Business Brokerage Centre v. Dixon

• Decision Date: 28 March 1994
• Parties: BUSINESS BROKERAGE CENTRE, a partnership composed of Cecil R. Bishop and Norman H. Hensley, Plaintiff-Appellant, v. Betty J. DIXON and Fred W. Dixon, Jr., Co-Administrators of the Estate of Fred W. Dixon, Defendants-Appellees.
• Court: Tennessee Supreme Court

Page 1

874 S.W.2d 1

BUSINESS BROKERAGE CENTRE, a partnership composed of Cecil

R. Bishop and Norman H. Hensley, Plaintiff-Appellant, v. Betty J. DIXON and Fred W. Dixon, Jr., Co-Administrators of

the Estate of Fred W. Dixon, Defendants-Appellees.

Supreme Court of Tennessee,

at Knoxville.

March 28, 1994.

Carl W. Eilers, Kingsport, for plaintiff-appellant.

Frank L. Slaughter, Slaughter, Hudson & Dougherty, Bristol, for defendants-appellees.

J. Russell Farrar, Farrar & Bates, Nashville, for amicus curiae Tennessee Ass'n. of Realtors.

OPINION

DROWOTA, Justice.

Business Brokerage Centre (BBC) appeals from the Court of Appeals' affirmance of the trial court's judgment for the defendants-counterclaimants, the co-Administrators of the estate of Fred W. Dixon, Sr., in BBC's action to recover a commission allegedly owed to it for the sale of Dixon's business. This case presents two issues for our review: (1) whether the Tennessee Real Estate Broker's Act of 1973, Tenn.Code Ann. § 62-13-101 et seq., requires that a "business broker" possess a real estate broker's license to be entitled to recover a commission for the sale of a business when real property is included in the assets of the business; and (2) whether the defendants-counterclaimants are entitled to an award of treble damages pursuant to Tenn.Code Ann. § 62-13-110(c) because of BBC's actions.

THE FACTS

In 1989 Fred W. Dixon, Sr. and his wife Betty decided to sell their shares of stock in Dixon Tool and Engineering, Inc. (DTE), as well as the assets of the tool-and-die business. DTE's assets included land and buildings, machinery, inventory, and accounts receivable. Dixon listed his business with the plaintiff BBC, a partnership composed of Cecil R. Bishop and Norman H. Hensley which specializes in the sale of business entities. Hensley is licensed to sell securities, life insurance and health insurance; and Bishop is a certified public accountant who had performed accounting services for Dixon individually and for DTE for several years. Neither Bishop nor Hensley is licensed to sell real estate in Tennessee.

The listing and commission agreement entered into by Dixon and BBC provided that upon the sale of the business, BBC was to receive a 10% commission of the total selling price of the business; the "total selling price" included "all transferred assets, transferred debts, notes, loans, and management contracts." The agreement set the asking price of the business at $800,000 plus accounts receivable; the effective asking price was approximately $850,000. The assets of the business were not separately valued in the agreement, but a handwritten notation on the agreement provided that the commission was "not to exceed $60,000 (No comm. on building and land) (approx. $250,000)." This language was inserted by BBC, and it is unclear as to exactly when in the negotiations process this language was added. It is also unclear how BBC arrived at the $250,000 figure.

At some point after the listing agreement was signed, W. Devoid Wright, a North Carolina businessman, contacted BBC regarding the possible purchase of DTE. Wright travelled to Tennessee, and Bishop showed him around the DTE plant and put him in contact with Fred Dixon. Wright ultimately purchased the business from the Dixons for $884,000. The sales contract entered into by the Dixons and Wright allocated $450,000 of the purchase price to real property (land and improvements) and $434,000 to personal property. Although BBC asserts in brief that it was surprised that the amount allocated to real property was greater than the real property allocation in the listing agreement, the record reveals that Bishop played a significant part in the negotiating process, was present when the contract was signed, and was present at the closing of the sale.

At the closing Fred Dixon executed two promissory notes--one in the amount of $30,000 and the other in the amount of $20,000--to BBC as payment for the balance of the $60,000 commission as provided in the listing agreement (Dixon had previously paid $10,000 to BBC as earnest money). Dixon paid $8,306 on the $30,000 note before his death; the administrators of his estate, however, refused to make any further payments on either of the notes. BBC then brought an action to recover the amounts owed on the notes, but the administrators of Dixon's estate counterclaimed, alleging that the notes were voidable because BBC had violated § 62-13-103 by acting as a real estate broker without first obtaining a real estate broker's license. The administrators also requested that the court award treble damages pursuant to Tenn.Code Ann. § 62-13-110(c).

After a bench trial, the trial court held in favor of the defendants-counterclaimants, and ordered that the $18,306 previously paid to BBC be refunded. The trial court, however, refused to award treble damages. The Court of Appeals affirmed this judgment by a memorandum opinion. We granted BBC's Rule 11 application to clarify the licensing requirements of the Act with respect to persons engaged in selling businesses whose assets include real property.

I.

The Tennessee Real Estate Broker License Act of 1973 is designed to protect the public from irresponsible or unscrupulous persons dealing in real estate. Prowell v. Parks, 767 S.W.2d 633, 634 (Tenn.1989). To achieve this end, the Act requires persons dealing in real estate to obtain a real estate broker's license, Tenn.Code Ann. § 62-13-301, and the failure to obtain a broker's license before engaging in acts defined as "brokering" is punishable as a Class B misdemeanor. Tenn.Code Ann. § 62-13-110(a)(1). Moreover, the Act also denies a nonlicensed person access to the courts to recover any commission, finders fee, or other compensation for the prohibited acts. Tenn.Code Ann. § 62-13-105. To maximize the deterrent effect of the Act, the Legislature drafted its provisions broadly. The basic provision, Tenn.Code Ann. § 62-13-103, provides that

(a) Any person who, directly or indirectly for another, with the intention or upon the promise of receiving any valuable consideration, offers, attempts or agrees to perform, or performs, any single act defined in § 62-13-102, whether as a part of a transaction, or as an entire transaction, is deemed a broker, affiliate broker or time share salesperson within the meaning of this chapter.

(b) The commission of a single such act by a person required to be licensed under this chapter and not so licensed constitutes a violation thereof.

The term "broker" is defined in § 62-13-102 as

[A]ny person who for a fee, commission, finders fee or any other valuable consideration, or with the intent or expectation of receiving the same from another, solicits, negotiates or attempts to solicit or negotiate the listing, sale, purchase, exchange, lease or option to buy, sell, rent or exchange for any real estate or of the improvements thereon or any time-share interval as defined in the Tennessee Time-Share Act, compiled in title 66, chapter 32, collects rents or attempts to collect rents, auctions or offers to auction, or who advertises or holds himself out as engaged in any of the foregoing.

The term "real estate" is also defined broadly. Section 62-13-102(4) defines the term as "leaseholds, as well as any other interest or estate in land, whether corporeal, incorporeal, freehold or nonfreehold, and whether the real estate is situated in this state or elsewhere."

Although this Court has never addressed the issue of whether the Act requires persons engaged in selling business entities to obtain a real estate broker's license if real property is included in the entity's assets, ¹ other jurisdictions with licensing statutes similar to Tennessee's have considered this issue. The issue has by no means produced a consensus and three different approaches are discernible in the cases. Several jurisdictions with similar statutes appear to hold that if a sale of the ongoing business contains any real estate component, no matter how de minimis, the broker will be denied any commission. See e.g., Ford v. American Medical Intern, Inc., 228 Neb. 226, 422 N.W.2d 67 (1988); Thomas v. Jarvis, 213 Kan. 671, 518 P.2d 532 (1974); Knight v. Johnson, 741 S.W.2d 842 (Mo.Ct.App.1987); Lockridge v. Hale, 764 S.W.2d 84 (Ky.Ct.App.1989); Bonasera v. Roffe, 8 Ariz.App. 1, 442 P.2d 165 (1968); Doran v. Imeson Aviation, Inc., 419 F.Supp. 586 (D.Wyo.1976) (applying Wyoming law). These courts refuse to divide the transaction into real and personal property elements; rather, they view the transaction as a whole, and often emphasize that the deal would not have gone through without the realty component (as in this case, where Wright testified that he wanted the entire business or nothing). These courts establish a "bright-line" rule to maximize the protective purpose of the real estate broker legislation.

Other jurisdictions, however, construe similar statutes in a different way. These courts hold that the business broker is not precluded from recovering a commission if the real estate component is "merely incidental" to the sale of the entire business. See Weingast v. Rialto Pastry Shop, 243 N.Y. 113, 152 N.E. 693 (1926); Frier v. Terry, 230 Ark. 302, 323 S.W.2d 415 (1959); Cary v. Borden Co., 153 Colo. 344, 386 P.2d 585 (1963); Quick Shops of Mississippi v. Bruce, 232 So.2d 351 (Miss.1970); Scott Hubbard Co. v. Sika Chemical Corp., 708 F.Supp. 945 (N.D.Ill.1989) (applying Illinois law). These courts also cite legislative purpose to support their decisions, but stress that real estate broker statutes are intended to protect unsophisticated homebuyers, not knowledgeable persons buying and selling entire businesses. These courts also look to the transaction as a whole; they, however, tend to emphasize the ultimate purpose of the transaction (the sale of an entire business), rather than focussing on the fact that the transaction contains a real estate component. Some of these...