Crenshaw v. Swenson

• Decision Date: 31 December 1980
• Docket Number: No. 13213,13213
• Citation: 611 S.W.2d 886
• Parties: David CRENSHAW et al., Appellants, v. Elizabeth SWENSON et al., Appellees.
• Court: Texas Court of Appeals

Page 886

611 S.W.2d 886

David CRENSHAW et al., Appellants, v. Elizabeth SWENSON et al., Appellees.

No. 13213.

Court of Civil Appeals of Texas, Austin.

Dec. 31, 1980.

Rehearing Denied Feb. 18, 1981.

Mason Terry, Austin, for appellants.

John F. Morehead, Daugherty, Kuperman, Golden, Carlisle & Morehead, Austin for appellees.

SMITH, Justice.

This is an appeal from judgment entered in the 261st District Court of Travis County. Appellants, David Crenshaw and Robert Brown, and three others who do not join in this appeal, sued appellees, Elizabeth Swenson and Swenson Corporation, for breach of fiduciary duty, commingling of partnership funds, violations of the Texas Real Estate License Act, and negligent construction of partnership property. The trial court entered judgment that appellants take nothing with the exception of $3,886.00 awarded David Crenshaw for payment of sums lent to the partnership. It is from this take nothing judgment that appellants have duly perfected their appeal to this Court.

In November, 1972, a limited partnership known as Rolling Hills Majestic Homes (Group I), Ltd., was formed for the purpose of building four homes for ultimate sale in the ordinary course of business. The general partner of the limited partnership was Occidental Syndicated Investments, a partnership originally consisting of Elizabeth Swenson, Robert Johnson and James Cooper. Subsequent to the execution of the partnership agreement, both Robert Johnson and James Cooper resigned as general partners. The limited partners were Elizabeth Swenson and her husband, Verner Swenson, Martin Cooper, Robert Brown, Laurence Cranberg, David Crenshaw and Gaylon Stewart. Crenshaw contributed $16,000, while Brown contributed $2,000.

Under the partnership agreement, the limited partners were to invest $40,000.00 capital contributions. Of this capital contribution, $28,000.00 was used to purchase four lots owned by appellees, Swenson Corporation, a corporation solely owned by Elizabeth and Verner Swenson. After the lots were purchased, it was contemplated the partnership would obtain a construction loan to finance the building of houses on the lots. The prospective interim lender, however, refused to lend money to the limited partnership, but agreed to lend money to the Swenson Corporation. As a result, the general partners transferred title to the lots back to the Swenson Corporation so that the property could be used as security for the construction loan.

At this point, Elizabeth Swenson decided to have Swenson Corporation act as the general contractor and build the four houses. There was no written construction contract entered into by Majestic Homes and Swenson Corporation for this work and prior to this time neither Elizabeth Swenson, her husband, nor Swenson Corporation had any experience as a general contractor.

Elizabeth Swenson testified that Swenson Corporation was to be paid for the actual labor and materials used in the construction of the four houses plus a 10% fee for the intangible services which the Swenson Corporation furnished at its expense.

The four houses were built, and two of them sold soon after completion. Two others were not sold until after an extended period of time.

The proceeds from the sales of the first two houses, known as "Shangri-La" and "Creekbluff," were deposited directly into the Swenson Corporation's bank account to cover ostensible expenses which had been incurred by the corporation for the benefit of the partnership.

The two remaining houses, "Parkview" and "Retreat," were not sold immediately, but underwent a series of refinancing. In August, 1974, a transaction regarding "Parkview" occurred between Swenson Corporation as grantor and Verner Swenson as grantee. The sum of $9,903.47 was deposited in Swenson Corporation's bank account labeled as "Parkview Reimbursement." "Parkview" was not sold during the next three years but was rented to two different tenants. Rental payments from "Parkview" in the amount of $2,000.00 were deposited in the corporation's bank account. When finally sold in July, 1977, "Parkview" incurred a loss of $6,423.82 above the mortgage.

A similar transaction took place regarding "Retreat." "Retreat" was transferred to a buyer in an assumption sale and then transferred back to the partnership by a "contract for deed." The buyer then became a tenant and made monthly rental payments of $265.00. After this party moved out, several rent-purchase option contracts were entered into, however, none was ever consummated. In December, 1978, "Retreat" was finally sold to architect John Lloyd for $74,500.00. As a result of defective construction of "Retreat" Lloyd spent $7,859.60 in repairing the house.

On all sales, appellee acted as a commissioned broker as was authorized in the partnership agreement, as well as general partner for the partnership.

In June, 1977, fearing misapplication of the funds to be received from the sale of "Retreat," appellants sought and were granted a temporary injunction against further disbursement of partnership funds. The limited partners then requested an accounting of the partnership affairs. After adjusting the accounting by $75.65, the trial court found the accounting to be true and correct.

Following the accounting, appellants brought suit against appellees, Elizabeth Swenson and Swenson Corporation, alleging breach of fiduciary duty on the part of Elizabeth Swenson; commingling and conversion of partnership funds on the part of both Elizabeth Swenson and Swenson Corporation; violations of the Texas Real Estate License Act on the part of Elizabeth Swenson; and negligent construction of partnership property by the Swenson Corporation. After a trial before the court, the district court entered judgment favorable to appellees. Upon request, the court filed findings of fact and conclusions of law. The court found that: 1) there was no damage suffered by the limited partnership as a result of conveying to the Swenson Corporation the legal title of the four lots; 2) the accounting of appellees, as amended by the court, was true and correct; 3) there was no commingling of goods or monies; 4) the Swenson Corporation was responsible for repairs to "Retreat" in the sum of $7,859.60; 5) David Crenshaw had lent the partnership $4,586.00 and was still owed $3,886.00; 6) Elizabeth Swenson had lent the partnership $11,135.00 and was still owed $10,670.00; 7) Elizabeth Swenson was owed a real estate commission in the sum of $4,470.00; and 8) the limited partnership owed the Swenson Corporation $7,471.90, the net figure after deducting the cost of repairing "Retreat."

The trial court thus entered judgment that David Crenshaw was entitled to joint and several judgment for $3,886.00 against the general partner of the limited partnership and against the limited partnership; other than that, appellants take nothing.

Further, a debt of the limited partnership as a part of the real estate commission was to be paid to an agent of Elizabeth Swenson; and the balance of the funds were to be paid to Elizabeth Swenson and the Swenson Corporation as their interest dictated.

We will affirm in part and reverse and render in part.

Appellants have brought forward twenty points of error which we perceive to present four basic complaints. These are that the trial court erred in failing to find: 1) Elizabeth Swenson breached her fiduciary duty; 2) Elizabeth Swenson commingled and converted partnership funds; 3) Elizabeth Swenson violated the Texas Real Estate License Act; and 4) the limited partnership was entitled to three times the admitted sum of damages relating to the construction of "Retreat."

Appellants contend that the trial court erred in failing to find that appellee, Elizabeth Swenson, breached her fiduciary duty of loyalty to the partnership and to the limited partners. In this regard, appellants assert that they are entitled to equitable restitution of their capital investment.

It is axiomatic that a managing partner in a general partnership, owes his co-partners the highest fiduciary duty recognized in the law. Huffington v. Upchurch, 532 S.W.2d 576 (Tex.1976). In a limited partnership, the general partner acting in complete control stands in the same fiduciary capacity to the limited partners as a trustee stands to the beneficiaries of the trust. Watson v. Limited Partners of WCKT, Ltd., 570 S.W.2d 179 (Tex.Civ.App. Austin 1978, writ ref'd n. r. e.). We must then, in deciding this case, do so under the laws applicable to trusts.

Included in the fiduciary duty which the trustee (general partner) owes to the beneficiaries (limited partners) is the duty of loyalty. Not only is it his duty to administer the partnership affairs solely for the benefit of the partnership, he is not permitted to place himself in a position where it would be for his own benefit to violate this duty. Scott, Trusts (3d Ed.) Sec. 170; Southern Trust & Mortgage Co. v. Daniel, 143 Tex. 321, 184 S.W.2d 465 (1944).

The finding of fact by the trial court that appellants suffered no harm as a result of Elizabeth Swenson conveying the partnership property to the Swenson Corporation fails to address the issue of appellants' complaint and is immaterial. In Harvey v. Casebeer, 531 S.W.2d 206 (Tex.Civ.App. Tyler 1975, no writ), the court said:

"A trustee shall not buy or sell, directly or indirectly, any property belonging to the trust estate, from or to itself. Tex.Rev.Civ.Stat.Ann. art. 7425b-12. Self-dealing transactions may be attacked by the beneficiary even though he has suffered no damages and even though the trustee has acted in good faith. Slay v. Burnett Trust, 143 Tex. 621, 187 S.W.2d 377, 389 (1945)."

Texas cases have treated a trustee guilty of self-dealing as a wrongdoer whether he was or not and have applied strict liability in such cases as a matter of law. Hamman v. Ritchie, 547 S.W.2d 698 (Tex.Civ.App. Fort Worth 1977, writ ref'd n. r. e.); Slay v. Burnett Trust, su...