Rodgers v. RAB Investments, Ltd.

• Decision Date: 06 September 1991
• Docket Number: No. 05-90-01045-CV,05-90-01045-CV
• Citation: 816 S.W.2d 543
• Court: Texas Court of Appeals
• Parties: Stephen B. RODGERS and Newell E. Boughton, Jr., Appellants, v. RAB INVESTMENTS, LTD., Appellee.

Page 543

816 S.W.2d 543

Stephen B. RODGERS and Newell E. Boughton, Jr., Appellants, v. RAB INVESTMENTS, LTD., Appellee.

No. 05-90-01045-CV.

Court of Appeals of Texas Dallas.

Sept. 6, 1991.

Jane E. Dillinger and Joel Held, Dallas, for appellants.

Carl A. Generes, Dallas, for appellee.

Before LAGARDE, OVARD and MALONEY, JJ.

OPINION

MALONEY, Justice.

Stephen B. Rodgers and Newell E. Boughton, Jr. appeal from a judgment rendered for RAB Investments, Ltd. based on disputes arising out of a partnership. In six points of error, Rodgers and Boughton complain of: RAB's standing to assert any claim against them; the award of actual and exemplary damages and attorney's fees; the trial court's failure to render judgment for them; and RAB's failure to plead for, submit a jury issue on, or present evidence of exemplary damages for breach of fiduciary duty. We affirm the trial court's judgment.

STATEMENT OF FACTS

RAB, a general partnership, and Rodgers and Boughton formed Viola Courts Partnership (Viola) to renovate an apartment complex known as Viola Courts. The partnership agreement required unanimous consent for dissolution of the partnership and transfers of partnership interests.

RAB invested $150,000 and received a fifty percent interest in the partnership. Rodgers and Boughton each received a twenty-five percent interest for originating the project. Viola obtained a $500,000 loan. Rodgers received a $15,000 sales commission at the closing of the loan. Viola purchased the apartments and began renovations. Rodgers and Boughton managed the project. Rodgers and Boughton each received $20,000 for their management efforts.

Cost overruns and delays occurred. The lender agreed to extend the maturity date of the original loan. In December 1984, Viola borrowed an additional $150,000. Because of the cost overruns and unexpected expenses, RAB formed a limited partnership, Viola Investors, Ltd. (Investors). On December 21, 1984, RAB purported to transfer its interest in Viola to Investors. Cost overruns continued. Rodgers and Boughton asked RAB for additional capital. When RAB refused to contribute more money, Rodgers and Boughton demanded additional capital and threatened to expel RAB from Viola. Rodgers and Boughton expelled RAB from Viola on April 11, 1985.

Shortly thereafter, the bank loans came due. The renovation was still unfinished. RAB agreed to a second $150,000 loan. The parties renewed all the bank loans and borrowed another $150,000 in May 1985.

Rodgers and Boughton sued RAB in May 1985. In addition to damages for RAB's breach of the partnership agreement, Rodgers and Boughton sought a declaratory judgment. They asked the court to (1) interpret the partnership agreement, (2) declare the expulsion of RAB legal, (3) establish the rights of the partners upon dissolution and (4) award them attorney's fees. RAB counterclaimed alleging fraud, breach of contract, and breach of fiduciary duty. RAB sought actual and exemplary damages, dissolution of Viola, an accounting, and attorney's fees.

The bank loans again came due in August 1985. Rodgers and Boughton extended the existing loans and arranged for an additional $225,000 loan. RAB agreed to these acts on the condition that no funds be disbursed from the project except by unanimous consent of the parties or an order of the 95th Judicial District Court. Rodgers and Boughton agreed to RAB's conditions. Rodgers and Boughton later removed more than $40,000 from Viola as the commissions for the sale and lease of completed apartment units.

The jury found that RAB willfully breached the partnership agreement by transferring its partnership interest in Viola to Investors. Rodgers and Boughton did not ask the jury to determine any damages resulting from this breach. The jury also found that Rodgers and Boughton breached their fiduciary duty to RAB by expelling it on April 11, 1985 and by receiving commissions after entering into the last loan agreement.

The jury determined that $27,219.62 would compensate RAB for its damages resulting from the breach of fiduciary duty. The jury also assessed exemplary damages of $20,000 each against Rodgers and Boughton. Finally, the jury valued RAB's partnership interest in Viola as of April 11, 1985 at $613,500. The parties stipulated to the amount of their attorney's fees. The judgment awarded RAB the value of its partnership interest, damages for breach of fiduciary duty, exemplary damages, and attorney's fees. The trial court denied relief to Rodgers and Boughton.

STANDING

In their second point of error, Rodgers and Boughton allege that RAB lacked standing to assert any claims in this lawsuit because RAB had no partnership interest in Viola. Rodgers and Boughton maintain that the fiduciary relationship between themselves and RAB ceased when RAB conveyed its partnership interest in Viola to Investors. In response, RAB argues that there was no effective transfer of RAB's partnership interest.

In order to maintain a suit, a person must have standing to litigate the matters in issue. Hunt v. Bass, 664 S.W.2d 323, 324 (Tex.1984).

One has standing to sue if:

(1) he has sustained, or is in immediate danger of sustaining, some direct injury as a result of the wrongful act of which he complains;

(2) he has a direct relationship between the alleged injury and claim sought to be adjudicated;

(3) he has a personal stake in the controversy;

(4) the challenged action has caused him some injury in fact ...; or

(5) he is an appropriate party to assert the public's interest in the matter as well as his own interest.

City of Bells v. Greater Texoma Util. Auth., 744 S.W.2d 636, 639 (Tex.App.--Dallas 1987, no writ).

Rodgers and Boughton argue that the jury found that RAB breached the Viola partnership agreement. They contend that by breaching the partnership agreement, RAB lost all right, title, and interest in Viola. The jury was asked: "Did RAB Investments, Ltd. breach the Viola Courts partnership agreement by transferring the RAB interest in Viola Courts to Viola Investors Limited?" The jury answered, "Yes."

The jury does not determine whether a contract was breached. See ITT Commercial Fin. Corp. v. Riehn, 796 S.W.2d 248, 253 n. 3 (Tex.App.--Dallas 1990, no writ). Even the question of whether the transfer is effective cannot properly be submitted to the jury. The determination of effectiveness of a transfer is one of law, not of fact. See C & C Partners v. Sun Exploration & Prod. Co., 783 S.W.2d 707, 715 (Tex.App.--Dallas 1989, writ denied).

To determine whether RAB's transfer of its partnership interest took away its legal standing, we must look to the partnership agreement. The Viola partnership agreement provides:

6.1 Transfer of Interest. Except as otherwise provided herein, no Partner may sell, assign, transfer, encumber or otherwise dispose of any interest in the Partnership or assets of the Partnership without the unanimous prior written consent of the other Partners.

....

6.7 Transfer of Partnership Interest.... In the event a Partner desires to sell, assign, transfer or otherwise dispose of all or any part of the Partnership interest owned or held by him... [he shall,] as a condition precedent to his right to do so, by notice in writing inform all other Partners ... and ... offer such shares for sale to the other Partners....

Under the partnership agreement, a partner could not transfer his interest without the unanimous prior written consent of the other partners. RAB did not obtain consent. The agreement established the right of first refusal in the other partners as a condition precedent to transfer. RAB did not offer its interest to the other partners.

It is undisputed that RAB's purported transfer of its partnership interest in Viola to Investors was not done as required by the partnership agreement. Rodgers and Boughton do not explain how the purported transfer is valid if the partnership agreement prohibits it. Rodgers and Boughton have not identified any part of the record that shows that RAB did anything more than attempt to transfer its interest.

The purported transfer was ineffective. See Pokrzywnicki v. Kozak, 354 Pa. 346, 347, 47 A.2d 144, 144 (Pa.1946) (per curiam); Rafkind v. Simon, 402 So.2d 22, 23-24 (Fla.Dist.Ct.App.1981); Chaiken v. Employment Sec. Comm'n, 274 A.2d 707, 709 (Del.Super.Ct.1971). Dissolution may be caused by the express will of any partner. See Thomas v. American Nat'l Bank, 704 S.W.2d 321, 323-24 (Tex.1986); TEX.REV.CIV.STAT.ANN. art. 6132b, § 31 (Vernon 1970) [hereinafter cited TEX. UPA]. An expression of will requires some form of notice of dissolution to the other partners. Thomas, 704 S.W.2d at 324. At best, the purported transfer was an executory contract pending consent from the remaining partners. See Thomas v. American Nat'l Bank, 694 S.W.2d 543, 551 (Tex.App.--Corpus Christi 1985), rev'd on other grounds, 704 S.W.2d 321 (Tex.1986). As long as a partnership continues, the partners have a fiduciary relationship. Maykus v. First City Realty & Fin. Corp., 518 S.W.2d 887, 892 (Tex.Civ.App.--Dallas 1974, no writ).

A conveyance of a partner's interest under the Texas Uniform Partnership Act does not of itself dissolve the partnership. The assignee does not acquire the right to interfere in the management or administration of the partnership business or affairs. The assignee, by his contract, is entitled to any profits to which the assigning partner would be entitled, to reasonable information or account of partnership transactions, and to make reasonable inspection of the books. TEX. UPA § 27(1).

Something more than a mere transfer of one's partnership interest is required to dissolve the partnership. We hold that RAB's purported transfer of its partnership interest in violation of the partnership agreement was ineffective. RAB remained a partner in Viola. As a partner, RAB had standing to assert claims in this lawsuit arising out of the disputes between the partners,...