Broker seeking commission on listing agreement allegedly signed by authorized joint venture partner was not barred by statute of frauds or equal dignities rule defenses. Court erred in granting demurrer without leave to amend.  Jacobs v Locatelli (2017) 8 CA5th 317

 

Broker executed a listing agreement, with a term of one year, to find a buyer for a parcel of vacant land owned by a group of people (Owners) for $2.2 million. Only one Owner signed the listing agreement, as trustee of a named trust. While there were blank signature lines for the other Owners, Broker alleged that the signing trustee asserted a joint venture existed and he was authorized to act on behalf of all the other Owners. The term “owner” under the agreement was defined as the signing party, “John B. Locatelli, Trustee of the John B. Locatelli Trust, et al.” If a buyer was found, Broker’s commission was to be $200,000. The listing agreement provided only one exception to the commission: Broker would be paid no commission if the buyer located was the “Open Space Land Trust.”

 

During the marketing process, two Owners had contacted Broker and had begun to explore having Broker represent them on other projects. After extensive work, including some 12–14 hour days, Broker found a buyer—The Trust For Public Land—and notified the signing trustee. Rather than expressing pleasure at the prospect of a buyer, the signing trustee was angry. He claimed he had already had contacts with the proposed buyer (which the proposed buyer contradicted, saying it knew nothing about the availability of the land for sale until Broker had contacted it). The signing trustee said he wanted to change the commission exception to apply to The Trust For Public Land. The signing trustee unsuccessfully negotiated with the proposed buyer and the sale fell through.

 

Broker sued, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, anticipatory breach (implied repudiation), and specific performance (which cause of action was dropped). Owners demurred (twice) and the trial court sustained both demurrers without giving a reason for its decisions. Broker timely appealed the dismissal of her  complaint.

 

On appeal, Owners again argued they could not be bound to the listing agreement because they had not signed it. They asserted the statute of frauds and the equal dignities rule as defenses and denied that a joint venture existed. The court of appeal found these arguments unpersuasive.

 

First, in the contract, “owner” is defined ambiguously, using the term “et al.,” which the court of appeal construed to mean “and others.” The statute of frauds defense is intended to prohibit fraudulent behavior, but should not afford one the opportunity to avoid one’s just obligations. No fraudulent acts were alleged here. Owners also asserted the integration of the contract and the parol evidence rule under CCP §1856(a), but the parol evidence rule bars someone only from contradicting a written agreement. Owners could point to no such contradiction. The ambiguity of the “et al.” owner definition here should have been subject to Broker’s extrinsic evidence of a joint venture and the signing trustee’s authority to bind that joint venture, if any. The court was troubled that the trial court had not allowed any such evidence to be presented at all. This pragmatic approach is buttressed by the complementary behavior of the two nonsigning Owners toward Broker, who acknowledged her work on their behalf.

 

Calling the equal dignities rule (as established under CC §2309) “a close relative of the statute of frauds,” the court of appeal found it similarly inapplicable here. 8 CA5th at 324. The rule requires a writing to give one the authority to execute a contract required by law to be in writing. Owners noted that Broker did not have evidence of such a writing when the listing agreement was signed as support for their assertion of the equal dignities rule. But Broker’s allegation of a joint venture agreement under which the signing trustee had authority to bind Owners satisfied the rule as well. In a footnote, the court noted written authority might not be even necessary “if it could be proven that the authority existed within the ordinary course of the joint venture.”

 

THE EDITOR’S TAKE: I find three features of this decision to be confusing:

 

First (and of more concern to the immediate parties than to the rest of us): What is this broker supposed to have to do to prevail on the issue of signatures? That would have been easy to answer if the opinion had simply held that an allegation that a written authorization document would be good enough for the complaint to withstand a demurrer, even though the pleader did not (yet) possess it. But its statement “that the trial court should have allowed the case to proceed so that Jacobs could introduce extrinsic evidence of the manner in which Locatelli signed the agreement” makes me fearful that the simpler explanation I just provided was not quite accurate. Taking the court’s language literally, what manner of signing will help the broker the most? Or the least? Let’s hope that this language was something the parties can live with, even if the rest of us can’t follow it.

 

Second (and of more concern to academic types): Are the statute of frauds rules still going to be applied more strictly to brokers (an unsympathetic crowd because they are supposed to know better (the rule of Phillipe v Shapell Indus. (1987) 43 C3d 1247, reported at 11 CEB RPLR 11 (Jan. 1988)) than others), or can brokers now take comfort from the more gentle interpretation of Sterling v Taylor (2007) 40 C4th 757, reported at 30 CEB RPLR 54 (Mar. 2007), that this is “not a cloak of immunity” for a liar? Sterling was a buyer/seller case, rather than a broker/principal one, but that distinction may have vanished in the Jacobs opinion.

 

Third: Just what do we advise a broker client who tells us she has gotten the signatures of only some of the owners on her listing? (It is obviously safest to advise her to get the others’ too, but that may be unrealistic or come too late in the game.) Is that omission acceptable if the signer says he does have authority from the others? Or must he show it to her? Must it be written? Must she get a copy of it? Does it matter whether the owners are tenants in common, or joint venturers, or something else?

 

This case was an opportunity to clarify some rules. I fear it did the opposite.—Roger Bernhardt

 

39 Real Property Law Reporter 43 (Cal CEB Jan. 2017), © The Regents of the University of California, reprinted with permission of CEB.