David Tubb and Superior Shooting System, Inc., Appellants/Cross-Appellees v. Aspect International, Inc. and James Sterling, Appellees/Cross-Appellants

NO. 12-14-00323-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
DAVID TUBB AND SUPERIOR § APPEAL FROM THE 7TH
SHOOTING SYSTEM, INC.,
APPELLANTS/CROSS-APPELLEES,
V. § JUDICIAL DISTRICT COURT
ASPECT INTERNATIONAL, INC. AND
JAMES STERLING,
APPELLEES/CROSS-APPELLANTS § SMITH COUNTY, TEXAS
MEMORANDUM OPINION
Aspect International, Inc. and James Sterling filed a motion for rehearing, which is
denied. We withdraw the court’s opinion dated October 31, 2016, and substitute the following
opinion in its place.
David Tubb and Superior Shooting Systems, Inc. appeal the trial court’s judgment
rendered in favor of Aspect International, Inc. and James Sterling. Appellants raise three issues
on appeal. We affirm in part and reverse and render in part.
BACKGROUND
This case arises out of a venture between two corporations––Superior Shooting Systems,
Inc. and its representative, Tubb, and Aspect International, Inc. and its representative, Sterling.
The venture originated in late 2011 for the purpose of manufacturing high quality small arms
ammunition at a high volume to sell to the public. Pursuant to the agreement, both companies
would participate in control of the business and split the profits equally. Additionally, Superior
agreed to fund the purchase of production equipment and materials, lend Tubb’s name 1 to the
1
Tubb is a well-known figure in the shooting community.
venture, and provide access to its distribution network. In return, Aspect agreed to contribute the
amount Superior owed it on invoices for certain information technology (IT) work Sterling had
performed for Superior, convert Sterling’s garage into a manufacturing facility, obtain retail
packaging for the ammunition, and run the manufacturing operation.
An engineering firm, FillPro, was retained to design and construct an ammunition loading
machine capable of producing high quality precision ammunition. Superior funded the purchase
of the machine. Sterling devised and, with FillPro, brought to fruition a hybrid computer-
controlled loading system. The system used a computer interface that made the machine capable
of high volume production and precision loading capabilities. Sterling maintained regular
contact with FillPro during the design and construction of the machine. In October 2012, once
construction was complete, FillPro installed the machine in Sterling’s repurposed garage, trained
Sterling, and certified the machine as production ready. However, no retail packaging was
procured until mid to late January 2013.
Following several interactions with Tubb, Sterling grew concerned over whether Tubb
was willing to proceed with the parties’ venture as he originally had agreed. The two discussed
reducing their agreement to writing and both agreed that a written agreement was necessary. By
January 2013, however, Sterling concluded that Tubb no longer intended to perform the venture
as agreed and demanded payment on the IT invoices.2 On February 5, 2013, Appellees’ lawyer
sent a letter to Tubb accusing Appellants of repudiating the agreement.
On February 6, 2013, Appellees filed the instant suit and sought to recover for, among
other things, breach of contract, quantum meruit, and promissory estoppel. The matter
proceeded to a bench trial, following which the trial court rendered judgment for Appellees for
breach of contract and awarded them $175,000.00 in restitution damages, subject to an offset of
$35,019.00. The trial court further awarded Appellees attorney’s fees, but found that Appellants
were not entitled to recover attorney’s fees. Thereafter, the trial court made written findings of
fact and conclusions of law. This appeal followed.
EVIDENTIARY SUFFICIENCY - REPUDIATION
In their first issue, Appellants argue that the evidence is legally insufficient to support the
trial court’s conclusion that Superior repudiated the parties’ agreement.
2
Superior paid Sterling on the IT invoices.
2
Standard of Review
In an appeal from a judgment after a bench trial, we accord the trial court’s findings of
fact the same weight as a jury’s verdict. Milton M. Cooke Co. v. First Bank & Trust, 290
S.W.3d 297, 302 (Tex. App.–Houston [1st Dist.] 2009, no. pet.); see Brown v. Brown, 236
S.W.3d 343, 347 (Tex. App.–Houston [1st Dist.] 2007, no pet.). Unchallenged findings of fact
are binding on an appellate court, unless the contrary is established as a matter of law or there is
no evidence to support the finding. Walker v. Anderson, 232 S.W.3d 899, 907 (Tex. App.–
Dallas 2007, no pet.); see McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex.1986); Mullins
v. Mullins, 202 S.W.3d 869, 874, 876–77 (Tex. App.–Dallas 2006, pet. denied). However, when
an appellant challenges a trial court’s findings of fact, an appellate court reviews those fact
findings by the same standards it uses to review the sufficiency of the evidence to support a
jury’s findings. See Pulley v. Milberger, 198 S.W.3d 418, 426 (Tex. App.–Dallas 2006, pet.
denied).
Thus, to determine whether legally sufficient evidence supports a challenged finding, we
must consider evidence that favors the finding if a reasonable factfinder could consider it, and we
must disregard evidence contrary to the challenged finding unless a reasonable factfinder could
not disregard it. See City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). This Court
may not sustain a legal insufficiency, or “no evidence,” point unless the record demonstrates (1)
a complete absence of evidence of a vital fact; (2) that the court is barred by rules of law or of
evidence from giving weight to the only evidence offered to prove a vital fact; (3) that the
evidence offered to prove a vital fact is no more than a mere scintilla; or (4) that the evidence
conclusively establishes the opposite of the vital fact. Id. at 810. More than a scintilla of
evidence exists when the evidence supporting the finding, as a whole, rises to a level that would
enable reasonable and fair-minded people to differ in their conclusions. Merrell Dow Pharms.,
Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997). Less than a scintilla of evidence exists when
the evidence is so weak as to do no more than create a mere surmise or suspicion of a fact.
Driskill v. Ford Motor Co., 269 S.W.3d 199, 203 (Tex. App.–Texarkana 2008, no pet.) (citing
King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003)).
We review conclusions of law by the trial court de novo and will uphold them if the
judgment can be sustained on any legal theory supported by the evidence. Brown, 236 S.W.3d at
348. The trial court’s conclusions of law are not subject to challenge for lack of factual
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sufficiency, but we may review the legal conclusions drawn from the facts to determine their
correctness. Id.
Governing Law
As a defense to a breach of contract action, a defendant can assert that the plaintiff
repudiated the contract. See El Paso Prod. Co. v. Valence Oper. Co., 112 S.W.3d 616, 621
(Tex. App–Houston [1st Dist.] 2003, pet. denied). A plaintiff repudiates a contract if, without
just excuse, it indicates by unconditional words or actions that it will not perform its contractual
obligations. Id.; see also Bans Props., L.L.C. v. Housing Auth. of City of Odessa, 327 S.W.3d
310, 315 (Tex. App.–Eastland 2010, no pet.); City of The Colony v. N. Tex. Mun. Water Dist.,
272 S.W.3d 699, 738 (Tex. App.–Fort Worth 2008, pet. dism’d); Hauglum v. Durst, 769 S.W.2d
646, 651 (Tex. App.–Corpus Christi 1989, no writ). The plaintiff’s conduct must show a fixed
intention to abandon, renounce, and refuse to perform the contract. City of The Colony, 272
S.W.3d at 738; Hubble v. Lone Star Contracting Corp., 883 S.W.2d 379, 383 (Tex. App.–Fort
Worth 1994, writ denied); Hauglum, 769 S.W.2d at 651. If the plaintiff’s refusal to perform its
contractual obligations was based on a genuine mistake or misunderstanding about matters of
fact or law, there is no repudiation. Jenkins v. Jenkins, 991 S.W.2d 440, 447 (Tex. App.–Fort
Worth 1999, pet. denied); McKenzie v. Farr, 541 S.W.2d 879, 882 (Tex. App.–Beaumont 1976,
writ ref’d n.r.e.).
Furthermore, the defendant can assert that it timely retracted its own repudiation by
notifying the plaintiff that it intended to perform. See Griffith v. Porter, 817 S.W.2d 131, 135
(Tex. App.–Tyler 1991, no writ); Valdina Farms, Inc. v. Brown, Beasley & Assocs., 733
S.W.2d 688, 692 (Tex. App.–San Antonio 1987, no writ). The defendant must retract its
repudiation before the plaintiff either has materially changed its position in reliance on the
repudiation or has notified the defendant that it considers the repudiation to be final. Glass v.
Anderson, 596 S.W.2d 507, 510 (Tex. 1980); Juarez v. Hamner, 674 S.W.2d 856, 860 (Tex.
App.–Tyler 1984, no writ). Whether a party has repudiated an agreement is a question of fact.
See Berg v. Wilson, 353 S.W.3d 166, 176 (Tex. App.–Texarkana 2011, pet. denied).
Findings of Fact Pertaining to Repudiation
In the case at hand, the trial court expressly found that Tubb repudiated the parties’
venture on behalf of Superior as set forth below.
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• There was a considerable amount of evidence introduced at trial that [Aspect]
substantially performed its obligations under the Agreement and would have fully performed but
for the breach and repudiation of the Agreement by Superior found by the Court below.
• Beginning shortly prior to [Tubb’s] trip to Tyler and continuing thereafter, a series of
actions and events occurred, which, considered together, constitute a breach and repudiation of the
Agreement by Superior.
In support of these findings, the trial court also made the following relevant findings of
fact.
• [N]either [Appellees] nor [Appellants] executed any form of written agreements.
• In October 2012, the ammunition loading machine (after it was completed and ready for
production use) was transported by Fillpro to the facility prepared by [Aspect] in Tyler, Texas,
where it was installed by [Rue] Marshall. Marshall, who the evidence showed to have extensive
experience in power loading equipment, including such equipment used in the munitions industry,
spent several days at the Tyler facility training Sterling on the equipment and certifying the
equipment as “production-ready.” FillPro had actually load-tested the machine at their facility in
Colorado before shipping it to Texas.
• Sterling and Tubb planned for Tubb to make a visit to the facility in Tyler in November
[2012] to examine the loading machine and add some [dies] for a particular caliber of ammunition.
• Just before the November 2012 trip to Tyler, Sterling received a call from Tubb
questioning the amount of contributions of money and property that [Appellants] had made to the
enterprise. The call caused Sterling enough concern that he emailed Tubb on November 8, 2012,
raising his concern and advising Tubb that if there was going to be a change in the Agreement, the
parties needed to discuss it before the trip. Tubb followed up with a call, telling Sterling that there
would be no change in the Agreement since Sterling would be doing all the work.
• Tubb announced over a dinner during the November 2012 trip, with the Sterlings and
other witnesses present, that his son, Cannon Tubb, should be the one to run the manufacturing
operation of the business; something that caught others around the table by surprise and was
contrary to a material term of the Agreement.
• The next morning[,] Tubb advised Sterling that the manufacturing equipment and
operation would need to be moved to Canadian, a position in conflict with the parties’ Agreement
that the operation would be located in Tyler, Texas, and run by [Aspect]. Although Tubb relented
on an immediate removal, he advised Sterling that the equipment and operation would eventually
be moved to Canadian, Texas. This position . . . would remove [Aspect] as manufacturer, since
[Aspect] was based in Tyler, [Texas].
• There was evidence introduced of communications during the November trip between
Tubb’s wife, Sue Tubb, and Superior’s accountant, Marilyn Ault, which appeared to call into
question Sterling’s integrity and other material terms the parties had agreed upon. Sue Tubb
likened the situation to [Appellants’] former business partner and company manager, Brandon
Cole, which ended in litigation and a dissolution of their business relationship, expressing concern
as to whether her husband would again be “taken advantage of.” Ault expressed the belief that the
Agreement regarding how the revenues would be shared was not right.
• [Following the November 2012 trip,] Tubb claimed that he could not get additional
bullet feeders that would be used in the manufacturing operation, but when Sterling looked into it,
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he discovered that the equipment was readily available. In an exchange between the two men,
Tubb told Sterling he [would] solicit from one of his suppliers at the next trade show additional
materials, but then told the supplier at the show no additional brass [was] needed. [Appellants]
did not provide the bullets needed to bring the final product to market. The 18,000 bullets that
were at [Aspect’s] facility were removed by Superior personnel, transported to Canadian[,] and
never returned. It was later determined that the bullets, which per the agreement were to be sold
by the enterprise, were being sold by Tubb’s company, DTAC. This refusal to provide the
necessary materials constituted a breach of the Agreement.
Analysis
We have reviewed the record and have found sufficient evidentiary support for these
findings of fact. Appellants argue, however, that the trial court’s findings and other evidence do
not support the finding that they repudiated the contract. Specifically, among other reasons,
Appellant’s make the following arguments.
• Neither Tubb nor Superior made a fixed and unequivocal renunciation of the venture.
• The parties’ agreement did not set a deadline for production to begin.
• Moving the business to Canadian, Texas at some point in the future was contemplated
by the agreement and, in any event, Tubb retracted the statement.
• Appellees never accepted any repudiation by Appellants, but rather, continued to act as
if the agreement were still in effect.
• Superior never intentionally withheld supplies because the evidence supports that the
materials in question were on order.
• While the machine could have produced ammunition, further adjustments to the
machine and two to three months for Sterling to improve his proficiency in operating the machine
to produce ammunition on a commercial scale were required. Any delay in getting materials was
not a repudiation because they could not be used at that point.
• Sufficient packaging materials were not available until mid-January 2013.
• Sterling repudiated the agreement on January 7, 2013, when he requested to be paid by
Appellants for the IT work he was supposed to have contributed as capital to the venture.
We agree with Appellants’ assertions that (1) the agreement contained no fixed date for
production to begin and (2) producing saleable ammunition could not have begun until
packaging was obtained. Moreover, we agree that several actions on Tubb’s part which could
have constituted repudiation were later withdrawn by Tubb while Sterling and Aspect continued
to perform as if the agreement were still in effect. Nonetheless, even if these earlier incidents
were not repudiations, they offer context in which Tubbs’s later acts can be considered.
6
Among these later acts is Tubb’s continued ambivalence about entering into a written
agreement. The record conclusively reflects that through a series of exchanges beginning before
the Tyler trip and continuing thereafter, the parties discussed reducing their agreement to writing.
The record further reflects that these conversations continued throughout 2012, and by year’s
end, during a recorded phone conversation on December 31, 2012, Tubb agreed that the parties
would need a written agreement if they were to proceed with the venture. But, as the trial court
found, the parties never entered into any sort of written agreement. Indeed, we note that a
written contract was not a condition of the original agreement, but the evidence supports the
implied finding3 that the parties later agreed that it was a requisite to their moving forward with
the venture.
On January 4 and 7, 2013, Tubb and Sterling had more phone conversations, which were
recorded. During the January 4 conversation, the parties stated, in pertinent part, as follows:
Sterling: [T]he purpose of me trying to get together with you face-to-face is try to, you
know, get my attorney over there and maybe draw up some kind of agreement. But if we can't do
that, then there's no sense in me coming over.
Tubb: Okay. Well, I mean, obviously I would be happy to visit, you know, there’s no
question about that.
Sterling: Well, you know, we talk all the time on the phone, you know.
Tubb: Sure . . . . Well, maybe we ought to just sit down and budget some time or
something, sit down, and, you know, visit and we’ll go back through and, you know, reiterate and
cover our points and see if we can move forward here, you know.
Sterling: Well, I think that’s probably what we ought to do. I think that something has
happened somewhere along the way and we’re - - trying to keep my bearings here and, you know,
exactly everything that I said I would do per our agreement and I don’t - - I don’t think you’re
really happy and I don’t want you to be unhappy and - -
Tubb: Sure, yeah.
Sterling: So whatever we got to do here, we got to do.
During the January 7 conversation, the following exchange occurred:
Sterling: My agreement was that I deferred all my time and expense as equity in the joint
venture and so I was expecting to manufacture the ammunition per agreed for 50 percent of the net
profit.
3
Whether there is a contract and whether a contract has been modified are generally questions of fact. See
Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227, 229 (Tex. 1986); Advantage Physical Therapy, Inc. v. Cruse, 165
S.W.3d 21, 24 (Tex. App.–Houston [14th Dist.] 2005, no pet.).
7
Tubb: Absolutely, that’s, yeah, understood and I see nothing wrong with that . . . .
....
Sterling: [L]ike I say, my agreement was that I would defer all of my time and expenses
in equity in the joint venture. And if there is no joint venture[,] then that doesn’t apply . . . .
....
I guess you need to decide what you want to do. Do you want to move the machines to
Canadian now and - -
. . . [A]nd the reason the machine is here today is because I don’t live in Canadian. I’m
the manufacturer. So if the machine goes to Canadian, then I’m no longer the manufacturer . . . .
Tubb: Understood. I don’t know, James, about that . . . . I think in the end game if we
looked at this going a couple of years down the road, if we had other machines, it would have
made more sense to have it in Canadian.
....
Sterling: [W]e’re right in the middle of a time where ammunition is one of the hottest
commodities there is on the planet. And what I would - - what I wanted to hear is, James, how can
I help you and what can I do to get us to get this product out the door[,] and I haven’t heard any of
that. And it seems to be more of a conflict about where the machine is than anything else . . . .
....
Okay. You think about it and let me know which direction you want to go . . . . I’ve told
you this from day one. The good contracts make good friends. And I’ve been trying over and
over again to get some agreement in writing so that we don’t - - because that - - agreements in
writing, you don’t have these conflicts. You don’t have miscommunication. Everybody knows
what their job is and what their responsibilities are. And if somebody forgets something, then you
can go right back to the contract and say this is what we agreed to, you know.
....
Tubb: Well, I’ll give it some thought, James . . . .
Based on these conversations and all of the events preceding them, we conclude that the
trial court reasonably could have found that Tubb, despite some statements in support of the
venture and despite the overtures of support for the venture put forth by Sterling, had no interest
in executing a written agreement or proceeding further with the venture. Sterling’s January 7,
2013 email makes clear that he is seeking payment because of Tubb’s refusal to execute a written
agreement. Based on our review of the record, we conclude that the evidence supports the trial
court’s finding that Tubb was unwilling to enter into a written agreement, and that his repeated
failure to do so over time, in itself, amounted to repudiation of the agreement. By his January 7,
8
2013 email seeking payment on the IT invoices, Sterling accepted this repudiation as a breach of
contract.
Furthermore, Tubb’s act of having 18,000 shell casings removed from Sterling’s garage,
loading them himself, failing to return them, and, ultimately, attempting to sell them through a
third party vendor could be considered by Sterling as a definite indication that Tubb
unconditionally intended that Superior would not perform its obligations under the agreement.
This act, considered in the context of Tubb’s other actions preceding it, was in complete
contravention of the parties’ agreement regardless of whether production for sale was then
possible. The record does not indicate an exact date upon which Sterling discovered this fact.
But the evidence reflects that by mid to late January 2013, Tubb had not returned to Sterling this
ammunition he was purportedly modifying for subsonic use, nor had he delivered other
ammunition components to be loaded by Sterling in accordance with the terms of the agreement.
We conclude that the trial court reasonably could have found that Sterling was entitled to
consider these actions by Tubb as a further repudiation of the parties’ agreement. On February 5,
2013, Appellees’ attorney set a letter to Tubb and Superior stating that their actions amounted to
a repudiation of the venture and made it clear that they had no intention of abiding by the
original agreement.
Based on the foregoing, we hold that the evidence is legally sufficient to support the trial
court’s conclusion that Appellants repudiated the parties’ agreement. Appellants’ first issue is
overruled.
NATURE OF THE PARTIES’ VENTURE - RECOVERY OF RESTITUTION DAMAGES
In part of their second issue, Appellants argue that the evidence is legally insufficient to
support the trial court’s award of damages to Aspect. Specifically, Appellants argue that there is
no basis for recovery because the venture was a partnership and, therefore, Aspect, as a partner,
cannot be compensated for its services performed for the partnership.
The trial court found that the parties did not create a partnership. Thus, we will review
that finding for legal sufficiency. The burden of proof is on the person seeking to establish the
existence of a partnership or joint venture. See Ben Fitzgerald Realty Co. v. Muller, 846 S.W.2d
110, 120 (Tex. App.–Tyler 1993, writ denied); see also Wortham v. Dow Chem. Co., 179
S.W.3d 189, 195 (Tex. App.–Houston [14th Dist.] 2005, no pet.). Thus, when a party attacks the
9
legal sufficiency of an adverse finding on an issue on which it had the burden of proof, it must
demonstrate on appeal that the evidence establishes conclusively, or as a matter of law, all vital
facts in support of the finding sought. Velvet Snout, LLC v. Sharp, 441 S.W.3d 448, 450 (Tex.
App.–El Paso 2014, no pet.).
Governing Law
Because the parties’ venture originated in late 2011, the question of whether it constitutes
a partnership is governed by the Texas Business Organizations Code. See Ingram v. Deere, 288
S.W.3d 886, 894 n.4 (Tex. 2009). The question of whether a partnership exists is primarily a
question of fact. Muller, 846 S.W.2d at 120. With exceptions not applicable here, an
association of two or more persons4 to carry on a business for profit as owners creates a
partnership, regardless of whether (1) the persons intend to create a partnership or (2) the
association is called a “partnership,” “joint venture,” or other name. See TEX. BUS. ORGS. CODE
ANN. § 152.051(b) (West 2012). In determining whether a partnership was created, we consider
several factors, including (1) the parties’ receipt or right to receive a share of profits of the
business; (2) any expression of an intent to be partners in the business; (3) participation or right
to participate in control of the business; (4) any agreement to share or sharing losses of the
business or liability for claims by third parties against the business; and (5) any agreement to
contribute or contributing money or property to the business. Id. § 152.052(a). But an
agreement by the owners of a business to share losses is not necessary to create a partnership.
See id. § 152.052(c). We review these factors under the totality of the circumstances. See
Ingram, 288 S.W.3d at 898.
In Ingram, the court noted the difficulty in applying this test. See id. The court
described the challenge of the test as its application between two points on a continuum. Id. On
one end, an absence of any evidence of the factors, or even conclusive evidence of only one
factor would be insufficient to establish the existence of a partnership. Id. On the other end of
the spectrum, conclusive evidence of all of the factors will establish the existence of a
partnership as a matter of law. Id.
In conducting our review, we are mindful that a totality of the circumstances test
presumes a multitude of potential factors and a balancing of evidence on either side. Cf. Perry
4
“Person” means, among other things, “an individual or a corporation[.]” TEX. BUS. ORG. CODE ANN.
§ 1.002(69-b) (West Supp. 2016).
10
Homes v. Cull, 258 S.W.3d 580, 598 (Tex. 2008). If appellate courts must affirm every time
there is some factor that was not negated or some evidence on either side, then no ruling based
on the totality of the circumstances could ever be reversed. Id. That standard of review would
be the same as no review at all. Id. Thus, while we consider each of the aforementioned factors,
we consider their aggregate weight along the “continuum” as referenced in Ingram to determine
whether the trial court’s finding is supported by sufficient evidence.
Analysis of Factors Pertaining to Creation of a Partnership
In the instant case, the trial court expressly found that the parties did not enter into a
partnership under Ingram and Section 152.052. In conjunction with this finding, the trial court
made the following findings:
• [Per the terms of the parties’ agreement,] Aspect would be entrusted with the
manufacturing operation of the business and would perform the labor and work necessary to bring
the product to market. [Aspect], through Sterling, would use its computer and business skills to
procure a manufacturing solution, coordinate the overall design and assembly of the loading
equipment and operation . . . , and oversee the manufacture and sale of the finished product.
• During the course of their dealings and in sworn testimony, Superior and Aspect
expressed the general intent to be “partners” in the business venture.
• Neither Plaintiffs nor Defendants executed any form of written agreements.
• Neither Plaintiffs nor Defendants executed any form of written joint venture or
partnership agreements.
• Neither Plaintiffs nor Defendants executed any form of written documents to
incorporate the proposed new business as a corporation or limited liability company.
• Neither Plaintiffs nor Defendants filed any U.S. tax returns for the proposed new
business or filed applications to obtain a U.S. tax identification number for the proposed new
business.
• No new bank account was set up for the venture, rather Plaintiffs and Defendants each
paid for items individually.
• Both Sterling and Tubb agreed to share the profits equally.
• Sterling and Tubb apparently never contemplated any losses and, therefore, never
agreed to share the losses or liabilities in any fashion.
• Both Sterling and Tubb agreed to “go into business together” on the ammunition
project, but it is clear they had no agreement as to the form of the entity, which continued to be
discussed until and after the filing of the lawsuit.
• Tubb and Superior held and provided the “checkbook” and, therefore, held all the rights
to control the business and right to make the executive decisions.
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• Both Tubb and Sterling contributed property to the venture.
Agreement to Share Profits and/or Losses
The trial court’s finding that the parties agreed to share profits equally is an uncontested
fact. This factor weighs heavily in support of a finding that the nature of the venture was a
partnership. See TEX. BUS. ORGS. CODE ANN. §§ 152.051(b), 152.052(a)(1); Ingram, 288
S.W.3d at 896 (stating that the Texas Revised Partnership Act comments note that traditional
import of sharing profits as well as control over business will probably continue to be most
important factors); see also Nguyen v. Hoang, No. 01-15-00352-CV, 2016 WL 6087693, at *8
(Tex. App.–Houston [1st Dist.] Oct. 18, 2016, pet. filed) (right to control business and sharing
profits most important factors in determining existence of partnership under Texas Business
Organizations Code). Furthermore, the record is in accord with the trial court’s finding that there
was no contemplated agreement concerning losses. However, an agreement by the owners of a
business to share losses is not necessary to create a partnership. See TEX. BUS. ORGS. CODE
ANN. § 152.052(c). Thus, while the existence of an agreement to share losses would be
indicative of a partnership, the absence of such an agreement does not indicate that no
partnership existed. Compare id. with id. § 152.052(a)(4)(A); see Ingram, 288 S.W.3d at 902
(while absence of agreement to share losses is not dispositive of existence of partnership,
existence of such an agreement could support argument that partnership existed).
No Agreement Regarding the Nature of the Entity
The record is in accord with the trial court’s finding that Tubb and Sterling had no
agreement regarding the nature of the entity. But we cannot overlook the fact that the trial court
made no finding concerning what type of entity the parties did, in fact, create.5 Appellants
contend there is evidence that Sterling proposed written agreements concerning entities other
than partnerships. But the record likewise supports that Tubb never accepted any of Sterling’s
proposed agreements. Appellant’s cite Hoss v. Alarding, 338 S.W.3d 635, 649 (Tex. App.–
Dallas 2011, no pet.), in support of their contention that there is no evidence that a tax return was
filed on behalf of the entity. But in Hoss, the court’s consideration of the fact that no tax return
5
The record indicates that in numerous instances, both Tubb and Sterling referred to the entity as a “joint
venture.” As the supreme court noted in Ingram, there is no “legal or logical reason for distinguishing a joint
venture from a partnership on the question of formation of the entity.” Ingram, 288 S.W.3d at 894 n.2; see TEX.
BUS. ORGS. CODE ANN. § 152.051(b)(2).
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was filed for the entity was predicated by the statement that the alleged partnership had existed
for “several years.” Id. In this case, the entity did not exist for much more than one year, and it
is reasonable to conclude from the evidence that both parties had doubts about its future several
months before Sterling formally repudiated the agreement. Thus, we conclude that the fact that
no tax return was filed for the entity is evidence a factfinder reasonably could disregard. Cf. id.
Ultimately, the trial court’s finding and the parties’ failure to agree on another form for the entity
lends support to a conclusion that the entity was a partnership. See TEX. BUS. ORGS. CODE ANN.
§ 152.051(b).
Participation or Right to Participate in Control of the Business
The trial court also found that Appellants held all the rights to control the business and
right to make the executive decisions because they held the “checkbook.” The right to “control”
a business is the right to make executive decisions. Ingram, 288 S.W.3d at 901 (citing Brown v.
Cole, 291 S.W.2d 704, 710 (Tex. 1956)) (evidence of control includes exercising authority over
business’s operations).6
The “checkbook,” as referenced in the trial court’s findings, was not the property of the
entity. Indeed, the record reflects that the entity had no checking account or other entity-owned
property. However, the record supports that, because of Tubb’s shooting expertise and outlay of
capital to purchase the loading machine, Appellants made many decisions concerning the finer
details of the ammunition that would be manufactured and held responsibilities concerning the
procurement of raw materials.
However, the trial court’s finding concerning the terms of the agreement and the evidence
of record nonetheless establishes that Appellees had the right to make, and made, many
decisions. These decisions included helping to devise a hybrid computer-controlled loading
system for the loading machine, the preparation of Sterling’s garage to be used as a
6
See also Guerrero v. Salinas, No. 13-05-323-CV, 2006 WL 2294578, at *11 (Tex. App.–Corpus Christi
Aug. 10, 2006, no pet.) (mem. op.) (concluding that evidence of management or control of the business was the right
to write checks on the business’s checking account); Tierra Sol Joint Venture v. City of El Paso, 155 S.W.3d 503,
508 (Tex. App.–El Paso 2004, pet. denied) (noting that party does not have control of business if party does not
have control over and access to business’s books); Price v. Wrather¸443 S.W.2d 348, 351–52 (Tex. Civ. App.–
Dallas 1969, writ ref’d n.r.e.) (noting that control of business could be receiving and managing all of the business’s
assets and monies). Although in Ingram, Deere argued that he had “equal” right of control, the supreme court did
not hold than an equal right of control over every aspect of the business was required. See Ingram, 288 S.W.3d at
901–02.
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manufacturing location for the business, devising the “Absolute” branding for the ammunition,
and the procurement of packaging for the ammunition.
The record further indicates that when Tubb suggested to Sterling that the manufacturing
should be moved to Canadian, Texas, before manufacturing even had commenced, Sterling
strongly objected, and Tubb relented on the issue. This evidence clearly indicates that Sterling
and Aspect had the right to make an executive decision concerning the location of the business’s
manufacturing facility.
Based on our review of the record, we conclude that the evidence supporting the trial
court’s finding Appellants held all the rights to control the business and right to make the
executive decisions was no more than a scintilla. See Driskill, 269 S.W.3d at 203. Instead, the
trial court’s finding concerning Appellees’ obligations under the agreement includes
responsibilities that amount to a right to participate in the control of the business, and the
evidence conclusively supports that Appellees participated in the control of the business. See
TEX. BUS. ORGS. CODE ANN. 152.052(a)(3); see also Ingram, 288 S.W.3d at 896 (import of
sharing profits as well as control over business will probably continue to be most important
factors); see also Nguyen, 2016 WL 6087693, at *8.
Contribution of Money or Property to the Business
The trial court further found that both Tubb and Sterling contributed property to the
venture. Indeed, the evidence demonstrates that Tubb contributed approximately $250,000.00 to
procure the machine while Sterling contributed value in the form of IT invoices for work he
previously had done for Appellants in the amount of approximately $35,000.00. Of course, Tubb
sought to maintain Appellants’ ownership of the machine, but his permitting it to be used to
manufacture ammunition for the venture nonetheless amounted to a contribution of value to the
entity. See TEX. BUS. ORGS. CODE ANN. § 1.002(9) (West Supp. 2016) (“‘Contribution’ means a
tangible or intangible benefit that a person transfers to an entity . . .”). Appellants further agreed
to lend Tubb’s name, well known in the shooting community, to the venture as additional value.
See Ingram, 288 S.W.3d at 902 (“[A]n individual’s reputation can be property that is contributed
to the partnership.”). Thus, we conclude that both parties’ contributions of property to the
venture supports the creation of a partnership. See TEX. BUS. ORGS. CODE ANN. § 152.052(5).
14
Expression of Intent to be Partners in the Business
Lastly, the trial court found that Superior and Aspect expressed the general intent to be
“partners” in the business venture. But see Ingram, 288 S.W.3d at 900 (merely referring to
another person as “partner” in a situation where recipient of message would not expect declarant
to make a statement of legal significance is not enough; courts should look to terminology used
by putative partners, the context in which statements were made, and identity of speaker and
listener). Appellees argue that the evidence supports that neither Tubb nor Sterling intended to
create a partnership. At trial, Sterling testified that he did not intend to create a partnership and
never called the business a partnership. Appellants’ counsel sought to impeach Sterling’s
testimony with his prior deposition testimony in which he referred to the project as a “joint
venture partnership.” Tubb’s responses and amended responses to interrogatories were similarly
contradictory on the subject.
However, we are mindful that while intent is among the factors indicating that persons
have created a partnership, a partnership may be created regardless of whether the persons
intended to create it. Compare TEX. BUS. ORGS. CODE ANN. § 152.051(b)(1) with TEX. BUS.
ORGS. CODE ANN. § 152.052(a)(2). Furthermore, apart from their self-serving testimonies, in
their communications with one another both parties repeatedly referred to the ammunition
project as a “joint venture.” See id. § 152.051(b)(2) (except under circumstances not applicable
here, association of two or more persons to carry on business for profit as owners creates
partnership regardless of whether the association is called “partnership,” “joint venture,” or other
name).
In sum, while the evidence of an expression of intent to create a partnership is a factor
that would support the creation of a partnership, the lack of such intent, or expressions of a
vague, yet unrealized, intent to operate under some other form, absent the actual creation of some
other form of statutorily derived entity,7 should not be given weight in favor of finding that no
partnership existed. Cf. Ingram, 288 S.W.3d at 903 (absence of agreement to share losses not
dispositive of existence of partnership, but existence of such an agreement could support
argument that partnership existed).
7
See TEX. BUS. ORGS. CODE ANN. § 151.051(c).
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Summation
In conclusion, the evidence supports the trial court’s findings on profit sharing, lack of a
formal agreement regarding the nature of the entity, and contribution of property to the entity.
Each of these factors supports a finding that a partnership was created. Furthermore, the
evidence supports the trial court’s finding that there is no evidence of an agreement to share
losses, which, as set forth above, is not required to create a partnership. Moreover, the trial
court’s finding concerning Appellants’ holding all of the rights to control of the business
amounted to less than a scintilla in the face of conclusive contrary evidence that Appellees had a
right to participate, and did participate, in the control of the business. Further still, the
testimonies from both Tubb and Sterling concerning whether they intended to create a
partnership was contradictory and self-serving despite the fact that both parties repeatedly
referred to the project as a “joint venture.” But, ultimately, a partnership could have been
created regardless of the parties’ noncommittal expressions of intent or the fact that the parties
repeatedly referred to the project as a “joint venture.”
Based on our review of the trial court’s findings and the record as a whole, we conclude
that, under the totality of the circumstances, the trial court’s finding that the parties did not create
a partnership is, at most, supported by less than a scintilla of evidence. See id. at 898. To the
contrary, the evidence of record when considered in light of the aforementioned factors and the
“continuum” described in Ingram conclusively establishes the existence of a partnership as
defined by Section 152.051(b). See id.; see also Perry Homes, 258 S.W.3d at 598. Therefore,
we hold that the evidence is legally insufficient to support the trial court’s finding concerning the
existence of a partnership. See City of Keller, 168 S.W.3d at 810.
Recovery of Restitution Damages
A partner is not entitled to receive compensation for services performed for a partnership
other than reasonable compensation for services rendered in winding up the business of the
partnership. TEX. BUS. ORGS. CODE ANN. § 152.203(c) (West 2012). In the instant case, the trial
court found that Appellees were not entitled to damages for lost profits. Rather, the trial court
found that Appellees were entitled to restitution damages based on the value of the services
Sterling provided to the business from October 2011 through January 2013. Because Superior
and Aspect were partners, the services Sterling performed on Aspect’s behalf for the partnership
during the venture are not subject to compensation. See id. Therefore, we hold that the trial
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court erred in awarding Appellees restitution damages for services performed for the partnership
during the venture.
Appellants’ second issue is sustained in part.8
ATTORNEY’S FEES
In their third issue, Appellants argue that the trial court abused its discretion by failing to
award them attorney’s fees because they successfully recovered from Appellees by virtue of the
trial court’s determination that they were entitled to an offset on Appellants’ damages award in
the amount of $35,019.00. An appellate court reviews a trial court’s decision on the award of
attorney’s fees for an abuse of discretion. Paul v. Merrill Lynch Trust Co. of Tex., 183 S.W.3d
805, 812 (Tex. App.–Waco 2005, no pet.). A trial court abuses its discretion when it acts
without reference to any guiding rules or principles, or stated another way, when the trial court
acts in an arbitrary and unreasonable manner. Id.
Appellants argue that Appellees breached the agreement by requiring Superior to pay its
IT invoices and the trial court’s award of an offset indicates that it agreed with this argument.
However, Appellants did not challenge the trial court’s conclusion of law that they “take nothing
as to their claims of fraud, conversion and breach of contract.” Therefore, they are not entitled to
recover attorney’s fees under Texas Civil Practice and Remedies Code, Section 38.001. See
TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8) (West 2015).
Moreover, before a court can award attorney’s fees under Section 38.001, the party
requesting the fees must prove they are reasonable and necessary. See Manon v. Tejas Toyota,
Inc., 162 S.W.3d 743, 751 (Tex. App.–Houston [14th Dist.] 2005, no pet.). In concluding that
Appellants were “not entitled to attorney’s fees[,]” the trial court implicitly found that there was
no proof that any such fees were reasonable and necessary. See TEX. R. CIV. P. 299. Appellants
have not challenged this implied finding on appeal nor has our review of the record uncovered
any evidence offered to support the necessary element that such fees were reasonable and
necessary.
For the foregoing reasons, we hold that the trial court did not abuse its discretion in
declining to award Appellants attorney’s fees. Appellants’ third issue is overruled.
8
As a result of our having sustained Appellants’ second issue in part, we need not consider the remaining
arguments comprising Appellants’ second issue. See TEX. R. APP. P. 47.1.
17
DISPOSITION
We have sustained Appellants’ second issue in part and overruled Appellants’ first and
third issues. Accordingly, we reverse the trial court’s judgment in part insofar as it awards
restitution damages to Appellees and render judgment that Appellees take nothing. We affirm
the remainder of the trial court’s judgment.
BRIAN HOYLE
Justice
Opinion delivered January 18, 2017.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(PUBLISH)
18