Hagan v. Adams Property Associates, Inc.

Ralph and Maureen Hagan (plaintiffs) owned an apartment complex (the property) that was encumbered by a deed-of-trust note in the amount of $1,028,000. On April 30, 1994, the Hagans entered into an agreement with Adams Property Associates, Inc. (Adams) (defendant). The agreement gave Adams the exclusive right to sell the property and entitled Adams to a 6 percent commission of the gross-sales amount if the property was sold or exchanged within one year. Ralph and two other members subsequently formed a limited-liability company called Hagan, Parsons, & Tepper, L.L.C. (HPT) and executed an operating agreement. Per the operating agreement, HPT agreed to assume all liabilities existing on the property and executed a second deed-of-trust note on the property payable to the Hagans for $323,000. On April 23, 1995, the Hagans transferred the property to HPT without paying Adams a commission. Accordingly, Adams sued the Hagans for payment of the commission. In response, the Hagans relied on partnership cases for the proposition that the contribution of property to a limited-liability company represented the capitalization of a new company rather than a sale. The Hagans also argued that the transfer in question did not constitute a sale because the Hagans did not receive any present valuable consideration for the transfer. The trial court found that the transfer constituted a sale entitling Adams to a commission. The Hagans appealed.