Phillippe v. Shapell Industries

In Phillippe v. Shapell Industries (1987) 43 Cal. 3d 1247, the plaintiff, a licensed real estate broker, asserted the defendant owed him a broker's commission in connection with the defendant's purchase of real property. The court determined the alleged agreement on which the plaintiff sued to recover a broker's commission did not meet the requirements of section 1624 because there was no writing signed by the defendant or the defendant's agent which showed the plaintiff was to act as the defendant's broker for the acquisition of the subject real property. However, the "primary issue before the court was 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." ( Phillippe, supra, 43 Cal. 3d at p. 1252.) The court concluded that equitable estoppel was not available to such a broker to avoid the statute of frauds unless the broker could show actual fraud. ( Id. at pp. 1252, 1264.) The Phillippe court rejected applications of equitable estoppel that are based on a theory of unconscionable injury to the promisee (the real estate broker) or unjust enrichment to the promisor (the buyer or seller of real property, i.e., the broker's principal). The court found that a broker's reliance on an oral contract made invalid by section 1624 is unreasonable in light of the fact that the broker is presumed to know that a written agreement for payment of his fees is required by that statute. The court observed that real estate brokers are required to be licensed, and they obtain their license only after they demonstrate knowledge of laws relating to real estate transactions, such as section 1624. The court found that a broker assumes the risk of relying on an oral agreement and therefore there is no unconscionable injury. ( Phillippe, supra, 43 Cal. 3d at pp. 1260-1262.) The court also held that the mere failure of a principal to pay for a broker's services under an unenforceable oral contract is not unjust enrichment sufficient to give rise to a valid claim of equitable estoppel. ( Id. at p. 1263.) The court stated that permitting mere nonpayment to constitute unjustment enrichment sufficient to estop the principal from raising the statute of frauds as a defense would "conflict with consistent holdings" in prior cases that licensed brokers are not permitted to circumvent the statute of frauds by claiming broker's fees on a theory of quantum meruit. The purpose of the statute of frauds would be defeated if such a theory of recovery were permitted. ( Id. at pp. 1263-1264.) Additionally, the court rejected application of equitable estoppel to situations where the broker's principal promises "to execute the required writing at a later date," saying the broker's reliance on such a promise is not sufficiently reasonable. ( Phillippe, supra, 43 Cal. 3d at p. 1270.) However, the court stated that a broker's reliance on the principal's representation "that the necessary contract has in fact been executed may be reasonable and thus support an action for fraud or the assertion of equitable estoppel." (Ibid.) The facts of the case would determine the reasonableness of the broker's reliance. (Ibid.) The Phillippe court stated its belief that "the legislative preference for written contracts is stronger than ever before." ( Phillippe, supra, 43 Cal. 3d at p. 1265.) Citing 10 consumer contracts which are required to be in writing, characterizing the list as "brief," and noting "there are other examples too numerous for recitation" ( id. at pp. 1265-1266), the court stated: "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" ( id. at p. 1265). The court stated the requirement of a written agreement between a broker and his or her principal "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." ( Id. at p. 1266.) The court found that it is "not too much to ask" that a person who has the privilege of earning compensation as a real estate broker comply with the statute. (Id. at p. 1267). The defendant buyer of real estate in Phillippe was also a licensed real estate broker. The Phillippe court did not find this a material factor in its analysis. The court stated: "We perceive no logical reason why a licensed broker or agent who is acting as a seller or purchaser of real property should not be entitled to the protection of section 1624. Licensees are as subject to false claims as are unlicensed members of the public." (Phillippe, supra, 43 Cal. 3d at p.1257.)