting a purchase of real property for a commission. Rather, he argues, he was retained by Shapell essentially as a professional consultant in the field of subdivision land acquisition to locate a suitable site on the Palos Verdes Peninsula for residential subdivision and thus he can recover even on an oral agreement, citing Owen v. National Container Corp. of Cal. (1952) 115 Cal.App.2d 21, 251 P.2d 765.
However, Phillippe's reliance on Owen is misplaced. There the court held that a broker could recover under an oral agreement or in quantum meruit for services, such as making surveys, locating suitable sites and the like, which do not come within the purview of the statute of frauds. (Id., at pp. 25–26, 251 P.2d 765.) And in connection with the correspondence between the parties, the Owen court stated that it merely showed “the nature of plaintiff's services, and defendants' request for further information.” (Id., at p. 25, 251 P.2d 765.) Furthermore, the court stated that “the letters from plaintiff conveyed information as to various sites but none of the letters from either side disclosed any negotiations or authority to negotiate with any of the owners ․” (Id., at p. 26, 251 P.2d 765; italics added.)
Here, the evidence presents quite a different picture. First, in reference to the Filiorum property, in his letter of April 5, 1973, to Prince, Phillippe stated that he was “waiting for a price quote on the property.” Second, and more importantly, when Phillippe wrote to Aaron on June 9, 1976, about his commission from the purchase of the Great Lakes property by Shapell, he described his relationship with Shapell and the nature of his services as follows: “Let us refresh your memory concerning the circumstances. 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 representing 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.) Thus, it appears that any service which Phillippe may have rendered to Shapell, and upon which he relies for application of the Owen holding, was merely incidental to Phillippe's efforts to bring about a purchase of the property by Shapell. (See Owen v. National Container Corp. of Cal., supra, 115 Cal.App.2d at p. 28, 251 P.2d 765.)
Moreover, Phillippe's argument would require us to determine Shapell's liability not on the basis of an agreement to pay a broker's commission in effecting a purchase of real property, the theory upon which the case was tried in the trial court, but rather on the basis that Phillippe was employed to locate a suitable site, without any duty on his part to bring the parties together or to negotiate or assist in the purchase of any property. However, we find that the record in this case will not permit Phillippe to argue this theory of liability. Under the general rule, a party to an action may not for the first time on appeal change his theory of the cause, except where after trial there is a change in judicially declared law which validates a theory on which the case could have been tried, or where the theory presented for the first time on appeal involves only a question of law determinable from a factual situation present in the record. (Marsango v. Automobile Club of So. Cal. (1969) 1 Cal.App.3d 688, 694, 82 Cal.Rptr. 92.) From our examination of the record, we find that neither exception to the general rule applies in the instant case.
We conclude therefore that Phillippe was employed in the instant case as a real estate broker by Shapell to assist it in effecting the purchase of a parcel of property on the Peninsula.
B. The Statute of Frauds Applies in the Instant Case Even Though Shapell was a Buyer and Licensed as a Real Estate Broker
Phillippe further argues that the statute of frauds should not be applicable to the circumstances of this case because Phillippe as a broker acted on behalf of Shapell as buyer rather than as seller. Furthermore, he argues, Shapell as a real estate broker does not need the protection of the statute of frauds, since an agreement of this nature between brokers need not be reduced to writing to be enforceable. Phillippe cites Robinson v. Potter (1928) 94 Cal.App. 614, 271 P. 539, and Jenkins v. Locke-Paddon Co. (1916) 30 Cal.App. 52, 157 P. 537, in support of his argument.
We start our analysis with the principle that legislative enactments should be construed in accordance with the common or ordinary meaning of the language used. (Estate of Richartz (1955) 45 Cal.2d 292, 294, 288 P.2d 857.) Civil Code section 1624, subdivision 5, requires a writing subscribed by the party to be charged for “[a]n agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, ․ or to procure, introduce, or find a purchaser or seller of real estate ․ for compensation or a commission.” (Italics added.) A fair reading of the statute clearly shows that it is intended to cover both the situation where a broker is employed to effect the purchase of real estate as well as where he or she represents the seller. Thus, Phillippe's argument that the statute should apply only to the situation where a real estate broker represents a seller does not comport with the common or ordinary meaning of the language used in the statute. (See Buckaloo v. Johnson (1975) 14 Cal.3d 815, 821, 122 Cal.Rptr. 745, 537 P.2d 865.) We conclude therefore that the statute of frauds is applicable in the instant case even though Shapell is a buyer rather than a seller.
The more difficult question, however, is whether the statute of frauds should apply where the seller or buyer is also a licensed real estate broker.
We have determined that neither Robinson v. Potter, supra, 94 Cal.App. 614, 271 P. 539, nor Jenkins v. Locke-Paddon Co., supra, 30 Cal.App. 52, 157 P. 537, the two cases cited by Phillippe in support of his argument, is helpful in our resolution of this question. In both of those cases, real estate brokers sought the division of a real estate commission based on an oral agreement. Such an agreement has no reference to either the purchase or the sale of real estate for compensation. Thus, the agreement is not covered by the statute of frauds. (See, e.g. Iusi v. Chase (1959) 169 Cal.App.2d 83, 86, 337 P.2d 79; Holland v. Morgan & Peacock Properties (1959) 168 Cal.App.2d 206, 210, 335 P.2d 769.) However, the record shows that the jury rejected this theory of recovery by special finding and we conclude that the record sustains this finding.
One of the primary purposes of the statute of frauds is to protect real estate sellers and purchasers from the assertion of false claims by brokers and agents. (Pac. etc. Dev. Corp. v. Western Pac. R.R. Co., supra, 47 Cal.2d at p. 67, 301 P.2d 825.) We can see no reason why a licensee who is acting as a seller or purchaser of real property should not be considered a member of the public for purposes of the statute of frauds. The acts of a seller or purchaser in this situation do not require a real estate license. We therefore conclude that the fact he or she is also licensed should be irrelevant to the application of the statute of frauds.
C. The Written Correspondence Between Shapell and Phillippe, Taken as a Whole, Does not Establish Phillippe's Employment as a Real Estate Broker In Connection With The Great Lakes Property
The rule is well settled that in an action by a broker to recover a real estate commission in order to show compliance with the statute of frauds the writing signed by the party to be charged must unequivocally show on its face the fact of employment of the broker. (Franklin v. Hansen (1963) 59 Cal.2d 570, 573, 30 Cal.Rptr. 530, 381 P.2d 386.) As our Supreme Court stated in Pac. etc. Dev. Corp. v. Western Pac. R. R. Co., supra, 47 Cal.2d at page 68, 301 P.2d 825: “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.”
To satisfy this requirement, Phillippe refers to the considerable correspondence between Shapell and himself. However, there is only one letter in this exchange which is signed by Shapell and refers to Phillippe's employment. That is the letter of May 4, 1973, from Ron Prince, Director of Land Acquisition for Shapell, to Phillippe in which Shapell made an offer to buy the Filiorum property and then stated: “Buyer agrees to pay the Management Trend Company a commission 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 evidence shows, however, that this sale was never consummated due to geology problems. The evidence further shows that thereafter on August 9, 1973, Phillippe submitted to Shapell in letter form the location of four other properties on the Peninsula, including the Great Lakes property. It is in this letter that Phillippe set forth the fact of his employment with reference to these four properties and, in this regard, he stated: “In 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.” The evidence then shows that, after Shapell had entered an agreement to purchase 63 acres of the Great Lakes property, Phillippe made demand on Shapell on June 9, 1976, for the payment of his commission by writing a letter to Aaron, Vice-President of Shapell. In this letter after reviewing his employment arrangement with Shapell, Phillippe stated: “We therefore are entitled to receive, and hereby make demand for payment of our commissions, as specified by our letter to Ron Prince dated August 9, 1973.”
We conclude therefore that there is no evidence of a writing signed by Shapell showing the fact of Phillippe's employment to act as a broker for Shapell in connection with the Great Lakes property present in the instant case. Where a broker's only agreement with his principal relates solely to specifically described property, as with the Filiorum property, the principal is not liable to the broker for a commission on the purchase of different property unless the broker's written employment covers the other property. (See, e.g. Frederick v. Curtright (1955) 137 Cal.App.2d 610, 614, 290 P.2d 875.) Thus, it must be concluded that the writings are insufficient under the statute of frauds to sustain Phillippe's claim.
UNDER THE CIRCUMSTANCES OF THIS CASE, SHAPELL IS NOT ESTOPPED FROM ASSERTING THE STATUTE OF FRAUDSA. The Mere Refusal to Comply With an Oral Promise to pay a Broker's Commission Does Not Give Rise to an Estoppel to Assert the Statute of Frauds
Phillippe argues, citing Monarco v. Lo Greco (1950) 35 Cal.2d 621, 220 P.2d 737, that, in order to avoid unconscionable injury to him or unjust enrichment to Shapell, Shapell should be precluded from asserting the statute of frauds since he changed his position in reliance on Shapell's oral promise to pay a commission.
In Monarco, which did not involve the enforcement of an oral agreement to pay a broker's commission, our Supreme Court stated: “The doctrine of estoppel to assert the statute of frauds has been consistently applied by the courts of this state to prevent fraud that would result from refusal to enforce oral contracts in certain circumstances. Such fraud may inhere in the unconscionable injury that would result from denying enforcement of the contract after one party has been induced by the other seriously to change his position in reliance on the contract ․ or in the unjust enrichment that would result if a party who has received the benefits of the other's party performance were allowed to rely upon the statute.” (35 Cal.2d at pp. 623–624, 220 P.2d 737.)
However, in Pacific etc. Dev. Corp. v. Western Pac. R. R. Co., supra, 47 Cal.2d at page 70, 301 P.2d 825, our Supreme Court refused to extend the application of Monarco to enforce an oral agreement to pay a broker's commission. There the court stated: “This is not a case of unconscionable injury to plaintiff because of a change of position in reliance upon the alleged contract of employment [citation] or an unjust enrichment of defendant through acceptance of the benefits of the alleged contract without itself being obligated thereunder. [Citation.] The fact that plaintiff rendered services ․ does not constitute a change of position to plaintiff's detriment, nor does the fact that defendant refused to pay plaintiff a real estate commission ․ constitute an unjust enrichment within the meaning of the estoppel doctrine.” (Ibid.) Thus, Phillippe's reliance on Monarco is misplaced. Moreover, the Monarco ruling has not been generally applied to oral contracts to pay a real estate broker's commission, except in two narrow situations: (1) where the broker cancelled an otherwise written contract with the sellers of the property in reliance upon the oral promise of the buyer that he would pay his commission (LeBlond v. Wolfe (1948) 83 Cal.App.2d 282, 188 P.2d 278), and (2) where the principal has told the broker that his authorization was in writing, whereas in fact it was not (Owens v. Foundation For Ocean Research (1980) 107 Cal.App.3d 179, 165 Cal.Rptr. 571).3
We find that the evidence in the instant case does not support either of those exceptions. There is no evidence that Phillippe cancelled a written contract with the owner of the Great Lakes property in reliance on any promise of Shapell, nor does the evidence suggest that any such written contract ever existed. Moreover, there is no suggestion in the record either directly or inferentially that Shapell ever represented to Phillippe that his authorization regarding the Great Lakes property was in writing. The evidence is to the contrary. The record shows that the only writings concerning the employment of Phillippe with regard to the Great Lakes property were his letters to Shapell, starting with the letter of August 9, 1973. There is only one letter from Shapell to Phillippe after this August 9, 1973 letter. That letter was the one from Aaron, the Vice-President of Shapell, to inform Phillippe that Shapell would not pay him a commission.
Phillippe further argues that the instant case should be resolved by rules applicable to the custom and practice of the professional land merchant rather than by rules applicable to agreements between ordinary principals and brokers. He relies on Iusi v. Chase, supra, 169 Cal.App.2d 83, 337 P.2d 79, in support of his argument. However, his reliance on Iusi is misplaced. There the court held that the trial court in an action between brokers to split a commission could look to local customs among brokers to determine how the real estate commission should be divided. (Id., at p. 87, 337 P.2d 79.)
We construe Phillippe's argument as a suggestion to create another exception to the statute of frauds, which we decline to do. Phillippe “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.” (Pac. etc. Dev. Corp. v. Western Pac. R. R. Co., supra, 47 Cal.2d at p. 70, 301 P.2d 825.)
Other than its failure to perform the oral contract, our examination of the record does not reveal any other impropriety by Shapell. We therefore conclude that there is insufficient evidence in the record to support the finding of an estoppel to preclude Shapell from asserting the statute of frauds.
B. The Trial Court Erroneously Instructed The Jury on Estoppel
Shapell contends that under the circumstances of this case the trial court erroneously instructed the jury on estoppel. We agree.
The trial court gave the following instruction on estoppel:
“Under the following circumstances, the law permits an exception to the general rule requiring a real estate broker's commission agreement to be in writing:
“If you find all of the following to be true then this exception would apply:
“1. That the defendant promised plaintiff to reduce their employment agreement to a writing at the time when a definite offer to purchase land was made by defendant, and
“2. That plaintiff relied on that promise and rendered services and changed his legal position to his detriment, and
“3. That the defendant was unjustly enriched by later refusing to reduce the agreement to writing.
“Under these circumstances, the defendant can not avail itself of the general requirement of a writing to prove a real estate broker's commission agreement as a defense to plaintiff's claim. In this event, no such writing is required to prove the making of such an agreement.”
Phillippe concedes that this instruction on estoppel was taken directly from Monarco v. Lo Greco, supra, 35 Cal.2d 621, 220 P.2d 737. However, as we noted before, the Monarco ruling has not been generally applied to oral contracts to pay a real estate broker's commission, except in two limited situations which are not present here.
Turning to the prejudicial effect of this instruction, “if it appears that error in giving an improper instruction was likely to mislead the jury and thus to become a factor in its verdict, it is prejudicial and ground for reversal.” (Henderson v. Harnischfeger Corp. (1974) 12 Cal.3d 663, 670, 117 Cal.Rptr. 1, 527 P.2d 353.) Here, there is simply no evidence in the record of an estoppel. Under these circumstances, the giving of this instruction would clearly mislead the jury and did play a factor in its verdict. The fact that the trial court determined during the hearing on Shapell's motion for a new trial that the only basis of the jury verdict was estoppel leaves no doubt about the effect of this instruction. The trial court made the following comment:
“THE COURT: And so the only cause of action that the jury came in on was a broker's commission; and we obviously didn't have a broker's commission in writing, and so it had to be under the instruction about estoppel. In effect, performance based on promises, and performance to the extent of where the seller, or in this case the buyer, is precluded from using the nonexistence of a written commission, contract, for defense.”
We conclude therefore that it was reversible error for the trial court to give this instruction on estoppel under the circumstances of this case.
We have carefully examined the record in this case and, based upon such examination, have determined that only one judgment is proper under the law and facts. We have determined that a new trial under the theory upon which the present judgment is based would be a waste of effort and that there is no evidence in this record to support the theories of either a finder's fee or an agreement to split a commission, theories which the jury rejected by special findings.
Accordingly, the judgment is reversed with directions to the trial court to enter judgment in favor of Shapell.
1. In view of our conclusion in this case to reverse the judgment with directions, we find it unnecessary to reach the other contentions of Shapell.
2. Although Phillippe also appeals from that part of the judgment which denies recovery on the theories of a finder's fee and splitting a commission, we will treat his failure to present any argument on these points as an abandonment of them.
3. We recognize, however, that some commentators have urged the application of the Monarco ruling to enforce oral promises to pay a real estate commission. (See, e.g., 1 Miller & Starr, Current Law of Cal. Real Estate (1975) § 1:54, p. 72, fn. 8; “Oral Employment Contracts and Equitable Estoppel: The Real Estate Broker As Victim” (1975) 26 Hastings L.J. 1503.)
THOMPSON, Associate Justice.
LILLIE, P.J., concurs. JOHNSON, J., concurs in the judgment only.