Sherman v. First American Title Ins. Co.

• Citation: 38 P.3d 1229,201 Ariz. 564
• Decision Date: 22 January 2002
• Docket Number: No. 2 CA-CV 99-0128.,2 CA-CV 99-0128.
• Parties: Laura SHERMAN, Plaintiff/Appellant, v. FIRST AMERICAN TITLE INSURANCE COMPANY, an Arizona corporation; and Fidelity National Title Agency, Inc., an Arizona corporation, Defendants/Appellees.
• Court: Court of Appeals of Arizona

38 P.3d 1229

201 Ariz. 564

Laura SHERMAN, Plaintiff/Appellant, v. FIRST AMERICAN TITLE INSURANCE COMPANY, an Arizona corporation; and Fidelity National Title Agency, Inc., an Arizona corporation, Defendants/Appellees.

No. -0128.

Court of Appeals of Arizona, Division Two, Department B.

January 22, 2002.

Gabroy, Rollman & Bosse, P.C., By John Gabroy, Tucson, for Plaintiff/Appellant.

Carmine Cornelio, Tucson, for Defendants/Appellees.

OPINION

DRUKE, J.

¶ 1 Appellant Laura Sherman was the real estate salesperson on five residential transactions while employed by All Pros LLC, dba Re/Max All Pros ("All Pros"). Its broker and owner, Sue Gutierrez, had originally instructed First American Title, Inc., and Fidelity National Title Agency, Inc., the escrow agents for the transactions, to make the commission checks payable to Sherman, a practice the title companies had followed in the past. But, after Sherman left All Pros, the broker amended the instructions and directed the title companies to make the commission checks payable to All Pros, which both title companies did without Sherman's consent. When Sherman did not receive any commissions on the transactions, she sued the broker and her husband, All Pros, and the title companies. Sherman now appeals the trial court's granting of summary judgment in favor of the title companies on her breach of contract claims.¹

¶ 2 A trial court may grant summary judgment only if "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Ariz. R. Civ. P. 56(c), 16 A. R.S., Pt. 2. We view the facts and reasonable inferences from those facts in the light most favorable to the party opposing summary judgment. Ruelas v. Staff Builders Personnel Services, Inc., 199 Ariz. 344, 18 P.3d 138 (App.2001). And we review de novo whether any genuine issues of material fact exist and whether the trial court properly applied the law. Id.

Third-Party Beneficiary

¶ 3 Relying on Maganas v. Northroup, 135 Ariz. 573, 663 P.2d 565 (1983), Sherman argues that she was a third-party beneficiary of the broker's original instructions to the title companies and, thus, the broker could not amend those instructions without her consent. Also relying on Maganas, the title companies assert that Sherman's argument ignores the supreme court's holding that the title company there "was not obligated to obtain [Maganas's] consent to the amended instructions, since the amendment was submitted and executed by his own agent." Id. at 577, 663 P.2d at 569. Because the trial court granted summary judgment on this basis and because both parties rely on Maganas, we set forth the facts there to determine its applicability here.

¶ 4 Thomas Maganas was a California real estate agent who had secured a purchaser for a property listed with two Arizona real estate brokers, Porter and Edith Northroup. The escrow instructions submitted to the title company were signed by Edith, on her own behalf and as agent for Maganas and his California broker, D.C. McCredie. The instructions provided, in relevant part, that Edith "`on behalf of herself, D.C. McCredie and Thomas McGanis (sic) has agreed to accept the sum of $62,500.00 as and for payment in full for all fees and commissions.'" Id. at 575, 663 P.2d at 567. Later, without Maganas's consent, Edith, with McCredie's approval, submitted amended instructions to the title company and, based on those instructions, the title company disbursed part of the commissions to the brokers but not to Maganas.

¶ 5 In his subsequent lawsuit, Maganas claimed he was a third-party beneficiary of the escrow instructions and, thus, they could not be amended without his consent. In addressing this issue, the supreme court first observed that whether a third party "is merely an incidental beneficiary [of a contract], or one for whose express benefit the contract was entered into ... is a question of law for the court." Id. (citation omitted). See also Araiza v. U.S. West Bus. Resources, 183 Ariz. 448, 904 P.2d 1272 (App.1995)

(construction of contract is question of law). The court then examined the escrow agreement and, from it, concluded that Maganas was a third-party beneficiary.

On its face the contract indicates the parties' intent to recognize [Maganas] as a direct beneficiary of the escrow agreement.... [T]he escrow instructions specifically named [Maganas] as one entitled to share in the commission of $62,500. It provided that Edith Northroup, the Arizona broker, would accept disbursement of the commission individually and as agent for Maganas and McCredie. The contract manifests the parties' intent to confer a direct benefit on Maganas.

Maganas, 135 Ariz. at 576, 663 P.2d at 568. The court thus agreed with Maganas that, as a third-party beneficiary of the escrow agreement, he was "entitled to maintain an action" on the agreement and implied that the escrow instructions could not be changed "without his consent."² Id. The court found, however, that Maganas had "appointed Edith Northroup as his agent" and, therefore, the title company "was not obligated to obtain [his] consent to the amended instructions, since the amendment was submitted and executed by his own agent." Id. at 576-77, 663 P.2d at 568-69.

¶ 6 Sherman contends the original instructions here likewise manifest the parties' intent to make her a third-party beneficiary.³ Upon examining those instructions and the relevant law on third-party beneficiaries, we disagree. For a person to recover as a third-party beneficiary in Arizona, the contracting parties must intend to directly benefit that person and must indicate that intention in the contract itself. Norton v. First Fed. Sav., 128 Ariz. 176, 624 P.2d 854 (1981); Irwin v. Murphey, 81 Ariz. 148, 302 P.2d 534 (1956). In addition,

the third person must be the real promisee. The promise must be made to him in fact ... and it is not enough that the contract may operate to his benefit but it must appear that the parties intended to recognize him as the primary party in interest and as privy to the promise.

Basurto v. Utah Constr. & Mining Co., 15 Ariz.App. 35, 39, 485 P.2d 859, 863 (1971) (footnote omitted). See also Irwin (parties must intend third party as primary party in interest); In re Christopher R., 191 Ariz. 461, 957 P.2d 1004 (App.1997) (same).

¶ 7 In this case, it does not appear that the broker and the title companies intended Sherman to be the primary party in interest of the original instructions. In relevant part, those instructions were identical and directed the title companies "to pay [Sherman all of the] real estate brokers commission ... due at the close of ... escrow." Although arguably similar to the instructions in Maganas, the instructions here further provided:

All commission checks detailed above, both RE/MAX All Pros and Sales Associate(s), are to be delivered by runner/messenger service to [All Pros' address] to the attention of Administration. The only individual authorized to pick up any checks at the title company is Sue Gutierrez, Broker/Owner. SALES ASSOCIATES ARE NOT AUTHORIZED TO PICK UP CHECKS OR HAVE THEIR CHECKS DELIVERED TO THEM INDIVIDUALLY.

In sum, this provision expressly restricted delivery of the commission checks to the broker and prohibited their direct delivery to Sherman. The restrictive provision not only conformed to but was required by the relevant Arizona statutes governing real estate commissions.

¶ 8 Under Arizona law, only a real estate broker, not a salesperson, may directly earn a commission from a real estate transaction. See A.R.S. § 32-2101(46) (defining "[r]eal estate broker" as "a person, other than a salesperson, who, for another and for compensation," engages in various real estate transactions). In fact, four of the real estate purchase contracts in this case reflect this limitation, stating: "Seller and Buyer acknowledge that Broker(s) shall be compensated for services rendered...." And, under A.R.S. § 32-2155(A), a real estate salesperson may accept compensation "only from the legally licensed broker to whom the licensee is licensed." See In re Kun, 868 F.2d 1069, 1071 (9th Cir.1989)

("Section 32-2155 flatly prohibits real estate salesmen from accepting commissions from anyone but brokers; it contains no exceptions.") See also A.R.S. § 32-2153(A)(7) (allowing suspension or revocation of salesperson's license for accepting compensation "from any person other than the licensed broker to whom the licensee is licensed.").

¶ 9 The restrictive provision also reflects the employer-employee relationship that exists between a real estate broker and the broker's salespersons. The existence of this relationship was first recognized by our supreme court in McClain v. Church, 72 Ariz. 354, 236 P.2d 44 (1951). There, a real estate broker had not paid unemployment taxes on commissions earned by his salespersons, arguing that they were independent contractors and not performing services for wages. The supreme court rejected this argument, finding that the salespersons "were employees of the real estate broker under whom they were licensed to operate." Id. at 359, 236 P.2d at 48. The court reasoned:

The legal right to collect the commission on sales made by the salesmen was in the [broker] and not in the salesmen. The salesmen were bound to look to the [broker] for their proportionate part of the commissions. The [broker] was under obligation to pay the commissions to the salesmen. These commissions were necessarily paid for services rendered. The salesmen therefore were ... performing services for "wages" which term includes commissions, for the [broker].

Id. The court reaffirmed this employer-employee relationship in Hughes v. Industrial Commission, 113 Ariz. 517, 558 P.2d 11 (1976). Again, the court rejected the argument that the broker's salespersons were independent contractors, finding that Arizona's real estate statutes are "replete with references to the...