Opinion ID: 2604108
Heading Depth: 1
Heading Rank: 7

Heading: Sound Policy Reasons Support the Denial of Equitable Estoppel to a Licensed Broker.

Text: The original statute of frauds was enacted in England more than 300 years ago. (An Act for the Prevention of Frauds and Perjuries, 1677, 29 Car. 2, ch. 3.) Variations of the original English statute have been widely enacted in the United States. The State of California first enacted its version in 1872. The Legislature expanded the statute in 1878 to include real estate commission agreements. Despite much criticism, section 1624(d) remains effective more than a century after its passage. Whatever else it may be, section 1624(d) is durable. The statute of frauds is also indisputably significant. It has been characterized as, the most important statute ever enacted in either country [England and the United States], relating to civil affairs. (Bishop, Law of Contracts (1878) § 498, p. 177.) By acknowledging the statute's importance, we do not express our opinion as to its worth. Whether this court likes section 1624(d) is not relevant to our decision. We have no prerogative to create an exception that would effectively render this durable and important statute a nullity. (13) Courts may not read into a statute an exception not incorporated therein by the Legislature [citation omitted], unless such an exception must reasonably and necessarily be implied.... ( Pacific Motor Transport Co. v. State Bd. of Equalization (1972) 28 Cal. App.3d 230, 235 [104 Cal. Rptr. 558]; cf. Estate of Banerjee (1978) 21 Cal.3d 527, 540 [147 Cal. Rptr. 157, 580 P.2d 657] [exceptions to a general provision of a statute are strictly construed].) If section 1624(d) should be modified, the Legislature can do so. We believe the legislative preference for written contracts is stronger than ever before. The Legislature has demonstrated with increasing frequency its desire to provide consumers with the security and certainty of written contracts in a wide variety of transactions. This legislative trend is not new. More than 20 years ago, a commentator noted that, [n]otwithstanding what appears to be a disfavorable attitude of the courts towards the Statute [of Frauds], the legislative trend has been in the direction of expanding rather than restricting the scope of the writing requirement. (Comment, Equitable Estoppel and the Statute of Frauds in California, supra, 53 Cal.L.Rev. 590, 592, fn. 15.) A brief list of consumer contracts now required to be in writing demonstrates this clear legislative purpose: home improvement contracts in excess of $500; (Bus. & Prof. Code, § 7159, enacted 1969); mobilehome sales (Health & Saf. Code, § 18035.1, enacted 1981); prepaid rental listing services (Bus. & Prof. Code, § 10167.9, enacted 1980); home solicitation contracts (Civ. Code, § 1689.7, enacted 1971); automotive repairs (Bus. & Prof. Code, § 9884.9, enacted 1971); dance studio lessons (Civ. Code, § 1812.52, enacted 1969); health studio services (Civ. Code, § 1812.82, enacted 1962); discount buying services (Civ. Code, § 1812.107, enacted 1976); funeral services (Bus. & Prof. Code, § 7685.2, enacted 1971); and attorney fee contracts (Bus. & Prof. Code, § 6147, as amended 1986, and § 6148, enacted 1986). There are other examples too numerous for recitation. [12] Section 1624(d) can equally be characterized as a consumer protection statute, perhaps this state's first. The essential purpose of the statute is reflected in the very title of its English precursor, An Act for Prevention of Frauds and Perjuries. The purchase or sale of real estate, especially a home, is always a significant event. For most people, such purchase or sale is probably the single most important financial transaction in their lives. Commercial real property transactions are of similar importance to the parties involved. Section 1624(d) manifests a valid legislative intent to protect real estate buyers and sellers from unfounded claims for brokers' commissions. The statute of frauds also serves a cautionary purpose. By requiring a writing, the statute serves to emphasize to contracting parties the significance of their agreement. The importance of real estate transactions makes this aspect of the statute especially salutary. Faced with a clear legislative desire for written contracts in a wide variety of contexts and the special significance of real estate transactions, we cannot conclude that section 1624(d) is a legislative anachronism that should be judicially swept away. (14) In Buckaloo v. Johnson, supra, 14 Cal.3d 815, which also involved a licensed broker's commission, the court made clear that, [t]he statute of frauds conclusively establishes that brokerage contracts with either the vendor or the vendee must be in writing. We have neither the authority nor the inclination to circumvent that declared policy.... ( Id., at p. 827.) Our view has not changed. It is not unfair to require licensed brokers to comply with the statute of frauds. Only those persons licensed by the California Department of Real Estate may lawfully act as real estate brokers in this state. (Bus. & Prof. Code, § 10130.) To bring an action to recover a real estate commission, a broker must plead and prove that he was duly licensed at the time his cause of action arose. (Bus. & Prof. Code, § 10136.) The effect of these laws is obvious  only a person duly licensed may earn and recover compensation as a real estate broker. It is not too much to ask in return for that valuable privilege that a licensed broker comply with the statute of frauds. Section 1624(d) is perhaps more fairly applied now against brokers than when first enacted. Brokers were not then required to be licensed, and they may have had little or no legal knowledge. Application of section 1624(d) might have come as a surprise a century ago. In view of the current educational requirements, a broker cannot be surprised by section 1624(d). Phillippe, the California Association of Realtors as amicus curiae, and various commentators contend that brokers are often not in sufficiently strong bargaining positions to obtain written employment contracts from their principals and suggest that this disparity of bargaining power is most common in the commercial real estate market. Phillippe urges that section 1624(d) should not bar recovery on an oral contract in that situation because the statute is contrary to industry custom and practice. We reject that contention for several reasons. Section 1624(d) does not include an exception based on the relative bargaining strength of the parties to a contract. Any such exception must be created by the Legislature, not by this court. If the Legislature believes that section 1624(d) is not workable in the real estate marketplace, the Legislature can act accordingly. [13] Even if we had the prerogative and inclination to create judicially such an exception, we have been provided with no factual basis for doing so. Phillippe did not introduce any evidence that there was an inequitable disparity between himself and Shapell. Amicus curiae and the legal commentators also cite no facts, and we are unaware of any, that support their criticism that the marketplace and the statute are in conflict. We decline to create a major exception to section 1624(d), and in so doing set aside decades of precedent, based on the unsupported assertions of the statute's critics. The lack of evidence aside, we are not persuaded that section 1624(d) is inappropriate merely because there may be a disparity of bargaining power between a broker and his principal. The resolution of disputes would be complicated. Even defining bargaining power would be troublesome. Would it include legal knowledge and commercial sophistication? If so, how would a court measure those factors? Would it include financial strength? If so, to determine whether there was a disparity, a court would likely have to conduct a detailed examination of the parties' respective financial conditions thus creating a need for considerable pretrial discovery and protracted litigation. Those engaged in real property transactions ordinarily desire certainty in their financial dealings. If bargaining power were relevant, the parties would not know (and could not know) at the time of entering into an oral agreement whether it would be an enforceable contract. Each party would have to speculate as to whether he posssessed some quality, e.g., finances, knowledge, or even better negotiating skills, that created an imbalance in bargaining power. Whenever a dispute arose, a court would then have to determine whether there was a disparity of power. To hold that the validity of a commission agreement depends on relative bargaining power would lead to great uncertainty. We believe a distinction based on disparity of bargaining power would lead to unnecessary complexities. We are also not persuaded that section 1624(d) should be disregarded in a commercial setting. That suggestion is premised on the unsupported allegation that written commission agreements are often not used in commercial real estate transactions. [14] No evidence is before us regarding industry custom. We decline to speculate as to what the custom, if any, may be. [15] We are inclined to believe that the business community in general may favor written contracts. They provide certainty and predictability. In the only empirical study we have been able to locate, more than half of the businesses (manufacturers) surveyed favored enforcement of only those agreements that comply with the statute of frauds, and almost two-fifths favored a change in the law to make even fewer agreements enforceable. (Comment, The Statute of Frauds and the Business Community: A Re-appraisal in Light of Prevailing Practices (1957) 66 Yale L.J. 1038, 1058.) More than 50 years ago, one of the leading commentators on contracts observed that the statute of frauds was even then becoming more useful due to the increasing volume and complexity of commercial transactions. (Llewellyn, What Price Contract?  An Essay in Perspective (1931) 40 Yale L.J. 704, 747.) The commercial world is now even more complex, and Llewellyn's observation appears to remain sound, perhaps more so than when he made it. The business community's preference for written contracts was stated most colorfully in the memorable malaprop attributed to motion picture producer Samuel Goldwyn: An oral contract isn't worth the paper it's written on. (Shavelson, Hollywood Signs: Movie Moguls Who Gave the Golden Era Its Shine, L.A. Times (July 27, 1986) Calendar Section, p. 24.) Written contracts appear to have diverse, substantial support. Last and most important, there is no exception for commercial transactions stated in the statute. An unequivocal statute must take precedence over mere custom. Indeed, the widespread custom of not using written contracts in real estate transactions was apparently a reason why section 1624(d) was enacted in the first instance.