Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
Superior Court County of Ventura, Super. Ct. No. 238915, Vincent J. O'Neill, Jr., Judge
Epport, Richman & Robbins; Michael D. Shore. for Appellants.
Law Offices of Ernest Mooney, W. Ernest Mooney, for Respondent.
YEGAN, Acting P.J.
Pearl Industries, Inc., Pearl Kwik Kar, Inc. and David Morehead (collectively, Pearl) owned oil change and lubrication stores in Camarillo and Indio. In 2003, Pearl sold the Camarillo store and its real property to Oil Stop, Inc., a chain of similar stores based in Northern California, for $1,150,000. Jeffrey Mayhew alleges that he was the real estate broker on the transaction and that Pearl breached its contract to pay him a commission of $81,000. Pearl appeals from the judgment, after a jury trial, in favor of Mayhew. It contends Mayhew's breach of contract claim is barred by the statute of frauds because there is no written employment agreement between Pearl and Mayhew. Pearl further contends that Mayhew is not a third party beneficiary of its contract with Oil Stop, and that the trial court erred when it instructed the jury on an estoppel exception to the statute of frauds defense. We affirm.
Facts
Respondent Mayhew is a real estate broker and developer. Beginning in 1999 or early 2000, he worked with Larry Dahl, the principal of Oil Stop, Inc., to find sites for Oil Stop in Southern California. Mayhew acted as the broker when Oil Stop acquired new sites in Valencia and Costa Mesa. On each of those transactions, the seller paid Mayhew's commission.
Mayhew shared office space with Bill Valaika. Valaika is acquainted with David Morehead, the owner of appellant, Pearl. At the time, Pearl's Indio store and real property were listed for sale; Valaika was interested in buying the real estate but not in operating the business. He introduced Mayhew to Morehead on a conference call. Valaika and Mayhew testified that the three men discussed Mayhew's prior work as a broker on Oil Stop deals. Mayhew explained that Oil Stop wanted to acquire stores in Southern California and said he could bring both the Indio and Camarillo stores to Oil Stop's attention. He also explained that "standard commissions" for such a transaction would be "six percent of the real estate value and ten percent of the business value." Morehead was excited about the prospect and "agreed that he would pay [Mayhew] the standard commissions, six percent on the land, ten percent on the business."
Mayhew did not enter into a written employment agreement or an exclusive listing agreement with Pearl. He knew that Oil Stop usually executed both a letter of intent and a purchase agreement or lease whenever it acquired a new store. These form documents required the seller or lessor to pay Mayhew's commission. It was also the custom and practice in the commercial real estate business to include the broker's commission only in a final purchase agreement or lease. Mayhew testified that both Morehead, from Pearl, and Larry Dahl of Oil Stop told him their agreements followed these standard forms and required Pearl to pay Mayhew's commission.
True to form, Pearl and Oil Stop executed both a letter of intent and a purchase agreement for the Camarillo store. In a departure from Oil Stop's usual practice, however, their letter of intent provided: "Except with respect to a commission that may be payable by [Pearl] to [Mayhew], the parties each represent and warrant that no commissions or finder's fee will be payable to any party in the event that a Binding Agreement is executed . . . ." Similarly, their purchase agreement stated: "Except with respect to a commission that may be payable by [Pearl] to [Mayhew] . . ., Seller has no liability or obligation to pay any fees or commissions to any broker, finder or agent . . . ." Mayhew testified that Oil Stop's standard agreements used the word "shall" rather than "may" in describing the seller's obligation to pay Mayhew's commission. He did not see these agreements before they were signed by Pearl and Oil Stop. After the transaction closed, Mayhew sent Pearl an invoice for his services. Pearl declined to pay and Mayhew filed this lawsuit.
Morehead and Dahl both testified that Dahl visited the Camarillo store about one year before Morehead's first telephone contact with Mayhew. Dahl drove past the property by chance, liked its location and stopped to take a look. He asked Morehead whether the store was for sale. It was not. About a year later, Valaika introduced Mayhew to Morehead in the conference call. Morehead testified that this was a "cold call" during which they discussed only the Indio store. Mayhew represented himself as the "broker for Oil Stop[.]" They did not discuss whether Mayhew would be paid a commission or the amount of any commission. Morehead acknowledged, however, that as a result of this telephone conversation, he understood Pearl would have to pay Mayhew a commission if Mayhew procured a buyer for the Indio business. Mayhew asked Morehead to fax him financial statements for the Indio store. After receiving the fax, Mayhew asked Morehead to fax the same document directly to Oil Stop because the document he'd received was illegible.
Morehead called Oil Stop to get its fax number. He had a conversation with Dahl about whether Dahl was interested in the Camarillo store as well as the Indio store. Dahl asked Morehead to send financial information for both. He quickly ruled out buying the Indio store because it was too far from Los Angeles, but he continued to negotiate with Morehead about the Camarillo store. Mayhew was not involved in these discussions. Morehead explained that the letter of intent and purchase agreement mentioned Mayhew only because Dahl wanted to make sure that Oil Stop would not be responsible for paying any commission.
Jury Instructions
The trial court instructed the jury that a contract between Mayhew and Pearl could "be created by the conduct of the parties, without spoken or written words. Contracts created by conduct are just as valid as contracts formed with words. [¶] Conduct will create a contract if the conduct of both parties is intentional and each knows, or has reason to know, that the other party will interpret the conduct as an agreement to enter into a contract." With respect to the statute of frauds, the trial court instructed: "An agreement authorizing or employing a broker to procure . . . a purchaser of land for compensation or a commission is invalid unless the agreement itself, or some note or memorandum thereof, is in writing and signed by the seller." The jury was also informed that the writing "must expressly or impliedly show 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." In addition, the trial court instructed: "An exception to the requirement of a writing exists where a broker acts in reasonable reliance on a seller's misrepresentation that a sufficient writing exists. In such a case a broker may enforce an oral contract. However, this exception does not apply where a seller merely promises to execute the required writing in the future. A broker may not rely on such a promise to avoid the requirement of a writing."
The Verdict
The jury returned its verdict in favor of Mayhew, finding that Pearl breached a contract to pay Mayhew's commission. The jury further found there was "a writing that satisfied the statute of frauds regarding [Mayhew's] employment as a broker for the Camarillo land[,]" that Morehead "represent[ed] to [Mayhew] that a writing existed protecting his right to a commission[,]" and that Mayhew reasonably relied on that representation. It awarded Mayhew the entire $81,000 commission he requested.
Contentions
Pearl contends it was entitled as a matter of law to prevail on the breach of contract claim because the letter of intent and purchase agreement do not unequivocally show that it employed Mayhew as its broker. As a result, Pearl contends, the writings do not satisfy the statute of frauds. Pearl further contends Mayhew is not a third party beneficiary of the purchase agreement. Finally, it contends the trial court erred when it instructed the jury that Mayhew could recover on an oral contract if he "act[ed] in reasonable reliance on [Pearl's] misrepresentation that a sufficient writing exists." We are not persuaded.
Statute of Frauds
The statute of frauds, codified at Civil Code section 1624, provides that contracts "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[,]" are "invalid unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party's agent[.]" (Civ. Code, § 1624, subd. (a)(4).) Section 1624 does not require that the contract itself be in writing. Rather, the statute of frauds is satisfied if a "note or memorandum" of the contract "identifies the subject of the parties' agreement, shows that they made a contract, and states the essential terms with reasonable clarity." (Sterling v. Taylor (2007) 40 Cal.4th 757, 766.) In the case of a broker's employment contract, the writing "must unequivocally show on its face the fact of employment of the broker seeking to recover a real estate commission." (Phillippe v. Shappell Industries (1987) 43 Cal.3d 1247, 1258.) Once that threshold has been met, extrinsic evidence is admissible to clarify the terms of the memorandum. (Sterling v. Taylor, supra, 40 Cal.4th at pp. 766-767.)
All statutory references are to the Civil Code unless otherwise stated.
Pearl contends that the letter of intent and purchase agreement do not satisfy the statute of frauds because neither writing "unequivocally establishes" Mayhew's employment as a broker without reference to the extrinsic evidence. Relying on Franklin v. Hansen (1963) 59 Cal.2d 570, Pearl insists that Mayhew and Valaika's testimony about the conference call is inadmissible to explain the references to Mayhew in the letter of intent and purchase agreement. Our Supreme Court, however, recently disapproved Franklin on this point. In Sterling v. Taylor, supra, the court disapproved Franklin's "rigid rule" that bars "consideration of extrinsic evidence to determine the sufficiency of a memorandum under the statute of frauds." (Sterling v. Taylor, supra, 40 Cal.4th at pp. 769-770.) It held instead that, "if a memorandum includes the essential terms of the parties' agreement, but the meaning of those terms is unclear, the memorandum is sufficient under the statute of frauds if extrinsic evidence clarifies the terms with reasonable certainty and the evidence as a whole demonstrates that the parties intended to be bound. Conflicts in the extrinsic evidence are for the trier of fact to resolve, but whether the evidence meets the standard of reasonable certainty is a question of law for the court." (Id., at pp. 770-771.)
Here, the letter of intent and purchase agreement satisfy the statute of frauds because each writing acknowledges that Mayhew acted as a broker on the transaction and that Pearl was responsible for "a commission that may be payable" to Mayhew. Extrinsic evidence clarified the remaining terms of the contract between Pearl and Mayhew. Mayhew and Valaika each testified that Morehead, speaking on behalf of Pearl, authorized Mayhew to contact Oil Stop about buying the Camarillo store and real property. Morehead also agreed that Mayhew would be paid "standard" commissions of six percent on real property and 10 percent on other assets if he procured a buyer. The jury was entitled to credit that testimony, rather than Morehead's testimony that their conversation related only to the Indio store and not to the Camarillo store.
Because the jury found that Pearl had a contract directly with Mayhew, it is not necessary for us to determine whether Mayhew is also a third party beneficiary of the contract between Pearl and Oil Stop.
Instructional Error
Pearl contends the trial court erred when it instructed the jury that, "An exception to the requirement of a writing exists where a broker acts in reasonable reliance on a seller's misrepresentation that a sufficient writing exists. In such a case a broker may enforce an oral contract. However, this exception does not apply where a seller merely promises to execute the required writing in the future. A broker may not rely on such a promise to avoid the requirement of a writing." Because the jury found a writing sufficient to satisfy the statute of frauds, it was not necessary to reach the estoppel issue. The instruction it received, however, was not in error.
Because real estate brokers are presumed to understand the statute of frauds, they are also presumed to know that their employment or listing agreements are unenforceable if not in writing. (Owens v. Foundation for Ocean Research (1980) 107 Cal.App.3d 179, 183, disapproved on other grounds, Tenzer v. Superscope Inc. (1985) 39 Cal.3d 18, 29.) As a result, "The Courts of Appeal have consistently held, with two narrow exceptions . . ., that a licensed broker may not assert estoppel against a statute of frauds defense in an action to recover a commission under an oral employment agreement." (Phillippe v. Shapell Industries, supra, 43 Cal.3d at p. 1260.) Mayhew relies on the second of these exceptions, which allows a broker to assert estoppel "where the broker's principal has represented to the broker that his authorization was in writing when in fact it was not." (Id. at p. 1260, fn. 8.)
Mayhew testified that it was the custom and practice in the industry for commissions to be written into the final purchase agreement and to be paid by the seller at closing. Morehead led him to believe the same practice would be followed in this transaction. According to Mayhew, Morehead "made it sound like everything was exactly the way he represented to me." Based on his conversation with Morehead and his familiarity with Oil Stop, Mayhew understood the letter of intent provided for his commission. He further believed that Pearl and Oil Stop would use Oil Stop's form purchase agreement, which also required the seller to pay his commission. This testimony constitutes substantial evidence supporting both the trial court's decision to give the estoppel instruction and the jury's finding on that issue. (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 572 [party entitled to correct instructions on every theory of the case that is "advanced by him and supported by substantial evidence."].)
Conclusion
The judgment is affirmed. Costs to Mayhew.
We concur: COFFEE, J., PERREN, J.