Memorandum of Decision Re: Broker's Commission

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re L'DEAN GUNDERSON and TERRY LOU GUNDERSON,                                       No. 1-87-02232      Debtors. _______________________/ L'DEAN GUNDERSON and TERRY LOU GUNDERSON,      Plaintiffs,    v.                                                                              A.P. No. 1-88-0012 MING TREE REALTY,      Defendant. ________________________/
Memorandum of Decision
     This dispute concerns the debtors' liability to pay a real estate broker's commission on the sale of their real property and business. The facts, while not wholly undisputed, are not complicated.      On October 14, 1986, debtor L'Dean Gunderson signed two listing agreements with defendant Ming Tree Realty whereby he gave Ming Tree the exclusive right to sell his commercial real estate at 411 W. Harrison Street in Eureka and the liquor store operated on those premises. The agreements contained an expiration date of January 15, 1987.      Just before the agreement was about to expire, Gunderson and Ming Tree's owner, Larry Doss, met to discuss its extension. Gunderson told Doss that he did not want to formally extend the agreements because he was thinking of relisting elsewhere, but that he would certainly pay Ming Tree a commission if it brought in an acceptable buyer. Thereafter, Gunderson and Ming Tree remained in contact and Gunderson continued to supply Ming Tree with information needed to market the property and business.      In mid February, Gunderson was approached by Patrick Folkins, a businessman who had learned of the availability of the business and property through his accountant. Gunderson declined to negotiate directly with Folkins and instead referred him to Doss.      Folkins met with Doss and through Doss presented written offers on February 17, 1987. Gunderson made a counteroffer through Doss to sell for the price Folkins offered but with a larger down payment. At that time, he also signed a provision in the deposit receipt acknowledging Ming Tree as his agent in the transaction and agreeing to pay Ming Tree six percent of the selling price as a commission.      Gunderson's counteroffer was not accepted by Folkins and the bargaining appeared to be terminated, as Gunderson was then negotiating with another potential buyer brought to him by Ming Tree. However, a few weeks later in early March, 1987, when it appeared that the other potential buyer was not able to perform, Gunderson and Folkins spoke directly and Gunderson agreed to sell on substantially the same terms as Folkins had offered through Ming Tree on February 17. A formal contract was signed on March 17, 1987, and escrow closed three weeks later. Ming Tree claims a commission on this sale.      At the center of this dispute is the exact nature of the relationship between Gunderson and Ming Tree after the expiration date contained in the listing agreements. It is clear that Gunderson did not intend for Ming Tree to continue to have an exclusive listing; Gunderson expressed a desire to give another broker the listing, and Ming Tree stopped spending its funds on advertising. However, it is equally clear that Gunderson continued to consider Ming Tree to be his broker. After the January 15 expiration date he continued to supply Ming Tree with financial information Ming Tree needed to show potential purchasers, he referred Folkins to Ming Tree rather than deal with him directly, and he did not list the property with any other broker. From these facts, the Court concludes and finds that Gunderson and Ming Tree agreed that Ming Tree would continue on as Gunderson's agent on a nonexclusive basis until Gunderson granted an exclusive listing to another broker.      Having determined the nature of the relationship between Ming Tree and Gunderson after January 15, the Court must determine if there is an enforceable right to a commission. The debtors argue that any oral agreement to continue the agency relationship after January 15 is unenforceable because of the statute of frauds.      It is clear that if Ming Tree is entitled to a commission it cannot be based on the original listing agreements, which expired on January 15. While the Court finds a continuing relationship after that date, it is clear that the parties did not intend that Ming Tree continue to have the exclusive authorization to sell. Since Ming Tree never identified Folkes as a potential buyer prior to termination pursuant to the "safety clause" in the agreement (see Augustine & Zarro, California Real Estate Law and Practice, section 62.34), the original agreements cannot be the basis for a commission.      As Ming Tree correctly asserts, there is an exception to the statute of frauds for an oral agreement to extend a listing agreement. Augustine & Zarro, supra, at section 61.27; Kramer v. Smith(1960) 179 Cal.App.2d 52, 55-57; Baker v. Curtis (1951) 105 Cal.App.2d 663, 668-70. However, the Court here does not find an oral extension of an exclusive right to sell, but ratheran oral agreement to a new, open listing. Such a new agreement must be in writing to satisfy the statute of frauds. Augustine & Zarro, id., citing Fogg v. McAdam (1914) 25 Cal.App. 522, 524-25.      The Court finds that a writing sufficient to satisfy the statute of frauds and entitle Ming Tree to a commission is contained in the deposit receipt used in the mid-February negotiations between Gunderson and Folkins. When Gunderson authorized Ming Tree to make a counteroffer to Folkins, he signed a term in the deposit receipt acknowledging Ming Tree as his agent for the transaction and agreeing to pay a six percent commission. While such a clause contained in a deposit receipt is usually limited to that specific agreement and ordinarily does not entitle a broker to a commission if that particular contract is not consummated, the court may construe the provision as documenting an oral listing, thereby satisfying the statute of frauds. If such a finding is made, the broker is entitled to a commission based on the listing agreement and his commission does not depend on the consummation of the particular transaction in which the commission clause was contained. Collins v. Vickter Manor (1957) 47 Cal.2d 875, 880-81. The statute of frauds does not require that the writing contain all of the terms of employment; it is sufficient if it establishes the fact of employment. Davinroy v. Thompson (1959) 169 Cal.App.2d 63, 65.      The Court here finds that the clause in the deposit receipt satisfies the statute of frauds as to the oral open listing. Since pursuant to that listing Ming Tree produced a ready, willing and able buyer on terms acceptable to Gunderson, it is entitled to a commission. It is no defense for Gunderson to say that he never agreed to a commission with the lower down payment; the open listing was still in effect when the sale to Folkins was consummated, and Gunderson had agreed that Ming Tree was his agent in dealing with Folkes. Once an enforceable agency is created, it is bad faith to attempt a sale without paying the commission; the owner may not deprive the broker of his commission by conducting the final negotiations himself. Rose v. Hunter (1957) 155 Cal.App.2d 319, 324-25; 10 Cal.Jur.3d, Brokers, sec. 110. Nor is Ming Tree to be deprived of its commission because negotiations between Folkes and Gunderson were in a hiatus for three weeks while Gunderson was pursuing a sale to a third party; the time was so short, and the final price so close to prior negotiations, that the Court declines to find that the chain of procurement was broken.      For the above reasons, Ming Tree shall have judgment against the debtors in the sum of $17,400.00, and shall recover its costs of suit. Counsel for Ming Tree shall submit an appropriate form of judgment.
Dated: July 11, 1988                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy