Spangler v. Jones

• Decision Date: 25 May 1993
• Docket Number: No. 05-92-01472-CV,05-92-01472-CV
• Citation: 861 S.W.2d 392
• Parties: Mike SPANGLER, Appellant, v. Orville D. JONES, Appellee.
• Court: Texas Court of Appeals

Page 392

861 S.W.2d 392

Mike SPANGLER, Appellant, v. Orville D. JONES, Appellee.

No. 05-92-01472-CV.

Court of Appeals of Texas Dallas.

May 25, 1993.

Rehearing Denied Aug. 24, 1993.

Dissenting Opinion of Chief Justice McGarry

on Denial of Rehearing Aug. 24, 1993.

Carl David Adams, Dallas, for appellant.

JoAnn N. Wilkins, James M. Stewart, Dallas, for appellee.

Before the court en banc.

OPINION

LAGARDE, Justice.

Mike Spangler appeals the take-nothing judgment entered against him by the trial court following a jury trial. In three points of error, Spangler contends that the trial court erred in submitting the issue of ratification of contract to the jury because: (a) the doctrine of ratification does not apply to an agreement that the principal must accept to protect his interests; (b) the doctrine of ratification is not a defense to a tort action; and (c) Jones had "unclean hands." Jones brings two crosspoints contending there was no evidence that he was Spangler's agent. We sustain Spangler's second point of error, overrule the crosspoints, reverse the trial court's judgment, render judgment for Spangler for $5000 actual damages and $5000 exemplary damages, and remand the cause to the trial court for determination of prejudgment interest in accordance with this opinion.

This is the second appeal of this case. On the first appeal, we held that the trial court erred in granting a directed verdict for Jones and remanded the cause for a new trial. Spangler v. Jones, 797 S.W.2d 125, 133 (Tex.App.--Dallas 1990, writ denied). Because we thoroughly set out the factual background of this case in our first opinion, we give only a brief summary of it here.

Spangler was a shareholder, officer, and director of Trinity Loss Management, Inc. (Trinity) along with Conner and Jones. The three decided to sell Trinity to Unigard Mutual Insurance Company (Unigard) and placed Jones in charge of negotiating the sale agreement with Unigard. Spangler believed that the final agreement treated him unfairly, but he signed it after Jones told him that Unigard would not alter the agreement. On the day that the sale was to close, Spangler presented Jones and Conner with a letter setting out his grievances and threatened not to sign over his shares of Trinity to Unigard if Jones and Conner did not sign the letter. Jones and Conner protested but signed the letter, and the parties closed the sale. Spangler later sued Jones for breach of fiduciary duty, constructive fraud, breach of agency contract, exemplary damages, and attorney's fees.

On retrial of the case, the trial court granted a partial directed verdict dismissing Spangler's claims for damages occurring after 1986 and dismissing his claims of partnership or joint venture between Spangler and Jones. The jury found that Jones acted as Spangler's agent in negotiating the sale of Trinity to Unigard, that the sale agreement was not fair to Spangler, that Jones breached a fiduciary duty to Spangler in negotiating the sale, and that Jones committed this breach of fiduciary duty knowingly or with conscious disregard for Spangler's rights. The jury determined that Spangler's damages were $5000 and that Jones should pay another $5000 in exemplary damages. The jury also found that Spangler did not waive any claim against Jones and was not estopped from complaining about Jones's acts or conduct in negotiating the sale agreement. However, the jury did find that Spangler ratified Jones's acts and conduct associated with the sale. The trial court entered a take-nothing judgment against Spangler based on the jury's verdict.

RATIFICATION

In the second point of error, Spangler contends the trial court erred in entering judgment based on the jury's affirmative finding on the issue of ratification because ratification is an equitable defense that is not applicable in a tort action for breach of fiduciary duty.

Jones relies on section 416 of the Restatement (Second) of Agency in support of his argument that Spangler's ratification of his acts and conduct relieves him of liability to Spangler. Section 416 states: "The ratification or other affirmance by the principal of an unauthorized act done by an agent acting in excess of his power to bind the principal releases the agent from liability in damages to the principal for having violated a duty to him...." RESTATEMENT (SECOND) OF AGENCY § 416 (1958) (emphasis added). ¹ Jones's reliance on section 416 of the Restatement is misplaced. Section 416 relieves the agent only of liability for unauthorized acts in excess of the agent's power to bind the principal. Spangler's claim of breach of fiduciary duty goes beyond Jones's liability for acting in excess of his power to bind Spangler to a contract; Spangler also claimed that Jones benefitted from the sale agreement at Spangler's expense. Section 416 does not purport to relieve the agent of liability for profiting at the expense of the principal.

Jones had the duty to turn over to Spangler all benefits from the transaction he received at Spangler's expense. See Jones v. Allen, 294 S.W.2d 259, 262 (Tex.Civ.App.--Galveston 1956, writ ref'd n.r.e.); 3 C.J.S. Agency § 274 (1973); RESTATEMENT (SECOND) OF AGENCY § 403 (1958). The jury instruction stated, "A transaction is 'fair' if the fiduciary does not significantly benefit from it at the expense of the beneficiary as viewed in light of circumstances existing at the time of the transaction." Thus, in light of its instructions, when the jury found that the agreement of sale was not "fair" to Spangler, it found in essence that Jones significantly benefitted from the agreement at the expense of Spangler. The record does not show that Jones turned over to Spangler the benefits he received at Spangler's expense. Accordingly, Jones cannot rely on section 416 to relieve him of liability to Spangler.

Jones also relies on the following language of comment a to section 408 of the Restatement: "If ... [the] agent ... was disobedient in exceeding his authority, the ratification terminates his liability to the principal for the wrong." RESTATEMENT (SECOND) OF AGENCY § 408 cmt. a (1958). The "wrong" for which the Restatement would terminate liability is the agent's exceeding his authority. Like section 416, ² it does not purport to relieve the agent of liability for not turning over to the principal all benefits the agent received at the principal's expense. Because Jones did not turn over to Spangler the benefits he received at Spangler's expense, this comment is inapplicable.

The cases on which Jones relies are distinguishable. Two of the cases discuss ratification in the context of equitable relief, not legal damages as are sought here. See Land Title Co. v. Stigler, 609 S.W.2d 754, 757-58 (Tex.1980); Guion v. Guion, 475 S.W.2d 865, 872 (Tex.Civ.App.--Dallas 1971, writ ref'd n.r.e.) ("[T]he findings on the part of the trial court concerning ratification ... support appellees' contention that appellants' cause of action for equitable relief is barred, as a matter of law." (Emphasis added.)). Jones's other cases are distinguishable because they do not involve the issue of an agent's liability to its principal for breach of fiduciary duty. See Johnson v. Smith, 697 S.W.2d 625 (Tex.App.--Houston [14th Dist.] 1985, no writ) (suit by estate of seller of real estate against purchaser); B & R Dev., Inc. v. Rogers, 561 S.W.2d 639 (Tex.Civ.App.--Texarkana 1978, writ ref'd n.r.e.) (suit by purchaser of real estate against seller); Wise v. Pena, 552 S.W.2d 196 (Tex.Civ.App.--Corpus Christi 1977, writ dism'd) (suit by purchaser of real estate against seller).

Texas courts have addressed the issue of ratification under facts similar to those in this case. In Herider Farms-El Paso, Inc. v. Criswell, 519 S.W.2d 473 (Tex.Civ.App.--El Paso 1975, writ ref'd n.r.e.), Criswell was the manager of Herider's business and was a fiduciary of Herider. Before leaving Herider's employ, Criswell arranged for the lessor of Herider's business location to cancel the lease with Herider and lease the property to Criswell. Criswell also arranged for many of Herider's employees to leave Herider and work for Criswell. When Criswell left Herider's employ, taking with him nearly all of Herider's employees, and Herider's lessor announced that the lease would not be renewed, Herider agreed to sell Criswell the business for book value plus $10,000. Id. at 475-76. Herider then sued Criswell for tortious interference with a business relationship and a lease agreement.

The trial court granted Criswell's motion for summary judgment, which asserted that Herider had ratified the torts by entering into the agreement to sell the business to Criswell. The court of appeals concluded that it "would follow the somewhat analogous rule that a party aggrieved by a fraudulent transaction has alternative remedies and may either rescind, or affirm the transaction and recover his damages." Id. at 477. The court then reversed the summary judgment, holding that the contract of sale and subsequent payment did not bar the tort claims for damages. Id. at 477.

In Vessels v. Anschutz Corp., 823 S.W.2d 762 (Tex.App.--Texarkana 1992, writ denied), the Texarkana Court, under facts similar to Herider Farms, relied on that case to hold that plaintiffs bringing various business and contractual tortious-interference claims did not ratify the tortious conduct by subsequently entering into agreements with the defendant covering the subject matter of the contract and business with which the defendant had tortiously interfered. Vessels, 823 S.W.2d at 764-65.

In the case before us, the jury found that Jones breached his fiduciary duty by entering into the agreement with Unigard. Under the reasoning of Herider Farms and Vessels, Spangler's signing the sale agreement and accepting its benefits did not bar him from bringing his tort claims against Jones.

As the court in Herider Farms stated, ratification can be effectual between the...