HARRISON & BATES, INC. V. LSR CORP.

185 S.E.2s624 (Va. 1989)

POFF, SENIOR JUSTICE.

The principal issue framed on this appeal is whether a corporation, licensed as a real estate broker under the laws of a sister state but not under the laws of Virginia, can enforce a contract to split commissions, earned on the sale of real estate in Virginia, with a real estate broker licensed in Virginia.

The question arises from a judgment confirming the verdict of a jury that awarded LSR Corporation (LSR) half the commissions paid Harrison & Bates, Incorporated (H & B). LSR is a North Carolina corporation licensed in that state as a real estate and business brokerage firm. Sherman Kennedy and William Brown are equal owners of LSR, and each is an officer and director of the corporation. Kennedy holds a North Carolina license as a real estate broker, and Brown is licensed in that state as a business broker. Neither LSR, Kennedy, nor Brown is licensed as a real estate broker in Virginia.

H & B is a Virginia corporation licensed in Virginia as a real estate broker. Bank of Virginia (now Signet Bank) granted H & B an exclusive listing for sale of the "Filer Ford" property located on West Broad Street in Richmond. In a letter dated December 30, 1981 addressed to Brown at LSR, Edward Jennings, a licensed broker with H & B, stated: "In the event you are successful in bringing forth a client with whom a sale is consummated, [H & B] agrees to split the paid gross commissions on a 50/50 basis with you."

In the months that followed, Brown and Kennedy came to Richmond with several prospective purchasers and showed them the property. When these efforts failed, they decided that the property would be more marketable if offered as a going business concern, one of a type uncommon in the Richmond community. Pursuing that decision, Brown and Kennedy obtained an option to purchase a nightclub franchise. On September 9, 1982, they formed a new Virginia corporation under the name of "2001 of Richmond, Inc." and became its sole owners, officers, and directors. Four days later, the new corporation acquired an option to purchase the Filer Ford property at a price reduced from $2 million to $1.5 million. Brown and Kennedy subscribed the document as guarantors. On October 15, 1982, the bank sold the property to 2001 of Richmond. The corporation exercised the franchise option, and the nightclub opened for business in March 1983 under the management of, Brown and Kennedy.

Although all the money required to purchase the franchise and the real estate and to finance renovation of the building had been contributed by five investors assembled by Brown and Kennedy, ownership of 2001 of Richmond was divided equally among Brown, Kennedy, and the five investors.

In October 1983, the investors bought the interests of Brown and Kennedy and employed new managers.

H & B was unaware of the negotiations LSR conducted with the bank until shortly before the day of sale.

Jennings had supplied the bank with a list of the prospective buyers H & B had contacted, and the bank agreed to pay H & B $70,000 in commissions. Payment was made on the day of the sale.

By letter dated December 6, 1982 addressed to H & B, Kennedy stated: "As the primary broker in this transaction, LSR expects to be paid $35,000, per our contract." Kennedy explained: "LSR Corporation was the sole reason for the sale of the property. LSR brought the purchaser, helped to negotiate the purchase price, and also assisted the purchaser in negotiating financing for the property." H & B refused to pay, and LSR filed a motion for judgment claiming $35,000 in damages for breach of contract.

The statute in effect when this dispute occurred, former Code 5 54-749 (Cum. Supp.1984) (now S 54.1-

2106), is central to the principal issue stated above. In pertinent part, that statute provided:

It shall be unlawful for any person, partnership, association or corporation, to act as a real estate broker . . . without a license issued by the Virginia Real Estate Commission. No partnership, association or corporation shall be granted a license, unless every member or officer of such partnership, association or corporation, who actively participates in its brokerage business, shall hold a license as a real estate broker. .

It is well established that, because a contract made in violation of the real estate licensing statutes is illegal, an unlicensed agent cannot recover compensation for his services in negotiating a sale under the contract." Grenco v. Nathaniel Greene, 237

S.E.2d 107, 109 (1977). Grenco cited Massie v. Dudley, 3 S.E.2d 176 (1939), where this Court, construing predecessors of the current real estate licensing statutes, applied this rule to a compensation agreement between a landowner and a real estate broker whose license had expired.

All the contracts declared illegal and unenforceable in the real estate commission cases decided by this Court were contracts between broker and client. From the two letter opinions of record, it appears that the trial court concluded, and MR agrees, that because the licensing statutes were designed to protect the public from incompetence and fraud practiced by unregulated persons, those statutes should be interpreted to apply always to contracts between broker and client but never to contracts between broker and broker such as the contract in issue.

We disagree. Read together, Code SS 54-749, and 54-732 apply the licensing requirement to "any person" who engages in any "act for a compensation . . . of buying or selling real estate of or for another". If the General Assembly had intended to exempt brokers

who enter into commission-sharing contracts, it could have added such an exemption to the

list of exemptions detailed in Code S 54-734. It did not do so, and we will not presume that the ommission was a legislative inadvertence. Rather, giving the statutory language its common import, we hold that the requirement that those who act as a real estate broker in Virginia be licensed in Virginia extends not only to those who enter into a compensation contract

with a seller or a purchaser but also to those who contract with each other to share commissions earned by the performance of such acts.

Reversed and final judgment.