HAGAN v. ADAMS PROPERTY ASSOCIATES, INC.
482 S.E.2d 805 (Va. 1997)
Ralph E. Hagan (Hagan) owned the Stuart Court Apartments (the property) in Richmond,
Virginia. On April 30, 1994, Hagan signed an agreement with Adams Property Associates, Inc.
(Adams), giving Adams the exclusive right to sell the property for $1,600,000. The agreement
provided that if the property was “sold or exchanged” within one year, with or without Adams’
assistance, Hagan would pay Adams a commission of six percent of the “gross sales amount.”
Before the year expired, Hagan, Roy T. Tepper, and Lynn Parsons formed a limited liability
company, known as Hagan, Parsons, & Tepper, L.L.C. (HPT). By deed dated April 23, 1995,
Hagan transferred the property to HPT. Adams believed that the transfer of the property to HPT
constituted a sale of the property and asked Hagan to pay him the six percent commission as
provided in their agreement. When Hagan refused, Adams filed suit against Hagan seeking
recovery of the commission. The trial court held that Adams was entitled to a commission and
Hagan appealed.
Lacy, Justice. In this appeal, we consider
whether a transfer of real property from its
owner to a limited liability company in
which the owner is a member constitutes the
sale of the property, entitling a real estate
broker to a commission authorized by a
listing agreement between the owner and
broker.
Hagan first contends that transfer of legal
title to the property to HPT represented his
contribution to the capitalization of a new
company, and capitalization of a new
venture should not be classified as the sale
of property. Hagan also asserts that the
transfer did not constitute a sale because he
did not receive any present valuable
consideration for his contribution. ... We
disagree.
When Hagan transferred the property to
HPT, he received more than an interest in
the new company. Under the terms of the
operating agreement executed in conjunction
with the formation of HPT, HPT agreed to
assume all liabilities existing on the
property, which included the $1,028,000
unpaid balance on a first deed of trust note
on the property. The record does not indicate
whether the holder of the first deed of trust
note released Hagan and substituted HPT as
the obligor on the note. Even assuming such
substitution did not occur, Hagan
nevertheless received substantial relief from
his debt obligation because, upon assuming
all liabilities on the property, HPT became
liable to Hagan for any amount Hagan
would have had to pay the holder of the first
deed of trust note. Also as part of the
property transfer transaction, HPT executed
a second deed of trust on the property
securing a note payable to Hagan for
$323,000. This note was due and payable
when the property was subsequently sold,
and it had priority over payments to anyone
other than the beneficiary of the first deed of
trust. Thus, in exchange for transfer of title
to the property, Hagan received relief from
his debt on the first deed of trust note as well
as the benefit of a second deed of trust note
and an interest in HPT. These benefits
received by Hagan constituted valid
consideration. ...
Under the Virginia Limited Liability
Company Act, a limited liability company is
an unincorporated association with a
registered agent and office. It is an
independent entity which can sue and be
sued and its members are not personally
liable for the debt or actions of the company.
... [A] limited liability company ... is an
entity separate from its members and, thus,
the transfer of property from a member to
the limited liability company is more than a
change in the form of ownership; it is a
transfer from one entity or person to another.
Accordingly, we agree with the trial court’s
conclusion that Hagan transferred the title of
the property in exchange for valuable
consideration and that this transfer was a
sale of the property. ... Adams was entitled
to a commission on the gross sales amount,
resulting in a commission of $81,060.
Affirmed.