Listing Agreement Is Key To Collecting Commission

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.