Legal Memorandum: Unlicensed Brokers and Recovery of Damages

Issue: Is a plaintiff prohibited from recovering damages on an illegal securities or real estate contract due to lack of a securities and/or real estate broker license?

Under the Kansas Uniform Securities Act, promissory notes entered into by investors are regulated securities.  Kan. Stat. § 17-12a102(28) (defining a “security” as, among many other things, “a note”).  Under the Act, “[i]t is unlawful for a person to transact business in this state as a broker-dealer unless the person is registered under this act as a broker-dealer or is exempt from registration as a broker-dealer.”  Id. § 17-12a401(a); see also Id. § 17-12a406. 

In Kansas, one acts as a real estate broker if, “for compensation, [he] engages in any of the following activities . . . on behalf of, the owner . . . of real estate:  . . . (7)  Assists or directs in the procuring of prospects calculated to result in the sale, exchange or lease of real estate.  (8)  Assists in or directs the negotiation of any transaction calculated or intended to result in the sale, exchange or lease of real estate.”  Kan. Stat. § 58-3035(f).  If unlicensed, “no action shall be instituted or recovery be had in any court of this state by any person for compensation for any act or service, the performance of which requires a license.”  Id. § 58-3038(a). 

The Kansas Supreme Court has determined that a business transaction that includes the sale of real estate requires a real estate broker’s license.  In Thomas v. Jarvis, 213 Kan. 671, 518 P.2d 532 (1974), the plaintiffs operated an investment company specializing in corporate mergers and acquisitions.  They were approached and retained to sell three of the defendant’s businesses.  In August […]