Tenison v. Patton

• Decision Date: 17 March 1902
• Citation: 67 S.W. 92
• Parties: TENISON v. PATTON et al.
• Court: Texas Supreme Court

67 S.W. 92

TENISON v. PATTON et al.

Supreme Court of Texas.

March 17, 1902.

Error to court of civil appeals of Fourth supreme judicial district.

Action by E. G. Patton and another, as stockholders of the State National Bank, against E. O. Tenison, as trustee and director, and others. From the judgment of the court of civil appeals, affirming a judgment for plaintiffs, against said E. O. Tenison (64 S. W. 810), said defendant brings error. Reversed.

J. C. Muse and McCormick & Spence, for plaintiff in error. Finley, Etheridge & Knight and Crawford & Crawford, for defendants in error.

WILLIAMS, J.

This action was brought by defendants in error, in behalf of the stockholders of the State National Bank of Dallas, by two of their number, against the bank, Tenison, and others of its officers; one of its objects being to require Tenison to account for profits derived by him from the sale of a tract of land belonging to the bank while he was acting as its director, trustee, and agent. The land had been conveyed to Armstrong, president of the bank, in payment of a debt due to it, and while he so held the legal title in trust the title became involved in litigation with third parties. Before this, however, the State Bank had gone into liquidation, and had arranged for a conveyance of most of its assets to the City National Bank; retaining only such as were not available in this way, among which was the land. Tenison, who was a director and had been the cashier of the State Bank, had the chief management of the assets remaining in its hands, and had charge of the suit about the land. A compromise of the suit was agreed upon, to effect which it became necessary for the bank to pay to adverse parties the sum of $7,500, and, as it had no funds on hand, Tenison advanced this sum; and thereafter Armstrong conveyed to him the legal title, in trust for the bank, and as a security for the money advanced. The land was thus held for sale, and a distribution of its proceeds among the stockholders, after paying the amount advanced by Tenison. Tenison received from J. F. O'Connor a proposal to pay $11,000 for it, if he (Tenison) would look after and sell it; O'Connor agreeing at the same time to allow Tenison one-half of the net profit derived from such sale, after paying the expenses, and returning to O'Connor the purchase money, with 6 per cent. interest. A meeting of the board of directors was called, at which more than a quorum were present and acted, without Tenison; and the offer of O'Connor was submitted and accepted, Tenison not voting. The evidence tended to show that Tenison had previously made inquiries as to the value of the land, and efforts to secure a satisfactory offer for it, in the county where it was situated, and had failed. He had visited the land twice, in company with a surveyor and real estate agent, who was acquainted with the value of lands in that section, and who had examined and made a map of the tract in question. The highest valuation put upon it by this person was $11,000. In this, however, he allowed a margin of at least 25 per cent. for a profit to the purchaser, to be realized by subdividing, improving, and selling on time; and the conclusion is justified that, in buying, Tenison and O'Connor contemplated the making of some such profit by thus managing the land after it should be purchased: Tenison testifying that in this way he expected to realize $2,000. The other directors had little knowledge of the land and its value, except such as they derived from Tenison; but the jury could have concluded from the evidence that Tenison made a full and fair disclosure to them, at the meeting, of all facts within his knowledge affecting the sale, as well as of the interest which he was to have with O'Connor, and that he took no advantage of his position in securing the trade, and that the directors acted freely and fairly upon the facts laid before them, uninfluenced by him. At the meeting the probability of realizing more money from the land by improving and selling in subdivisions and on time, as indicated, was discussed, and the conclusion was reached that the bank had no funds for such a purpose, and that it was best to sell for cash at the price offered; and the jury could have found that the price offered by O'Connor was the highest that was obtainable, and the fair value of the land in its then condition. The resolution adopted by the directors authorized Tenison to convey the land to O'Connor for the price named, and pay himself for his advances and expenses previously incurred, ratifying the conveyance which had been made to him by Armstrong; and Tenison accordingly made the deed to O'Connor, received and applied the price according to the resolution, and thereafter acted with reference to the land under his agreement with O'Connor and a power of attorney from the latter. The remainder of the price, after deducting Tenison's claim, was distributed among stockholders. At the time of the sale all parties supposed the tract to contain 640 acres, but afterwards Tenison, acting for O'Connor and himself in having it surveyed, discovered that there were 690 acres. He made some improvements on it, and, after some effort, sold 600 acres within a year from the time of O'Connor's purchase for $14,000, of which $7,350 was paid practically in cash, and the remainder on 6 and 18 months' time. Within a short time he also sold 90 acres on time at $2,443.35; but the purchaser never paid for it, and it was taken back, with probably some improvement, and was on hand at the time of the trial.

The only question submitted by the trial court to the jury was as to the value of the 90 acres at the time of the trial; and for half of this value, as found, and half of the profit on the sale of the other part of the land, less some expense, the court held, upon the undisputed facts, Tennison was liable, and rendered judgment against him. This was affirmed by the court of civil appeals. The defendant, in writing, requested the submission of various other issues; the requests being sufficient to raise the questions discussed.

The argument in support of the judgment rests upon the principle that a trustee, or person occupying a fiduciary relation to another, is incapacitated, in equity, to buy from himself property committed to his care or secure to himself an advantage in a purchase of such property by another from him. This principle has long been established, and, in its proper spirit, is to be fully recognized and enforced. The chief difficulty in the present case is to determine its scope, and the extent of its application to the transactions in question. While it is true that one filling such a position cannot sell to and buy from himself, or be personally interested in a sale by himself to another, it is equally true that he may, under proper circumstances, buy, or be interested in buying, directly from his beneficiary. The reason given by courts of equity for the rule that a trustee may not sell to himself the property of the cestui que trust is that the latter is entitled to the disinterested management and judgment of the trustee in effecting a sale, and that his self-interest must not be allowed to intervene to conflict with and probably prejudice that of his constituent. Another reason given is that such a dealing would lack the element essential to a contract of two competent parties, the trustee being disqualified by his personal interest from representing his beneficiary. This principle has been applied by the courts of England to a great variety of transactions, and it has been very generally held that sales and purchases and other contracts in which trustees or agents represented their constituents, and, at the same time, themselves or other parties, were voidable at the mere option of the beneficiary, whether the transaction was found to be otherwise fair...