GRANT v. HALVERSON (1991)

OPINION

In this case we consider whether licensed real estate brokers can maintain a commission action when they allege that a property owner orally promised to pay them a commission for finding joint venture partners to develop the property.

Defendant's demurrer to the brokers' first amended complaint was upheld on grounds that the action was barred by the statute of frauds.   Plaintiff brokers appeal, contending that the demurrer was improperly sustained because their commission claim is not barred by the statute of frauds.

THE ALLEGED FIRST CAUSE OF ACTION FOR BREACH OF CONTRACT

The first amended complaint uses judicial council forms to attempt to allege seven causes of action.   The first cause of action is by plaintiff Grant for breach of contract.   Its charging allegations are as follows:  “Defendant Halverson agreed to pay plaintiff GRANT a commission of ten percent (10%) of the price of defendant's 97.4 acres ․ if a joint venture could be arranged for development of the land;  the parties increased the asking price to cover the commission, and defendant Halverson asked plaintiff Grant to arrange a meeting with defendants OLESON and MAGDYCH which was done.¹ Plaintiff GRANT alleges on information and belief that at the meeting arranged by plaintiffs GRANT and LEWIS between defendants HALVERSON, OLESON and MAGDYCH on 2/20/86, defendant HALVERSON agreed to pay plaintiffs GRANT and LEWIS a 10% commission․  [¶] Defendant HALVERSON sold and transferred the subject property to a joint venture with defendants MAGDYCH and OLESON, but refused to pay and continues to refuse to pay plaintiffs their commission.   Plaintiffs are informed and believe that the value of the land contributed to the joint venture was $2,503,000, and that defendants breached the agreement by not paying plaintiffs the agreed upon 10 percent commission.”   Plaintiffs also alleged that they were licensed real estate brokers.

The trial court sustained the demurrer without leave to amend because it thought that plaintiffs could not amend to avoid the statute of frauds.   It apparently decided that the action was an action by real estate brokers for a commission within the meaning of Civil Code section 1624, subdivision (d).

THE STATUTE OF FRAUDS

Civil Code section 1624, subdivision (d) requires the following contracts to be in writing to be enforceable:  “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 the lease is for a longer period than one year, for compensation or a commission.”

Plaintiff Grant contends that the section does not apply because he did not find a purchaser or seller of real estate.   Instead, he argues that he procured two persons to act as joint venturers with his client, defendant Halverson, to develop Halverson's real property.   He therefore argues that the formation of a joint venture is not a purchase or sale of real estate but rather the formation of a partnership for a limited purpose.   Since the statute of frauds does not require agreements to form joint ventures to be in writing, he argues that the commission agreement of the licensed broker, as agent of a property owner who is one of the joint venturers, should not have to be in writing to be enforceable.²

The first half of plaintiff Grant's argument rests on cases arising under Civil Code section 1624, subdivision (c).   That section provides that the statute of frauds applies to:  “An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein;  such an agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party sought to be charged.”

 Cases under this subdivision hold that it does not apply to agreements to form a joint venture.  (See, generally, 1 Miller & Starr, Cal.Real Estate 2d (1989) § 1:59, pp. 165–168.)   Under those cases, an oral agreement to form a joint venture does not violate the statute of frauds, even though one of the joint venture partners contributes his real property to the joint venture.   (Gross v. Raeburn (1963) 219 Cal.App.2d 792, 33 Cal.Rptr. 432.)   The statute of frauds has also been held inapplicable to the situation where a licensed real estate broker alleges that she became a joint venturer.   (James v. Herbert (1957) 149 Cal.App.2d 741, 309 P.2d 91;  Fitzgerald v. Provines (1951) 102 Cal.App.2d 529, 227 P.2d 860.)

Since the formation of joint ventures is essentially controlled by the rules regarding formation of partnerships (see, e.g., Jaffe v. Heffner (1959) 173 Cal.App.2d 512, 516, 343 P.2d 374), we do not find those rules helpful in interpreting the term “procure, introduce, or find a purchaser or seller of real estate” in Civil Code section 1624, subdivision (d).   Subdivision (d) applies to persons, including licensed brokers, who seek to recover compensation for their services.

“The purpose of this provision of the Statute of Frauds is to protect buyers, sellers, lessors, and lessees of real property from unfounded claims by brokers and finders who have not been duly authorized to act as an agent for the principal.   However, it is equally the policy of the law to protect a broker who has been employed properly and has performed services for the principal in good faith.”  (1 Miller & Starr, op. cit. supra, § 1:61, p. 172.)

 In discussing the specific terms “purchase, sale or lease,” Miller & Starr says:  “The Statute of Frauds ․ includes any transaction that accomplishes the same result.   The Statute applies to an exchange of real property, so that an agreement by an owner of property authorizing an agent to negotiate for the exchange of the owner's property for some other parcel of property must be in writing in order to enforce collection of compensation from the owner for the agent's services.”  (1 Miller & Starr, op. cit. supra, § 1:62, p. 176, fns. omitted.)   Thus, even though property is not technically “sold or purchased” in an exchange, the statute of frauds applies.

 Miller & Starr also cite the cases holding that an agreement for a broker to obtain an option to purchase property must be in writing to be enforceable.  (1 Miller & Starr, op. cit. supra, § 1:62, pp. 176–177.)   Thus, even though the option is also not an actual sale or purchase, it relates to a contract for the sale or purchase of real estate.

The oral contract alleged here is not a contract in which the brokers participated in the joint venture or received a share of the joint venture for their services.   Instead the action is alleged as a simple action by a real estate broker for breach of contract to pay a real estate commission.³  (See, Bus. & Prof.Code, § 10136.)

 We think that, in interpreting the scope of Civil Code section 1624, subdivision (d) in a commission action by a licensed broker, we should consider whether the broker's activities alleged were activities which required a real estate license.  (Bus. & Prof.Code, § 10131.)   If the activities required a license, the broker is presumed to know that his commission agreement had to be in writing to be enforceable.  (Phillippe v. Shapell Industries (1987) 43 Cal.3d 1247, 1260–1261, 241 Cal.Rptr. 22, 743 P.2d 1279.)  “To recover compensation for services that require a real estate license, the agent must have the required license and a memorandum signed by the owner which satisfies the Statute of Frauds.”  (1 Miller & Starr, op. cit. supra, § 1:62, p. 174.)

The Real Estate Law (Bus. & Prof.Code, § 10000 et seq.) defines the types of activities that require a person to obtain a real estate broker's license.   In addition to the obtaining of buyers and sellers for real estate, the law includes persons who solicit the exchange of real estate “or a business opportunity.”  (Bus. & Prof.Code, § 10131.)   This phraseology results from the merging of the real estate and business opportunity licenses in 1965.   (Review of Selected 1965 Code Legislation (Cont.Ed.Bar 1965) p. 14.)

A “business opportunity” is defined in Business and Professions Code section 10030 to include “the sale or lease of the business and goodwill of an existing business enterprise or opportunity.”

 The background and history of this phrase is discussed in the recent case of All Points Traders, Inc. v. Barrington Associates (1989) 211 Cal.App.3d 723, 259 Cal.Rptr. 780.   In that case, the court found that the term “encompasses any transfer of the ownership of an entire ongoing business in corporate form whether by transfer of all the stock or all the assets.”   (Id., at p. 731, 259 Cal.Rptr. 780.)   The court there points out that Business and Professions Code section 10131.3 “adds to the definition of real estate broker those persons who assist in certain noncorporate securities transactions in small real estate investment entities.  Section 10131.3 refers to those securities ‘as specified in Section 25206 of the Corporations Code,’ i.e., ‘any interest in any general or limited partnership, joint venture ․ engaged solely in, investment in or gain from an interest in real property, including, but not limited to, a sale, exchange, trade or development.’ ”  (Id., at p. 733, 259 Cal.Rptr. 780.) ⁴  Thus, a real estate broker's license was required for the activities undertaken here by the licensed real estate brokers.

 Since the activities of the brokers here required a license, we find that the transaction was a transaction by which the brokers were employed to “procure, introduce, or find a purchaser or seller of real estate ․ for ․ a commission.”   Accordingly, we find that the statute of frauds applies to a commission agreement which employs licensed real estate brokers to find persons who will finance the development of a particular parcel of real property in a joint venture with the present property owner.⁵  Plaintiffs cannot recover on the alleged oral commission agreement.

THE ALLEGED FRAUD CAUSE OF ACTION

 Plaintiff Grant next contends that, even if the statute of frauds bars his commission action, he can maintain his fraud cause of action.   He relies on Phillippe v. Shapell Industries, supra, 43 Cal.3d 1247, 241 Cal.Rptr. 22, 743 P.2d 1279, which states:  “We conclude that a licensed real estate broker cannot invoke equitable estoppel to avoid the statute of frauds unless the broker shows actual fraud.”  (Id., at p. 1252, 241 Cal.Rptr. 22, 743 P.2d 1279.)   After explaining why the real estate commission in that case was subject to the statute of frauds, and why the agreement in that case did not comply with the statute, the court discussed why the equitable estoppel doctrine did not prevent the defendant from asserting the statute of frauds defense.

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.”  (Id., at p. 1262, 241 Cal.Rptr. 22, 743 P.2d 1279.)

The court found that “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.”  (Id., at p. 1262, 241 Cal.Rptr. 22, 743 P.2d 1279.)   Accordingly his reliance was not reasonable, and he suffered no unconscionable injury.

In discussing when an action for actual fraud could be maintained, the court said:  “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.  [Citations.]  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.  [Citations.]  ․ By parity of reasoning, a broker's reliance on an oral promise to pay a commission ․ 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.  [Citations.]  [¶] 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.”  (Id., at p. 1270, 241 Cal.Rptr. 22, 743 P.2d 1279.) ⁶

The only fraud alleged here is that:  “Defendant HALVERSON increased the price of his property to cover a 10 percent commission, but failed and refused to pay same upon the transfer of the property.”   This allegation is coupled with allegations that defendant Halverson never intended to pay the commission and that the commission was not paid.   These allegations do not allege any unusual type of promise that would bring plaintiffs within the narrow exception for actual fraud described above.  (See, generally, Miller & Starr, op. cit. supra, § 1:67, pp. 187–192.)   The brokers' presumed knowledge of the statute of frauds prevents them from reasonably relying on any oral commission promises made by defendant Halverson.   We therefore find that defendant's demurrer to plaintiffs' fraud cause of action was properly sustained.

THE ALLEGED CAUSE OF ACTION FOR INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE

 Plaintiffs next contend that they can maintain their alleged sixth cause of action for intentional interference with prospective economic advantage.⁷  Plaintiffs pled that defendants Magdych and Oleson promised plaintiff Lewis that they would pay the commission if Mr. Halverson did not pay it, that this agreement constituted a prospective economic advantage, and that Mr. Halverson intentionally interfered with that economic relationship.   The specific acts of Mr. Halverson in this regard are not alleged.

In Buckaloo v. Johnson (1975) 14 Cal.3d 815, 122 Cal.Rptr. 745, 537 P.2d 865, our Supreme Court considered this issue.   The court specifically noted that:  “the tort [of intentional interference with prospective advantage] is considerably more inclusive than actions based on contract or interference with contract, and thus is not dependent on the existence of a valid contract.   But this broad assertion must be qualified by the statement that the wrong complained of cannot be merely a failure on the part of the actor to comply with an unenforceable contract.   The statute of frauds conclusively establishes that brokerage contracts with either the vendor or the vendee must be in writing.   We have neither the authority nor the inclination to circumvent that declared policy by permitting tort actions to become an expedient substitute for contract actions specifically forbidden by statute.”   (Id., at pp. 826–827, 122 Cal.Rptr. 745, 537 P.2d 865.)

The court held that the elements of the tort of intentional interference with prospective economic advantage in the real estate broker context are:  “(1) an economic relationship between broker and vendor or broker and vendee containing the probability of future economic benefit to the broker, (2) knowledge by the defendant of the existence of the relationship, (3) intentional acts on the part of the defendant designed to disrupt the relationship, (4) actual disruption of the relationship, (5) damages to the plaintiff proximately caused by the acts of the defendant.”  (Id., at p. 827, 122 Cal.Rptr. 745, 537 P.2d 865.)

The allegations of the complaint here are insufficient to plead a cause of action because plaintiffs do not allege any intentional acts by Mr. Halverson that were designed to disrupt the alleged relationship between plaintiff Lewis and defendants Magdych and Oleson, nor any actual disruption of the alleged relationship.   The trial court therefore properly sustained the demurrer on this ground.

 The issue thus becomes whether the trial court erred in failing to allow plaintiffs the opportunity to amend their complaint to allege specific intentional acts by Mr. Halverson, and the consequent disruption of the relationship.   While it is possible that these omissions could be cured by amendment, we agree with defendant that the alleged wrong is only the failure to comply with an unenforceable contract.   In such a situation, Buckaloo governs and the tort cause of action cannot substitute for the contract cause of action which is barred by the statute of frauds.  (Buckaloo v. Johnson, supra, 14 Cal.3d 815, 826–827, 122 Cal.Rptr. 745, 537 P.2d 865.)   We therefore conclude that the trial court properly refused to give the plaintiffs leave to amend the sixth cause of action.

OTHER CAUSES OF ACTION

 Plaintiffs contend that the trial court's ruling on the third cause of action (common counts), the fifth cause of action (conspiracy), and the eighth cause of action (unjust enrichment) was wrong because the underlying causes of action are not barred by the statute of frauds.   Since we have concluded that the contract and fraud causes of action are barred by the statute of frauds, and that the cause of action for intentional interference with prospective economic advantage cannot be used to avoid the bar of the statute of frauds in this situation, the court's ruling on the third, fifth, and eighth causes of action was also correct.

Defendant Halverson was not named in the remaining causes of action (the second cause of action and the seventh cause of action).   Accordingly, his demurrer, and the trial court's decision, did not address those causes of action.

DISPOSITION 8

 The trial court's order dismissing the action against defendant Halverson with prejudice is affirmed.⁹

FOOTNOTES

1.   Although the complaintalleges that a commission is due for merely arranging a meeting, plaintiff Grant claims on appeal that he did more by actually procuring the joint venture partners and arranging the joint venture development of the property itself.   We will give plaintiff Grant the benefit of the doubt by construing the complaint as if it contained a specific allegation that he procured prospective joint venture partners.

2.   Plaintiffs also argue that the arrangement was more like a contract by which Halverson agreed to transfer a share of the profits from his real estate development to his partners.   Such arrangements are not a transfer of an interest in real property but rather a transfer of personal property in the form of a chose in action.  (Bank of California v. Connolly (1973) 36 Cal.App.3d 350, 374, 111 Cal.Rptr. 468.)   The argument is defeated by the allegation in the complaint that “Defendant HALVERSON sold and transferred the subject property to a joint venture․”

3.   Indeed plaintiff Grant even alleges that the property was sold to the joint venture.   This allegation puts him squarely with the terms of Civil Code section 1624, subdivision (d).   Nevertheless, we consider his argument that there was no sale because the owner merely contributed his property to the joint venture.

4.   See, also, Business and Professions Code section 10131.2 and Review of Selected 1965 Code Legislation (Cont.Ed.Bar 1965) p. 14:  “The merging of real estate and business opportunity licenses should clarify the law and benefit licensees and the public.”

5.   In an analogous situation, Miller & Starr states:  “CC § 1624(d) was amended in 1963 to enlarge the requirement to include an authority to lease real estate, or to find a lessor or lessee for a lease with a period longer than one year.   It does not specifically reference a sale or assignment of a leasehold estate.  B & P C § 10133(b) provides that a license is required for the sale, purchase, or exchange of a lease regardless of the term of the lease.   Since a license is required to negotiate a lease assignment, it is reasonable to require his compensation agreement to be in writing under CC § 1624(d).   See B & P C § 10136.”  (Miller & Starr, op, cit. supra, § 1:56, p. 156, fn. 64.)

6.   See, generally, 2 Corbin, Contracts (1990 pocket supp.) section 416, page 121, discussing Phillippe v. Shapell Industries, Inc., supra, 43 Cal.3d 1247, 241 Cal.Rptr. 22, 743 P.2d 1279:  “There does not appear to be anything ‘harsh and inflexible’ in requiring a real estate broker always to comply with the statute of frauds applicable to his business, within which he is charged with special knowledge on the basis of his license.   The fraud exception allowed by the majority seems a reasonable one;  even an expert can be misled to his unjust detriment by a perpetrator of fraud.”

7.   The argument is confusing because it cites the sixth cause of action.   This cause of action is by plaintiff Lewis against defendant Halverson but its charging allegations do not distinguish between plaintiff Lewis and plaintiff Grant.   The appellants' brief refers to this cause of action as being by Grant, but the term “Grant” is defined in appellants' brief to include both plaintiffs.

8.   Defendants contend that they should be awarded sanctions because plaintiff filed a frivolous appeal.   Finding that neither the objective nor the subjective standards for a frivolous appeal have been met in this case, we decline to consider their request further.  (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 183 Cal.Rptr. 508, 646 P.2d 179.)

9.   The trial court signed an order sustaining the demurrer and dismissing the action with prejudice as to defendant Halverson. An order sustaining a demurrer without leave to amend is nonappealable (9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 82, pp. 104-105) but an order of dismissal has the effect of a final judgment and is appealable as such (id., at § 74, p. 99).

HOLLENHORST, Acting Presiding Justice.

DABNEY and TIMLIN, JJ., concur.