Associated Ready Mix, Inc. v. Floyd A. Kirk, Jr. and Floyd A. Kirk, Sr.--Appeal from 13th District Court of Navarro County

IN THE

TENTH COURT OF APPEALS

No. 10-91-023-CV

ASSOCIATED READY MIX, INC.,

Appellant

v.

FLOYD A. KIRK, JR. AND FLOYD A. KIRK, SR.,

Appellees

From the 13th District Court

Navarro County, Texas

Trial Court # 603-90

O P I N I O N

Associated Ready Mix, Inc. appeals from a summary judgment in favor of Floyd Kirk, Sr. and Floyd Kirk, Jr., who are minority shareholders, officers, and directors of the company. It sued the Kirks for breaching a fiduciary duty to the corporation and converting its assets. Associated also charged Kirk, Jr. with acquiring the company's plant site by a wrongful foreclosure and converting its assets by conspiring with the City National Bank of Corsicana. Kirk, Jr. counterclaimed against the company to collect four loans assigned to him by his father. The court entered a summary judgment that Associated take nothing and that Kirk, Jr. recover on his counterclaim. We reform and affirm in part and reverse and remand in part.

FORECLOSURES

Associated constructed its cement plant on a 4.8-acre tract in Navarro County. City National held a first lien on the real property and a lien on some of Associated's equipment to secure a $300,000 note. Kirk, Jr. had a second lien on the real estate to secure two $25,000 loans he made to the company.

On January 5, 1988, after Associated defaulted on both of his $25,000 notes, Kirk, Jr. foreclosed his second lien and bought the 4.8 acres by bidding $50,000. When the company defaulted on the $300,000 note, the bank foreclosed its security interest and sold the equipment to Kirk, Jr. by a bill of sale dated January 5, 1988.

STANDARD AND SCOPE OF REVIEW

Associated contends the court erred when it entered the summary judgment. Rule 166a(c) // contains the standard for reviewing this complaint: The evidence must conclusively establish that no material fact issues exist and that the Kirks are entitled to a judgment as a matter of law. We will view all evidence, indulge all inferences, and resolve all doubts in Associated's favor. // We will not uphold or reverse the summary judgment on any ground or issue not raised in the trial court. //

KIRK, JR.'S SUMMARY JUDGMENT

CLAIMS AGAINST KIRK, JR.

Associated alleged that Kirk, Jr. (1) wrongfully foreclosed on the 4.8 acres, (2) unlawfully induced and conspired with the bank to foreclose its security interest and sell him the equipment at a commercially unreasonable price, (3) converted all of the company's assets, and (4) breached a fiduciary duty to the corporation. He sought a summary judgment that Associated take nothing on claims alleging a wrongful foreclosure and a conspiracy with the bank to acquire the company's personal assets. He did not, however, move for a summary judgment on claims asserted against him for conversion or breach of a fiduciary duty. Nevertheless, the court entered a summary judgment that Associated take nothing on all claims against him.

KIRK, JR.'S COUNTERCLAIM

Kirk, Sr. held three notes from the corporation secured by second-lien deeds of trust on the 4.8 acres. He assigned the notes and deeds of trust to Kirk, Jr. along with an "unsecured loan" represented by a $10,000 check Kirk, Sr. had given the company. Kirk, Jr. sued Associated for defaulting on these four debts and moved for a summary judgment on his counterclaim. The court awarded him a summary judgment against the company for $137,738.58 representing the unpaid principal and accrued interest on the three notes and the $10,000 check and $12,679.42 attorney fees.

REVIEW OF KIRK, JR.'S SUMMARY JUDGMENT

CLAIMS AGAINST KIRK, JR.

Associated alleged that Kirk, Jr. unlawfully induced and conspired with the bank to foreclose its security interest and sell the corporation's assets to him at a commercially unreasonable price. Unlawful inducement is not a cause of action.

Civil conspiracy, however, is a cause of action. // It is a combination by two or more persons to accomplish an unlawful purpose or to accomplish a lawful purpose by illegal means. // It requires an overt, illegal act in furtherance of the conspiracy. //

Kirk, Jr. stated in an affidavit that he and his father attended a private sale of Associated's assets on January 22, 1988, but that prior to that date he had not made any arrangements or agreements with the bank to purchase the company's assets. Associated's response is not summary-judgment proof. // For this reason, we cannot consider allegations in the response that Kirk, Jr. unlawfully seized and converted the assets on January 5 in a "conspiracy" with the bank. Nor can we consider similar legal conclusions in John Pattison's affidavit. //

Associated attached to its response what purports to be excerpts from Kirk, Jr.'s deposition. The Kirks objected to the excerpts, however, because they were not authenticated by a court reporter's certificate or an affidavit by counsel, and they raise the same objection on appeal. These unauthenticated excerpts are not summary-judgment proof. //

Associated did not produce any competent summary-judgment evidence to contradict Kirk, Jr.'s assertions that he purchased the assets without any prior agreement or arrangements with the bank. Accordingly, the court properly entered a summary judgment that Associated take nothing on its claim that he conspired with the bank to foreclose on the equipment.

Associated also alleged that Kirk, Jr. wrongfully foreclosed on the 4.8 acres. Kirk, Jr. stated in an affidavit that he made two $25,000 loans to Associated secured by deeds of trust, that he foreclosed his second lien against the real estate when the company made only three payments on the loans, that all notices required for a non-judicial foreclosure were given, and that he purchased the property on January 5, 1988, by bidding $50,000 at the foreclosure sale.

Associated produced no summary-judgment proof to counter Kirk, Jr.'s evidence that the foreclosure on the 4.8 acres was legally conducted. Therefore, the court properly entered a summary judgment that Associated take nothing on its claim of wrongful foreclosure.

CLAIMS AGAINST ASSOCIATED

Kirk, Jr. sued Associated for the unpaid balance of principal and interest due on four debts owed by the company, three of which were represented by real-estate lien notes executed to Kirk, Sr. and one by a $10,000 check signed by Kirk, Sr. and payable to Associated. Kirk, Sr. assigned his rights under the three notes and the check to Kirk, Jr., who moved for a summary judgment on the delinquent debts.

In affidavits supporting the summary-judgment motion, the Kirks stated that the $10,000 check was a loan to the company. Kirk, Jr. also stated in his affidavit that Associated was delinquent and, as of August 16, 1990, Associated owed $126,794.18 on the three notes. He also set out the daily rate that interest was accruing on each of the notes.

Associated asserted in its response that the $10,000 check was not a loan to the company but was a "gift or contribution to capital" with no obligation of repayment. We cannot consider these allegations, however, because the response is not summary-judgment proof. //

However, Johnny Pattison stated in his affidavit:

At various times from 1985 through 1987 all shareholders in ASSOCIATED READY MIX, INC. contributed money and/or labor to the Corporation for which no agreement to repay and no terms of repayment were ever discussed and agreed upon. The check given to ASSOCIATED READY MIX, INC. by FLOYD KIRK, SR. dated September 20, 1985 was one such instance.

The Kirks objected that Pattison stated a legal conclusion that the check was a gift of capital. This portion of Pattison's affidavit was not a legal conclusion but a statement of observable, admissible facts. Accordingly, the summary-judgment record contains a fact issue i.e., whether the $10,000 check was a debt of the company or a capital contribution. The court therefore erred when it granted a summary judgment that Kirk, Jr. recover on the $10,000 check as a delinquent debt.

Associated also contended in its response that Kirk, Jr. was estopped from suing on the notes because foreclosure was mandatory under the deeds of trust assigned to him by his father. Associated had the burden of producing summary-judgment evidence to establish its affirmative defense of estoppel. // Because it did not include the deeds of trust in the summary-judgment record or otherwise produce evidence on all of the elements of estoppel, that defense did not defeat a summary judgment on the notes. Thus, the court correctly entered a summary judgment that Kirk, Jr. recover on the three notes.

ATTORNEY FEES

The three notes Kirk, Jr. sued on provided that, if they were collected through a judicial proceeding, the holder was entitled to recover "reasonable attorney's fees. . . . Reasonable attorney's fees shall be 10 % of all amounts due unless either party pleads otherwise." (Emphasis added). He attached the notes to his counterclaim and motion for a summary judgment. Associated contends the court improperly awarded attorney fees because Kirk, Jr. did not ask for their recovery in the summary-judgment motion or prove their reasonableness.

In a summary-judgment proceeding, the holder of a note is entitled to recover attorney fees stipulated in the note if their reasonableness is not questioned by the defendant. // Here, the court properly awarded attorney fees because Associated did not question their reasonableness in the trial court. //

PARTIAL REVERSAL AND REMAND

A court cannot grant a summary judgment on grounds not included in the motion. // Kirk, Jr. did not move for a summary judgment on claims asserted against him for conversion or breach of a fiduciary duty. Thus, the court erred when it entered a take-nothing summary judgment on all claims asserted against him.

We therefore sever Associated's causes of action for conversion and breach of a fiduciary duty from the other claims against Kirk, Jr. We reverse the summary judgment to the extent it provides that Associated take nothing against him for conversion and breach of a fiduciary duty, and we remand those claims for a trial.

Moreover, we sever Kirk, Jr.'s cause of action on the $10,000 check from his other claims against Associated, reverse the summary judgment to the extent it awards him a recovery on the check as a debt of the company, and remand the cause of action on the check for a new trial.

KIRK, SR.'S SUMMARY JUDGMENT

Associated alleged that Kirk, Sr. (1) "unlawfully induced" the bank to foreclose its security agreement and sell the equipment to his son at a commercially unreasonable price, (2) converted all of the company's assets, and (3) breached a fiduciary duty as an officer and director of the corporation. As already noted, unlawful inducement is not a cause of action. The court granted a summary judgment that Associated take nothing against him.

REVIEW OF KIRK, SR.'S SUMMARY JUDGMENT

In an affidavit supporting the summary-judgment motion, Kirk, Sr. said that he attended a private sale of Associated's assets on January 22, 1988, but that prior to that date he had "absolutely no contact with Mr. Clark [president of City National] regarding CNB's decision to foreclose its security interest." He also claimed that he did not bid on the assets at the private sale, had "no involvement" in Kirk, Jr.'s subsequent purchase of the assets from the bank, and was not in possession of any of the company's assets or any proceeds from their sale.

In its response, Associated alleged that Kirk, Sr. and his son were at the bank on January 5 "in furtherance of the conspiracy to destroy [the company] and convert its assets"; that he "participated in a so called `private sale' . . . and took no action to protect [the company] from the wrongful acts of his son"; and that he "conspired" with the bank and his son to convert the assets. We cannot consider any of these statements because Associated's verified response is not competent summary-judgment proof. //

Associated did, however, attach to its response an affidavit of Johnny Pattison, who stated:

On January 5, 1988, I saw FLOYD KIRK, JR. and FLOYD KIRK, SR. at the CITY NATIONAL BANK in Corsicana. To my knowledge FLOYD KIRK, SR. never took any action to protect the Corporate assets from being converted by FLOYD KIRK, JR. and the CITY NATIONAL BANK in Corsicana. At the special called meeting of shareholders held in 1988 FLOYD KIRK, SR. supported his son, FLOYD KIRK, JR. in his unlawful conversion of the Corporate assets.

(Emphasis added). The Kirks objected to the italicized portion of the affidavit as being legal and factual conclusions and unilateral, subjective opinions of the facts. Associated did not amend Pattison's affidavit, and the Kirks have raised the same objections on appeal.

An affidavit in a summary-judgment proceeding must set forth admissible facts. // A legal conclusion will not raise a fact issue to preclude granting a summary judgment. // Pattison's statements that Kirk, Jr. and the bank "converted" the assets and that Kirk, Sr. took no action to protect the corporation against the "unlawful conversion" are legal conclusions.

Kirk, Sr.'s affidavit conclusively established that he never possessed any of Associated's personal property. Pattison did not state any facts to controvert the evidence in Kirk, Sr.'s affidavit. Thus, the court properly entered a take-nothing summary judgment on the claim that he converted the company's assets.

As a minority shareholder, director, and president of Associated, Kirk, Sr. owed a fiduciary duty to the corporation and could not act adversely to its interest. // Thus, he could neither wrongfully appropriate its assets to his own use nor permit his son to do so. //

As noted above, the court properly entered a take-nothing summary judgment on the claim that Kirk, Sr. converted the company's assets. We have remanded for a new trial Associated's causes of action against Kirk, Jr. for conversion and breach of a fiduciary duty. If Kirk, Jr. is later found to have converted the company's assets, Kirk, Sr. could be liable for breaching his fiduciary duty to the company if he permitted or failed to prevent the conversion. Because Kirk, Sr.'s liability for breach of a fiduciary duty depends upon fact findings yet to be made i.e., whether his son converted the company's assets and, if so, whether Kirk, Sr. permitted or failed to prevent the conversion the summary-judgment record contains material facts issues. Accordingly, the court erred when it entered a summary judgment that Associated take nothing on its claim that Kirk, Sr. breached a fiduciary duty.

PARTIAL REVERSAL AND REMAND

We sever Associated's cause of action against Kirk, Sr. for breach of a fiduciary duty from its remaining causes of action against him. We reverse the portion of the summary judgment that precluded Associated from recovering as a matter of law on its claim against him for breach of a fiduciary duty, and remand that cause of action for a new trial.

DISPOSITION

We have reversed the summary judgment to the extent it provides that: (1) Associated take nothing against Kirk, Sr. on the claim that he breached a fiduciary duty; (2) Associated take nothing on its claims against Kirk, Jr. for conversion and breach of a fiduciary duty; and (3) Kirk, Jr. recover the $10,000 check as a delinquent debt of the company. We have remanded these causes of action for a new trial. Accordingly, we reform the portion of the judgment awarding Kirk, Jr. a recovery on the $10,000 check by reducing the amount of the judgment against Associated from $137,738.58 to $127,738.58. We affirm the summary judgment, as reformed, in all other respects.

BOB L. THOMAS

Chief Justice

Before Chief Justice Thomas,

Justice Cummings and

Justice Vance

Reformed and affirmed in part,

reversed and remanded in

part

Opinion delivered and filed March 18, 1992

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