The recent case of Jacobs v. Locatelli outlines the
importance of the listing agreement as a binding contract for a broker to
recover a commission for the sale of real property, even if it was not executed
by all of the owners.
The vacant land was owned by 6 owners, and Jacobs obtained
an exclusive Vacant Land Listing Agreement for a list price of $2,200,000 that
was only signed by Locatelli, with the other owners' signature lines left
blank. Jacobs alleged in her complaint
that a written "agency agreement" exists between Locatelli and the
other owners, Locatelli told her he was authorized to act on behalf of all of
the owners, the other owners were aware of her retention as a broker, and two
of the owners acknowledged her employment, were impressed by her performance,
and inquired about working with her on other projects. These were important
allegations, but not as valuable as obtaining all of the owners signature on
the listing agreement to begin with.
Jacobs alleged that she spend significant time to market the
property, and contacted a potential buyer named The Trust For Public Land
(TPL), whose representative expressed interest in purchasing the property.
However, when Jacobs informed Locatelli, of the interest from TPL, he was
angry, asked for information regarding TPL, claimed he had been speaking with
TPL for three years, and he wanted to change the exemption in the agreement
from the Open Space Land Trust to TPL.
Subsequently, Locatelli informed Jacobs she was not to
contact TPL, and that he would deal directly with TPL regarding the sale. The owners of the land and TPL entered into
an agreement for TPL to buy the property, but the sale was never consummated, apparently
because issues arose between the owners and TPL.
Nevertheless, Jacobs filed a complaint against the owners
for a $200,000 commission, alleging causes of action for breach of contract,
breach of the implied covenant of good faith and fair dealing, anticipatory
breach (implied repudiation), and specific performance.
The owners filed a demurrer, arguing that because all of the
owners had not signed the listing agreement, the complaint was barred by the
statute of frauds. Jacobs argued that Locatelli signed the agreement on behalf
of the "joint venture" that consisted of all of the owners of the
property. The trial court sustained the
demurrer, and after Jacobs filed an amended complaint, the trial court
sustained the demurrer without leave to amend as to all owners who had not
signed the listing agreement.
In the listing agreement, "Owner" is defined as
Locatelli, as trustee of his trust, "et al.", which the court of
appeal ruled means "and others". Under the Statute of Frauds set
forth in Civil Code, section 1624(a)(4), an agreement authorizing an agent or
broker to purchase or sell real estate is invalid unless it is in writing and
subscribed by the party to be charged or by the party's agent. Any agency authority to enter into a contract
required by law to be in writing must also be given by an instrument in writing
under the equal dignities rule in Civil Code, section 2309.
In finding that the issue is whether Jacobs' allegation that
Locatelli signed on behalf of the other owners who formed a joint venture is
sufficient to satisfy the statute of frauds, the court of appeal applied the
pragmatic approach of the California Supreme Court in its decision in Sterling
v. Taylor, which states the Statute of Frauds was not enacted to afford persons
a means of evading just obligations, and if after consideration of the
surrounding circumstances, the pertinent facts and all the evidence in a
particular case the trial court concludes the enforcement of the agreement will
not subject the defendant to fraudulent claims, the purpose of the Statute "will
be best served by holding the note or memorandum sufficient even though it is
ambiguous or incomplete."
As a result of Sterling, when ambiguous terms in a
memorandum are disputed, extrinsic evidence is admissible to resolve the
uncertainty. The agreement must still
provide the essential terms that cannot be supplied by extrinsic evidence, but
extrinsic evidence can be used to explain essential terms that were understood
by the parties but would otherwise be unintelligible to others. A cardinal rule of construction is when a
contract is ambiguous or uncertain, the practical construction placed upon it
by the parties before any controversy arises as to its meaning affords one of
the most reliable means of determining the intent of the parties, and this rule
governs the interpretation of a memorandum under the Statute of Frauds.
Therefore, the court of appeal reversed the trial court's
decision, and allowed the case to proceed to enable Jacobs to introduce
extrinsic evidence of the manner in which Locatelli signed the listing. The
listing specified that there were multiple owners, and that could be
interpreted as referring to all of the members of the joint venture that Jacobs
claimed to exist. Of course, it is
doubtful that the defendants will provide any written confirmation of
Locatelli's agency authority to sign for the other owners, and the uncertainty
of a trial decision may encourage the parties to reach a settlement.
LESSONS:
1. The listing
agreement is the contract that provides the broker a legal right to recover a commission, and extensive
care should be given to its preparation and
execution.
2. The owners
of real property should be determined by the broker in preparing the listing agreement, and all owners' signatures should
be obtained on the listing
agreement.
3. If the
listing agreement is properly prepared and signed, the commission may be earned when a sale contract is
entered into between the seller and buyer,
even if the sale was never consummated with a closing of escrow.
