Robert Hamilton v. John McLean ( 2000 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

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NO. 03-99-00320-CV

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Robert Hamilton, Appellant

v.

John McLean, Appellee

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FROM THE COUNTY COURT AT LAW NO. 2 OF TRAVIS COUNTY NO. 228,368 HONORABLE J. DAVID PHILLIPS, JUDGE PRESIDING

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This appeal arises from the disposition of earnest money after an attempt to sell a business failed. The potential buyer, appellee John McLean, sued the sellers, the attorney with whom he deposited the earnest money check, and the broker's attorney, appellant Robert Hamilton. After obtaining a default judgment against the sellers and settling with the attorney who received McLean's deposit, McLean tried his conversion claim against Hamilton to a jury. The trial court rendered a judgment on the verdict against Hamilton for the amount of the earnest money deposit plus interest and costs. We will affirm the judgment of the trial court.

In 1995, McLean became interested in buying a car-inspection and car-detailing business from Ronald and Jeanette Mahaffey. Benchmark Co., owned by T.C. McAfee, served as broker for the negotiations between McLean and the Mahaffeys. In early July, McLean delivered to the Mahaffeys a check for $3000 as earnest money. McAfee took the check to the office of John Pleuthner, an attorney who was to conduct the closing. Pleuthner's office issued a receipt for the check, agreeing not to deposit it until the office had received an accepted purchase agreement. McLean and the Mahaffeys contemplated that McLean would form a corporation to buy the business; they agreed that McLean would pay the full purchase price at closing with a corporate check and that his earnest money check would be returned.

Although an asset purchase agreement was signed, the Mahaffeys failed to disclose that their license to operate the business had been suspended, and the sale was never completed. McAfee, fearing that he would lose his commission, sought Hamilton's advice. Hamilton advised McAfee to retrieve the earnest money check from Pleuthner's office. Pleuthner endorsed the check to Hamilton, who deposited it and eventually disbursed the proceeds to McAfee. From the $3000, McAfee paid Hamilton $1000 in attorney's fees.

In points of error one and two, Hamilton contends that the trial court abused its discretion by refusing to instruct the jury on his right to make a qualified refusal to a demand that the check be returned. In submitting McLean's claim for conversion to the jury, the trial court asked, "Did Robert Hamilton convert the property of John McLean?" The instruction accompanying this question follows:

"Conversion" is the unauthorized and wrongful exercise of dominion and control over another person's property, or the proceeds thereof, to the exclusion of or inconsistent with the rights of the owner. An exercise of dominion and control is unauthorized if the property is not returned after demand is made by the person entitled to possession. The gist of conversion is not the acquisition of the property by the wrongdoer, but wrongfully depriving a person of property which he is entitled to possess. For a conversion to occur, it is not necessary for the wrongdoer to benefit from the property converted. The controlling influence is the property owner's loss and not the wrongdoer's benefit. You are instructed that check number 1138 made payable to "John Pleuthner, Trustee" in the amount of $3,000.00 was the personal property of John McLean. John Pleuthner was the trustee for John McLean and had full authority to demand the return of John McLean's earnest money from Robert Hamilton.

The court accurately instructed the jury on the law of conversion. See Branham v. Prewitt, 636 S.W.2d 507, 510 (Tex. App.--San Antonio 1982), writ ref'd n.r.e. per curiam, 643 S.W.2d 122 (Tex. 1982).

Conversion may occur when one wrongfully detains property under an assertion of right inconsistent with the owner's general dominion, particularly if the detention occurs after demand for possession and refusal. Stein v. Mauricio, 580 S.W.2d 82, 83 (Tex. Civ. App.--San Antonio 1979, no writ); see Bures v. First Nat'l Bank, 806 S.W.2d 935, 938 (Tex. App.--Corpus Christi 1991, no writ). A person in possession of property may refuse to surrender it for a reasonable length of time when he has a reasonable doubt about the claimant's right to immediate possession. Stein, 580 S.W.2d at 83; Earthman's, Inc. v. Earthman, 526 S.W.2d 192, 204 (Tex. Civ. App.--Houston [1st Dist.] 1975, no writ). This qualified refusal imposes a duty on the one in possession to make a reasonable inquiry into the right of the claimant to possession, and the qualified refusal must be made in good faith. Stein, 580 S.W.2d at 83. Further, the person in possession must disclose the qualification to the claimant. He must communicate the reason for the qualified refusal distinctly, and all reasons for the refusal that are not mentioned at the time of refusal are waived. Id. If the qualified refusal is not reasonable or justifiable under the circumstances, it amounts to a denial of the claimant's rights in the property. Earthman, 526 S.W.2d at 204.

Hamilton testified that the first time he was asked for the money was in December 1995, when Pleuthner demanded its return. Hamilton responded to this demand by a letter in which he told Pleuthner that he would "make things right" if somebody could show him a legal basis requiring it. This evidence raises no factual issue concerning a qualified refusal to return McLean's earnest money check. Because no evidence supported the submission of Hamilton's requested instruction, we overrule points one and two.

In his fourth point of error, Hamilton challenges the trial court's refusal to submit the following instruction to the jury: "A lawyer representing his client owes no duty to third parties absent a fraud or crime." This Court will not reverse a judgment based on the trial court's failure to submit an instruction unless the instruction is substantially correct. Tex. R. Civ. P. 278. The instruction Hamilton requested is not substantially correct: an attorney may owe a duty to a nonclient to avoid negligent misrepresentation. McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 795 (Tex. 1999). More importantly, Hamilton's role as an attorney did not immunize him from the consequences of any wrongful act he might commit against a person other than his client. Because the trial court did not abuse its discretion in refusing to submit Hamilton's requested instruction, we overrule point four.

In his sixth point of error, Hamilton contends that because statutory county courts lack jurisdiction over trusts, the trial court erred in instructing the jury that Pleuthner was McLean's trustee. See Tex. Prop. Code Ann. § 115.001 (West Supp. 2000). Section 115.001 of the Property Code vests in district courts exclusive jurisdiction over all proceedings concerning trusts, including proceedings to appoint a trustee and to determine the powers and duties of a trustee. Id. § 115.001(a)(3), (4). In this case, McLean made his earnest money check payable to "John Pleuthner, Trustee." See id. § 114.084(b) (West 1995) (adding "trustee" after signature is prima facie evidence of intent to exclude trustee from personal liability). This check was admitted in evidence at trial. By the time trial began, Pleuthner was no longer adverse to McLean, and his status and duties toward McLean were not in dispute. Hamilton's complaint that Pleuthner denied being McLean's trustee before trial is unavailing because Pleuthner conceded at trial that he was in fact McLean's trustee. Hamilton presented no evidence at trial contradicting Pleuthner's legal status as trustee. Because the trial court made no ruling on Pleuthner's trusteeship, but merely informed the jury of an undisputed fact, it did not abuse its discretion in instructing the jury that Pleuthner was McLean's trustee in handling the earnest money McLean had deposited. We overrule point six.

Hamilton argues in point of error seven that McLean lacked standing to sue him because McLean's only interest was that of beneficiary of the trust. The trustee has the sole right and responsibility to enforce a cause of action in favor of a trust, and the beneficiary is authorized to enforce such an action only when the trustee cannot or will not enforce it. Interfirst Bank-Houston, N.A. v. Quintana Petroleum Corp., 699 S.W.2d 864, 874 (Tex. App.--Houston [1st Dist.] 1985, writ ref'd n.r.e.). In September 1995, McLean's attorney informed Pleuthner that Pleuthner occupied a position of trust regarding the earnest money and that Pleuthner had violated his fiduciary duty by releasing the check to a third party without McLean's consent; McLean's attorney demanded that Pleuthner return the earnest money check. Pleuthner responded by letter that, even if he had the money, he would not return it to either McLean or the Mahaffeys without both parties having authorized its release. When Pleuthner failed to return the money, McLean filed suit against him. In his second amended answer, Pleuthner denied owing a fiduciary duty to McLean. Shortly before trial began, Pleuthner and McLean settled their dispute. Because Pleuthner initially denied his role as trustee and failed to sue on behalf of the trust, McLean was entitled to enforce the cause of action to obtain the earnest money. Pleuthner's cross-action against Hamilton seeking indemnity for any judgment McLean might obtain against Pleuthner does not equate to enforcing the conversion claim against Hamilton. We therefore overrule point seven.

In point of error eight, Hamilton challenges the trial court's directed verdict against the counterclaim assigned to him by the broker. Before negotiating to buy the business, McLean agreed in writing with Benchmark Co., a business brokerage owned and operated by T.C. McAfee, that Benchmark would act as broker. After the sale failed to close, T.C. McAfee, on behalf of McAfee Financial Corporation d/b/a Benchmark Co., assigned to Hamilton any claims the broker may have had against McLean and his corporation or his attorney. McAfee executed the assignment on May 28 or 29, 1996. The Texas Secretary of State's office certified, however, that the charter of McAfee Financial Corporation was forfeited on February 13, 1996, pursuant to the franchise tax provisions of the Tax Code. See Tex. Tax Code Ann. §§ 171.251-.317 (West 1992 & Supp. 2000). The Secretary of State further certified that as of January 4, 1999, the corporation had not applied for reinstatement.

An assignee cannot sue in state court on a claim obtained from a corporation after the corporation loses the right to do business in the state. Rushing v. International Aviation Underwriters, Inc., 604 S.W.2d 239, 242 (Tex. Civ. App.--Dallas 1980, writ ref'd n.r.e.); see Tax Code § 171.252(1) (West 1992). Such a suit is barred even if the cause of action arose before the corporation forfeited its right to do business. See Rodar Leasing Corp. of Colo., Inc. v. Wholesome Dairy, Inc., 442 S.W.2d 467, 469 (Tex. Civ. App.--El Paso 1969, no writ); Tax Code § 171.253 (West 1992). Hamilton's argument that Benchmark's legal capacity to assign a claim should have been raised by plea in abatement was not presented to the trial court, and we will not consider it. Tex. R. App. P. 33.1(a). Because Benchmark was legally incapable of assigning a claim to Hamilton, the trial court did not err in directing a verdict against that claim. We overrule point eight.

In points of error three and five, Hamilton argues that the trial court erred in denying his motion for summary judgment on McLean's claims against him. Shortly after the trial court denied his motion, McLean's claims against Hamilton were tried to a jury. When a party unsuccessfully moves for summary judgment and subsequently loses at trial on the merits, the order denying the summary-judgment motion is not appealable. Ackermann v. Vordenbaum, 403 S.W.2d 362, 365 (Tex. 1966). The party's remedy is to assign error to the trial court's judgment ultimately rendered following trial on the merits. Turner v. County of Marion, 549 S.W.2d 254, 255 (Tex. Civ. App.--Texarkana 1977, writ dism'd). We therefore overrule points three and five.

Hamilton contends in his ninth point of error that the trial court erroneously awarded McLean a double recovery. In its judgment, the trial court ordered Hamilton to pay McLean $3000 in actual damages and $952.02 in pre-judgment interest. The actual damages awarded correspond to the $3000 check McLean deposited with Pleuthner as earnest money. Hamilton argues that the settlement agreement between McLean and Pleuthner, which required Pleuthner to pay McLean $2500, results in a double recovery for McLean.

A nonsettling defendant who wishes to receive credit for a settlement by another defendant must notify the trial court that he seeks a credit before the cause is submitted to the jury. Cedillo v. Paloff, 792 S.W.2d 830, 834-35 (Tex. App.--Fort Worth 1990, writ denied); see Tex. Civ. Prac. & Rem. Code Ann. § 33.014 (West 1997). Hamilton neither notified the court before submission that he wanted a credit nor requested a jury question apportioning responsibility for McLean's damages between him and Pleuthner. Because Hamilton has waived this complaint for review, we overrule point nine.

Having overruled each of Hamilton's points of error, we affirm the judgment.

J. Woodfin Jones, Justice

Before Justices Jones, Kidd and Patterson

Affirmed

Filed: April 27, 2000

Do Not Publish

In his second amended answer, Pleuthner denied owing a fiduciary duty to McLean. Shortly before trial began, Pleuthner and McLean settled their dispute. Because Pleuthner initially denied his role as trustee and failed to sue on behalf of the trust, McLean was entitled to enforce the cause of action to obtain the earnest money. Pleuthner's cross-action against Hamilton seeking indemnity for any judgment McLean might obtain against Pleuthner does not equate to enforcing the conversion claim against Hamilton. We therefore overrule point seven.

In point of error eight, Hamilton challenges the trial court's directed verdict against the counterclaim assigned to him by the broker. Before negotiating to buy the business, McLean agreed in writing with Benchmark Co., a business brokerage owned and operated by T.C. McAfee, that Benchmark would act as broker. After the sale failed to close, T.C. McAfee, on behalf of McAfee Financial Corporation d/b/a Benchmark Co., assigned to Hamilton any claims the broker may have had against McLean and his corporation or his attorney. McAfee executed the assignment on May 28 or 29, 1996. The Texas Secretary of State's office certified, however, that the charter of McAfee Financial Corporation was forfeited on February 13, 1996, pursuant to the franchise tax provisions of the Tax Code. See Tex. Tax Code Ann. §§ 171.251-.317 (West 1992 & Supp. 2000). The Secretary of State further certified that as of January 4, 1999, the corporation had not applied for reinstatement.

An assignee cannot sue in state court on a claim obtained from a corporation after the corporation loses the right to do business in the state. Rushing v. International Aviation Underwriters, Inc., 604 S.W.2d 239, 242 (Tex. Civ. App.--Dallas 1980, writ ref'd n.r.e.); see Tax Code § 171.252(1) (West 1992). Such a suit is barred even if the cause of action arose before the corporation forfeited its right to do business. See Rodar Leasing Corp. of Colo., Inc. v. Wholesome Dairy, Inc., 442 S.W.2d 467, 469 (Tex. Civ. App.--El Paso 1969, no writ); Tax Code § 171.253 (West 1992). Hamilton's argument that Benchmark's legal capacity to assign a claim should have been raised by plea in abatement was not presented to the trial court, and we will not consider it. Tex. R. App. P. 33.1(a). Because Benchmark was legally incapable of assigning a claim to Hamilton, the trial court did not err in directing a verdict against that claim. We overrule point eight.

In points of error three and five, Hamilton argues that the trial court erred in denying his motion for summary judgment on McLean's claims against him. Shortly after the trial court denied his motion, McLean's claims against Hamilton were tried to a jury. When a party unsuccessfully moves for summary judgment and subsequently loses at trial on the merits, the order denying the summary-judgment motion is not appealable. Ackermann v. Vordenbaum, 403 S.W.2d 362, 365 (Tex. 1966). The party's remedy is to assign error to the trial court's judgment ultimately rendered following trial on the merits. Turner v. County of Marion, 549 S.W.2d 254, 255 (Tex. Civ. App.--Texarkana 1977, writ dism'd). We therefore overrule points three and five.

Hamilton contends in his ninth point of error that the trial court erroneously awarded McLean a double recovery. In its judgment, the trial court ordered Hamilton to pay McLean $3000 in actual damages and $952.02 in pre-judgment interest. The actual damages awarded correspond to the $3000 check McLean deposited with Pleuthner as earnest money. Hamilton argues that the settlement agreement between McLean and Pleuthner, which required Pleuthner to pay McLean $2500, results in a double recovery for McLean.

A nonsettling defendant who wishes to receive credit for a settlement by another defendant must notify the trial court that he seeks a credit before the cause is submitted to the jury. Cedillo v. Paloff, 792 S.W.2d 830, 834-35 (Tex. App.--Fort Worth 1990, writ denied); see Tex. Civ. Prac. & Rem. Code Ann. § 33.014 (West 1997). Hamilton neither notified the court before submission that he wanted a credit nor requested a jury question apportioning responsibility