California Court of Appeal Reinstates Real Estate Brokerage Commission Lawsuit

In its recent decision in Jacobs v. Locatelli, H042292 (Feb. 8, 2017), the California Court of Appeal for the Sixth District held that when one of several real estate owners signs on behalf of the others, a claim for a brokerage commission is not automatically barred by the statute of frauds and the parol evidence rule. While it is well established in California that the statute of fraud is generally enforced when it comes to real estate agreements, the Jacobs decision reiterates that there are limited circumstances in which the statute of fraud does not apply to unsigned or partially signed real estate agreements.

 In Jacobs, a real estate broker sued a group of property owners after she was denied a $200,000 commission payment after she was involved in the sale of a jointly-owned parcel of land on the basis that not all of the property owners signed on to the listing agreement. However, one of the signatories represented to the broker that he was acting in an agent capacity for the other property owners. In the lower court, Jacobs’ claim was dismissed without the lower court explaining its reasoning as to why the property owners’ demurrer was sustained. Jacobs appealed.

 On appeal, the Court of Appeals reviewed the state of the law concerning unsigned and partially signed real estate commission agreements, and looked to the decade-old Supreme Court Sterling decision. In the Sterling decision, the Court held that some situations, such as when a writing is ambiguous or incomplete, the writing may satisfy the statute of frauds if a party would otherwise be able to evade just obligations, immunize itself when its claim lacks integrity, or be able to interpose the statute of frauds as a bar to a contract that was fairly made.

 Under Sterling, the court must consider the surrounding circumstances, the pertinent facts and extrinsic evidence when a writing is ambiguous when determining whether a written agreement satisfies the statute of frauds. Extrinsic evidence may be necessary to explain essential terms as would be understood by the parties to the agreement.

 The decision of Sterling is particularly on point with regards to the circumstances set forth in the Jacobs case. Sterling too involved an agreement where there were questions about whether one of the signatories was signing the agreement in the capacity of an agent. Just as in the case of Jacobs, in Sterling, the contract did not clearly state that one of the signatories was acting as an agent. Such situations warrant the evaluation of extrinsic evidence to prove or disprove agency. 

 The takeaway: The court affirmed that ambiguous contracts may be subject to extrinsic evidence.  The statute of fraud may not be an absolute bar to enforcing a contract against a non-signatory where there are allegations that the non-signatory was acting on the other's behalf. 

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