Phillippe v. Shapell Industries

CourtUnited States State Supreme Court (California)
Citation241 Cal.Rptr. 22,43 Cal.3d 1247,743 P.2d 1279
Decision Date29 October 1987
Parties, 743 P.2d 1279, 56 USLW 2289 David E. PHILLIPPE, Plaintiff and Respondent, v. SHAPELL INDUSTRIES, INC., Defendant and Appellant. L.A. 32034.

Robert N. Rigdon, Fleischman & Rigdon, Los Angeles, for plaintiff and respondent.

Kenneth B. Bley, Cox, Castle & Nicholsen, Los Angeles, for defendant and appellant.

William M. Pfeiffer, Stephen A. Groome and Steven A. Sokol as amici curiae.

EAGLESON, Justice.

A jury found in favor of plaintiff, a licensed real estate broker, in his action to We conclude that a licensed real estate broker cannot invoke equitable estoppel to avoid the statute of frauds unless the broker shows actual fraud. To decide otherwise would be contrary to nearly unanimous precedent spanning several decades and to the purpose of the statute of frauds. The trial court's judgment in favor of plaintiff is reversed with directions to enter judgment in favor of defendant.

recover a broker's commission from defendant, a real property buyer. Defendant appeals. The primary issue before us is whether a licensed real estate broker may assert equitable estoppel against a statute of frauds defense in an action by the broker to recover a real estate commission.


Viewed on appeal in a light most favorable to plaintiff David E. Phillippe (hereafter Phillippe) the evidence establishes the following:

Phillippe is a real estate broker licensed for 20 years by the State of California. Defendant Shapell Industries, Inc. (hereafter Shapell) is a corporation engaged in the construction of residential housing tracts and periodically purchases land for such construction. Shapell is also a licensed California real estate broker.

Phillippe was first contacted by Shapell in early 1972 in connection with its efforts to acquire a 78-acre parcel of land in the San Diego area. Phillippe was the listing agent for the landowner. Shapell purchased the property in December 1972 and paid Phillippe $153,100 for his services as a broker.

In January 1973, Prince, then Shapell's director of land acquisition, contacted Phillippe to determine if he would be willing to work with Shapell on additional land acquisitions. They orally agreed that Phillippe would assist Shapell in finding suitable land in the Palos Verdes Peninsula area in Southern California. Phillippe explained to Prince that Phillippe then had no listings in that area and that, if he were to assist Shapell, his commission would have to be paid by Shapell as the buyer. Prince, on behalf of Shapell, orally promised Phillippe that Shapell would pay him a broker's commission for any land submitted by Phillippe and purchased by Shapell and that this commission would be stated in any written offer made by Shapell to a seller.

Phillippe wrote to Prince on April 5, 1973, about a parcel of land owned by the Filiorum Corporation. Phillippe stated that he was "waiting for a price quote on the property" and suggested that Prince take a look at it. He also stated in this letter: "We present the property to Shapell with the understanding that Buyer will pay our firm a commission, which, when added to the net price of the land, will equal 6% of the total consideration."

By letter from Prince dated May 4, 1973, Shapell submitted to Phillippe an offer to purchase the Filiorum property and stated that "Buyer agrees to pay the Management Trend Company [Phillippe's firm] a commission [which] when added to the net price of the land will equal 6% of the total consideration. This commission should be paid at the close of escrow." The sale of the Filiorum property was not consummated due to geological problems. No commission was paid to Phillippe.

On August 9, 1973, Phillippe again wrote to Prince, this time informing Shapell of the locations and owners of 4 properties on the Palos Verdes Peninsula including a 94-acre parcel owned by Great Lakes Properties, Inc. (hereafter the Great Lakes property). Phillippe also stated in this letter that "[i]n the event properties are purchased from any of the above companies, these properties are presented with the understanding that Buyer agrees to pay Management Trend Company, or assignee, a commission which when added to the net purchase price of the land will equal 6% of the total consideration to be paid at close of escrow." Shapell did not respond in writing to Phillippe's letter. Shapell did not purchase the Great Lakes property at that time because the zoning of the property was too restrictive for Shapell's construction purposes.

Throughout late 1973 and early 1974, Phillippe continued to try to bring about a In February 1974, the Great Lakes property was rezoned from one dwelling unit per two acres to two dwelling units per acre. Nothing more happened regarding the Great Lakes property until late 1975 when Aaron telephoned the property owner and learned that 63 acres were still available for sale. Direct negotiations between Shapell and the owner followed, and in March 1976 Shapell signed a purchase and sale agreement for 63 acres. The sale closed on August 27, 1976. The sale price was $2,718,750. Shapell's written purchase offer did not provide for any commission to Phillippe.

sale of the Great Lakes property to Shapell. He discussed a sale with the owner of the Great Lakes property. Phillippe suggested a price formula and noted Shapell's financial ability to purchase the property. Phillippe also wrote several letters to Shapell, the last of which was dated April 30, 1974, and was addressed to Joseph Aaron, [743 P.2d 1281] a Shapell vice president. In this letter, Phillippe reviewed prior negotiations for the Great Lakes property and in connection with commissions stated: "The commission arrangement[43 Cal.3d 1254] on these properties between our firm and Shapell is spelled out in the August 9, 1973, letter [to Prince]."

When Phillippe learned that Shapell had agreed to buy the Great Lakes property, he wrote to Aaron on June 9, 1976, and requested a commission on the purchase. Phillippe reminded Aaron that Phillippe had agreed to work for Shapell "on the condition and with the understanding that our firm was working for and represented Shapell, the buyer, as brokers and would be paid a brokerage commission from buyer of 6% of the total consideration paid for the acquired property." Phillippe also reviewed his efforts regarding the Great Lakes property.

On June 16, 1976, Aaron responded by letter informing Phillippe that Shapell would not pay him a commission. Aaron claimed that there had been no mutual agreement of representation and that Shapell had been negotiating for the Great Lakes property "prior to and independent of any representations" by Phillippe.

In April 1977, Phillippe filed suit against Shapell to recover a 6 percent broker's commission for the sale of the Great Lakes property and other alleged damages. The case was tried in February 1982 and went to the jury on three theories of recovery. First, Phillippe sought recovery of a 6 percent broker's commission on the basis of either a written agreement of employment, a memorandum of employment sufficient to satisfy the statute of frauds, or an equitable estoppel to preclude Shapell from asserting the statute of frauds as a defense. Second, Phillippe sought a 6 percent finder's fee based on an alleged agreement with Shapell. Third, he sought a 6 percent commission based on an alleged agreement between himself and Shapell as brokers to share a commission.

The jury found by special verdict that Phillippe was the procuring cause of the purchase of the Great Lakes property by Shapell and awarded Phillippe $125,000 on his first theory of recovery but rejected his other two theories of recovery. The trial court denied Shapell's motion for a new trial and entered judgment in favor of Phillippe. 1

Shapell appeals on the grounds, inter alia, that Phillippe's claim is barred by Civil Code section 1624, subdivision (d), the subdivision of California's statute of frauds dealing with real estate brokerage commissions, and that Shapell is not estopped from asserting the statute of frauds as a defense. Phillippe cross-appeals on the ground that the jury failed to award him all the damages to which he is entitled.


The Agreement Between Phillippe and Shapell Is Subject to the Statute of Frauds.

Civil Code section 1624, subdivision (d) provides that an agreement authorizing Phillippe argues that the statute is inapplicable because he was not acting as a broker for the Great Lakes property purchased by Shapell, but only as a "professional consultant in the field of subdivision land acquisition." A licensed broker may be able under appropriate circumstances to recover under an oral agreement or in quantum meruit for certain services other than the purchase, sale, or leasing of real property. (Owen v. National Container Corp. of Cal., (1952) 115 Cal.App.2d 21, 25-26, 251 P.2d 765; Carey v. Cusack (1966) 245 Cal.App.2d 57, 69, 54 Cal.Rptr. 244.) Phillippe fails to cite, and we are unable to find in the record, any evidence of professional services rendered to Shapell other than those a broker would reasonably be expected to perform in trying to consummate a sale, for example, furnishing Shapell with descriptions of the property. Phillippe's pretrial pleadings contradict his claim that he was a professional consultant. In his first amended complaint, he alleged that, after he located and presented the Great Lakes property to Shapell, it "took over all activities leading to the eventual purchase of the property by Shapell," and that, when a broker was employed by Shapell, the broker "served only as a flunky and assistant to Shapell's employees." Phillippe's services were merely incidental to his efforts to bring about a sale of the property to Shapell. Any agreement to perform those services is thus subject to section 1624(d). (...

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