Steves v. United Services Automobile Association

• Decision Date: 22 October 1970
• Docket Number: No. 7161,7161
• Parties: Marshall T. STEVES, Appellant, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, Appellee.
• Court: Texas Court of Appeals

Page 930

459 S.W.2d 930

Marshall T. STEVES, Appellant, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, Appellee.

No. 7161.

Court of Civil Appeals of Texas,

Beaumont.

Oct. 22, 1970.

Second Rehearing Denied Nov. 25, 1970.

Beckmann, Standard, Wood & Keene, San Antonio, for appellant.

Matthews, Nowlin, Macfarlane & Barrett, San Antonio, for appellee.

KEITH, Justice.

Appellant's able counsel, true to the traditions of effective advocacy, takes us to task in his motion for rehearing for some of the language we used in describing the legal effect of the conduct of appellant in this case. The criticism is, perhaps to some extent, justified; and, to the end that the opinion may be as fair alike to all parties as is possible under our record, we withdraw the prior opinion of September 17, 1970 and substitute this in lieu thereof.

Steves, plaintiff below, appeals from a summary judgment entered in his suit for specific performance against the defendant, United Services Automobile Association (hereinafter called 'USAA').

Statement of Case

Steves is president and principal stockholder of a private corporation known as Steves Sash & Door Company, Inc. Some years prior to our series of events, this corporation had established a profit-sharing trust known in our record as 'Steves Sash & Door Company, Inc. Profit Sharing Trust' (hereinafter designated simply as 'Trust'), of which Steves, the company attorney, and the company comptroller were the three trustees. In 1964, Trust acquired 212.354 acres of land northwest of San Antonio, for approximately $800.00 per acre or for a recited consideration of approximately $169,000.00, payable over a term of years. Thereafter, for reasons undisclosed in our record, the income of Trust declined appreciably and in February 1968, its auditor commented that the Trust was probably insolvent.

The auditor noted that with the installment of principal and interest due upon the note given for the purchase of the land, the Trust would be unable to meet its obligations during the coming year . He suggested that the Trust dispose of the non-revenue producing land. Steves, the leading actor in both the corporation and the Trust, procured an appraisal of the land, dated April 25, 1968, showing it to have a market value of 'from $1,000.00 to $1,000.00 per acre.'

About November 8 or 9, 1968, an architect approached Steves concerning the purchase by a then undisclosed principal of the tract of land mentioned earlier. Steves and the architect orally agreed upon a price of $500,000.00 cash for the tract. A written earnest money contract was entered into between Steves and USAA dated November 19, 1968, for the sale of the land. In the intervening period (between November 9 and November 19), Steves procured the delivery of a deed from the Trust to himself, the deed bearing a date of April 30, 1968, but it was not acknowledged by the grantors until November 13, 1968. This deed was filed for record on November 15, 1968. The three trustees, including Steves joined in the execution of the deed for a total consideration of $212,354.00. No cash changed hands, but Steves obligated himself to pay to the holders of the vendor's liens the balance due on the purchase by Trust; and the remainder due the Trust was represented by a personal promissory note given by Steves to the Trust, bearing interest at the rate of 5 1/2 per cent and unsecured except for the lien retained in the deed, at best, a second lien on the property.

Six days later, the formal contract between Steves and USAA was entered into wherein Steves agreed to sell the land to USAA for the gross consideration of $500,000.00 in cash. We pause to note that at the time of the execution of the earnest money contract, USAA was ready to pay the consideration immediately upon tender of the deed and compliance by Steves with the remaining conditions in the agreement. Instead of taking cash immediately, Steves sought and procured the agreement of USAA to defer closing of the deal until June 1, 1969, in order that he might attempt to qualify the transaction for consideration as a long-term capital gain under the Federal Income Tax regulations then in effect.

At the time of the making of the contract between the parties, there were fortynine active employees of Steves Sash & Door Company, Inc., who were participating members in and beneficial owners of the property of the Trust; and, an examination of the auditor's report mentioned previously discloses that the tract of land involved herein accounted for the bulk of the assets of the Trust. We remark, in passing, that the next annual installment upon the note owed by Trust to its grantors was not due until December, 1968, after the date of the contract between Steves and USAA.

Early in the spring of 1969, apparently as the result of publicity generated by the transaction, notice came to USAA that the Soil Conservation Service, an agency of the government of the United States, and San Antonio River Authority, a political subdivision vested with the power of eminent domain, had determined to take about 64 acres out of the tract for the purpose of constructing a dam and making other public improvements in the area. Steves denies any knowledge of any such plans of San Antonio River Authority, and makes no contention that USAA had any such knowledge of the subject before entering into the contract. Because of our disposition of the cause on other grounds, we do not give further consideration to this facet of the case, although both parties devote a large part of their respective briefs to a discussion of the matter.

Before June 1, 1969, Steves tendered to USAA a deed executed by him as grantor and was joined therein by his wife and the three trustees of Trust. He also tendered a title policy Binder in compliance with his obligation to furnish a title Policy. USAA refused to accept the deed or to pay the consideration, whereupon Steves sued to compel specific performance of the contract. In so doing, Steves specially disavowed his alternate right to accept the $25,000.00 earnest money deposit in lieu of compelling specific performance.

Both parties filed motions for summary judgment supported by affidavits, documents, admissions, depositions, etc., and that of USAA was granted while that of Steves was denied. It is from this judgment that Steves brings this appeal.

Opinion

The remedy of specific performance is strictly equitable in nature and is governed by the maxims and principles of equity. Bergstedt v . Bender, 222 S.W. 547, 549 (Tex.Com.App., 1920); Campbell v. McFadden, 9 Tex.Civ.App. 379, 31 S.W. 436, 442 (1895, error ref.); Nash v. Conatser, 410 S.W.2d 512, 519 (Tex.Civ.App.--Dallas, 1966, no writ); Ferguson v. von Seggern, 434 S.W.2d 380, 385 (Tex.Civ.App.--Dallas, 1968, error ref., n.r.e.); 81 C.J.S. Specific Performance § 1, p. 408; 49 Am.Jur., Specific Performance, § 2, p. 6; 52 Tex.Jur.2d, Specific Performance, § 2, pp. 522--523.

One of the more important maxims governing the remedy is that: 'He who seeks equity must do equity'; or, as sometimes expressed: 'He who comes into equity must come with clean hands.' Riggins v. Trickey, 46 Tex.Civ.App. 569, 102 S.W. 918, 921 (1907, error ref.); 2 Pomeroy, Equity Jurisprudence (5th Ed., 1941) § 385, p. 51; 4 A.L.R. 44; 81 C.J.S. Specific Performance § 89, p. 606; 52 Tex.Jur.2d, Specific Performance, § 18, p. 536. The rule was stated by this court in Inman v. Parr, 311 S.W.2d 658, 709 (Tex.Civ.App.--Beaumont, 1958, error ref., n.r.e.), in this language:

'In order to be entitled to specific performance one seeking such remedy must come into court with clean hands and the contract must be equitable, perfectly fair in all its terms and free from any misrepresentations, fraud, mistake or misapprehension.'

USAA contends that at the time Steves accepted the deed from Trust to the land involved in this suit, he breached his duty as a trustee; and, so it is argued, he comes into court with unclean hands. We agree. At a time when the Trust was not in default on its obligations to its grantor, Steves entered into a contract with USAA to sell the land for a sum which would bring him a personal profit of approximately $288,000.00. In so doing, he violated the most elementary rules governing the conduct of a trustee.

The rule of law prohibiting a trustee from profiting from his own self-dealing with the corpus of the trust estate is set out in the case of Merriman v. Russell, 39 Tex. 278, 285 (1873), ¹ from which we quote:

'The rule that a trustee shall not deal with the subject of the trust for his own benefit, is said to be absolute and universal. It is subject to no qualifications and to no exceptions.

'An abuse of a trust can confer no rights on the party abusing it, or those who claim in privity with him. It is a principle recognized at law in all cases, susceptible of being brought out as a ground of action or of defense in a suit at law, while its application in courts of equity is universally adopted * * *'

The broad language used in Merriman, supra, has not been diluted uring the many years following its utterance. For instance, Justice Smedley in Slay v. Burnett Trust, 143 Tex. 621, 187 S.W.2d 377, 387 (1945), says that the rule 'is general in its use and is fundamental .' And, on page 388 he continues:

"It is a well-settled rule that a trustee can make no profit out of his trust. The rule in such cases springs from his duty to protect the interests of the estate, and not to permit his personal interest to in any wise conflict with his duty in that respect. The intention is to provide against any possible selfish interest exercising an influence which can interfere with the faithful discharge of the duty which is owing in a fiduciary capacity.' Magruder v. Drury, 235 U.S. 106, 35 S.Ct. 77, 82, 59 L.Ed. 151, 156.'

The long list of authorities considered by the court in Slay needs little supplementation. We do, however, call attention to the fact...