Pacific Southwest Development Corp. v. Western Pac. R. Co.

• Decision Date: 05 October 1956
• Court: California Supreme Court
• Parties: PACIFIC SOUTHWEST DEVELOPMENT CORPORATION, a corporation, Plaintiff and Appellant, v. WESTERN PACIFIC RAILROAD COMPANY, a corporation, Defendant and Respondent. L. A. 23646.

Page 825

301 P.2d 825

47 Cal.2d 62

PACIFIC SOUTHWEST DEVELOPMENT CORPORATION, a corporation, Plaintiff and Appellant, v. WESTERN PACIFIC RAILROAD COMPANY, a corporation, Defendant and Respondent.

L. A. 23646.

Supreme Court of California, In Bank.

Oct. 5, 1956.

Rehearing Denied Oct. 31, 1956.

Gregory M. Greutz, Los Angeles, for appellant.

Smith, Van Dyke & Hildreth, H. Allen Smith and Jack E. Hildreth, Los Angeles, for respondent.

SPENCE, Justice.

Plaintiff, a licensed real estate broker, sought compensation for alleged services rendered in connection with defendant's procurement of an option to purchase certain real property. The amended complaint contained in evidentiary detail all the facts on which plaintiff based its right to compensation, including the correspondence between the parties, which was set out in haec verba. At the outset of the trial, the court declared its opinion that plaintiff could not recover because the pleaded agreement was not in writing as required by the statute of frauds. Plaintiff thereupon made an offer of proof, and it was stipulated that the documents pleaded in the amended complaint were deemed to have been offered in evidence, that an objection was made thereto and sustained by the court. Judgment was then entered for defendant, and plaintiff appeals.

As grounds for reversal, plaintiff contends: (1) that the pleaded agreement does not come within the statute of frauds; but (2) if the statute does apply, there was a sufficient writing as required; and (3) in any event defendant is estopped to rely on the statute as a defense. Our review of the record, in the light of the authorities hereinafter cited, leads to the conclusion that plaintiff's contentions cannot be sustained.

The substance of plaintiff's offer of proof is as follows: Cliff A. Nelson, then an employee of the Fortune Realty Company of San Jose, conducted certain negotiations with defendant's representative, F. B. Stratton, for the purchase of the property in question. Various propositions, offers, and counter-offers were discussed by the parties relating to the purchase but no definite arrangements were concluded as to the price to be paid, or concerning any employment of Nelson individually, or of Fortune Realty Company to represent defendant. While negotiations were still pending and on August 15, 1950, Nelson became an employee of plaintiff and remained in such employ until December 15, 1950. Meanwhile Nelson and Stratton continued to correspond. On August 29, Stratton wrote to Nelson suggesting a price of $3,000 per acre and $1,500 for an option. Nelson responded by letter of August 31, advising Stratton that a meeting should be arranged and proposing a five per cent commission as defendant's broker.

On September 6, 1950, Stratton met Nelson and plaintiff's president Creutz in Los Angeles. At that time Creutz examined a proposed option agreement submitted by Stratton, subsequently redrafted it, and on September 8 he mailed it to Stratton. Defendant apparently was endeavoring to obtain an option for a purchase price of less than $3,000 per acre. Another meeting of Stratton, Nelson and Creutz was had on September 21, and the option agreement was revised to state the price of $2,500 per acre for the property and $1,500 payable for the option. A few days later Creutz and Nelson conferred with Lenfest, the owner of the property, and the latter's attorney concerning the option agreement. At that time Lenfest objected to the $2,500 per acre price contained in the option agreement and subsequently, on October 3, through his attorney, declined the offer. Nelson reported the outcome immediately to Stratton, who thereupon declared that there was 'no hurry about the deal' and 'just kind of let him (Lenfest) simmer along.' Then without further call upon plaintiff or Nelson, and on October 5, 1950, Lenfest met Stratton and the orally agreed upon an option for a purchase price of $2,750 per acre. This oral agreement was reduced to writing and signed on December 15, 1950. Thereafter pursuant to its terms, defendant purchased the property for $204,517.50, escrow arrangements were concluded, and on June 25, 1951, Stratton forwarded to the Fortune Realty Company defendant's check for $5,112.94, 'representing agreed to commission in connection with the purchase * * * of the Lenfest property' and with the understanding that 'one-half of the above amount, or $2,556.47, will be paid by you to Mr. Nelson.' This reference to 'agreed to commission' obviously related to the correspondence between Nelson, Stratton, and Fortune Realty Company in May and June, 1951, whereby those parties agreed upon a commission of two and one-half per cent of the purchase price to be divided equally between Nelson and Fortune Realty Company, which correspondence was written long after Nelson had left the employ of plaintiff and long after the time that Stratton had obtained the option from Lenfest. Now plaintiff by this action claims that five per cent of the total price, or $10,225.87, is owing for its alleged services to defendant.

Plaintiff contends that an agreement authorizing or employing a broker to obtain an option to purchase real property is not within the statute of frauds and therefore is not subject to the requirement that it or some note or memorandum thereof be in writing. Civ.Code, § 1624, subd. 5; Code Civ.Proc. § 1973, subd. 5. In support of its position, plaintiff relies on these settled principles: that an option to purchase real property is a contract containing an irrevocable and continuing offer to sell at a stipulated price within a specified time; that it conveys no interest in land to the optionee but vests in him only a right in personam to buy at his election; and that such agreement relating to the sale of land is "by no means a sale of property, but is a sale of a right to purchase." Warner Bros. Pictures v. Brodel, 31 Cal.2d 766, 772, 192 P.2d 949, 952, 3 A.L.R.2d 691; Hicks v. Christeson, 174 Cal. 712, 716, 164 P. 395; Transamerica Corp. v. Parrington, 115 Cal.App.2d 346, 351-353, 252 P.2d 385; see, also, Kritt v. Athens Hills Development Co., 109 Cal.App.2d 642, 646, 241 P.2d 606; Seeburg v. El Royale Corp., 54 Cal.App.2d 1, 4, 128 P.2d 362. However, the cases upon which plaintiff relies were not concerned with the application of the statute of frauds but only with the distinction between the 'option contract' and the 'contract to which the irrevocable offer of the optionor relates'. Warner Bros. Pictures v. Brodel, supra. It therefore does not follow, as plaintiff contends, that since an option contract is not itself a contract for the purchase or sale of real estate but only evidences the 'right' to performance of such agreed act, a contract employing a broker to obtain the option does not fall within the statute of frauds.

In California an option to purchase real property has been held to come within the statute of frauds and so must be in writing. Bovo v. Abrahamson, 100 Cal.App. 373, 383, 280 P. 191. The propriety of this holding was recognized in Wilson v. Bailey, 8 Cal.2d 416, 65 P.2d 770, 772, where the enforcement of an oral extension of a written option to repurchase certain real property was in question. After observing that 'certain contracts to be enforceable are required to be in writing, or that some note or memorandum thereof be in writing, subscribed by the party to be charged or his agent' Civ.Code, § 1624; Code Civ.Proc. § 1973, the court stated that it is 'equally well settled that the facts of a particular case may give rise to an equitable estoppel against the party seeking to set up the statute of frauds and foreclose such party from relying thereon.' 8 Cal.2d at page 421, 65 P.2d at page 772. Upon this basis of equitable estoppel, the court held that the fact of oral extension of the option would not defeat the optionee's rights thereunder.

Plaintiff cites Howard v. D. W. Hobson Co., 38 Cal.App. 445, 176 P. 715, for the proposition that a broker may recover on an oral contract of employment to procure an option for the purchase of real property. But that case concerned an agreement between two brokers to divide equally a commission to be paid upon the sale of the land. This court, upon denying the application for a hearing in that case, said 38 Cal.App. at pages 460-461, 176 P. at page 722: '* * * we deem it propr to say that we are not prepared to hold that subdivision 6 of section 1624 of the Civil Code (now subdivision 5) is not applicable in the case of a simple contract between a real estate agent or broker and a proposed purchaser to obtain an option for the purchase of real estate by the purchaser. The opinion clearly shows that this was in substance a joint venture on the part of plaintiff and defendant for the sale of real property of a third party, and the distribution of the profits between them. The District Court of Appeal was clearly right in concluding that subdivision 6 of section 1624 of the Civil Code (now subdivision 5) does not extend to agreements between brokers to co-operate in making sales for the sake of the commission or profits and that this substantially was such a case.

The term 'read estate' as used in our statute of frauds, Civ.Code, § 1624, subd. 5; Code Civ.Proc. § 1973, subd. 5, conforms with the common law definition of real property as including only a freehold interest in land, and excludes estates for years or lesser duration. Dabney v. Edwards, 5 Cal.2d 1, 6-7, 53 P.2d 962, 103 A.L.R. 822. Therefore, it has been held that while a contract employing a broker to purchase or sell real estate comes within the statute of frauds, Marks v. Walter G. McCarty Corp., 33 Cal.2d 814, 819, 205 P.2d 1025, a contract employing a broker to sell oil and gas leases running only for a fixed term of years does not, because the latter employment relates to 'chattels real,' a species of personal property as distinguished from 'real estate' or 'real...