MARKS v. WALTER McCARTY CORPORATION (1948)

This appeal by defendant is from a judgment after trial by the court without a jury awarding plaintiff $57,500 together with interest at 7% per annum from and after December 1, 1944, and costs, in an action to recover a real estate broker's commission for the alleged sale of the Beverly Wilshire Hotel, its furniture, furnishings and equipment.

The record discloses these undisputed essential facts:

Defendant owned the Beverly Wilshire Hotel, including the land, buildings, furniture and equipment from 1928 until it was sold in 1944. Walter G. McCarty and his wife owned all of the stock of defendant corporation and Mr. McCarty, as president, was authorized to negotiate and list the property for sale.

Plaintiff, a licensed and practicing real estate broker, had known Mr. McCarty for some years prior to the transaction herein involved. Early in October, 1943, plaintiff and Mr. McCarty, together with Mr. O'Neill, manager of the hotel, held a meeting at which plaintiff asked Mr. McCarty if the hotel was for sale, and upon being informed that it was, said that he desired to act as a broker for the sale of the hotel as he had some parties in mind as prospective purchasers and that since he had been operating as a broker in Beverly Hills for many years and knew the hotel, he felt he could develop a deal. Mr. McCarty stated that the price was $2,000,000. When asked about the broker's commission, Mr. McCarty told plaintiff that it would be the 5 per cent Realty Board commission. At this, or a later meeting, Mr. McCarty handed plaintiff a typewritten sheet dated October 14, 1943, containing details of the proposed sale of the hotel.¹ At these first meetings plaintiff stated to Mr. McCarty that he had in mind several prospective purchasers for the hotel but did not disclose their names. Shortly after his conversation with Mr. McCarty, plaintiff, through the law firm of Loeb & Loeb, contacted Mr. Arnold Kirkeby, a Chicago hotel operator and owner. Mr. Kirkeby stated that he was interested in a deal concerning the Beverly Wilshire Hotel, both by way of participating in the purchase and by way of operation. There followed numerous telephone conversations between the firm of Loeb & Loeb and Mr. Kirkeby, and plaintiff and Mr. Kirkeby relative to a proposed deal concerning the hotel, and conversations between plaintiff and Mr. McCarty. At one of these latter conversations, plaintiff told Mr. McCarty that Mr. Kirkeby was being considered as one of the members of a syndicate which contemplated purchasing the hotel, and terms of the proposed agreement of purchase and sale and escrow instructions were discussed with Mr. McCarty. On or about February 15, 1944, Mr. McCarty informed plaintiff that he was raising the price from $2,000,000 to $2,250,000. When plaintiff protested it was difficult enough to make the sale at the lower price, Mr. McCarty informed him the deal would have to be taken or left at the new price. Plaintiff told Mr. McCarty that he would still work on it and had the one buyer in the United States who would buy it, namely, Mr. Kirkeby. At this time Mr. McCarty handed plaintiff a memorandum dated February 15, 1944, on the Beverly Wilshire stationery with the printed name of the Walter G. McCarty Corporation. This memorandum was a carbon copy prepared on a letterhead sheet usually used for originals.² This document was given to plaintiff in response to his request for something in writing with reference to the terms upon which defendant would be willing to sell the hotel and the commission to be paid. In this memorandum to the real estate broker, the commission was reduced to $57,500. Plaintiff objected but finally agreed to continue working upon the deal. About March 21, 1944, the law firm of Loeb & Loeb wrote a letter to Mr. McCarty in which they set forth the terms upon which Mr. Kirkeby and his associates would be willing to enter into a deal for the hotel. During this period plaintiff was in constant communication with Mr. Kirkeby, both by telephone and through correspondence. On April 17, 1944, plaintiff went to see Mr. McCarty and told him that Mr. Ziffren, associated with the law firm of Loeb & Loeb, was in Chicago and anticipated seeing Mr. Kirkeby. However, that unless he had the deal in writing there would be no need of even talking about it because both he and Mr. Kirkeby were afraid that since Mr. McCarty had raised the price once, he might raise it again when they had reached a deal. Mr. McCarty took a yellow piece of paper from his desk drawer, dated it April 17, 1944, and wrote the deal in his own handwriting thereon and handed it to plaintiff,³ who made the following correction therein:

‘Option of 8 lots by payment of $13,000.00 2 yrs.’ He also drew a line through the words ‘including lots 29 and 30, Tr. 6649’ and changed the figure $1,775,000 to $1,750,000, also the figure $2,275,000 to $2,250,000, and changed the figure $750,000 to $700,000. At this meeting plaintiff told Mr. McCarty that while Mr. Ziffren was in Chicago, he would be talking to Mr. Kirkeby on the deal and that he wanted the terms of the second mortgage reduced from the amount set in the previous conversations and that they insisted that he get something in writing from Mr. McCarty as to the price. At this meeting plaintiff gave Mr. McCarty the names of the members of the proposed syndicate and told him Mr. Kirkeby was one of the group and was to operate the hotel. Upon receiving this memorandum, plaintiff sent a telegram to Mr. Kirkeby requesting him to telephone plaintiff. This Mr. Kirkeby did and he and plaintiff discussed the deal as set forth in the memorandum. Subsequently, plaintiff got Mr. McCarty to reduce the monthly payments on the second mortgage from $12,500 to $11,500. This fact plaintiff communicated to Mr. Kirkeby. Thereafter, various conversations took place between the respective parties and on April 24, 1944, Mr. Kirkeby wired plaintiff that he and his associates had decided to stay out of the Beverly Wilshire Hotel deal on account of the heavy amortization requirements on the second mortgage. Plaintiff thereafter kept in touch with Mr. Kirkeby and endeavored to make some satisfactory arrangement for payments on the second mortgage and he discussed with Genis, Swig and Store Properties, Inc. the possibility of their participating in the syndicate. About August 1, 1944, plaintiff arranged for Mr. Kirkeby to come to Los Angeles. Plaintiff met Mr. Kirkeby at his hotel and took him to see Mr. Genis where a general conversation ensued relative to the purchase of the hotel. The following day Mr. Marks suggested to Mr. Kirkeby that he buy the hotel himself. Mr. Kirkeby said he liked the idea and maybe he would. They then discussed the terms as previously presented to Mr. Kirkeby. After lunch Mr. Kirkeby said he wanted to go out and see Mr. McCarty. Mr. Marks then made an appointment for Mr. Kirkeby to see Mr. McCarty at his ranch alone. Thereafter plaintiff loaned Mr. Kirkeby his car and he drove out to see Mr. McCarty at his ranch. There they discussed the terms upon which the hotel was to be sold and the price of $2,250,000 was agreed on with terms almost identical to those upon which the deal was finally closed. On August 5, 1944, Mr. Kirkeby called plaintiff at his hotel and told him that he had promised to meet with Mr. McCarty on Monday, August 7th, to conclude the deal but that he was embarrassed because a Mr. Connie Hilton had called him on Friday and offered him the controlling interest in the Sherry Netherland Hotel in New York City. Mr. Kirkeby said he would have to decide on the Sherry Netherland deal instead of the Beverly Wilshire deal since he had been negotiating on that prior to coming to California. Plaintiff expressed his disappointment but said he would continue to watch the deal and perhaps Mr. Kirkeby could handle it later. Mr. Kirkeby on August 7th telephoned Mr. McCarty and told him he did not have the money available to purchase his hotel and added that as soon as he got additional money he would get in touch with him. Thereafter Mr. McCarty attempted to negotiate a deal for the sale of the hotel to some people who lived in Detroit. This deal fell through and in October, 1944, Mr. McCarty telephoned Mr. Kirkeby and asked him if he still was interested in buying the hotel. Over the telephone they agreed on price and terms substantially the same as those they had agreed on in August. Shortly thereafter Mr. Kirkeby came to Los Angeles, an escrow was opened with the Title Insurance and Trust Company on November 1, 1944, and the deal was consummated. When Mr. Kirkeby arrived in Los Angeles plaintiff saw him and asked him if he intended to take care of him on the deal, to which Mr. Kirkeby replied that question was a matter between plaintiff and Mr McCarty. Subsequently Messrs. McCarty, Kirkeby and Ziffren met and Mr. McCarty told them that he did not propose to pay plaintiff a commission. On April 17, 1945, plaintiff instituted the present action. By appropriate pleading and objection in the trial court defendant contended that plaintiff's cause of action, if any, was barred by subsection 5, section 1624, of the Civil Code.⁴

Defendant contends that plaintiff's alleged cause of action was barred because there was not a sufficient memorandum signed by defendant to meet the requirements of subsection 5, section 1624, of the Civil Code, which provides that an agreement authorizing or employing an agent or broker to purchase or sell real estate 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 or by his agent.

This proposition is tenable. The rule is settled that in a suit by a broker to recover a real estate commission in order to show compliance with the requirements of section 1624, subsection 5, of the Civil Code, the writing signed by the party to be charged or his agent must unequivocally show on its face the fact of employment of the broker; that is, it must show an authority to act or negotiate a sale of the property for the owner. (Herzog v. Blatt, 80 Cal.App.2d 340 at 342, 180 P.2d 30, [hearing denied by the Supreme Court]; Morrill v. Barneson, 30 Cal.App.2d 598 at page 603, 86 P.2d 924; Egan v. Pacific Southwest Trust & Savings Bank, 92 Cal.App. 1 at page 3, 267 P. 719; Irwin v. Klimper, 56 Cal.App. 434, 205 P. 714; Patterson v. Torrey, 18 Cal.App. 346, at page 348, 123 P. 224; Kleinsorge & Heilbron v. Liness, 17 Cal.App. 534, 535, 120 P. 444, et seq. See also Shapiro v. Canada, 101 N.J.L. 425, 129 A. 870; Heyman v. Stopper, 85 N.J.L. 128, 88 A. 946.)

The purpose of this statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiring that enumerated transactions be evidenced by a writing signed by the party to be charged. The salutary effect of such a statute which is clear, unambiguous, and which has been widely publicized among persons engaged in real estate transactions, should not be limited or restricted by strained judicial construction to defeat the purpose of the people as expressed through their legislature.

In Egan v. Pacific Southwest Trust & Savings Bank, supra, a writing signed by the owner stating that she agreed to sell certain property at a designated price, a certain amount to be paid to the broker, was held not to constitute a sufficient memorandum in writing authorizing or employing the broker, but to be at most only a memorandum of an agreement to pay the broker the amount specified therein.

In Patterson v. Torrey, supra, a writing signed by the owner of the property stating the price and saying he would accept a certain other property in exchange at a designated valuation with an oral request to the broker to see the owner of the property to be exchanged, was held merely to state the price at which the owner was willing to sell or to exchange the other property and not to constitute an employment of the broker, nor to confer upon him any authority to negotiate a sale or exchange for compensation.

In Kleinsorge & Heilbron v. Liness, supra, it was held that the authority to sell real estate for another must be specifically conferred by the writing upon the broker in whom it was the intention to vest such an authority and that an agreement on the part of the owner to sell the property describing it and stating the terms of the payment does not confer authority upon the broker who negotiates the sale and is therefore not sufficient under the provisions of subsection 5, section 1624, of the Civil Code to sustain an action for a broker's commission.

In Irwin v. Klimper, supra, a provision contained in escrow instructions addressed by the owner of the property to the bank, stating that a certain amount is due to a real estate broker as commission and directing the bank to hold the balance of the purchase money after the payment of the expenses and the commission, was held to be an order which at most was an acknowledgment of an obligation on the part of the owner to pay the stated commission out of the purchase price on the completion of the transaction, and that it did not constitute an agreement authorizing or employing the plaintiff to sell the property or a promise to pay the commission and that plaintiff's cause of action for a broker's commission was barred under the provisions of section 1624 of the Civil Code.⁵

Applying the foregoing rule to the facts in the instant case, none of the documents introduced in evidence showed any authority in plaintiff to negotiate a sale of the property in question, nor is there anything in any of the documents employing him as an agent to sell the property for compensation or a commission. The facts in the instant case are analogous to those in the cases cited supra, and the principle of law is identical. Therefore, since there was not a sufficient note or memorandum executed by the defendant or its authorized agent authorizing the plaintiff to sell the Beverly Wilshire Hotel or employing him as an agent or broker to sell it for compensation, the trial court improperly entered judgment in favor of plaintiff.

In view of our conclusion, no useful purpose would be served by our discussing the other grounds for reversal urged by defendant.

The judgment is reversed.

FOOTNOTES

1.  This typewritten sheet, which was unsigned, was received in evidence as plaintiff's Exhibit ‘3’, and read as follows:‘Re BEVERLY WILSHIRE HOTELOctober 14, 1943Description:Lots 18, 19, 20, 21, 22, 23, 24, 25, 26, 32, 33 and 34, also that portion of the Northerly 5 feet of the alley lying Southerly of and adjoining said lots 18 to 22 inclusive on the South, as the same was vacated by Ordinance No. 209 of the City of Beverly Hills, all of Tract No. 6649 as per map recorded in Book 70, Page 54 of Maps in the office of the County Recorder of Los Angeles County, California.Except therefrom the Easterly 10 feet of lots 18, 23, 24, 25, 26 and vacated alley, and except the Westerly 10 feet of lots 22, 32, 33, 34 and vacated alley; and except the Southerly 25 feet of lot 32.All buildings, furniture, fixtures and equipment on said property.Price:$2,000,000 payable as follows:$50,000 cash to be deposited in escrow (to be forfeited if deal is not consummated within 30 days from date of escrow).$550,000 upon close of 30 day escrow. Subject to a first Trust Deed of $775,000 in favor of the Connecticut Mutual Life Insurance Company of Hartford, Conn. which purchaser agrees to assume and pay installments as provided in said Trust Deed.Said Trust Deed has at this date been reduced to approximately $675,000.$725,000 Trust Deed, subject and second to the first Trust Deed. Interest @ 5% per annum payable monthly. Purchaser agrees to pay to Walter G. McCarty Corporation in payments of $12500 per month which shall include interest @ 5% per annum. Each payment which will be payable commencing December 1, 1943 shall be credited first on the interest then due and the remainder on the principal; and interest shall thereupon cease upon the principal so credited.Said Trust Deed of approximately $725,000 shall be secured by all the real property described above, by a Mortgage of Chattels on all the furniture, fixtures and equipment contained in said hotel and buildings. Also it shall be secured by all the rents, issues and income from said property.All taxes, interest, insurance, lighting rents and issues shall be prorated at close of escrow.At close of escrow, in addition to the purchase price of $2,000,000 the purchaser agrees to purchase all inventories consisting among other things of liquors, merchandise, etc. at the present market price and pay cash for same at close of escrow. The purchaser further agrees to pay for when delivered all merchandise that has been ordered but not yet received.All furniture, rugs, carpets, drapes, and equipment in apartment 800 except Room 811 thereof is not included in the sale of the Beverly Wilshire Hotel. Said equipment is the personal property of Walter G. McCarty. Purchaser agrees upon close of escrow to lease said apartment 800 excepting therefrom Room 811 to Walter G. McCarty for a period of five (5) years at a monthly rental of $300.00. Said rental shall include the usual service as is in effect in other apartments in said hotel.All furniture, fixtures, etc. in storeroom No. 9508 Wilshire Building is the property of Walter G. McCarty Corporation. Said Corporation is to retain said storeroom free of rent for two months after close of escrow.The sales price of the hotel includes only the furniture, etc. owned by the hotel and does not include any furniture owned and used by guests therein.Interest5% Int. from 5/1/40 to 5/1/454 3/4 Int. from 5/1/54 to 5/1/60Payments5/1/43 to 5/1/45$15,000.00 Quarterly5/1/45 to 5/1/5013,750.00 Quarterly5/1/50 to 5/1/6012,500.00 QuarterlyThe above payments include principal and interest.Ins. Fire & Earthquake-1,400,000 app. 1,250,000War Damage—1,250,000.'

2.  This memorandum read as follows:‘The Beverly Wilshire HotelWalter G. McCarty CorporationOwner and OperatorWilshire Blvd. between El Camino and Rodeo DrivesBeverly Hills, CaliforniaFeb. 15, 1944Hotel and pool area․$2,250,000.00Cal.App.sh․$600,000.001st T.D.․$662,000.002nd T.D.․$988,000.00$2,250,000.00$988,000.00—Due on or before 6 years.Payable $12,500.00 per month including interest @ 5% per annum.Liquors and inventories extra. Cash on close of escrow.Taxes, insurance, licenses, etc. pro-rated at close of escrow.Lease of Apt. #800 for 5 years $300.00 per month.Will give 2 years option on 8 lots in rear of pool area $130,000.00——$13,000.00 for option and optionee to pay taxes.$13,000.00 will be credited on purchase price if exercised.Commission on hotel property $57,500.00. (5% first $50,000.00 2 1/2% on $2,200,000.00)Will pay commission on optioned property if exercised.If I can secure lots 27 and 28 (100 ft.) will include same in option @ $25,000.00 (Will not give option.)'

3.  This paper dated April 17, 1944, read as follows:‘Kirkeby dealApr. 17/44Walter Marks, BrokerFurniture and equipment$500,000Land and buildings1,750,0002,250,0001—First Payment to be deposited in escrow on or before1—Apr. 20, 1944$700,0002—Purchaser assumes and agrees to pay 1st Trust Deed as and when due 655,314.183—Purchaser to execute 2nd Trust Deed to Walter G. McCarty Corp. due on or before May 31,/49 Interest @ 5% per annum (details set forth below)894,685.822,275,0002nd Trust Deed payable $12500 per month including interest @ 5% per annum. Date of Trust Deed, June 1, 1944—Monthly payments commence July 1, 1944, and monthly thereafter up to and including May 1, 1949, at which time the balance of the principal shall be paid.Option of 8 lots by the payment of $13,000.00 2 yrs.Commission to Broker $57,500 payable at close of escrow.5 yr. Lease of apt. 800, Cavana No. 7 and space in garage for two autos @ $300.00 per month.'

4.  Section 1624 of the Civil Code reads in part as follows:‘The following contracts are invalid, unless the same, or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by his agent:

FOOTNOTE.  ‘5. An agreement authorizing or employing an agent or broker to purchase or sell real estate for compensation or a commission;’

5.  It is to be noted that in 1922 subsection 6 of section 1624 read as subsection 5 of section 1624 of the Civil Code now reads.

McCOMB, Justice Assigned.