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PARDOE & GRAHAM REAL ESTATE, INC. v. SCHULTZ HOMES CORP.



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PARDOE & GRAHAM REAL
ESTATE, INC.

v.

SCHULTZ HOMES CORP.


March 3, 2000

Record No. 990531

PARDOE & GRAHAM REAL ESTATE, INC.

v.

SCHULZ HOMES CORPORATION

FROM THE CIRCUIT COURT OF FAIRFAX COUNTY

Robert W. Wooldridge, Jr., Judge

Present: Carrico, C.J., Compton,[1] Lacy, Hassell, Keenan, Koontz, and Kinser, JJ.

OPINION BY JUSTICE BARBARA MILANO KEENAN


In this appeal, we consider whether the statute
of frauds barred a real estate brokerage firm from recovering
damages for breach of an oral contract for a commission on the
sale of a custom home to be constructed on a lot already owned by
the home buyer.

Schulz Homes Corporation (Schulz), a
residential construction contractor, filed a motion for judgment
against Pardoe & Graham Real Estate, Inc. (Pardoe), a real
estate brokerage firm. Schulz alleged that Pardoe intentionally
interfered with Schulz’s contractual relationship with Lake
Manassas Limited Partnership (the developer), and prevented
Schulz from constructing homes in the developer’s residential
subdivision in Prince William County known as Lake Manassas.
[2]

Pardoe filed a counterclaim against Schulz,
alleging that Schulz owed Pardoe a 6% commission, or in the
alternative, a 2.5% commission, on Schulz’s sale of a custom home
to Edward and Paula A. Carlton. Schulz built the home for the
Carltons on a lot in Lake Manassas that they had owned for about
two years before their home was constructed.

The following evidence was presented in a jury
trial. In 1992, Dale K. Schulz, who was president of Schulz,
signed a document entitled "Approved Speculative Builder
Application and Agreement" (Builder Application). This
document set forth the requirements for builders seeking to be
"approved" by Lake Manassas’ owner to purchase lots and
construct homes in the development for sale to the public.
[3]

Under Paragraph 5 of the Builder Application,
Schulz agreed that when it purchased a lot in Lake Manassas for
the purpose of constructing a "speculative" home,
Schulz would sign a six-month exclusive listing agreement with
the developer’s designated sales agent, Pardoe. This paragraph
further provided that Schulz would pay Pardoe a 6% commission on
the sale of a "speculative" home that Schulz
constructed.

Warren B. Watkins, the developer’s project
director, testified that an amendment to the Builder Application
form (Application Amendment) was presented to the approved
builders, including Schulz, and discussed at a meeting in
November 1993. Under the Application Amendment, Pardoe was
entitled to a 2.5% commission when an "approved"
builder constructed a custom home on a lot in Lake Manassas
already owned by the purchaser of the home. Schulz did not sign
the Application Amendment.

In November 1994, Schulz entered into a
contract with the Carltons to construct a home on their lot in
Lake Manassas. Edward Carlton testified that when he and his wife
decided to build a home on their lot, they went to the
developer’s on-site sales office that was staffed by Pardoe’s
agent, David Johnson. Johnson directed the Carltons into a room
where there were displays containing photographs and descriptions
of home models offered by the various "approved"
builders. The Carltons solicited bids from three of the
"approved" builders and ultimately selected Schulz to
construct their custom home.

Johnson testified that at the time Schulz and
the Carltons entered into their contract, he spoke with Dale
Schulz and indicated that he would send a document entitled
"Report of Sale and Commission Earned" to Dale Schulz
for his signature. This document contained an acknowledgement
that Schulz would pay a 2.5% commission to Pardoe based on the
final price of the Carltons’ home. Johnson testified that Dale
Schulz told him that there was "no need" to send the
document, since Schulz recognized Johnson as the agent and agreed
to "honor the builder’s agreement" and to pay the
commission. Since he believed that he had a "good working
relationship" with Schulz, Johnson made a notation on the
document that he had talked with Dale Schulz and did not obtain
his signature.

Contrary to Johnson’s testimony, Dale Schulz
testified that he never agreed to pay Pardoe a commission on the
home Schulz sold to the Carltons. He also stated that he recalled
receiving a document entitled "Report of Sale and Commission
Earned," which was prepared by Johnson, but "didn’t
take any action" after receiving the document.

At the close of the evidence, the jury was
instructed, among other things, that a "contract is an
agreement, either written or oral, for consideration, between two
or more parties." The jury returned a verdict in favor of
Pardoe on its counterclaim against Schulz and awarded Pardoe
damages in the amount of $12,088.13, which was equal to 2.5% of
the price that the Carltons paid Schulz for construction of their
home.

Schulz filed a motion to set aside the jury
verdict on the counterclaim on the ground that the statute of
frauds barred Pardoe’s "claim for a real estate
commission." The trial court issued an opinion letter in
which it ruled that Pardoe’s counterclaim against Schulz "is
a claim for a real estate commission and is subject to
? 11-2 of the Code of Virginia (the statute of
frauds)." Holding that Schulz had not signed a written
document entitling Pardoe to a commission on the Carlton home,
the court entered a final order setting aside the jury verdict on
the counterclaim and awarding judgment in favor of Schulz on that
claim.

On appeal, Pardoe argues that the oral contract
on which the jury verdict was based was not an "agreement or
contract for services to be performed in the sale of real
estate," within the meaning of Code ? 11-2(7). Thus,
Pardoe contends that the statute of frauds did not bar Pardoe
from recovering damages based on that oral agreement to pay
Pardoe a commission on the sale to the Carltons. Pardoe also
asserts that since this oral agreement was not subject to the
statute of frauds, the trial court erred in concluding that the
evidence did not support the jury verdict on the counterclaim.

In response, Schulz does not dispute the jury’s
finding that there was an oral contract but argues that the
contract was unenforceable based on the statute of frauds because
it related to the sale of a house to be affixed to land. Schulz
asserts that in the absence of written documentation of an
agreement by Schulz to pay Pardoe a commission on that sale, Code
? 11-2(7) barred Pardoe’s claim and the evidence was
insufficient as a matter of law to support the jury verdict on
the counterclaim. We disagree with Schulz’s arguments.

The General Assembly codified the statute of
frauds in Code ? 11-2, which states in relevant part:

Unless a promise, contract, agreement,
representation, assurance, or ratification, or some memorandum or
note thereof, is in writing and signed by the party to be charged
or his agent, no action shall be brought in any of the following
cases:

. . . .

6. Upon any contract for the sale of real
estate, or for the lease thereof for more than a year;

7. Upon any agreement or contract for services
to be performed in the sale of real estate by a party defined in
? 54.1-2100 or ? 54.1-2101;

In applying the language of Code
? 11-2(7), we must answer the question whether Pardoe’s
oral contract with Schulz was an "agreement or contract for
services to be performed in the sale of real estate by a party
defined in ? 54.1-2100 or ? 54.1-2101." Id.
We first observe that Code ? 11-2 does not define the term
"real estate." Further, while Code ?? 54.1-2100
and -2101 define the terms "real estate broker"
and "real estate salesperson" in the context of
statutory provisions regulating those occupations, the term
"real estate" also is not defined in Title 54
[4]Therefore, we turn to the general definition of
"real estate" in Code ? 1-13.12, which provides
in material part: "[T]he words ‘real estate‘ shall be
construed to include lands, tenements and hereditaments, and all
rights and appurtenances thereto and interests therein, other
than a chattel interest."

The word "tenement" means either an
estate or holding of land, or a house or other building used as a
residence. Black’s Law Dictionary 1480 (7th ed. 1999); see
1 Raleigh Colston Minor & Frederick Deane Goodwin Ribble, The
Law of Real Property
 ? 17 (2d ed. 1928). The term
"hereditament," in general, signifies any interest in
real property that may be inherited by an owner’s heirs. See
1 Raleigh Colston Minor & Frederick Deane Goodwin Ribble, The
Law of Real Property
at ? 17; Caroline N. Brown, 4 Corbin
on Contracts
? 17.1 (rev. ed. 1997).

The words used in Code ? 1-13.12 to
define the term "real estate" plainly do not encompass
a building that is unattached to land. Since construction of the
Carlton home had not begun at the time of the oral contract
between Pardoe and Schulz, the home was neither an
"appurtenance" to land nor a "tenement,"
within the meaning of the statutory definition. We hold that
under the definition of "real estate" in Code
? 1-13.12, a "contract for services to be performed in
the sale of real estate," as contemplated by Code
? 11-2(7), does not include an agreement such as the oral
contract between Pardoe and Schulz. Thus, an oral contract
providing for a sales commission is not subject to the statute of
frauds when that contract is based on the sale of a house to be
affixed to land that does not include a contemporaneous sale of
the land to which the house will be attached.

Our conclusion is in accord with other
authorities that have considered this subject. Generally,
"contracts to erect buildings or other structures upon land
are not within the [s]tatute [of frauds], although the
structures when completed will be real estate
." 9 Samuel
Williston & Richard A. Lord, A Treatise on the Law of
Contracts
? 25:15 (4th ed. 1999) (emphasis added); see
also
Caroline N. Brown, 4 Corbin on Contracts
? 17.1 (rev. ed. 1997); Hastings v. Matlock, 171
Cal. App. 3d 826, 836-7 (Cal. Ct. App. 1985); McCaffrey v.
Strainer
, 439 N.Y.S. 2d 773, 774 (N.Y. App. Div. 1981). Thus,
since Pardoe’s counterclaim did not require proof of a writing
executed by Schulz obligating it to pay a commission on the sale
of a home to the Carltons, we hold that the trial court erred in
concluding that the statute of frauds barred Pardoe’s recovery of
damages under an oral contract.
[5]

For these reasons, we will reverse the trial
court’s judgment setting aside the jury verdict on the
counterclaim and enter final judgment for Pardoe on the
counterclaim in accordance with the jury verdict.

Reversed and final judgment.

 

FOOTNOTES:

[1] Justice Compton participated in
the hearing and decision of this case prior to the effective date
of his retirement on February 2, 2000.

[2] The claims set forth in Schulz’s
motion for judgment are not at issue in this appeal.

[3] At the time Schulz signed the
"Approved Speculative Builder Application and
Agreement," Lake Manassas was owned by D.C. Land Group, Ltd.
The developer later succeeded D.C. Land Group, Ltd. as the owner
of the project.

[4] The terms "real estate
broker" and "real estate salesperson" are not at
issue in this appeal.

[5]The trial court’s final order set aside the jury verdict
on the counterclaim "upon the grounds assigned by [Schulz] as being contrary to the law and the evidence in this case and
without evidence to support it." The grounds Schulz raised
in the trial court exclusively addressed the issue of the statute
of frauds and the absence of any written document containing an
agreement by Schulz to pay a real estate commission on the sale
of the home to the Carltons. Schulz did not argue in the trial
court that the evidence was insufficient to support the jury’s
finding of an oral contract between Pardoe and Schulz and, as
noted above, Schulz has not raised this argument on appeal. Thus,
we do not address the sufficiency of the evidence apart from our
holding above.

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