All California real estate brokers should be well aware of the statute of frauds governing their work found in Civil Code section 1624(a)(4).
Here is what the statute says:
(a) The following contracts 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:…(4) An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where the lease is for a longer period than one year, for compensation or a commission.
Facts: $46 million sale; $925,000 commission opportunity; but broker had no written contract
The lawsuit: implied contract?
The court of appeal’s opinion
The court of appeal held that under the facts alleged by Westside, the statute of frauds would govern the claim unless Westside could demonstrate that one of the recognized “narrow” exceptions applied. Those exceptions include:
- (1) to prevent “unconscionable injury or unjust enrichment” caused by the principal’s “actual fraud” (i.e., where the principal has told the agent that their agreement for a commission was in writing when it was not, or where the principal has told the agent to cancel an otherwise valid written contract for exchange of the property while concurrently making an oral promise to the agent to still pay the commission, but then reneges on that promise)
- (2) if the broker’s principal and the other party to the sale have executed a written and binding agreement for the purchase of real estate, the agreement specifies that the broker will receive a commission, and the broker’s principal cancels the agreement
- (3) where an unwritten agreement is later ratified in writing by the broker’s principal.
The court of appeal rejected Westside’s efforts to fit the claim into any of those exceptions. The court noted that Westside did not allege any actual fraud by the Randalls, and that the Randalls and the sellers never reached a binding contract for the property during Shapiro’s representation of the Randalls.
As such, the court of appeal concluded that Westside’s claim was barred by the statute of frauds.
The lesson of the Westside case is simple: If you are a real estate broker in California, be sure to get your commission agreement in writing.