Henry S. Miller Co. v. Treo Enterprises

• Court: Texas Supreme Court
• Writing for the Court: McGEE
• Citation: Henry S. Miller Co. v. Treo Enterprises, 585 S.W.2d 674 (Tex. 1979)
• Decision Date: 25 July 1979
• Docket Number: No. B-8096,B-8096
• Parties: HENRY S. MILLER COMPANY, Petitioner, v. TREO ENTERPRISES et al., Respondent.

Page 674

585 S.W.2d 674

HENRY S. MILLER COMPANY, Petitioner, v. TREO ENTERPRISES et al., Respondent.

No. B-8096.

Supreme Court of Texas.

July 25, 1979.

Wynne & Jaffe, Harold Hoffman, Dallas, for petitioner.

Kasmir, Willingham & Krage, Ben L. Krage, Dallas, for respondent.

McGEE, Justice.

The Henry S. Miller Company brought this action against Treo Enterprises, Sidney S. Smiley, Richard C. Smiley and Leo T. Hyman (hereinafter Treo) to recover the sum of $11,250.00 due under a promissory note. Treo answered and also brought a counterclaim against Miller seeking cancellation of the note and the return of all monies paid thereunder. After a trial to a jury, the trial court rendered judgment that both sides take nothing. Miller appealed, and the court of civil appeals affirmed. 573 S.W.2d 553. We affirm the judgment of the court of civil appeals.

In February of 1975 Miller obtained from the Jones Lake Company the exclusive right to sell a certain warehouse located in Dallas County, Texas. This arrangement was facilitated by the execution of a "CONTRACT OF SALE." This contract named Jones Lake Company as seller and Henry S. Miller, "trustee and/or assigns," as buyer. The instrument also named Henry S. Miller as principal agent with the seller expressly agreeing to pay $15,000 upon closing. According to the plan, Miller would acquire an assignee of its purchase rights under the contract of sale.

Subsequent to the execution of the contract, an employee of the Miller Company, Jerry McCutchin, solicited Treo to purchase the warehouse as Miller's assignee. To finance the $285,000 purchase price, Treo borrowed $60,000 and assumed Jones Lake Company's current mortgage of approximately $205,000. In order to further reduce the cash outlay, Jones Lake, Miller, and Treo agreed that Treo could deduct the $15,000 commission from the purchase price, and give Miller a promissory note in that same amount. Treo put up $5,000 cash and the transaction was closed on April 15, 1975.

Treo made three payments on the note and then advised Miller that it would not make further payments because of certain misrepresentations that Miller had made concerning the property. Miller, in turn, brought this suit on the note. Trial was to a jury, which found that the note was made for the purpose of paying a real estate commission to Miller. It further answered special issues concerning fraud and misrepresentation in Miller's favor. Judgment was rendered that both sides take nothing, and Miller appealed.

The court of civil appeals affirmed the judgment of the trial court. It held that Miller was precluded from recovering its commission because it failed to plead and prove that it was a duly licensed broker as required by the Real Estate License Act, Tex.Rev.Civ.Stat.Ann. art. 6573a, § 20(a). We granted Miller's application for writ of error to consider whether article 6573a is applicable to the present suit, and if so, whether Miller complied with its provisions.

It is settled that the Real Estate License Act, Tex.Rev.Civ.Stat.Ann. art 6573a, is a valid exercise of the State's police power to regulate a private business which affects the public interest. The purpose of the statute is to eliminate or reduce fraud that might be occasioned on the public by unlicensed, unscrupulous, or unqualified persons. Hall v. Hard, 160 Tex. 565, 571, 335 S.W.2d 584, 589 (1960); Gregory v. Roedenbeck, 141 Tex. 543, 547, 174 S.W.2d 585, 586-87 (1943); Justice v. Willard, 538 S.W.2d 651, 653 (Tex.Civ.App. Amarillo 1976, no writ). See generally Williston on Contracts § 1765, at 247 (3d ed. 1972); Andur, The Real Estate License Act Synopsis, Elaboration and Comments, 12 S.Tex.L.J. 269, 270-72 (1970) (brief history of the Act).

The Act generally binds those persons or business entities which engage in the real estate business. Tex.Rev.Civ.Stat.Ann. art. 6573a, § 1; Macphee v. Kinder, 523 S.W.2d 509, 511 (Tex.Civ.App. San Antonio 1975, no writ). Specifically, the Act makes it unlawful for a person to act in the capacity of a real estate broker or salesman within this state without first obtaining a real estate license from the Texas Real Estate Commission. ¹ Tex.Rev.Civ.Stat.Ann. art 6573a, § 1; Id. § 20(a) (criminal penalties imposed.) Section 20(a) further provides:

A person may not bring or maintain an action for the collection of compensation for the performance in this state of an act set forth in Section 2 of this Act without alleging and proving that the person performing the brokerage services was a duly licensed real estate broker or salesman at the time the alleged services were commenced, or was a duly licensed attorney at law in this state or in any other state.

Id. Texas courts have consistently required a strict compliance with the terms of the Act, where applicable, if a real estate broker or salesman is to use the court for the recovery of fees. Hall v. Hard, 160 Tex. 565, 572, 335 S.W.2d 584, 589 (1960); Raybourn v. Lewis, 567 S.W.2d 908, 911 (Tex.Civ.App. San Antonio 1978, writ ref'd n.r.e.); Elrod v. Becker, 537 S.W.2d 84, 86 (Tex.Civ.App. Beaumont 1976, writ ref'd n.r.e.); Macphee v. Kinder, 523 S.W.2d 509, 512 (Tex.Civ.App. San Antonio 1975, no writ).

Miller concedes that it neither plead nor proved that it was a licensed broker but argues that the Real Estate License Act is inapplicable to the present case. Miller reasons that its suit is not an action seeking the recovery of a real estate commission; rather it is an action on a promissory note representing a partial financing of the purchase price of the warehouse. We disagree.

For the purposes of determining the applicability of the Real Estate License Act and the necessity of a license to recover a fee, the substance of the contract is the controlling question, not the form which the transaction ultimately takes. Lehman Brothers, Inc. v. Sugarland Industries, Inc., 537 S.W.2d 121, 123 (Tex.Civ.App. Houston (14th Dist.) 1976, writ ref'd n.r.e.). To hold otherwise would encourage unlicensed entities to develop ingenious devices or other indirections to evade the salutary purposes of the Act. See Coastal Plains Development Corp. v. Micrea, Inc., 572 S.W.2d 285, 289 (Tex.1978); Breeding v. Anderson, 152 Tex. 92, 94-95, 254 S.W.2d 377, 378-79 (1953); Justice v. Willard, 538 S.W.2d 651, 654-57 (Tex.Civ.App. Amarillo 1976, no writ).

In our opinion this is an action to recover a fee in exchange for brokerage services. Our legislature has recognized that attempts to recover compensation for real estate services may take different forms, including the performance of brokerage services "on the Promise of receiving or collecting a fee, commission, or other valuable consideration from another person." Tex.Rev.Civ.Stat.Ann. art. 6573a, § 2(2). (Emphasis added). In the trial court Miller prayed for recovery of the unpaid portion of the note, and singularly alleged: "Rather than pay a Cash brokerage fee, Defendants (Treo, et al.) executed a promissory note ("note") payable to Henry S. Miller Company for a sum of $15,000." (Emphasis added). In its motion for judgment Miller further alleged: "It is undisputed that the remaining unpaid balance on the promissory note Representing the real estate commission due and owing from Treo Enterprises to Henry S. Miller Company is $11,250." (Emphasis added). Under these pleadings, Miller cannot be heard to say at this time that this is a suit on a note representing a partial financing of the purchase price. A case will not be reviewed on a theory different from that on which it was pleaded and tried. American Mutual Liability Insurance Co. v. Parker, 144 Tex. 453, 460, 191 S.W.2d 844, 848 (1945); Askey v. Power, 36 S.W.2d 446, 449 (Tex.Com.App.1931, holding approved); Phillips v. Inexco Oil Co., 540 S.W.2d 546, 550 (Tex.Civ.App. Tyler 1976, writ ref'd n.r.e.).

Miller also argues that there is no evidence to support the jury's finding that the promissory note was made for the purpose of paying a real estate commission. When a party asserts that there is no evidence to support a jury finding, we must review the evidence in its most favorable light, considering only the evidence and inferences which support the finding, and rejecting the evidence and inferences contrary to the finding. Rourke v. Garza, 530 S.W.2d 794, 799 (Tex.1975); Martinez v. Delta Brands, Inc., 515 S.W.2d 263, 265 (Tex.1974); Langlotz v. Citizens Fidelity Insurance Co., 505 S.W.2d 249, 251 (Tex.1974). Although the evidence in this case is somewhat conflicting, there is some evidence to support the jury's answer to this special issue. The Miller Company agent in charge of the warehouse account testified that the note Treo executed represented a real estate commission to the Miller Company. He further testified that if the Miller Company prevailed in the present suit he would receive his part of the commission out of the award. Richard Smiley, an officer of Treo, similarly testified that the note was executed for the purpose of paying the commission out over a period of time.

Miller directs our attention to Miller v. Aaron, 413 S.W.2d 426 (...