Present: Carrico, C.J., Compton, Lacy, Hassell, Keenan,
Koontz, JJ., and Whiting, Senior Justice
MAUREEN K. HAGAN, ET AL.
v. Record No. 961332 OPINION BY JUSTICE ELIZABETH B. LACY
February 28, 1997
ADAMS PROPERTY ASSOCIATES, INC.
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Theodore J. Markow, Judge
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.
Ralph E. and Maureen K. Hagan (collectively "Hagan") owned
the Stuart Court Apartments (the property) in Richmond. On
April 30, 1994, Hagan executed 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 fee of
six percent of the "gross sales amount." Before the year
expired, Hagan, Roy T. Tepper, and Lynn Parsons formed a
limited liability company, Hagan, Parsons, & Tepper, L.L.C.
(HPT). By deed dated April 23, 1995, Hagan transferred the
property to HPT.
Adams filed a motion for judgment seeking recovery of a
commission from Hagan pursuant to the April 1994 agreement.
The trial court held that Adams was entitled to a commission
because the transfer of the property to HPT constituted a sale
of the property. Hagan appealed both the determination that a
sale of the property occurred and the amount of the commission
awarded.
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,
citing Southpace Properties, Inc. v. Acquisition Group, 5 F.3d
500, 504 (11th Cir. 1993); Cooley Investment Co. v. Jones, 780
P.2d 29, 31 (Colo. App. 1989); Miller, Cowherd & Kerver, Inc.
v. De Montejo, 406 So.2d 1196, 1198 (Fla. App. 1981); and
McElhinney v. Belsky, 69 A.2d 178, 181 (Pa. Super. 1949).
Hagan also asserts that the transfer did not constitute a sale
because he did not receive any present valuable consideration
for his contribution. Hagan contends that, while his
contribution determined what share of the ownership of the
company he was entitled to receive, a new business such as HPT
"involves an expectation of future profits and is always
speculative." 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. Brewer v. Bank of Danville,
202 Va. 807, 815, 120 S.E.2d 273, 279 (1961).
Furthermore, the cases relied on by Hagan for the
proposition that the contribution of property to a limited
liability company is not a sale but the capitalization of a new
company are inapposite. Those cases involved the
capitalization of a partnership or entity governed by
partnership law. As noted in those cases, a partnership is not
an entity separate from the partners themselves; thus, in such
circumstances, there is no transfer of property from one person
to another, but only a change in the form of ownership.
Southpace, 5 F.3d at 504; Cooley, 780 P.2d at 31; De Montejo,
406 So.2d at 1198; McElhinney, 69 A.2d at 181. In this case,
however, the new venture was a limited liability company, not a
partnership.
Under the Virginia Limited Liability Company Act, Code
§§ 13.1-1002 through 13.1-1073, a limited liability company is
an unincorporated association with a registered agent and
office. §§ 13.1-1002, -1015. 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. §§ 13.1-1009, -
1019. In contrast to a partnership, a limited liability
company in Virginia 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.
Hagan also complains that in calculating the commission
due Adams, the trial court used the wrong components to
determine the gross sales amount. The trial court calculated
the gross sales amount to be the sum of debt relief Hagan
received from HPT, $1,028,000, plus the amount of the second
1
deed of trust note which Hagan received from HPT, $323,000.
1
The parties agree that an arithmetic error occurred in
the trial court's calculation of the commission and that the
proper figures under the court's finding are a gross sales
amount of $1,351,000 which results in a six percent commission
of $81,060.
Hagan first asserts that the gross sales amount should be the
fair market value of the debt, which is $775,000, the amount
Tepper and Parsons paid for the first deed of trust note when
they purchased it in June, 1995. We disagree.
The status of Hagan's indebtedness was altered when he
transferred the property to HPT under the terms of the
operating agreement, not when Tepper and Parsons individually
purchased the first deed of trust note. The gross sales amount
is the consideration which Hagan received from HPT, not an
amount agreed upon between some other buyer and seller at
2
another time.
Finally, Hagan asserts that the second deed of trust note
should not have been included as part of the gross sales amount
because it was not due until the property was sold and was
subordinate to the first deed of trust note and future
development loans. Under these circumstances, Hagan claims,
the second deed of trust note had no present value. Again we
disagree. Whether the second deed of trust note would
ultimately result in a payment of $323,000 to Hagan is not
relevant to the measure of the value ascribed to the
transaction by the parties at the time of the transaction.
There is nothing speculative about a second deed of trust note
in the amount of $323,000. It was part of the agreement
2
Hagan also argues that his debt relief was only the
difference between the original amount of the note, $1,028,000,
and the $775,000 purchase price of the note. This position is
based on Hagan's contention that he had continuing liability
for the first deed of trust note, a contention we addressed,
supra.
surrounding the transfer of ownership of the property and
represented a portion of the amount Hagan was willing to accept
for the property. Thus, the trial court properly considered
the second deed of trust note as consideration received by
Hagan for the sale of the property and properly included it as
part of the gross sales amount for purposes of calculating the
amount of commission due Adams.
Accordingly, we will affirm the judgment of the trial
court holding that Hagan's transfer of title to the property to
HPT was a sale of the property, that Adams was entitled to a
commission on the gross sales amount, and that the gross sales
amount is the debt relief plus the second deed of trust note
Hagan received, $1,028,000 and $323,000, respectively,
resulting in a commission of $81,060.
Affirmed.