JU v. JACOBY (1986)

In this case, summary judgment was granted as against a cooperating broker who had brought suit against a seller of real property.   We affirm.

FACTUAL BACKGROUND

Defendants Seymour, Florence and Steven Jacoby owned the Olympian Hotel in Los Angeles, involving land, buildings and several businesses operated thereon.   They put it on the market, utilizing Hotel Brokers USA, Inc., as their broker.   Through plaintiff Ju, a broker doing business under the felicitous name of Happy Realty, Akio and Shinichi Yamamoto, father and son, became interested in acquiring the property at a price approximating four million dollars.   Preliminary negotiation took place, lawyers for both parties were brought in and apparently added their efforts to those of the parties in working out various aspects of the proposed deal, and progress was being made.   On October 27, 1978, Shinichi Yamamoto, both for himself and as attorney-in-fact for his father, and Seymour Jacoby signed a one-page document entitled Deposit Receipt and Purchase Contract.   The document literally incorporated by reference all of the terms of a letter from counsel for the seller to counsel for the buyer, thus furnishing many of the provisions of a relatively complex transaction which involved the real property including a hotel business, liquor store, coffee shop and bar.   The document was prepared on a Hotel Brokers' form, and it recites the terms involved, under which are separate paragraphs for signature by the buyer and seller.   The buyer's paragraph states that he offers to purchase upon the terms and conditions above stated, and the seller's paragraph accepts the offer and “agrees to pay Hotel Brokers USA Inc. real estate agent, as commission the sum of $6% of sale 1/212 to Hotel Brokers 1/212 to Happy Realty or one-half of the above-mentioned deposit in case the same is forfeited by Buyer, provided same shall not exceed the full amount of the commission.   Seller has employed or does hereby employ Hotel Brokers USA Inc. as Seller's agent to procure, negotiate and consummate the sale of Subject Property.”

After this document had been signed, the parties continued to negotiate with respect to certain elements, but were unable to resolve the problem.   As a result, actions by both Yamamotos and plaintiff were brought, were thereafter consolidated, and then the Yamamoto litigation was voluntarily dismissed.

 THE MOTION FOR SUMMARY JUDGMENT

Defendants, who claimed all along that no contract was in force, brought on a motion for summary judgment.   Plaintiff filed no declarations in opposition thereto, but did indeed object to the consideration of much of the matter contained in the declarations of defendant Seymour Jacoby and of his attorney, Allan Liebert.

Mr. Jacoby's declaration asserted that on the day in question, his wife and son were not present, that he did not have power of attorney for either of them and was not acting as their agent, that Akio Yamamoto, his attorney or plaintiff “inquired if I had Power of Attorney for my wife and son, and I advised that I did not, but that they were available (in the city) to sign documents if they agreed to the deal.”   This was not refuted in any way, nor was there any objection to that statement.   Rather, plaintiff took the position that a contract existed and on appeal contends that the summary judgment can be affirmed as to the other Jacobys, but that an enforceable contract between the Yamamotos and Seymour Jacoby came into existence on that day, by reason of which plaintiff can recover his portion of the real estate commission.

COMMISSION

Appellant's entire position is bottomed on the theory that he is the broker in this transaction, that “his commission is earned from the moment he produces a ready, willing and able buyer, evidenced by the written acceptance of that buyer by the seller.”   This foundation is not solid.

 Hotel Brokers USA, Inc., as was clearly stated in the Deposit Receipt, is the broker.   Appellant Ju is at best a “cooperating broker,” an entirely different concept denoting the fact that he was cooperating with Hotel Brokers, the actual or listing broker in the transaction.   Brokerage is an agency created by contract (Lynch, Cal. Real Property Sales Transactions (CEB 1981), The Broker, § 2.45, p. 105), which was not the case as between the Jacobys and Ju.   Where the cooperating broker becomes involved as via a Multiple Listing Service, a subagency is established (Derish v. San Mateo-Burlingame Bd of Realtors (1982) 136 Cal.App.3d 534, 538, 186 Cal.Rptr. 390;  see, generally, 2 Miller and Starr, Current Law of California Estate, § 4.8, p. 17 et seq.) and thus creates duties toward the seller and the buyer (Kruse v. Miller (1956) 143 Cal.App.2d 656, 660, 300 P.2d 855).

The cooperating broker may well be a procuring cause of a sale, and may produce a buyer ready, willing and able to purchase.   It is very normal, as  was done here, to find in either the deposit receipt or escrow instructions that the commission due the listing broker (most often expressed initially as a percentage of the purchase price) is to be paid in some set proportion to the listing and the cooperating broker.

The essential difficulty here is, that Mr. Ju or Happy Realty has never pleaded nor, in connection with the summary judgment proceedings, claimed any connection or agency with respect to the owners of the Olympian Hotel;  he relies solely upon the agreement which was set forth previously.

 We are thus led to a problem that has long vexed those most interested in this field.   It is whether a cooperating broker has the right to bring suit in his own name, against a seller with whom there is no direct contract.  (See, e.g., 1 Starr and Miller, Current Law of California Real Estate, § 2:23, p. 232.)   One must begin with Fairchild v. King (1894) 102 Cal. 320, 322–323, 36 P. 649.   Plaintiff Fairchild in that case was the early-day equivalent of a cooperating broker;  the defendant King was the seller (actually, lessor), and Jackson was the broker retained by King.   In a jury trial, a nonsuit was granted as to both King and Jackson.   The resulting judgment was affirmed, because the evidence was clear that Jackson had never agreed to pay anything, and King had never authorized a subagency and had never “directly or indirectly contracted in any manner for their services.”

In Goodwin v. Glick (1956) 139 Cal.App.2d Supp. 936, 938–941, 294 P.2d 192, the listing agent had an exclusive listing (i.e., payment due him for any sale made during the term, including one made by the owner, without the broker having procured the buyer), but the listing permitted referral to the San Pedro Realty Board, whose members were authorized to “act as sub-agents in procuring ․ a purchaser.”  (Id. at p. 938, 294 P.2d 192.)   Because the listing agreement required the commission to be paid to the listing broker and no one else, it was held that the cooperating broker was a subagent in the sense that he was an agent of the agent-broker rather than of the seller, and could not maintain a suit against the seller-principal.¹

In Smith v. Wright (1961) 188 Cal.App.2d 790, 793, 10 Cal.Rptr. 675, the appellate court neatly resolved the difficulty in light of the pleading there involved.   In that case, the cooperating broker had sued both the seller and the listing broker who had an exclusive listing.   The two brokers had contracted between themselves, and the cooperating broker was to receive one-third of the commission if they produced a buyer.   The cooperating broker produced a buyer, but the seller refused to negotiate or to sell.   The court held the action to lie, because it was founded upon the listing agreement, provided that the listing broker, a necessary or indispensable party, was joined and the full commission was sought.   Thus, if both brokers join in the action, either directly as plaintiffs, or one appears as plaintiff and the other as a defendant due to his failure to join, all interests are properly represented in the action.

As presented to the judge on motion for summary judgment, it is clear that Hotel Brokers was and is the listing broker and also the broker acknowledged by Seymour Jacoby to be “Seller's agent to procure, negotiate and consummate the sale of Subject Property”;  the instrument upon which plaintiff bases all of his hopes is one to pay Hotel Brokers a 6 percent commission;  and the cases hold that he cannot so proceed and recover in an action brought by himself for only his claimed portion of the commission.

Put another way, appellant is merely an incidental beneficiary of the contract here involved.

Under the cases, Hotel Brokers is a third party beneficiary of a contract between buyer and seller which expressly provides for the payment of a commission.  (Calhoun v. Downs (1931) 211 Cal. 766, 770–771, 297 P. 548;  Lundeen v. Nowlin (1912) 20 Cal.App. 415, 417, 129 P. 474;  Donnellan v. Rocks (1972) 22 Cal.App.3d 925, 930, 99 Cal.Rptr. 692.)   We are cited to no case, and see no rational basis for holding that the rather barren language of “1/212 to Happy Realty” superadded after the express provision to pay Hotel Brokers a 6 percent commission can be made into another separate promise between buyer and seller made expressly for the benefit of appellant.  (See Steinberg v. Buckman (1946) 73 Cal.App.2d 605, 608–609, 167 P.2d 207.)   Insofar as appears from the pleadings and motion for summary judgment, neither buyer nor seller owed any duty or compensation to appellant Ju, and it is reasonable to believe that the reference to “1/212 to Happy Realty” was placed therein by Hotel Brokers, who was and is not a party to the contract, and whose intention is immaterial with respect to the contracting parties.   As was said in Walters v. Calderon (1972) 25 Cal.App.3d 863 at page 871, 102 Cal.Rptr. 89:  “The fact that he [the claimed beneficiary] is incidentally named in the contract, or that the contract, if carried out according to its terms would inure to his benefit, is not sufficient to entitle him to demand its fulfillment.   It must appear to have been the intention of the parties to secure to him personally the benefit of its provisions.”  (Emphasis in original.)

At first blush, it would seem that the parties have surprisingly little interest in advancing the interests of a cooperating broker as an economic matter.    The buyer, although supplying the cash involved in the sale, does not pay the commission and may be expected to realize that any monies by way of compensation to the cooperating broker will be by means of an arrangement between the brokers themselves.   The seller, who pays the commission, is generally already bound to pay a set percentage to the listing broker and is not apt to care if the cooperating broker is paid.   Practical experience has shown that the buyer and seller take a real interest in commission arrangements only to the extent that a paring down of the agreed commission may sometimes become necessary in order to reach an agreement, a situation not here presented.

The decided cases uniformly prevent a cooperating broker from suing on his own behalf, for his expected share of the commission.   This comports not only with present practice in the real estate field, but with good public policy as well.   The seller is not exposed to the possibility of multiple actions by brokers to collect portions of any commission due upon the sale, and piecemeal litigation is avoided.   We hold, therefore, that absent unusual circumstances shown by the evidence, a cooperating broker may not so recover.

In this case, no such circumstances were shown.   The trial court was thus correct in its determination that no factual issue prevented summary judgment, and thus the judgment is affirmed.

FOOTNOTES

FOOTNOTE.  

1.   By its own terms, the holding in that case is restricted to what is now statutorily defined as an “exclusive right to sell listing” in Civil Code section 1086, subd. (e)(1).  (Goodwin v. Glick, supra, 139 Cal.App.2d Supp. at p. 940, 294 P.2d 192.)

 WEISZ, Associate Justice **. FN** Assigned by the Chairperson of the Judicial Council.

FEINERMAN, P.J., and ASHBY, J., concur.