Memorandum of Decision Re: Real Estate Commission
The debtor filed a Chapter 11 petition on July 28, 1982, and acted as debtor in possession until his death in late 1985. The case was converted to Chapter 7 on March 13, 1986, and applicant was appointed Trustee. Duane "Sparky" Countess, a licensed real estate broker, claims that in 1983 he entered into an oral agreement with the debtor to sell nine parcels of land in which the debtor, together with other members of his family, had an interest. The debtor is alleged to have declined to enter into a written agreement, but instead to have represented that a ten percent commission would be paid if an acceptable offer were found. Countess alleges that the debtor told him that the other family owners would be willing to pay that commission. In 1984, Countess entered into an agreement with Jack Kuhns, another real estate broker, whereby they would market the property together and split the commissions. The two brokers thereafter proceeded to market the property as a "package" until final proposed purchaser prices were offered by the State of California in January, 1986. Countess states that he was unaware of the debtor's bankruptcy until April, 1986, when he spoke with Francis Matthews, an attorney who had represented the debtor in various matters, about problems with the prospective sales. At no time did either broker contact the debtor's bankruptcy attorney or the Trustee, or in any way seek approval of their commission until the present application. Countess says that he instead relied on the representations of Matthews that his brokerage would be protected in spite of the fact that he had no written listing agreement with the debtor or the other family owners.
California Code of Civil Procedure section 1624(d) requires a real estate broker to have a written agreement in order to be entitled to a commission. This requirement is so strictly applied that a broker is not even permitted to recover on a quantum meruit theory, even upon full performance of his duties. 1 Witkin, Summary of California Law (9th ed.), Contracts sec.309, p.292. For this reason, the California Court of Appeal noted in Williams E. Doud & Co. v. Smith (1967) 256 Cal.App.2d 552, 559:
A real estate broker, as a professional man, is presumed to know that contracts for real estate commissions are unenforceable unless in writing. He assumes the risk of relying on oral promises and has no reason to complain if his efforts are unrewarded.
The court is not swayed by the brokers' arguments that Civil Code section 1624(d) is meant to be solely a defense in civil litigation and may therefore not be raised by the co-owners on objection to the Trustee's application. The text of that law clearly declares unwritten listing agreements to be invalid, and it is perfectly appropriate for co-owners who are being asked to pay an invalid charge to point this out to the court. The court does not understand why the Trustee seeks the order here, when his duty is to raise all legal arguments on behalf of the debtor's estate whether or not he may personally agree with the result. Nonetheless, the court will not assist the Trustee in the unauthorized abandonment of the estate's interests. The brokers have extensively argued the propriety of nunc pro tunc appointment, but this argument misses the mark. Their demand for a commission fails on substantive state law grounds; the court therefore need not consider the federal procedural issues.
For the foregoing reasons, IT IS ORDERED the Trustee's application to employ said brokers is denied.
Dated: August 30, 1987 ___________________________ ALAN JAROSLOVSKY U.S. BANKRUPTCY