Westside Estate Agency, Inc. v. James Randall, et al. — Get It In Writing!
In legalese, the term “statute of frauds” refers to the requirement that certain kinds of contracts be memorialized in writing, signed by the party to be bound by the contract, with sufficient content to evidence the contract. One such type of contract that must be in writing pursuant to California Civil Code section 1624(a)(4) is any “agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate” (i.e., a commission agreement). At issue in this case was a $925,000 commission claimed by a brokerage but not evidenced by a written agreement with the consumer.
The facts of the case, as detailed by the court, indicate that in early 2014, James and Eleanor Randall (“Buyers”) told their long-time friend and real estate broker Stephen Shapiro (“Broker”) that they were looking to buy a home in Los Angeles. Broker agreed to represent them in locating such a home but no written agreement was entered into between Buyers and Broker.
In October 2014, Broker located a multi-million-dollar estate in Bel Air for Buyers. The listing for the property offered a 2% cooperating broker commission. During the negotiation process for the offer, Buyers asked Broker, their friend, to apply the cooperating commission toward their purchase price, effectively waiving any commission. Broker refused. A $45 million offer was prepared by Broker and presented nonetheless. After significant negotiations and Buyers consultation with their attorney, Broker was instructed by Buyers to “cancel [the] offer” because the Buyers were “turned off on [the property].”
Three months later, in February 2015, the Buyers made a $47 million offer on the property with their attorney acting as their broker. Escrow closed a month later for a final purchase price of $46.25 million, $1.25 million more than the offer made through Broker a few months earlier. The Buyer’s attorney applied the $925,000 cooperating broker’s fee against the purchase price.
As a result, the Broker (through his brokerage) sued the Buyers for breach of an implied contract and sued their attorney for intentional interference with an implied contract. At the pleading stage, Buyers defended the suit on the grounds that they were not bound to pay a commission to Broker because there was no written agreement to pay a commission as required by the statute of frauds. The trial court agreed and dismissed the case without trial, reasoning that such a commission agreement was “squarely within” the statute of frauds, fell outside any of the exceptions to the statute, and that any unwritten agreement was consequently unenforceable as a matter of law. Given the absence of any enforceable contract, the court went on to rule that the attorney for the Buyers could not have interfered with a valid contract as a matter of law.
The Broker appealed making 5 separate arguments as to why the statue of fraud did not apply to this case. The appellate court summarily rejected all of these arguments and upheld the ruling of the trial court. In summing up its decision the appellate court wrote:
“Over a century ago, the Court of Appeal held: ‘Merely putting a prospective purchaser on the track of property which is on the market will not suffice to entitle the broker to the commission contracted for, and even though a broker opens negotiations for the sale of the property, he will not be entitled to a commission if he finally fails in his efforts, without fault or interference of the owner, to induce a prospective purchaser to buy or make an offer to buy, notwithstanding that the owner may subsequently, either personally or through the instrumentality of other brokers, sell the same property to the same individual at the price and upon the terms for which the property was originally for sale.’ (Cone v. Keil (1912) 18 Cal.App. 675, 679-680.) This holding is just as valid today, and renders futile any amendment by [Broker].”
To add insult to Broker’s injury, the appellate court ordered Broker to pay the Buyers’ costs for the appeal. Broker could have avoided this loss by obtaining an executed buyer’s representation agreement from his “friends” when they first started discussing the potential property acquisition.
Jennifer Felten, Esq., Relaw Ms. Felten specializes in representing both individuals and legal entities, providing representation and guidance on a variety of real estate related matters. Relaw APC 699 Hampshire Road, Suite 105 Westlake Village, CA 91361 US Phone: (805) 265-1031 or email her at: firstname.lastname@example.org
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