The Rule of Nullification - Exceptions for Unlicensed Brokers

4.30.10    By admin    Tags ,

In a recent decision, the Tennessee Court of Appeals addressed the rule of nullification in the context of unlicensed brokers’ commission contracts. The Court held that a contract was not necessarily unenforceable as contrary to public policy merely because the broker was unlicensed. See Christenberry Trucking & Farm, Inc. v. F & M Marketing Services, Inc., 2010 WL 1254374 (Tenn. Ct. App. 2010).

In Christenberry, the defendant was acting as an unlicensed broker when he entered into a commission agreement with a motor carrier company, in violation of the Interstate Commerce Act. In a subsequent contract dispute between the parties, the trial court found that the defendant’s lack of a broker’s license rendered the commission agreement illegal and unenforceable.

On appeal, the Court acknowledged the general rule that illegal contracts are not enforceable (the “rule of nullification”). As the Court explained, under the rule of nullification, illegal contracts are treated as null and void and the parties are left where they stand at the time the illegality is discovered. However, the Court noted that where neither the licensing statute nor the policy underlying the statute mandates forfeiture, an exception to the rule is available, if necessary, to avoid unreasonable forfeitures. The Court also noted that the presence of “penalty statutes” has been held to overcome the rule of nullification.

The parties to the contract in Christenberry were professional businesses engaged in an arms-length transaction, the licensing statute did not require forfeiture, and other penalties were available to punish the defendant for his lack of a license. Accordingly, the Court concluded that public policy would not be offended by allowing the defendant to recover under his commission contract even though he was not licensed as a broker as required by law.


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