DAVID E. PHILLIPPE, Plaintiff and Appellant, v. SHAPELL INDUSTRIES, INC., Defendant and Appellant, 43 Cal. 3d 1247

Opinion EAGLESON, J. A jury found in favor of plaintiff, a licensed real estate broker, in his action to recover a broker’s commission from defendant, a real property buyer. Defendant appeals. The primary issue before us is 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. We conclude that a licensed real estate broker cannot invoke equitable estoppel to avoid the statute of frauds unless the broker shows actual fraud.

To decide otherwise would be contrary to nearly unanimous precedent spanning several decades and to the purpose of the statute of frauds. The trial court’s judgment in favor of plaintiff is reversed with directions to enter judgment in favor of defendant. Facts Viewed on appeal in a light most favorable to plaintiff David E. Phillippe (hereafter Phillippe) the evidence establishes the following: Phillippe is a real estate broker licensed for 20 years by the State of California.

Defendant Shapell Industries, Inc. (hereafter Shapell) is a corporation engaged in the construction of residential housing tracts and periodically purchases land for such construction. Shapell is also a licensed California real estate broker. Phillippe was first contacted by Shapell in early 1972 in connection with its efforts to acquire a 78-acre parcel of land in the San Diego area. Phillippe was the listing agent for the landowner. Shapell purchased the property in December 1972 and paid Phillippe $153,100 for his services as a broker.

In January 1973, Prince, then Shapell’s director of land acquisition, contacted Phillippe to determine if he would be willing to work with Shapell on additional land acquisitions. They orally agreed that Phillippe would assist Shapell in finding suitable land in the Palos Verdes Peninsula area in Southern California. Phillippe explained to Prince that Phillippe then had no listings in that area and that, if he were to assist Shapell, his commission would have to be paid by Shapell as the buyer.

Prince, on behalf of Shapell, orally promised Phillippe that Shapell would pay him a broker’s commission for any land submitted by Phillippe and purchased by Shapell and that this commission would be stated in any written offer made by Shapell to a seller. Phillippe wrote to Prince on April 5, 1973, about a parcel of land owned by the Filiorum Corporation. Phillippe stated that he was “waiting for a price quote on the property” and suggested that Prince take a look at it.

He also stated in this letter: “We present the property to Shapell with the understanding that Buyer will pay our firm a commission, which, when added to the net price of the land, will equal 6% of the total consideration.” By letter from Prince dated May 4, 1973, Shapell submitted to Phillippe an offer to purchase the Filiorum property and stated that “Buyer agrees to pay the Management Trend Company [Phillippe’s firm] a commission [which] when added to the net price of the land will equal 6% of the total consideration.

This commission should be paid at the close of escrow.” The sale of the Filiorum property was not consummated due to geological problems. No commission was paid to Phillippe. On August 9, 1973, Phillippe again wrote to Prince, this time informing Shapell of the locations and owners of 4 properties on the Palos Verdes Peninsula including a 94-acre parcel owned by Great Lakes Properties, Inc. (hereafter the Great Lakes property).

Phillippe also stated in this letter that “[i]n the event properties are purchased from any of the above companies, these properties are presented with the understanding that Buyer agrees to pay Management Trend Company, or assignee, a commission which when added to the net purchase price of the land will equal 6% of the total consideration to be paid at close of escrow.” Shapell did not respond in writing to Phillippe’s letter. Shapell did not purchase the Great Lakes property at that time because the zoning of the property was too restrictive for Shapell’s construction purposes.

Throughout late 1973 and early 1974, Phillippe continued to try to bring about a sale of the Great Lakes property to Shapell. He discussed a sale with the owner of the Great Lakes property. Phillippe suggested a price formula and noted Shapell’s financial ability to purchase the property. Phillippe also wrote several letters to Shapell, the last of which was dated April 30, 1974, and was addressed to Joseph Aaron, a Shapell vice president.

In this letter, Phillippe reviewed prior negotiations for the Great Lakes property and in connection with commissions stated: “The commission arrangement on these properties between our firm and Shapell is spelled out in the August 9, 1973, l,etter [to Prince].” In February 1974, the Great Lakes property was rezoned from one dwelling unit per two acres to two dwelling units per acre. Nothing more happened regarding the Great Lakes property until late 1975 when Aaron telephoned the property owner and learned that 63 acres were still available for sale.

Direct negotiations between Shapell and the owner followed, and in March 1976 Shapell signed a purchase and sale agreement for 63 acres. The sale closed on August 27, 1976. The sale price was $2,718,750. Shapell’s written purchase offer did not provide for any commission to Phillippe. When Phillippe learned that Shapell had agreed to buy the Great Lakes property, he wrote to Aaron on June 9, 1976, and requested a commission on the purchase.

Phillippe reminded Aaron that Phillippe had agreed to work for Shapell “on the condition and with the understanding that our firm was working for and represented Shapell, the buyer, as brokers and would be paid a brokerage commission from buyer of 6% of the total consideration paid for the acquired property.” Phillippe also reviewed his efforts regarding the Great Lakes property. On June 16, 1976, Aaron responded by letter informing Phillippe that Shapell would not pay him a commission.

Aaron claimed that there had been no mutual agreement of representation and that Shapell had been negotiating for the Great Lakes property “prior to and independent of any representations” by Phillippe. In April 1977, Phillippe filed suit against Shapell to recover a 6 percent broker’s commission for the sale of the Great Lakes property and other alleged damages. The case was tried in February 1982 and went to the jury on three theories of recovery.

First, Phillippe sought recovery of a 6 percent broker’s commission on the basis of either a written agreement of employment, a memorandum of employment sufficient to satisfy the statute of frauds, or an equitable estoppel to preclude Shapell from asserting the statute of frauds as a defense. Second, Phillippe sought a 6 percent finder’s fee based on an alleged agreement with Shapell. Third, he sought a 6 percent commission based on an alleged agreement between himself and Shapell as brokers to share a commission.

The jury found by special verdict that Phillippe was the procuring cause of the purchase of the Great Lakes property by Shapell and awarded Phillippe $125,000 on his first theory of recovery but rejected his other two theories of recovery. The trial court denied Shapell’s motion for a new trial and entered judgment in favor of Phillippe. Shapell appeals on the grounds, inter alia, that Phillippe’s claim is barred by Civil Code

section 1624, subdivision (d), the subdivision of California’s statute of frauds dealing with real estate brokerage commissions, and that Shapell is not estopped from asserting the statute of frauds as a defense. Phillippe cross-appeals on the ground that the jury failed to award him all the damages to which he is entitled. Discussion The Agreement Between Phillippe and Shapell Is Subject to the Statute of Frauds. Civil Code

section 1624, subdivision (

d) provides that an agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate is invalid unless the agreement or some note or memorandum of the agreement is in writing and subscribed by the party to be charged or by his agent. Phillippe contends Civil Code

section 1624(

d) does not apply to the agreement between him and Shapell. We disagree. Phillippe argues that the statute is inapplicable because he was not acting as a broker for the Great Lakes property purchased by Shapell, but only as a “professional consultant in the field of subdivision land acquisition.” A licensed broker may be able under appropriate circumstances to recover under an oral agreement or in quantum meruit for certain services other than the purchase, sale, or leasing of real property. (Owen v. National Container Corp. of Cal. (1952) 115 Cal.App.2d 21, 25-26 [251 P.2d 765]; Carey v.

Cusak (1966) 245 Cal.App.2d 57, 69 [54 Cal.Rptr. 244].) Phillippe fails to cite, and we are unable to find in the record, any evidence of professional services rendered to Shapell other than those a broker would reasonably be expected to perform in trying to consummate a sale, for example, furnishing Shapell with descriptions of the property. Phillippe’s pretrial pleadings contradict his claim that he was a professional consultant.

In his first amended complaint, he alleged that, after he located and presented the Great Lakes property to Shapell, it “took over all activities leading to the eventual purchase of the property by Shapell,” and that, when a broker was employed by Shapell, the broker “served only as a flunky and assistant to Shapell’s employees.” Phillippe’s services were merely incidental to his efforts to bring about a sale of the property to Shapell. Any agreement to perform those Services is thus subject to

section 1624(d). (Owen v. National Container Corp. of Cal., supra, 115 Cal.App.2d 21, 28; see generally 1 Miller & Starr, Current Law of Cal. Real Estate (1975) § 1.55, pp. 74-75.) Phillippe’s own evidence makes clear that he was acting as a broker.

In his April 5, 1973, letter to Prince, Phillippe stated that he was “waiting for a price quote on the property.” When Phillippe wrote to Aaron on June 9, 1976, requesting a conmission, Phillippe described his relationship with Shapell and the nature of his services as follows: “Early in 1973 our firm was asked by Ron Prince of Shapell to do an extensive survey of properties available for sale on the Palos Verdes Peninsula.

We agreed to do so on the condition and with the understanding that our firm was working for and represented Shapell, the buyer, as brokers and would be paid a brokerage commission from buyer of 6% of the total consideration paid for the acquired property.” (Italics added.) Phillippe viewed himself as a broker. The nature of his claimed compensation was that of a broker’s fee —it was contingent on a sale, and it was in the customary amount charged by brokers.

We agree with the observation that, “if an object looks like a duck, walks like a duck and quacks like a duck, it is likely to be a duck.” (In re Deborah C. (1981) 30 Cal.3d 125, 141 [177 Cal.Rptr. 852, 635 P.2d 446] [conc. opn. of Mosk, J.].) It is clear that Phillippe was acting as a broker. We view Phillippe’s characterization of himself as other than a broker as semantic sleight-of-hand. Phillippe tried this case on the primary theory that he is entitled to a broker’s commission. The jury found in Phillippe’s favor only on his claim for a broker’s commission. He now says he was never acting as a broker.

Even if that were so, the general rule is that a party may not for the first time on appeal change his theory of recovery. (Bogacki v. Board of Supervisors (1971) 5 Cal.3d 771, 780 [97 Cal.Rptr. 657, 489 P.2d 537].) Phillippe also contends

section 1624(

d) is not applicable to his agreement with Shapell because it is an agreement between brokers. Phillippe’s argument on this point is less than clear, but he appears to contend that the statute of frauds does not apply because either: (1) one of the principals to the transaction, Shapell, is a licensed broker, or (2) the agreement was between brokers to share a commission. Neither point has merit. First, the primary purpose of

section 1624(

d) is to protect real estate sellers and purchasers from the assertion of false claims by brokers for commissions. (Pac. etc. Dev. Corp. v. Western Pac. R. R. Co. (1956) 47 Cal.2d 62, 67 [301 P.2d 825].) 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 this protection. Licensees are as subject to false claims as are unlicensed members of the public. Phillippe’s argument appears to be that licensed brokers know the requirements of the statute of frauds and thus do not need its protection.

His argument is too broad because, if it were accepted, judges, lawyers, and any other group who might reasonably be presumed to know the law, including the statute of frauds, would be stripped of its protection. The fact that Shapell is a licensed broker acting as a principal in the transaction does not render the statute of frauds inapplicable to the agreement with Phillippe. (Marks v. Walter G.

McCarty Corp. (1949) 33 Cal.2d 814, 823 [205 P.2d 1025].) Second, if Phillippe means the statute does not apply because there was an agreement with Shapell to share a broker’s commission, we reject that argument as well. Shapell was acting as a principal, not as a broker. The jury found by special verdict that there was no valid agreement between Phillippe and Shapell to share a broker’s commission. Substantial evidence supports that finding. It must not be disturbed on appeal. (Jessup Farms v.

Baldwin (1983) 33 Cal.3d 639, 660 [190 Cal.Rptr. 355, 660 P.2d 813].) Thus, we need not decide whether such commission-sharing agreements are within the ambit of

section 1624(d), but we note that the Courts of Appeal have found that such agreements are not subject to the statute. (See, e.g., Iusi v. Chase (1959) 169 Cal.App.2d 83, 86 [337 P.2d 79]; Holland v. Morgan & Peacock Properties (1959) 168 Cal.App.2d 206, 210 [335 P.2d 769].) In light of the foregoing, we hold that the agreement between Shapell and Phillippe is subject to the requirements of

section 1624(d). The Agreement Between Shapell and Phillippe Does Not Meet the Requirements of

Section 1624. A broker’s real estate commission agreement is invalid under

section 1624(

d) unless the agreement “or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by the party’s agent.” The writing must unequivocally show on its face the fact of employment of the broker seeking to recover a real estate commission. (Franklin v. Hansen (1963) 59 Cal.2d 570, 573 [30 Cal.Rptr. 530, 381 P.2d 386]; Pac. etc. Dev. Corp. v. Western Pac. R. R.

Co., supra, 47 Cal.2d 62, 68.) To satisfy this requirement, Phillippe relies on the considerable correspondence between Shapell and himself. “It is for the court to determine whether letters which have passed between parties constitute an agreement between them.” (Wristen v. Bowles (1889) 82 Cal. 84, 87 [22 P. 1136]; Niles v. Hancock (1903) 140 Cal. 157, 163 [73 P. 840].) We have carefully reviewed the record. We find no written agreement or memorandum sufficient to comply with

section 1624(d). The only writings that relate to a commission on the Great Lakes property are from Phillippe to Shapell. There is no evidence of a writing signed by Shapell showing the fact of Phillippe’s employment to act as a broker for Shapell as to the Great Lakes property. There is only one letter in the exchange of correspondence referring to Phillippe’s employment that is signed by Shapell. That is the letter of May 4, 1973, from Prince, Shapell’s director of land acquisition, to Phillippe in which Shapell offered to buy the Filiorum property.

Prince stated: “Buyer [Shapell] agrees to pay the Management Trend Company [Phillippe’s firm] a commission [which] when added to the net price of the land will equal 6% of the total consideration. This commission should be paid at the close of escrow.” As noted earlier, this sale was never consummated due to geology problems. Where a broker’s only agreement with his principal relates solely to specifically described property, the principal is not liable to the broker for a commission on the purchase of different property unless the broker’s written employment agreement covers the other property. (Frederick v.

Curtright (1955) 137 Cal.App.2d 610, 614 [290 P.2d 875].) The only writing signed by Shapell referred to the Filiorum property, not to the Great Lakes property, and is not sufficient under

section 1624(

d) to cover the Great Lakes property. A writing signed by Shapell is not all that is lacking. The alleged oral commission agreement entered into in January 1973 was devoid of specifics. For example, there was no agreement as to the price range of properties that Phillippe would present to Shapell. There was no agreement as to geographic location other than the possible limitation to the Palos Verdes Peninsula, an area so large and loosely defined as to be almost meaningless. Nor was there any time specified within which Phillippe was to present the properties.

We need not decide whether the absence of one or more such specifics would be fatal to the alleged agreement. The total lack of meaningful terms and conditions is the problem. Under the oral agreement, Shapell could have been charged with a commission for any property presented at any time by Phillippe. Such open-ended liability is unacceptable. We hold there was no writing sufficient under the statute of frauds. The Doctrine of Equitable Estoppel Does Not Prohibit Shapell From Asserting the Statute of Frauds as a Defense.

Phillippe argues that Shapell should be estopped from asserting the statute of frauds as a defense even if the agreement between them was oral and thus invalid under the statute. Phillippe contends estoppel is proper because he changed his position by performing services in reliance on Shapell’s oral promise to pay a commission on the Great Lakes property. Phillippe correctly cites Monarco v. Lo Greco (1950) 35 Cal.2d 621 [220 P.2d 737] for the proposition that estoppel is proper to avoid unconscionable injury or unjust enrichment that would result from refusal to enforce an oral promise.

The principle set forth in Monarco does not, however, support the application of equitable estoppel in the present case. The Courts of Appeal have consistently held, with two narrow exceptions not present here, that a licensed broker may not assert estoppel against a statute of frauds defense in an action to recover a commission under an oral employment agreement. (See, e.g., Deeter v. Angus (1986) 179 Cal.App.3d 241, 248 [224 Cal.Rptr. 801]; Augustine v.

Trucco (1954) 124 Cal.App.2d 229, 237-238 [268 P.2d 780].) This court has also repeatedly denied the availability of estoppel and other equitable remedies to licensed brokers in such actions. In Tenzer v.

Superscope, Inc., supra, 39 Cal.3d 18, which did not involve a licensed broker, we noted that the rules withholding traditional equitable remedies, including the doctrine of estoppel, from licensed real estate brokers have been vigorously criticized, but we reserved for later decision the question whether licensed brokers may invoke equitable remedies to avoid the sometimes harsh results of the statute of frauds. (Id., at p. 28, fn. 6.) We now answer that question.

We held in Tenzer that an unlicensed real estate finder was entitled to invoke the doctrine of equitable estoppel against a statute of frauds defense in his action to recover a commission under an oral finder’s fee agreement. (Id., at p. 28.) Because real estate brokers must be licensed to conduct business (Bus. & Prof. Code, § 10130), almost all actions to recover commissions will be by licensed brokers, not by unlicensed finders. Thus, Tenzer stated a very narrow exception to

section 1624(

d) that will not significantly thwart the purpose of that section. To extend the Tenzer exception to licensed brokers would significantly undermine

section 1624(d). In allowing equitable estoppel in Tenzer, we carefully distinguished between unlicensed finders and licensed brokers. “The rationale for the rigorous application of the statute of frauds to bar claims by licensed real estate brokers is related to the statutory licensing requirements. ‘Real estate brokers are licensed as such only after they have demonstrated a knowledge of the laws relating to real estate transactions (Bus. & Prof. Code, §§ 10150, 10153), and it would seem that they would thus require less protection against pitfalls encountered in transactions regulated by those laws.

In Pacific Southwest Dev. Corp. v. Western Pac. R. R. Co. [1956] 47 Cal.2d 62 [301 P.2d 825], the court stated at page 70: “Plaintiff is a licensed real estate broker and, as such, is presumed to know that contracted for real estate commissions are invalid and unenforceable unless put in writing and subscribed by the person to be charged. [Citations.] Nevertheless, plaintiff failed to secure proper written authorization to protect itself in the transaction.

Rather it assumed the risk of relying upon claimed oral promises of defendant, and it has no cause for complaint if its efforts go unrewarded.” ’ ” (39 Cal.3d at pp. 27-28, quoting Franklin v. Hansen (1963) 59 Cal.2d 570, 575 [30 Cal.Rptr. 530, 381 P.2d 386].) The courts have long had little sympathy for the broker who fails to adhere to the statute of frauds. In Marks v. Walter G. McCarty Corp., supra, 33 Cal.2d 814, the plaintiff broker had dealt for several months with the owner of a hotel without obtaining a signed employment agreement.

The hotel was eventually sold as a result of the broker’s efforts, but he was not paid a commission.

This court accepted the trial court’s findings that the defendant had promised to pay the broker a commission and that the broker was the procuring cause of the sale, but decided that the broker was not entitled to recover a commission because his agreement did not comply with the statute of frauds. “The plaintiff, a man of experience in this Une of business, knew how to protect himself in the transaction but failed to do so.” (Id., at p. 823.) We believe the distinction between licensed brokers and unlicensed finders remains valid. We are not alone.

Many “courts distinguish between persons in the traditional categories [of the statute of frauds] and brokers, who are assumed to be familiar with the laws governing their occupation.” (Rest.2d Contracts (1981) § 126, reporter’s note, p. 317.) An applicant for a broker’s license must demonstrate by written examination that he or she has an understanding of “the general purposes and general legal effect of agency contracts.” (Bus. & Prof. Code, § 10153.) To obtain an original broker’s license, an applicant must have been a licensed and actively employed real estate salesperson for at least two years. (Bus. & Prof.

Code, § 10150.6.) The Legislature has recently increased the educational requirements to obtain a broker’s license to include mandatory successful completion at an accredited institution of a course in the legal aspects of real estate. (Bus. & Prof. Code, § 10153.2, subd. (a).) To renew their licenses, brokers must now successfully complete continuing professional education courses including legal study. (Bus. & Prof. Code, § 10170.5.) The requirements that licensed brokers know the law is stronger than ever before. Licensed brokers are conclusively presumed to know the requirements of

section 1624(d). What is the effect of this presumed knowledge? In Monarco v. Lo Greco, supra, 35 Cal.2d 621, 623, the court observed that estoppel can be applied “to prevent fraud.” The court explained that it was not speaking of actual fraud but of the “fraud” that inheres in situations where there is an unconscionable injury to the promisee under an invalid oral contract or unjust enrichment to the promisor. (Ibid.; see generally 1 Witkin,

Summary of Cal. Law (9th ed. 1987) Contracts, § 325, p. 305.) In Pacific Southwest, supra, 47 Cal.2d 62, decided after Monarco, the court held that a licensed real estate broker seeking to recover a commission under an oral agreement could not assert equitable estoppel to avoid the statute of frauds. The court addressed both factors set forth in Monarco— unconscionable injury and unjust enrichment. The court determined that the mere fact that the broker had rendered services under an oral agreement did not constitute a change of position to his detriment. (Id., at p. 70.) He suffered no unconscionable injury.

Stated another way, the broker’s reliance on the oral contract was not reasonable in light of the broker’s presumed knowledge of the requirements of the statute of frauds.

To give rise to equitable estoppel, the promisee’s reliance must be reasonable. (See Bigelow, Law of Estoppel (6th ed. 1913) p. 682; Note, Part Performance, Estoppel and the California Statute of Frauds (1951) 3 Stan.L.Rev. 281, 289.) We agree with the statement in Pacific Southwest that the broker “assumed the risk of relying upon claimed oral promises of defendant, and it [the broker] has no cause for complaint if its efforts go unrewarded.” (47 Cal.2d at p. 70; Marks v. Walter G. McCarty Corp., supra, 33 Cal.2d 814, 823.) Phillippe did nothing more than perform services pursuant to an invalid agreement.

Phillippe’s reliance on the oral contract was not reasonable, and he therefore suffered no unconscionable injury. (Colburn v. Sessin (1949) 94 Cal.App.2d 4, 6 [209 P.2d 989].) In accord with our analysis that a licensed broker cannot reasonsbly rely on an unenforceable oral promise of compensation, we disapprove of Le Blond v. Wolfe, supra, 83 Cal.App.2d 282, to the extent that the court allowed a licensed broker to assert equitable estoppel.

The broker contended that he had suffered an unconscionable injury by cancelling an otherwise valid contract with a real estate seller in reliance on the buyer’s oral promise that he would pay the broker’s commission. A broker cannot create an unconscionable injury by taking extreme action. If it is unreasonable to perform services in reliance on an oral promise the broker knows to be invalid under the statute of frauds, it is even more unreasonable to cancel an enforceable written contract in reliance on an oral promise that the broker knows to be unenforceable.

Phillippe’s reliance was especially unreasonable in light of his knowledge that Shapell is also a licensed broker. Phillippe had to have known that Shapell was aware that commission agreements must be in writing. That Shapell never confirmed in writing any agreement regarding the Great Lakes property should have indicated to Phillippe that Shapell believed either there was no such agreement or that it would not be enforceable. (We do not suggest that Shapell secretly intended to rely on

section 1624(

d) to avoid what Shapell itself believed was an agreement with Phillippe. There is no such evidence in the record.) The alternate basis for estoppel is unjust enrichment. Phillippe has not shown any unjust enrichment of Shapell. The most Phillippe has shown is that Shapell did not pay for his services. The fact that a broker’s principal does not pay for the broker’s services under an unenforceable oral contract does not constitute unjust enrichment sufficient to support equitable estoppel. In Marks v. Walter G.

McCarty, supra, 33 Cal.2d 814, the court denied recovery to a broker under an oral contract despite having accepted the trial court’s finding that the broker was the procuring cause of the sale. Likewise here, the jury’s finding that Phillippe was the procuring cause of the sale to Shapell does not by itself establish unjust enrichment sufficient to give rise to equitable estoppel.

To determine that mere nonpayment constitutes unjust enrichment sufficient for estoppel would also conflict with consistent holdings that licensed brokers, who cannot recover under oral agreements invalid under the statute of frauds, are also prohibited from recovery in quantum meruit for the reasonable value of their services. (Beazell v. Schrader (1963) 59 Cal.2d 577, 582 [30 Cal.Rptr. 534, 381 P.2d 390]; Jamison v. Hyde (1903) 141 Cal. 109, 113 [74 P. 695]; Augustine v.

Trucco, supra, 124 Cal.App.2d 229, 237-238.) “[T]he purpose of the statute would be largely defeated if the broker should be allowed to recover in quantum meruit for his services . . . , either on the oral contract itself or in quasi-contract for reasonable compensation.

This is made obvious by the fact that reasonable compensation would be determined by the commission that is customarily paid in the community, and the oral contract that the broker alleges to have been made is practically always a contract to pay this customary commission.” (2 Corbin on Contracts (1950) § 416, p. 438.) The quantum meruit theory of recovery in these circumstances “has been so roundly rejected by the [California] courts that many recent attempts by brokers to recover commissions do not even raise it.” (Cal.

Real Property Sales Transactions (Cont.Ed.Bar 1981) § 2.55, p. 110.) The authors of the Restatement Second of Contracts reached the same conclusion.

Section 375 states: “A party who would otherwise have a claim in restitution under a contract is not barred from restitution for the reason that the contract is unenforceable by him because of the Statute of Frauds unless the statute provides otherwise or its purpose would be frustrated by allowing restitution.” (Italics added.) Comment a, illustration 3 of

section 375 expressly states that recovery in restitution by a real estate broker would frustrate the purpose of the statute. The overwhelming majority of other jurisdictions has adopted the Restatement view. (See, Annot. (1955) 41 A.L.R.2d 905, 908; 7 Powell, The Law of Real Property (Rohan ed. 1987) ¶ 938.16[3], pp. 84C-56 to 84C-63.) If nonpayment is insufficient to allow recovery in quantum meruit, nonpayment is equally insufficient to support equitable estoppel on the ground of unjust enrichment.

There would be no point in deciding, as we have, that a licensed broker cannot show an unconscionable injury sufficient to assert estoppel based only on the fact that the broker performed services without payment, but then to conclude that the nonpayment constitutes unjust enrichment sufficient to allow estoppel. A dissatisfied broker could prevail by merely labeling his theory of recovery as unjust enrichment rather than unconscionable injury.

We hold that a licensed real estate broker or salesperson cannot assert equitable estoppel against a statute of frauds defense to an oral commission agreement that is subject to Civil Code

section 1624(

d) unless there is a showing of actual fraud by the party to be charged under the invalid oral agreement. Because licensed brokers are involved in almost every real estate sale, to decide otherwise would be to eviscerate if not abrogate

section 1624(d). Sound Policy Reasons Support the Denial of Equitable Estoppel to a Licensed Broker. 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. “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, “[notwithstanding 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.

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. 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. 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. No evidence is before us regarding industry custom. We decline to speculate as to what the custom, if any, may be. 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. Our Decision Does Not Leave Licensed Brokers Unprotected. In Tenzer v.

Superscope, supra, 39 Cal.3d 18, the court held that the statute of frauds does not preclude an action for actual fraud. (Id., at pp. 28-31.) Although the plaintiff in Tenzer was an unlicensed real estate finder, the Tenzer court did not distinguish in its discussion of actual fraud between unlicensed finders and licensed brokers and did not suggest that its holding regarding actual fraud should be limited to unlicensed finders. (This lack of distinction between unlicensed finders and licensed brokers is in marked contrast to the Tenzer court’s careful distinction between the two groups in its discussion of equitable estoppel.) Phillippe did not plead a cause of action for actual fraud.

We believe it necessary, however, to explain how our present holding necessarily would affect an action by a licensed broker for actual fraud. To recover for fraud in any case the plaintiff must show that he reasonably relied on the defendant’s misrepresentations. The plaintiff cannot recover if his reliance was not justified or reasonable. (Wagner v. Benson (1980) 101 Cal.App.3d 27, 36 [161 Cal.Rptr. 516]; see generally 4 Witkin,

Summary of Cal. Law (8th ed. 1974) Torts, § 475, p. 2734; 3 Pomeroy, Equity Jurisprudence (5th ed. 1941) § 891, pp. 505-510.) As discussed above, a broker’s presumed knowledge of the statute of frauds precludes him from showing the reasonable reliance on an oral agreement that is necessary to assert equitable estoppel. (Pac. etc. Dev. Corp. v. Western Pac. R. R. Co., supra, 47 Cal.2d 62, 70; Marks v. Walter G. McCarty Corp., supra, 33 Cal.2d 814, 823; Osborne v. Huntington Beach etc.

School Dist. (1970) 5 Cal.App.3d 510, 515 [85 Cal.Rptr. 793].) Likewise, an oral promise by a broker’s principal to execute the required writing at a later date will not give rise to estoppel. (Colburn v. Sessin, supra, 94 Cal.App.2d 4, 5.) By parity of reasoning, a broker’s reliance on an oral promise to pay a commission or an oral promise to execute the required writing at a later date cannot be sufficiently reasonable to support an action for fraud.

A broker’s reliance, however, on a 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. (§ 1623; Owens v. Foundation for Ocean Research, supra, 107 Cal.App.3d 179, 183-184.) There may be other types of promises on which a broker could reasonably rely. We do not purport in this opinion to identify every such promise. We believe, however, that a licensed broker’s reliance can be reasonable only in rather limited circumstances.

Whether a broker’s reliance is reasonable must be determined on the facts of each case. Conclusion We hold that Phillippe’s alleged oral commission agreement is invalid under

section 1624(d). Phillippe cannot avoid the requirements of

section 1624(

d) by asserting equitable estoppel. We reverse the judgment in all respects and remand with directions to enter judgment including costs on appeal in favor of Shapell. In light of our decision, we need not address the issues raised by Phillippe in his cross-appeal. Lucas, C. J., Arguelles, J., Roth (Lester Wm.), J., and Woods (Arleigh M.), J., concurred. Phillippe unsuccessfully moved for judgment notwithstanding the verdict as to the two theories of recovery rejected by the jury. California’s original statute of frauds was enacted in 1872. It was amended in 1878 to include real estate broker commission agreements.

Section 1624 now reads in pertinent part: “The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent: . . . (

d) An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate . . . or to procure, introduce, or find a purchaser or seller of real estate ... for compensation or a commission.” When Phillippe began this action,

section 1624, subdivision (

d) was designated as subdivision (5). The designation was changed in 1985. There was no substantive change in the subdivision. For convenience, we will refer to

section 1624, subdivision (

d) merely as

section 1624(d). All further statutory references are to the Civil Code unless indicated otherwise. Approximately one person in every fifty in California holds a real estate license. (L. A. Times (Apr. 20, 1980) pt. IX, at p. 1, as noted in Federal Trade Com. Staff Rep., The Residential Real Estate Brokerage Industry (Dec. 1983) vol. 1, p. 91.) To decide that licensees acting as principals are not subject to the statute would deprive a significant portion of the state’s populace of the statute’s protection.

The plaintiff broker in Marks did not argue that the statute was inapplicable, but the court found his agreement invalid under the statute even though the defendant seller was also a licensed broker. Phillippe also sought recovery on the theory that he had served as a mere finder rather than as a broker, and that Shapell had agreed to pay a finder’s fee. Phillippe contended that finders’ fee agreements are not subject to

section 1624(d). By special verdict, the jury found there was no finder’s agreement. Phillippe does not appeal that determination. Even if there had been such an agreement, it would not benefit Phillippe, because finders’ agreements, like brokers’ commission agreements, are subject to

section 1624(d). (Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 25-27 [216 Cal.Rptr. 130, 702 P.2d 212].) Even if the existence of a written agreement were for the jury to decide, the jury made that decision in this case. The jury found by special verdict that Shapell entered into a “valid agreement to pay a real estate broker’s commission” to Phillippe.

The jury instructions, however, would have allowed the jury to so find based either on the ground that the “commission agreement was in writing or that all the elements existed for legally excusing the writing requirements.” The record reflects that the only possible basis for the jury’s finding was that there was an estoppel.

At the hearing on Shapell’s motion for new trial, the court noted that “we obviously didn’t have a broker’s commission in writing, and so it [the special verdict] had to be under the instruction about estoppel.” We agree and construe the special verdict to be that there was no written agreement. The two circumstances where the Courts of Appeal have applied equitable estoppel are: (1) where the real estate broker cancelled an otherwise valid written contract with the sellers of the property in reliance on the buyer’s oral promise that he would pay the broker’s commission (Le Blond v.

Wolfe (1948) 83 Cal.App.2d 282, 287 [188 P.2d 278]), and (2) where the broker’s principal has represented to the broker that his authorization was in writing when in fact it was not. (Owens v. Foundation for Ocean Research (1980) 107 Cal.App.3d 179, 183 [165 Cal.Rptr. 571 ] [disapproved on other grounds in Tenzer v. Superscope, Inc., supra, 39 Cal.3d 18, 29].) Neither circumstance is present in the instant case.

For criticism of the courts’ reluctance to extend equitable remedies to brokers see Comment, Equitable Estoppel and the Statute of Frauds in California (1965) 53 Cal.L.Rev. 590, 602, 609; Note, Oral Employment Contracts and Equitable Estoppel: The Real Estate Broker as Victim (1975) 26 Hastings L.J. 1503; 1 Miller & Starr, Current Law of California Real Estate, supra,

section 1.54, pages 69-74, footnote 8. The legal study requirements are substantial. Business and Professions Code

section 10170.5 provides that the continuing education must include: “A three-hour course in ethics, professional conduct, and legal aspects of real estate, which shall include, but not be limited to, relevant legislation, regulations, articles, reports, studies, court decisions, treatises, and information of current interest.” (Italics added.) “ ‘A broker is the “procuring cause” of a real estate transaction if he finds a purchaser [or seller] who is ready, willing, and able to buy [or sell] the property on the terms stated and he obtains a valid contract obligating the purchaser [or seller] on these terms.’ ” (Buckaloo v.

Johnson (1975) 14 Cal.3d 815, 820, fn. 2 [122 Cal.Rptr. 745, 537 P.2d 865].) Even if a finding of procuring cause could equate in some circumstances to unjust enrichment of the broker’s principal, we do not believe those circumstances are present in this case. Phillippe’s last attempts to bring about a sale of the Great Lakes property to Shapell were in early 1974.

Although the property was rezoned in February 1974 to a construction density that was acceptable to Shapell, nothing more happened until the end of 1975 when Shapell’s vice president contacted the property owner and learned the property was still available. Direct negotiations between the owner and Shapell led to the eventual sale.

Shapell’s refusal to pay Phillippe a real estate commission does not rise to the level of unjust enrichment in light of the fact that the sale was consummated approximately one and one-half years after Phillippe’s involvement had ceased and was negotiated directly between the seller and Shapell without assistance from Phillippe. The dissent suggests that we should ignore

section 1624(

d) in the present case in light of Asdourian v. Araj (1985) 38 Cal.3d 276 [211 Cal.Rptr. 703, 696 P.2d 95], in which we upheld the enforceability of an oral home improvement contract under Business and Professions Code

section 7159, one of the statutes cited above that requires contracts to be in writing. We cited

section 7159 as one of several examples of the Legislature’s increasing preference for written contracts. That legislative trend is not diminished or disputed by the court’s decision in Asdourian. Moreover, Asdourian is distinguishable from the present case in several important respects:

(1) Section 1624(

d) expressly provides that oral contracts are “invalid.” Business and Professions Code

section 7159, the statute construed in Asdourian, merely requires oral home improvement contracts to be in writing;

section 7159 does not expressly state that they are invalid. The Asdourian court emphasized that there was no indication the Legislature intended contracts in violation of Business and Professions Code

section 7159 to be unenforceable. (38 Cal.3d at pp. 291-292.) By contrast, the Legislature expressly provided in

section 1624(

d) that oral contracts for brokerage commissions are invalid, i.e., unenforceable.

(2) Violation of Business and Professions Code

section 7159 is a misdemeanor punishable by fine and/or imprisonment. The Asdourian court explained that such penalties should be sufficient to serve the underlying legislative policy of that statute. (38 Cal.3d at p. 292.)

Section 1624(d), however, does not provide for criminal penalties so it is even more important to preserve the statute’s efficacy by strict enforcement.

(3) There are significant differences between home improvements and brokerage commissions. Home improvements are tangible and can be relatively easily verified and appraised to determine their reasonable value. Such was the case in Asdourian, in which the contractor recovered the reasonable value of his services. A broker’s services do not result in a tangible product so it is more likely that there will be disputes as to what the broker has done and what such services may be worth. As in Asdourian, a home improvement dispute will typically involve only a single contractor seeking to recover.

Due to the nature of the real estate business, however, several competing brokers may claim a commission for a single transaction. Written contracts help minimize such confusion. That such change is within the Legislature’s purview is demonstrated by its enactment of California Uniform Commercial Code

section 2201, the statute of frauds applicable to sales of goods. Subdivision (2) of that statute provides special, somewhat relaxed, standards for written contracts in transactions between merchants. By enacting that provision, the Legislature changed California law regarding sales of goods. (See 23A West’s Ann. Cal. U. Com. Code (1964 ed.) § 2201, com. 5, p. 129.) The Legislature can also change

section 1624(d). Phillippe and his fellow critics of

section 1624(

d) do not explain what they mean by “commercial transactions.” We assume for purposes of discussion that they mean transactions between businesses engaged primarily in real estate investment. We note, however, that a consistently workable definition of “commercial transactions” would be extremely difficult to formulate. Such definition might cover the spectrum from a sophisticated land developer buying undeveloped land to an individual buying a vacation home for investment purposes. The assertion that written contracts are not often used may be incorrect.

The use of oral commission agreements is apparently viewed as unprofessional by many in the real estate industry. (Bowman & Milligan, Real Estate Law in Cal. (7th ed. 1986) § 3.14, p. 53.) The court had previously suggested that actual fraud might give rise to equitable estoppel. In Pacific Southwest, supra, 47 Cal.2d 62, 70, the court noted that equitable estoppel was not appropriate in the absence of a showing of actual fraud. Similarly, in Beazell v.

Schrader, supra, 59 Cal.2d 577, 582, the court refused to rely on equitable principles to enforce an oral broker’s employment agreement but noted that the defendant was not charged with any improprieties other than his failure to perform an oral contract.

Section 1623 provides: “Where a contract, which is required by law to be in writing, is prevented from being put into writing by the fraud of a party thereto, any other party who is by such fraud led to believe that it is in writing, and acts upon such belief to his prejudice, may enforce it against the fraudulent party.” Presiding Justice, Court of Appeal, Second Appellate District, Division Two, assigned by the Chairperson of the Judicial Council. Presiding Justice, Court of Appeal, Second Appellate District, Division Four, assigned by the Chairperson of the Judicial Council.