Watson v. Limited Partners of WCKT, Ltd., 12728

• Citation: 570 S.W.2d 179
• Decision Date: 02 August 1978
• Docket Number: No. 12728,12728
• Parties: John C. WATSON, general partner, Appellant, v. LIMITED PARTNERS OF WCKT, LTD., Appellee.
• Court: Court of Appeals of Texas. Court of Civil Appeals of Texas

Page 179

570 S.W.2d 179

John C. WATSON, general partner, Appellant, v. LIMITED PARTNERS OF WCKT, LTD., Appellee.

No. 12728.

Court of Civil Appeals of Texas, Austin.

Aug. 2, 1978.

Rehearing Denied Aug. 30, 1978.

Robert J. Werner, Hilgers, Watkins, Ledbetter & Hays, Austin, for appellant.

William T. Hall, Austin, atty., for Clinton E. Craven.

James H. Keahey, Austin, pro se.

O'QUINN, Justice.

In this action two limited partners of WCKT, Ltd., a Texas limited partnership, seek recovery of their capital investment from the general partner on claims that the general partner, who had sole control of the partnership affairs, failed to manage the affairs as a fiduciary, resulting in loss of the limited partners' contributions to capital.

In response to special issues a jury found that the general partner failed to manage the partnership in exercise of ordinary care, failed to act with the highest degree of loyalty, fairness, candor, and good faith toward the limited partners, and that the general partner's conduct was a proximate cause of damages to the limited partners. The jury also awarded damages in the sum of $5,400, but all parties agreed there was no evidence to support that answer to the special issue on damages.

The general partner moved for judgment Non obstante veredicto, and the limited partners moved for judgment based on the jury verdict, except the answer as to damages. The trial court entered judgment that the limited partners each recover $15,900, the amount of contributions to capital, together with interest.

The general partner, John C. Watson, has appealed and brings two points of error. The limited partners, Clinton E. Craven and James H. Keahey, are appellees.

Watson contends First that there is no evidence, or insufficient evidence, of any damages proximately caused by the general partner's conduct in managing affairs of the partnership. Second, Watson asserts error in grant of recovery of capital contributions on the theory of money had and received because (1) the limited partners received consideration for their contributions through interest in the partnership and share in partnership profits and (2) the limited partners failed to rescind the partnership contract as an essential element of an action for money had and received.

We will overrule the points of error and affirm judgment of the trial court.

The essential facts of the case are stated succinctly by the trial court in findings set out in the judgment:

"1. Plaintiffs Clinton E. Craven and James H. Keahey, limited partners in WCKT, Ltd., a limited partnership, contributed $15,000 each to the initial capital of WCKT, Ltd. in 1972. The two Plaintiffs later contributed an additional $900 each to the capital of the limited partnership in 1974.

"2. Upon acceptance of Plaintiffs' contributions to capital, the general partner, Defendant John C. Watson, undertook the duty to manage the affairs of the limited partnership as a fiduciary, owing the highest degree of loyalty, fairness, candor and good faith to Plaintiffs.

"3. During the life of the limited partnership, from August, 1972 until the appointment of a receiver by this Court in October, 1974, Defendant John C. Watson, as general partner, had sole control of and responsibility for the affairs of the limited partnership. Defendant John C. Watson failed to manage the affairs of the limited partnership as a fiduciary, which failure was a proximate cause of damage to Plaintiffs.

"4. WCKT, Ltd. is wholly without assets and Plaintiffs' entire contributions to capital have been dissipated and lost.

"5. Plaintiffs Clinton E. Craven and James H. Keahey are entitled to the return of their contributions to capital as money had and received by Defendant John C. Watson through his legally imposed promise to manage the affairs of the limited partnership as a fiduciary."

A narrative summary of events leading to this lawsuit is appropriate. WCKT, Ltd. was organized as a Texas limited partnership whose business was ownership and rental of five fourplexes in Austin. This action was brought by three limited partners of WCKT, Ltd. against the general partner, but by the time of trial one of the limited partners abandoned the suit, with Clinton E. Craven and James H. Keahey, the remaining limited partners, continuing.

The partnership had its beginning after the three limited partners, on advice of their accountant, sought a common investment in 1972, and in course of their search met John C. Watson, later to become the general partner in WCKT, Ltd. Watson at that time was in the process of building five fourplexes. After several meetings with Watson, the partnership was created and the plan adopted by which the partnership would buy the multiple dwelling structures from Watson for $45,000 cash and assumption of $241,000 in construction loans which Watson had from Mutual Savings Institution. The three limited partners contributed $15,000 each to furnish the $45,000. A $5,000 capital contribution by Watson was not to be returned to him upon a sale and he was not to participate in profits from the limited partnership until the limited partners had recovered their $45,000, after which each of the four partners would acquire twenty-five percent of the partnership.

By late summer of 1973 the five fourplexes had been completed and Watson furnished a financial report indicating the buildings were making a profit, on the basis of which Watson distributed $150 to each of the three limited partners. But early in 1974 Watson revealed that the financial information he furnished in August the year before was inaccurate, and the buildings were admittedly losing money. Watson also revealed additional debts and requested return of the $150 previously distributed, and the limited partners returned the money. At Watson's suggestion additional money was borrowed from a bank, with the limited partners co-signing, in effect making further capital contributions of $500 each.

Watson later reported trouble with his apartment manager, whom he discharged, and an overdraft at the bank, to which the limited partners responded by making additional contribution to capital of $400 each. Beginning in May of 1974 the partnership was dissolved and entered the process of winding up its business. Suit was filed in October and...