## Facts

- Ralph E. Hagan and Maureen K. Hagan owned the Stuart Court Apartments in Richmond, Virginia.
- The Hagans signed an exclusive listing agreement granting a broker, Adams Property Associates, Inc., the exclusive right to sell the property for \$1,600,000.
- The agreement required payment of a 6% fee if the property was “sold or exchanged” within one year, “with or without” Adams’s assistance.
- Before the listing period expired, the Hagans formed a limited liability company with two others: Hagan, Parsons & Tepper, L.L.C. (HPT).
- Under HPT’s operating agreement, HPT assumed existing liabilities on the property, including a \$1,028,000 first deed of trust note.
- HPT also executed a \$323,000 second deed of trust note payable to the Hagans.
- By deed dated April 23, 1995, the Hagans transferred legal title to the apartments to HPT, and no commission was paid to Adams.
- Adams sued for the commission, asserting the transfer was a “sale” or “exchange” under the listing agreement.

## Issues

1. Whether the owners’ transfer of real property to an LLC in which they were members, where the LLC assumed indebtedness and issued a note to the owners, constituted a “sale” triggering a commission under an exclusive listing agreement.
2. Whether the trial court correctly calculated the “gross sales amount” for computing the broker’s 6% commission.

## Decision

- The Supreme Court of Virginia affirmed the judgment for Adams.
- The court held the conveyance to HPT constituted a “sale” within the meaning of the listing agreement.
- The court held the Hagans received present valuable consideration through HPT’s assumption of existing mortgage debt and HPT’s enforceable note payable to the Hagans.
- The court upheld the commission award and the trial court’s approach to determining the gross sales amount used to compute the 6% fee.

## Legal Principles

- In construing a brokerage listing agreement, terms such as “sold” are given their ordinary meaning absent a contractual definition.
- A transfer is a “sale” when property is conveyed for valuable consideration; courts look to the economic substance of the transaction rather than the parties’ characterization of it as “capitalization” or an internal business restructuring.
- Assumption of the transferor’s existing indebtedness is present valuable consideration supporting a sale.
- An enforceable promissory note given to the transferor as part of the transaction is present valuable consideration, even if the transferor also expects future profits from the new entity.
- Where an exclusive listing agreement provides for a commission if the property is “sold or exchanged” within the listing period “with or without” the broker’s assistance, the commission is owed when the owner disposes of the property for value during that period.

## Conclusion

The court held that conveying the apartments to the owners’ newly formed LLC was a sale because the LLC assumed substantial debt and issued a note to the owners, constituting present valuable consideration; the broker therefore earned the contractual 6% commission calculated from the transaction’s gross value.


Hagan v. Adams Prop. Assocs., Inc., 253 Va. 217, 482 S.E.2d 805 (Va. 1997)