author: PEDEN, Justice.

text:
    THERMOTICS, INC. and Well Control, Inc., Appellants, v. BAT-JAC TOOL COMPANY, INC., et al., Appellees.
    No. 16791.
    Court of Civil Appeals of Texas, Houston (1st Dist.).
    Sept. 2, 1976.

      Bracewell & Patterson, J. Clifford Gunter III, William Ikard, Houston, for appellants.
    Boswell, O’Toole, Davis & Pickering, John C. Pavlas, Donald R. Hallmark, Houston, for appellees.
   PEDEN, Justice.

This is an appeal from the denial of a temporary injunction in a trade secrets case. Thermotics, Inc. and Well Control, Inc. brought this action against Bat-Jac Tool Company, Inc., Albert L. Batson, George M. Clark, Travis L. Samford, Mark Gekas, L. L. Machine Works, Inc., and L. L. Byrne.

Thermotics and its wholly-owned subsidiary, Well Control, develop, design, manufacture, research, improve, and market oil field tools and equipment. One of their products is a suspension drilling tool used to prevent drill bits or pipe from sticking. It is marketed by Well Control as the “Hill Suspension Drilling Tool” or the “Wellco Rotary Drilling Tool” (Hill Jar).

Batson, George Clark, and Samford are former employees of Well Control, having been vice president and general manager, chief engineer, and international salesman, respectively. While still employed by the appellants they organized and incorporated the Bat-Jac Tool Company. It offers for sale and lease the Battering Ram, a rotary drilling tool like the plaintiffs’ Hill-Jar. Gekas was formerly a secretary to Batson at Well Control and is now employed by Bat-Jac. L. L. Machine Works is a machine shop owned by Byrne; it manufactures and fabricates the Hill Jar for the appellants and the Battering Ram for Bat-Jac.

Appellants alleged in their original petition and application for temporary and permanent injunction that Bat-Jac, Batson, Clark, Samford, Gekas and the remaining defendants conspired to appropriate for their own use the “proprietary information” furnished in confidence to them by the appellants, including trade secrets concerning the Hill Jar, its manufacture and sale, as well as trade secrets concerning appellant’s products which are still in the design stage. They further state that the appellees have employed those trade secrets in the production, manufacture and sale or rental of the Battering Ram, which is identical to the Hill Jar, all to the appellants’ irreparable harm and detriment.

The appellants’ seven points of error assert that the trial court erred and abused its discretion in refusing to grant their application for a temporary injunction because:

1. the process by which the Hill Jar and the appellants’ other tools and equipment are fabricated, manufactured, and marketed are the appellants’ trade secrets;
2. the appellees illegally appropriated those trade secrets by the breach of confidence placed in them by the appellants;
3. the record conclusively shows that the appellants established a probable right and a probable injury;
4. the appellants have no remedy at law;
5. the balance of the equities is in favor of the appellants;
6. the appellants came before the trial court as plaintiffs with clean hands; and
7.the appellants will suffer irreparable injury during the interim unless the temporary injunction is granted.

The appellants contend that it is not in the Hill Jar, as patented, that they claim trade secret rights but in the process by which the improved Hill Jar was designed, assembled, and marketed.

We review the testimony.

J. D. Kimmel, president of Thermotics and Well Control, started Thermotics in 1967, and Thermotics purchased Well Control in 1968. Well Control’s principal products are a degasser and a down-hole drilling jar, the drilling jars being manufactured by a contract machine shop, L. L. Machine Works. Those who buy them are the major oil companies and major drilling contractors. Domestically, the company primarily rents the jars, usually by the day. It both sells and rents Hill Jars in the international market. They range in size from 3½ inches in diameter to 12 inches, and they are several feet long. A cut-away model was introduced in evidence. It appears to contain some fourteen parts. The patent rights to the Hill Jar were obtained by Well Control when it acquired the J. Ed Hill Company in 1969, but the patent expired in 1975. The patents tell how it works, not how to make it. Over the years Well Control changed the design of the jars to “restrict the tolerance a great deal or (sic) the springs and changed the packing, method and the barrel.” A sales brochure containing extensive specifications and dimensions of Bat-Jac was admitted in evidence. We note that it is identical with Well Control’s brochure except that it uses the names “Bat-Jac” and “Battering Ram” instead of “Well Control” and “Hill Jar.” Kimmel commented that even an erroneous figure has been copied.

Plaintiffs’ Exhibit No. 6, a sepia drawing of the mandrel (interior, working parts) of the Hill Jar, was introduced during Kim-mel’s testimony. A sepia is a drawing made from the original drawing and can be changed and then used to make blueprints or copies. One of George Clark’s duties was to do the drafting and drawing of the Hill Jar. If he was to make another size drawing or another size mandrel, he would take the original copy and make a reproducible or a sepia, turn the drawing over to the back side, erase the parts he wanted to change, turn it back over and make the changes and then he would have a new drawing. It was Kimmel’s opinion that if a draftsman was furnished the complete details and had to start without prior drawings; it would take him at least thirty to sixty days to reproduce the necessary twenty or so drawings.

In an effort to keep these drawings confidential Thermotics placed this priority stamp or plate on drawings:

“The information disclosed herein is proprietary with Thermotics Inc. and shall not be duplicated, used or disclosed to reproduce articles or subject matter covered therein without written permission of Thermotics Inc.”

It is company policy to have this stamp put on all drawings. George Clark was principally in charge of drawings and of putting the stamp on them.

It was the practice of Thermotics and Well Control to try to get all employees in management and technical positions to sign a confidential disclosure document. Kim-mel believes Batson told him that he had executed a confidential agreement. He does not have a copy of it, but he does have copies of those executed by Clark and Sam-ford. They contain no covenants that the employees would not enter into a competing business but include an agreement that the employees would not disclose any trade secrets or other confidential information during and after employment.

L. L. Machine Shop has made over a quarter of a million dollars worth of the jars for Well Control in the last 15 years. L. L. Byrne runs the shop and makes the jars from drawings given him by Well Control, but Kimmel is sure Byrne knows how to make them without reference to the drawings. Byrne does all the machining but obtains springs, packings, and seals for the jar from three companies that Well Control works with. Byrne originally told Kimmel that he was not going to build any jars for Bat-Jac until all legal problems had been cleared up. He later admitted having lied about it and having built some, but he said Bat-Jac would not get them until the legal problem had been cleared up. Byrne told Kimmel that the Bat-Jac drawings contained the same mistakes as Well Control’s drawings. Those who assemble the jars must have expertise to do it. It takes between 30 and 120 days to get the material, have it machined, get the component parts, and have the jars heat treated.

Kimmel admitted on cross-examination that there is more than one maker of drilling jars and that there are eight to ten different rotary drilling jars. He later said the Hill Jar is unique in that it works. The metal is unique in the way it is heat treated, but anyone who could conduct a metal test could determine what metals were used and the manner it was formed. He also admitted that each part could be copied if one could disassemble the jar, that it could be copied by anyone with sufficient technical knowledge, and that any machine shop could duplicate it by trial and error, but it would take time. Some of the drawings in the possession of L. L. Machine Works had confidential stamps on them but they probably had some Hill drawings without stamps from before he acquired J. Ed Hill Company. There is no written agreement with Byrne or anyone connected with L. L. Machine Works.

Kimmel stated on re-direct examination that Well Control had projected earnings of $496,000 for 1976 but as a result of the incidents made the basis of this litigation he revised and projected Well Control to lose approximately $100,000. The Hill Jar produces Well Control’s best profit.

Defendant Albert L. Batson was called as an adverse witness by the plaintiffs. He is the president of Bat-Jac, and he, Samford, and George Clark are its principal shareholders. He admitted knowing that the Battering Ram is in direct competition with the Hill Jar and admitted that it is exactly like the Hill Jar. There are copies of Hill Jar drawings all over the country. He did not personally copy any drawings, but said they were copied on some copy machine in Houston. He told Clark to get them but did not know where they got the drawings. He later admitted that he, Clark, and Sam-ford did not intend to look at a part and manufacture their own set of drawings. They copied Thermotic’s drawings and went directly to L. L. Machine, the shop that made the jars for Thermotics. They asked L. L. Machine to make the jar because Byrne was a friend and they knew he could do the work. Someone from Bat-Jac went to Leeco, the company that manufactures springs for Well Control’s jar, and asked them to make some springs for the Battering Ram. He went to a company that made molds for Thermotics and asked them if he could use them, but the company refused. He had the advertising brochure for the Battering Ram made by the same company that printed the one for Well Control. It is exactly the same as theirs except for the names of the products and the companies.

Batson didn’t sign a confidential agreement or patent assignment agreement with Thermotics or Well Control. Bat-Jac has seven or eight outstanding quotes on jars, including one to a former customer of Well Control. Twenty jars are being made for Bat-Jac by Byrne; none have been sold, but two have been rented to a former customer of Well Control. The reason Well Control’s business went down was because a severe drop in drilling cut off sales of the degasser and because there was an increase in competition. He, Samford, Clark, and Byrne all had knowledge of drilling jars before going to work for Well Control. George Clark could draw a set of prints from memory, could get the components, and produce a jar in thirty days.

Defendant George M. Clark testified that he signed an employee agreement. He xeroxed the drawings of Well Control when he left the company. He made no effort on his own to reconstruct the drawings but merely copied a drawing of a xerox copy. The drawing he xeroxed was not a Ther-motic’s drawing but a J. Ed Hill drawing, and the only changes were that he placed Bat-Jac instead of Hill or Well Control on it, changed the drawing number, the date, and “any other changes it needed.” When asked why he made copies of the drawing he replied: “We were not building the exact tool . . . ” He admitted using Well Control’s drawings.

L. L. Byrne owns the L. L. Machine Works. He denied using the Well Control drawings Kimmel gave him to make the jars for Bat-Jac. George Clark gave him the drawings. He has an inventory of jars for Well Control. Some have been around for eight or nine years and Well Control didn’t take them and didn’t want them. When asked whether the jars he built for Well Control and those he is building for Bat-Jac are the same, he answered, “Yes, sir, they are similar, like on patents.” He admitted that Mr. Kimmel could use in his business the jars made for Bat-Jac.

Q. “All you have to do is change Bat-Jac to Well Control?”
A. “Yes, that would be pretty close.”

Frank Clark, a machinist, was the only witness called by the appellees. He has made rotary drilling jars in the past, and if furnished a set of plans for the Hill jar he could make it in thirty days; if he was fully staffed and not busy, he could do it in two weeks.

Where no findings of fact or conclusions of law were made by the trial court, we must consider the facts in the light most favorable to support the order of that court. International Union of Operating Engineers v. Cox, 148 Tex. 42, 219 S.W.2d 787 (1949).

Ordinarily, the trial court has broad discretion in determining whether or not to issue a temporary injunction, and its judgment will not be overturned unless the record discloses a clear abuse of discretion. The general rule is not unlimited; it does not extend to the erroneous application of the law to undisputed facts. City of Spring Valley v. Southwestern Bell Telephone Co., 484 S.W.2d 579 (Tex.1972).

Even though it be uncontradicted, testimony of an interested witness, such as Mr. Kimmel in our case, cannot be considered as doing more than raising an issue of fact unless it is clear, direct and positive and there are no circumstances in evidence tending to discredit or impeach it. This exception is especially true where the opposite party has the means and opportunity of disproving the testimony, if it is not true, and fails to do so. Great American Reserve Insurance Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41 (Tex.1965).

It is well settled that injunctive relief may be granted when one breaches his confidential relationship in order to unfairly use a trade secret. In the area of confidential relationships such as between employers and employees the injured party is not required to rely upon an express agreement to hold the trade secret in confidence. Hyde Corporation v. Huffines, 158 Tex. 566, 314 S.W.2d 763 (1958).

The question of whether the appellant’s improvements to the Hill Jar were trade secrets is a crucial one in this case. The definition generally accepted is contained in 4 Restatement of Torts, § 757:

“b. Definition of trade secret. A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. * * * A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article.”

To be a trade secret, the subject matter must be secret. In Wissman v. Boucher, 150 Tex. 326, 240 S.W.2d 278, our Supreme Court held that there was no trade secret involved in production of a metallic fishing rod that would collapse into one piece and thus also serve as a walking stick. In K & G Oil Tool & Service Co. v. G & G Fishing Tool Service, 158 Tex. 594, 314 S.W.2d 782 (1958), the court held that the magnetic fishing tool there involved could not properly be placed in the same category with the collapsible fishing rod insofar as ease of production was concerned. The fishing rod in Wissman v. Boucher was described as a simple and obvious device, the construction of which was ascertainable at a glance, while magnetic fishing tools had been the subject of many patents, and much work and ingenuity had been applied to the development of the K & G tool.

In our case it seems clear from an examination of the model that the improved Hill Jar is relatively complex and fits in the same category as the magnetic fishing tool rather than in the collapsible fishing rod one.

In Luccous v. J. C. Kinley Company, 376 S.W.2d 336 (Tex.1964), the subject matter of a trade secret which an inventor sought to protect was the same as that protected by an expired patent. Our Supreme Court held that an inventor may elect to obtain a patent and thus protect his invention for a limited time on condition that he make full disclosure for the benefit of the public of the manner of making and using the invention, or he may refrain from making a public disclosure and protect his trade secret under the equitable jurisdiction of the state courts. When the patent is granted the entire patent file and its contents become public property, and the equitable powers of the court are not available to protect the trade secret after the patent expires.

The case under submission is distinguishable from Luccous on its facts. Our Supreme Court cited with approval in Hyde Corporation v. Huffines, 314 S.W.2d 763 at p. 778 (1958) a holding in Franke v. Wiltschek, 209 F.2d 493 (2d Cir.) that the plaintiffs were entitled to protection of a trade secret characterized by the defendant as one whose heart “was revealed by an expired patent, and that the improvements thereon were unpatentable applications of mechanical skill.” The court said:

“ . . . This totally misconceives the nature of plaintiffs’ right. Plaintiffs do not assert, indeed cannot assert, a property right in their development such as would entitle them to exclusive enjoyment against the world. Theirs is not a patent, but a trade secret. The essence of their action is not infringement, but breach of faith. It matters not that defendants could have gained their knowledge from a study of the expired patent and plaintiffs’ publicly marketed product. The fact is that they did not. Instead they gained it from plaintiffs via their confidential relationship, and in so doing incurred a duty not to use it to plaintiffs' detriment. This duty they have breached. . . .”

See also Welex Jet Services v. Owen, 325 S.W.2d 856 (Tex.Civ.App.1959, writ ref. n.r.e.) and the discussion of that case in Luccous v. J. C. Kinley Co., supra, at p. 339.

As to the appellants’ first point of error, we conclude that the evidence established as a matter of law only that the improvements made by the appellants to the Hill Jar (after it was patented) were trade secrets entitled to protection by temporary injunction. We do not agree with the appellants that the record shows they were entitled to protection of the “process by which the Hill Jar and/or other products of appellants were developed, engineered, refined, fabricated, manufactured, marketed and all the confidential data associated therewith . . . ” We sustain the appellants’ other six points of error.

We hold that these facts were established as a matter of law:

1. Thermotics and Well Control bought the patent rights to the Hill Jar.

2. Those patent rights expired in 1975.

3. Thermotics and Well Control improved the performance of the Hill Jar by changing the design to restrict tolerances and by changing the length of the springs, the packing method, and the barrel.

4. These improvements constituted trade secrets.

5. Defendants Batson, Clark, and Sam-ford organized defendant Bat-Jack Tool Company while still employed by the appellants.

6. Drawings of the Hill Jar were obtained by defendant Clark from the plaintiffs without their knowledge or consent while he was employed by them.

7. Through use of these drawings and know-how of defendants Clark, Batson and Byrne, acquired during the existence of their confidential relationships with the plaintiffs, they duplicated the improved Hill Jar.

8. Although defendant L. L. Machine Works had been making Hill Jars for the appellants for several years it was these drawings it used to produce the Battering Ram, a drilling tool that is a duplicate of the Hill Jar.

9. The defendants could have duplicated the improved Hill Jar by using any one of several other methods that would not have entailed the unauthorized use of trade secrets, but they didn’t.

The evidence introduced at the hearing on the application for a permanent injunction may well differ from that here reviewed.

It has not been established that defendant Mrs. Gekas breached her confidential relationship in order to unfairly use a trade secret belonging to the appellants. As to the other defendants, we hold that the trial court abused its discretion in denying the plaintiffs’ application for temporary injunction. We reverse the order of the trial court and remand this cause to the trial court with instructions to grant the temporary injunction in keeping with this opinion upon the execution by the appellants of an injunction bond in an amount to be set by the trial court.


source: Caselaw Access Project

author: AKIN, Justice.

license: Public Domain

text:
    R. H. SANDERS CORPORATION and Ronald H. Sanders, Individually, Appellants, v. Stanley HAVES and Samuel Schwinder, Appellees.
    No. 19023.
    Court of Civil Appeals of Texas, Dallas.
    Sept. 2, 1976.

      Lawrence Fischman, Weil, Craig, & Fischman, Dallas, for appellants.
    Norman P. Hines, Jr., Sol Balias, Dallas, for appellee.
   AKIN, Justice.

This is an appeal by defendants R. H. Sanders Corporation and Ronald H. Sanders from a temporary injunction granted plaintiffs Stanley Haves and Samuel Schwinder. Plaintiffs sued for injunctive and declaratory relief after they were notified of a shareholders’ meeting to increase the Board of Directors from three to five, thus giving control to defendant Sanders. The trial court enjoined defendant Sanders from taking any action in contravention of a contract clause that plaintiffs contend constitutes a voting agreement. The principal question presented is whether this language in a contract between the parties for the purchase of a minority stock position and a loan to the corporation by plaintiffs is a valid voting agreement under Tex.Bus. Corp.Act Ann. art. 2.30, subd. B (Vernon Supp.1975). This question is crucial because, defendants contend, unless a valid voting agreement exists, plaintiffs have failed to establish a probable right of recovery; consequently, the issuance of the order would be an abuse of the trial court's discretion. Additionally, defendants argue that plaintiffs had an adequate remedy at law. Because we hold that the voting agreement is valid, the trial court did not abuse its discretion in finding that plaintiffs established a probable right of recovery. Since we also find plaintiffs had no adequate remedy at law, we affirm.

A. Probable Right of Recovery

This controversy emanated from a written contract executed on August 30, 1975, between plaintiffs and Sanders, whereby plaintiffs loaned the defendant corporation $26,000 and purchased thirty-five percent of the outstanding stock of the corporation for $24,000. Sanders needed these funds to enable his solely-owned corporation to finance certain sales contracts in Kuwait. These contracts were also the inducing factor for plaintiffs’ loan to and equity investment in the defendant corporation.

After execution of the August 30, 1975, contract, plaintiffs advanced to the corporation $50,000 for the stock and the loan. In order to protect their investment and loan, the letter agreement contained the following provision:

Each of the three stockholders shall be a Director of the corporation and each vote shall be equal. A majority of the three-man Board of Directors shall control.

Plaintiffs contend that this language constitutes a valid voting agreement, the terms of which are that defendant Sanders will vote his majority shares to elect plaintiffs to the Board and to give plaintiffs a majority on the Board. We agree. Looking at the entire contract, it is evident that this language was intended to protect plaintiffs’ investment and loan by giving them a majority control of the Board of Directors. This control is only possible if Sanders is bound to vote his shares for the election of plaintiffs to the Board and is bound not to vote them in a manner that would deprive plaintiffs of a majority. The use of the verb “shall” supports this reading. Since this is not a voting trust under art. 2.30, subd. A, because there is no severance of the voting right from the stock ownership, it can only be construed to be a voting agreement under art. 2.30, subd. B.

Our holding here is in accord with sound principles of contract construction that require us to look at the entire contract to ascertain the intention of the parties as to the meaning of a given clause. LeBlanc, Inc. v. Gulf Bitulithic Co., 412 S.W.2d 86, 93 (Tex.Civ.App.-Tyler 1967, writ ref’d n. r. e.). Furthermore, all language used is presumed to have some meaning and is not mere surplusage. Fruhman v. Nawcas Benevolent Auxiliary, 436 S.W.2d 912, 915 (Tex.Civ.App.-Dallas 1969, writ ref’d n. r. e.). Accordingly, we may not disregard language unless it is necessarily repugnant to other language in the contract. Woods v. Sims, 154 Tex. 59, 273 S.W.2d 617, 620 (1954). Our reading of this language is the only reasonable construction that gives it any meaning.

Since we have concluded that this language is a voting agreement, we need next to determine if it is valid under art. 2.30, subd. B. This is so because the question of whether plaintiffs have established a probable right of recovery turns on whether this language constitutes a valid voting agreement under art. 2.30, subd. B of the Tex. Bus.Corp.Act Ann. (Vernon Supp.1975). Art. 2.30, subd. B provides:

Any number of shareholders may enter into a voting agreement in writing for the purpose of voting their shares as a unit, in the manner prescribed in the agreement, on any matter submitted to a vote at a meeting of the shareholders for a period not exceeding ten (10) years from the date of the execution of the agreement. A counterpart of the agreement shall be deposited with the corporation at its principal office and shall be subject to the same right of examination by a shareholder of the corporation . . . as are the books and records of the corporation. Each certificate representing shares held by the parties to the agreement shall contain a statement that the shares represented by the certificate are subject to the provisions of a voting agreement, a counterpart of which has been deposited with the corporation at its principal office. Upon such deposit of the counterpart of the agreement and endorsement of the prescribed statement upon the certificates representing shares, the agreement shall be specifically enforceable in accordance with the principles of equity. [Emphasis added.]

Defendants contend that the letter agreement is unenforceable as a voting agreement because it does not comply with art. 2.30, subd. B, in the following respects: (1) It does not state the duration of the voting agreement; (2) the certificates do not show that they are subject to the voting agreement; and (3) no copy of the agreement was deposited at the corporation’s principal office. We cannot agree for the reasons set forth infra.

1. Duration of Voting Agreement

Defendants argue that, absent a specific termination date, the voting agreement must either be perpetual, which would contravene the ten-year limitation of art. 2.30, subd. B, or be terminable at will. We cannot agree because we hold that, where the contract is silent as to duration and where no irreconcilable language exists extending it past the limitation period of the statute, the contract shall be deemed to incorporate the statutory period. Lloyd v. McDiarmid, 60 Ohio App. 7, 19 N.E.2d 292, 294 (1937); see Holmes v. Sharretts, 228 Md. 358, 180 A.2d 302, 306 (1962). Contra, Christopher v. Richardson, 394 Pa. 425, 147 A.2d 375, 376 (1959). The theory is that, where the contract is silent as to time, the parties presumably contracted with the statute in mind. This interpretation conforms to the general rule that existing law is incorporated into a contract where possible to do so without doing violence to the contract terms. See Hall v. Weller, Hall & Jeffery, Inc., 497 S.W.2d 374, 377 (Tex.Civ.App.-Houston [1st Dist.] 1973, writ ref’d n. r. e.), cited with approval in Houston Lighting & Power Co. v. Railroad Commission, 529 S.W.2d 763, 766 (Tex.1975). To construe this language as terminable at will or as void, as defendants would have us do, is equivalent to saying that it is surplusage because defendant Sanders would not be bound. As this court held in Fruhman v. Nawcas Benevolent Auxiliary, supra at 915, contract clauses should not be construed so as to render them superfluous unless absolutely necessary. Consequently, we conclude that defendants’ argument is without merit.

2. Non-Compliance with Statute

Defendants also argue that, since a copy of the voting agreement was not filed with the corporation and since each stock certificate representing shares subject to the agreement does not contain a legend so stating, the voting agreement is void. We cannot agree. Art. 2.30, subd. B, specifically provides that upon filing of the copy and endorsement of the certificates “the agreement shall be specifically enforceable in accordance with the principles of equity.” Here, the evidence shows that plaintiff Haves mailed two copies of the agreement to defendant Sanders at the corporate office. Sanders retained one at the corporate office and, after signing the other, returned it to plaintiff Haves. It is also undisputed that defendant Sanders failed to deliver plaintiffs’ stock to them until the morning of the hearing on the temporary injunction, despite earlier requests to do so.

The purpose of these requirements in the statute is to give notice to shareholders or stock purchasers who are not parties to the voting agreement. Since the parties here are all of the shareholders and had knowledge of the agreement, and since no outside buyers were involved, no compelling policy reason exists here for requiring technical compliance with these notice provisions. We conclude, therefore, that defendants’ contention is untenable. See Demarco v. Paramount Ice Corp., 102 N.Y.S.2d 692 (Sup.Ct.1950); see also Sankin v. 5410 Connecticut Avenue Corp., 281 F.Supp. 524, 549-53 (D.D.C.1968); cf. Grogan v. Grogan, 159 Tex. 392, 322 S.W.2d 514 (1959); cf. Camp v. Shannon, 162 Tex. 515, 348 S.W.2d 517, 520 (1961). Since we have concluded that a valid voting agreement exists, and since, under art. 2.30, subd. B, an injunction is proper to enforce compliance with the voting agreement, we hold that plaintiffs established a probable right of recovery.

B. No Adequate Remedy at Law

No adequate remedy at law exists if the damages are incapable of calculation or if defendant is incapable of responding in damages. County of Harris v. Southern Pacific Transportation Co., 457 S.W.2d 336, 339 (Tex.Civ.App.—Houston [1st Dist.] 1970, no writ); Grayson Enterprises, Inc. v. Texas Key Broadcasters, Inc., 388 S.W.2d 204, 208 (Tex.Civ.App.—Eastland 1965, no writ). Since the trial court found that damages were incapable of determination and that defendants would be unable to respond in damages, we must sustain the temporary injunction if either of these findings are supported by evidence. Baucum v. Texam Oil Corp., 423 S.W.2d 434, 442 (Tex.Civ.App.-El Paso 1967, writ ref’d n. r. e.).

We first turn to the question of whether there is evidence that damages cannot be ascertained. The investment which the agreement was designed to protect has two aspects: A loan and a purchase of stock. Although damages from the failure to repay the loan may be definite, the effect on the value of plaintiffs’ equity stock is not readily ascertainable. See 721 Corp. v. Morgan Guaranty Trust Co., 40 Misc.2d 395, 243 N.Y.S.2d 198, 200 (1963). This is especially true where, as here, there is evidence that the defendant has diverted corporate assets to his personal use. Plaintiff Haves testified that Sanders had repeatedly delayed the repayment of all or part of the loan, employing a succession of excuses. Furthermore, Sanders refused to allow plaintiffs to inspect corporate bank records, and Haves testified that Sanders had removed considerable funds from the corporation, despite the agreement which limited his remuneration to $500 per week. Moreover, it appeared that defendant Sanders falsely entered expenses for furniture and was drawing excessively large sums for travel expenses. Although requested to do so by plaintiffs, Sanders refused to give plaintiffs details on the status of a substantial sale to a Kuwait firm. This evidence supports the trial court’s finding that Sanders was stripping the corporation of its assets. Since the value of plaintiffs’ stock will be adversely affected by the depletion of the corporate assets and since the potential value of plaintiffs’ equity investment cannot be readily ascertained, we hold that plaintiffs have established that no adequate remedy at law is available. Accordingly, the judgment of the trial court is affirmed.


author: GUITTARD, Justice.

text:
    FAIR PARK NATIONAL BANK and Juanita Akins, Appellants, v. SOUTHWESTERN INVESTMENT COMPANY, Appellee.
    No. 19001.
    Court of Civil Appeals of Texas, Dallas.
    Sept. 2, 1976.
    Rehearing Denied Sept. 30, 1976.

      James H. Baumgartner, Jr., Vial, Hamilton, Koch, Tubb, Knox & Stradley, Dallas, for appellants.
    Cleo G. Clayton, Jr., Clayton & Stubble-field, Amarillo, for appellee.
   GUITTARD, Justice.

The “impostor rule” of the Uniform Commercial Code fixes the loss resulting from the fraud of an impostor on the drawer of a check or draft who delivers it to the impostor rather than on a subsequent holder, regardless of the lack of a genuine endorsement by the nominal payee. This case involves applicability of this rule to a draft delivered to one impostor but payable to two payees. We hold that the impostor rule applies so that the drawer cannot recover against the collecting bank on the ground of the lack of genuineness of the endorsement of either of the joint payees. We hold also that the bank is not liable to the drawer for the alleged negligence of the bank’s employees for failure to verify the authenticity of the endorsements.

The trial was before a jury, but the facts are substantially without dispute. Plaintiff Southwestern Investment Company agreed to lend $12,000 to James Impson to finance the purchase of a “front loader” machine from persons named by Impson as J. L. Williams and James L. Wilson of Euless, Texas, doing business as Universal Constructors. One of Southwestern’s employees inspected the machine pointed out by Impson and approved the security. Southwestern required a bill of sale from the sellers and also a guarantor on the note. When the note was signed by Impson and his guarantor, Southwestern prepared at Impson’s direction a draft for $12,000 payable to J. L. Williams and James L. Wilson. Shortly afterward, a man representing himself to be J. L. Williams appeared at Southwestern’s Dallas office with a bill of sale purportedly signed by J. L. Williams and James L. Wilson and tendered it in exchange for the draft. Without requiring any identification, Southwestern accepted the bill of sale and delivered the draft to the supposed J. L. Williams.

Later, Impson, the borrower, appeared at Fair Park National Bank and presented the draft to the teller, Juanita Akins, who knew him as a customer of the bank. She saw that the draft bore the purported endorsements in blank of both payees and accepted it for deposit in Impson’s account without requiring any endorsement by him. The Fair Park Bank stamped its endorsement with the notation “Previous Endorsement Guaranteed,” and sent the draft to Amarillo National Bank, which charged Southwestern’s account and paid the draft with a cashier’s check to Fair Park Bank. Fair Park Bank then issued to Impson its cashier’s check for the amount of the draft.

After three payments were made on Imp-son’s note to Southwestern, Impson defaulted, and the guarantor likewise failed to pay. Southwestern undertook an investigation, which revealed that the machine had not been purchased from J. L. Williams and James L. Wilson, but had been stolen. No trace could be found of Williams, Wilson, or of any firm doing business as Universal Constructors. Southwestern then sued Impson, his guarantor, Juanita Akins, and both banks for breach of warranty, negligence, fraud, conversion, and money had and received, without differentiating between the kinds of claims it asserted against the several defendants.

In response to special issues the jury found that J. L. Williams and James L. Wilson failed to endorse the draft before it was delivered by Impson to defendant Fair Park Bank, that Fair Park Bank was negligent in not verifying that the named payees had endorsed the draft, and that both J. L. Williams and James L. Wilson were impostors. On this verdict the court rendered judgment jointly and severally against all defendants except the Amarillo bank for the balance of the note, interest, and attorney’s fee.

1. Liability for Breach of Warranty

Defendants Fair Park Bank and Juanita Akins have appealed, contending that under the impostor rule, the endorsements on the draft were effective, whether or not they were the genuine signatures of J. L. Williams and James L. Wilson. Southwestern responds that even though the man representing himself to be Williams may have been an impostor, so that the endorsement was effective as respects his purported signature, nevertheless there was no effective endorsement by or on behalf of the other payee, James L. Wilson, because no person representing himself as Wilson had any connection with the issuance of the draft. Southwestern argues that under § 3.116(2) of the Code, when an instrument is payable to two or more persons and not in the alternative, it must be negotiated by both. Consequently, Southwestern asserts that Fair Park Bank is liable for breach of warranty of the Wilson endorsement.

We conclude that Fair Park Bank is not liable for breach of warranty for two reasons. In the first place, the impostor rule applies to the person who signed the bill of sale as James L. Wilson as well as to the person who signed as J. L. Williams. The jury found that Wilson as well as Williams was an impostor. Southwestern does not attack this finding for lack of evidence, but contends rather that this finding is immaterial because whether Wilson is an impostor within the meaning of § 3.405(a)(1) is not a question of fact but a question of law, which the trial court properly resolved in Southwestern’s favor. Apparently, Southwestern’s position is that there was no imposture with respect to James L. Wilson because no one pretending to bear that name appeared before Southwestern’s representative and joined with the purported J. L. Williams in inducing Southwestern to deliver the draft.

This argument erroneously assumes that an “impostor” under § 3.405(a)(1) must meet his victim face to face. That section does not so provide. Rather, it states the rule as follows:

(a) An indorsement by any person in the name of a named payee is effective if
(1) an imposter [sic] by use of the mails or otherwise has induced the maker or drawer to issue the instrument to him or his confederate in the name of the payee .

One of the purposes of drafting the rule in this language was to eliminate the requirement of a face-to-face meeting, which had been imposed by some of the pre-Code cases. Uniform Commercial Code, § 3 — 405, Comment 2; Philadelphia Title Insurance Co. v. Fidelity-Philadelphia Trust Co., 419 Pa. 78, 212 A.2d 222, 225 (1965); and see First State Bank v. Oak Cliff Savings & Loan Ass’n, 387 S.W.2d 369, 376 (Tex.1965, Greenhill, J., dissenting). Under the Code, it is only necessary that “an impostor by use of the mails or otherwise has induced the maker or drawer to issue the instrument to him or his confederate in the name of the payee.”

Here the evidence and the verdict established that the person who signed the bill of sale as “James L. Wilson,” as well as the person who signed as “J. L. Williams,” was an impostor. Southwestern’s own evidence showed that there never was any partnership composed of J. L. Williams and James L. Wilson doing business as Universal Constructors at the address given by Impson. This evidence supports the jury’s finding that “the-James L. Wilson in question” — that is, the person who signed the bill of sale in that name — was an impostor. Although an impostor cannot be a fictitious person, since there must be a real person who impersonates someone else, an impostor may impersonate a fictitious person. Both of the persons who signed the bill of sale induced Southwestern to issue the draft, since, presumably, Southwestern would not have issued it without a bill of sale bearing both signatures. Consequently, § 3.405(a)(1) makes both endorsements effective to relieve Fair Park Bank of liability for breach of warranty, regardless of who wrote them.

In the second place, we conclude that the impostor rule applies even if the “James L. Wilson” named in the bill of sale, or the person who signed the bill in his name, was not an impostor. Southwestern does not challenge the finding that the man who represented himself as J. L. Williams was an impostor. In effect, it concedes that the endorsement of this name on the draft was effective under § 3.405(a)(1), but it contends that unless. Wilson also is shown to be an impostor, the bank is liable for breach of its warranty of his endorsement. We cannot agree. Section 3.405(a)(1) is not limited to situations in which impostors have impersonated all the joint payees. If an impostor “has induced the maker or drawer to issue the instrument to him or his confederate in the name of the payee,” the endorsement of any person “in the name of a named payee is effective.” We interpret this language to mean that if an instrument is payable to A and B, and X, by impersonating A, induces the drawer to deliver the instrument to him, then X, or anyone else, can make effective endorsements in the names of both A and B. This interpretation is consistent with the policy of the impostor rule, which is to throw the loss resulting from dealing with an impostor on the person who dealt with the impostor, and, presumably, had the best opportunity to take precautions that would have detected the fraud, rather than on a subsequent holder, who had no similar opportunity. Covington v. Penn Square National Bank, 545 P.2d 824, 826 (Okl.App.1975); F. Hart and W. Willier, Commercial Paper Under the UCC § 3.08[2], at 3-23 (2 Bender’s UCC Service 1975); O’Malley, Common Check Frauds and the Uniform Commercial Code, 23 Rutgers L.Rev. 189, 222 (1969). A drawer who deals with a person impersonating one of several payees has as good an opportunity to detect the fraud as one who deals with the impersonator of a single payee. Consequently, on this ground also we hold that the endorsement in the name of James L. Wilson was as effective under § 3.401(a)(1) as was the endorsement in the name of J. L. Williams.

2. Liability for Negligence

Southwestern contends that even if Fair Park Bank is not liable for breach of warranty of the endorsements, it is liable for its negligence in failing to verify their authenticity. Consequently, it argues that the trial court’s judgment should be upheld on the basis of the jury’s findings that Fair Park Bank was negligent in not verifying that the named payees had endorsed the draft and that such negligence was a proximate cause of Southwestern’s paying the draft.

This contention, also, is untenable. The Code does not impose on a subsequent holder a duty to use ordinary care or to act in accordance with reasonable commercial standards to protect a person who has issued an instrument to an impostor. Since § 3.401(a)(1) makes all endorsements in the name of the payee effective, the collecting bank has good title to the draft, and can have no more liability for negligence than for breach of warranty. When the draft is accepted and paid, as this draft was accepted by Southwestern and paid through the Amarillo bank, such acceptance and payment is “final” under § 3.418 of the Code in the sense that it cannot be recovered back, regardless of negligence. That section provides:

Except for recovery of bank payments as provided in the chapter on Bank Deposits and Collections (Chapter 4) and except for liability for breach of warranty on presentment under the preceding section, payment or acceptance of any instrument is final in favor of a holder in due course, or a person who has in good faith changed his position in reliance on the payment.

Consequently, the alleged negligence of the collecting bank provides no ground of liability.

This effect of § 3.418 was recognized by this court in the analogous case of Aetna Life and Casualty Co. v. Hampton State Bank, 497 S.W.2d 80 (Tex.Civ.App.-Dallas 1973, writ ref’d n. r. e.). In that case a check was payable to a fictitious payee and, therefore, was governed by subdivision (2) of § 3.405(a), which provides that an endorsement by any person in the name of the payee is effective if the drawer intends the payee to have no interest in the instrument. We held that the collecting bank was not liable to the drawee bank for breach of warranty of endorsement because the endorsement in the name of the fictitious payee was effective to pass title. With respect to liability for negligence, we said that the payment by the drawee bank was “final” under § 3.418 in the sense that it could not be recovered back, and, consequently, that there could be no recovery for negligence unless the negligence amounted to a lack of good faith. Id. at 85. We now conclude that the same reasoning applies to an instrument issued to an impostor within the meaning of subdivision (1) of § 3.405(a).

The same result was reached on a different ground under subdivision (3) of § 3.405(a) in a case where the name of the payee was supplied to the drawer by a dishonest employee. Prudential Insurance Co. v. Marine National Exchange Bank, 371 F.Supp. 1002 (E.D.Wis.1974). In that case the court reasoned that since other sections of the Code, particularly §§ 3.406 and 4.406, impose liability for failure to use ordinary care, and § 3.405 makes no such requirement, the collecting bank’s negligence is not relevant and the drawer cannot avoid the defense provided in § 3.405 without a showing of bad faith. We approve this construction also and conclude that it applies to a case within the impostor rule stated in subdivision (1) of § 3.405(a).

3.The Judgment

Southwestern alleged further that it was entitled to recover from the bank for fraud, conversion, and for money had and received, but these allegations are neither supported by proof nor established by jury findings. Consequently, since we hold that Southwestern is not entitled to recover for breach of warranty or for negligence, the judgment of the trial court is reversed and judgment is rendered that Southwestern take nothing against Fair Park Bank. With respect to defendant Juanita Akins, since Southwestern does not advance any ground of independent liability on her part, the judgment against her is likewise reversed and judgment is rendered in her favor. In this connection we note that no issue concerning her negligence specifically, as distinguished from the negligence of the bank, was submitted to the jury. The judgment of the trial court is undisturbed with reference to the other defendants.

Reversed and rendered.

      . Tex.Bus. & Comm.Code Ann § 3.405(a)(1) (Vernon 1968). All references to sections of the Uniform Commercial Code in this opinion will be to the corresponding sections of Tex. Bus. & Comm.Code Ann. (Vernon 1968).

      . This issue would have been less confusing if it had inquired whether “the person who signed the bill of sale as James L. Wilson was an impostor,” but apparently the jury so understood it, and no objection to the wording of the issue is before us.

      . The trial court’s instruction in connection with its definition of impostor that an impostor cannot be a fictitious person is consistent with this view.


author: CHADICK, Chief Justice.

text:
    CITY OF DALLAS et al., Appellants, v. Don FURRH, Appellee.
    No. 8385.
    Court of Civil Appeals of Texas, Texarkana.
    Sept. 7, 1976.
    Rehearing Denied Sept. 28, 1976.

      N. Alex Bickley, City Atty., Joseph G. Werner, Asst. City Atty., Dallas, for appellants.
    Jerry W. Biesel, Dallas, for appellee.
   CHADICK, Chief Justice.

Judgment was entered in the trial court decreeing that the City of Dallas forthwith issue Don Furrh a “. . . license to operate billiard tables in the business establishments known as Junior’s, 1946 N. Industrial Boulevard, Dallas, Texas; Dandy Don’s, 9736 Harry Hines Boulevard, Dallas, Texas; and The Fair, 5030 Greenville Avenue, Dallas, Texas upon payment of the proper fees . . . .” The City of Dallas has appealed. The trial court’s judgment is reversed and judgment rendered that Don Furrh take nothing by his suit. The opinion of this Court delivered August 10, 1976, is withdrawn and this substituted for it.

The issues in the appeal are so limited that an analysis or statement of the pleadings will only be made when found necessary in connection with a particular question. For reversal, appellant, City of Dallas, presents two points of error, viz:

“FIRST POINT: THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF A LICENSE TO APPEL-LEE, FOR THE REASON THAT THE DECISION OF THE CITY COUNCIL OF THE CITY OF DALLAS DENYING A LICENSE TO APPELLEE WAS SUPPORTED BY SUBSTANTIAL EVIDENCE.
SECOND POINT: THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF A LICENSE TO APPEL-LEE, FOR THE REASON THAT SUCH RELIEF IS NOT SUPPORTED BY THE PLEADINGS.”

Appellee Furrh has briefed four counterpoints, viz:

“NO. 1: THE SUIT IN THE DISTRICT COURT WAS A DIRECT AND INDEPENDENT ACTION TO WHICH THE SUBSTANTIAL EVIDENCE RULE HAS NO APPLICATION.
NO. 2: THE SUBSTANTIAL EVIDENCE RULE DOES NOT APPLY IN THIS CASE SINCE THE SUBJECT MATTER INVOLVED WAS NOT PROPERLY WITHIN THE DISCRETION OF THE CITY COUNCIL.
NO. 3: THE CITY COUNCIL HEARING VIOLATED APPELLEE’S 14TH AMENDMENT RIGHT TO DUE PROCESS OF LAW, SO THE SUBSTANTIAL EVIDENCE RULE CANNOT BE APPLIED THERETO.
NO. 4: THE COURT HAD THE AUTHORITY TO GRANT THE RELIEF GIVEN TO THE APPELLEE.”

By the wording of his counterpoints, Mr. Furrh undertakes to avoid the effect of the substantial evidence rule in the judicial review of the reasonableness of the decision by the City Council, City of Dallas, acting as an administrative agency. The practical effect of appellee’s stance is an implication or silent assent that the city is entitled to reversal and rendition unless the judgment may be sustained under one or more of the counterpoints. However, since Tex.R.Civ.P. 296 findings and conclusions were not requested, affirmance may be grounded upon any theory the record supports. Seaman v. Seaman, 425 S.W.2d 339 (Tex.1968). Discussion will be from the standpoint of the issues raised by the counterpoints.

Neither the City of Dallas ordinance providing for licensing of billiard tables, Ordinance 9988, nor any statute called to the attention of this Court provides for an appeal to a court from the decision of the council denying a billiard hall license to an applicant. Mr. Furrh’s pleadings are understood to allege the violation of his constitutional rights because denial was arbitrary and discriminatory. The right to review under such allegations has been referred to as an inherent right of appeal in cases where a statutory right of appeal is not provided. Chemical Bank & Trust Company v. Falkner, 369 S.W.2d 427 (Tex.1963). Whether the action is called a suit or an appeal is immaterial. Review, whether pursuant to statutory or inherent right, is generally limited to a determination of whether the administrative agency’s action is supported by substantial evidence. Chemical Bank & Trust Company v. Falkner, supra; Industrial Accident Board v. O’Dowd, 157 Tex. 432, 303 S.W.2d 763 (1957); White v. Bolner, 223 S.W.2d 686 (Tex.Civ.App. San Antonio 1949, writ ref’d); City of Amarillo v. Hancock, 150 Tex. 231, 239 S.W.2d 788 (1951). Necessarily, the scope of review must be governed by the nature of the question to be decided. For example, courts are not bound by administrative determination of questions of law. Brown v. Humble Oil & Refining Co., 126 Tex. 296, 83 S.W.2d 935, 99 A.L.R. 1107 (1935), 1 Tex.Jur.2d, Administrative Law, Sec. 40 and 41. Unquestionably, it was the trial court’s duty to ascertain whether or not there was substantial evidence reasonably sufficient to support the council’s negative action.

Under his second point of error, the appellee argues in harmony with his pleading that the ordinance providing for the licensing of billiard tables in Dallas is unconstitutional and void. Notice must be taken of the incongruity of the appellee’s position in this regard. By implication, the judgment, which has been quoted in part, declared the ordinance constitutional. It directed the city to issue the license applied for upon payment of the license fee, impliedly holding it valid. If appellee was dissatisfied with the judgment’s failure to declare the ordinance unconstitutional or invalid for other reasons, he should have made his dissatisfaction known in a proper way to the trial court and proceeded with an appeal from the part of the judgment found unsatisfactory. This he failed to do. The second counterpoint is overruled. Maloney v. Strain, 410 S.W.2d 650 (Tex.Civ.App. Eastland 1966, no writ); Security Insurance Company v. Pioneer Casualty Co., 449 S.W.2d 158 (Tex.Civ.App. Houston-1st Dist. 1970, writ ref’d n.r.e.); Liberty Mutual Ins. Co. v. General Insurance Corp., 517 S.W.2d 791 (Tex.Civ.App. Tyler 1974, writ ref’d n.r.e.).

The record shows that application for the several licenses was made by Mr. Furrh in accordance with the ordinance prescribed procedure. After consideration, the licenses were refused by the Chief of Police and Mr. Furrh was so advised in writing together with reasons for denial. In accordance with the ordinance procedure, timely appeal was made from the chief of police’s denial to the City Council. A hearing before the council followed. Mr. Furrh and his legal counsel had notice of the hearing and attended. At the hearing, neither Mr. Furrh nor his counsel offered to produce either witnesses or evidence. In the court below, Mr. Furrh testified to a conclusion that he was denied the right to cross-examine witnesses against him. He tendered no proof that he or his counsel requested permission to examine or cross-examine witnesses at the hearing or that a request or attempt to do so was overruled or prevented by the council. His brief in this Court states there were witnesses before the City Council but the nature of their testimony is not shown. Statement by Mr. Furrh’s counsel, reproduced in the record, indicates that a tape recording was made of the Council’s proceedings but neither the recording nor a transcript thereof was offered in evidence for any purpose.

Under counterpoint three, appellee asserts that he was entitled to have notice of the City Council’s hearing of his appeal and an opportunity to appear and be heard in person and by counsel, as well as an opportunity to produce evidence in his own behalf and to cross-examine witnesses against him. He asserts, on the grounds that he was deprived of these rights, that he was not afforded due process of law at the City Council hearing, a violation of the 14th Amendment to the United States Constitution.

From the record, it appears that the claimed denial of cross-examination of witnesses against Mr. Furrh is the only deprivation of 14th Amendment rights that has a semblance of proof to support it. However, the witness’s bare conclusion that cross-examination was denied does not raise an issue. As a general rule, a witness must testify to facts of which he has personal knowledge, and cannot give his conclusions thereon. 2 McCormick and Ray, Texas Law of Guidance, Sec. 1391 (1956). A witness’s opinion on an ultimate legal question is of no probative value. Dallas Railway & Terminal Company v. Gossett, 156 Tex. 252, 294 S.W.2d 377 (1956); Harris County v. Collin, 365 S.W.2d 187 (Tex.Civ.App. Texarkana 1963, writ ref’d n.r.e.).

On further examination of the record, nothing is found to require affirmance of the judgment because of any presumption favoring its validity or upon grounds not briefed but supported by the record. On the contrary, the record shows substantial evidence supporting the City Council’s denial of the billiard hall license. The trial court’s failure to so find necessitates reversal.

It is not necessary under the circumstances to reach appellant’s second point or ap-pellee’s last counterpoint. The judgment of the trial court is reversed and judgment rendered that appellee, Don Furrh, take nothing by his suit. Appellee’s motion for rehearing is overruled.


text:
    Louella Colvin Cooper SMITH, Appellant, v. Harvey Edward COOPER, Appellee.
    No. 8378.
    Court of Civil Appeals of Texas, Texarkana.
    Sept. 7, 1976.

      Charles M. Bleil, Atchley, Russell, Wal-drop & Hlavinka, Texarkana, for appellant.
    Sherman Kusin, Harkness, Friedman & Kusin, Texarkana, for appellee.
   CHADICK, Chief Justice.

This is a partition suit. The appellant, defendant and cross-plaintiff below, Louella Colvin Cooper Smith, was dissatisfied with the judgment below and has perfected an appeal. The judgment of the trial court is reversed and the case is remanded for a retrial.

I

Appellee, Harvey Edward Cooper, plaintiff below, in October 1974 instituted suit against his former wife, the appellant herein, in which he pled that the parties were divorced in May of 1972; that at the time of divorce they owned as a part of their community estate two tracts of land, one of 4.28 acres and the other 4⅜ acres. The petition alleged that the divorce decree failed to make division of the real estate and that some disposition of it should be made, stating the purpose of the suit was to have disposition made of all community property in a fair and equitable manner. Prayer was for the court to divide the property of the parties in a fair and equitable manner and for other and further relief to which the plaintiff might be entitled.

Mrs. Smith’s answer, material to this appeal, pled that lots described in Mr. Cooper’s petition were owned by them as tenants in common, that she and the cross-defendant had been unable to agree on disposition and requested the court to partition the lots equally or in an equitable manner. Alternatively, she requested that the lots be sold and division of the proceeds made if the lots were found not susceptible of partition. Her prayer was for a division in kind or, alternatively, for sale and division of the proceeds, together with such other relief as she might show herself entitled to have.

Fairly construed, the pleadings of the parties state an action for a partition of the described lots and undescribed community property and for equitable relief incidental to partition. It is a general rule that all equities and conflicting claims existing between the parties and arising out of their relation to the property to be partitioned may be adjusted in the partition suit, subject to the limitation that equities cannot be adjusted which do not relate to the common property. 68 C.J.S. Partition §§ 134 and 135. The cited text suggests the scope and variety of incidental and equitable claims and adjustments that may be made.

II

In the recitals preceding the decreed portion of the judgment, the court found that Mr. Cooper “should have as his separate property the . . . ” two lots and Mrs. Smith should have an equitable interest therein. The judgment awarded Mr. Cooper the two lots and Mrs. Smith was “awarded an equitable interest” therein “in the amount of $1,000.00.” With reference to the two lots, it was also decreed that Mr. Cooper was “made liable for any indebtedness against the property . . . .” Partition was not ordered. Responding to a Tex.R.Civ.P. 296 request, the court made these findings of fact, to-wit:

“1. The Judgment of Divorce No. 030452, dated May 19,1972, styled In The Matter Of The Marriage Of Harvey Edward Cooper and Louella Calvin Cooper did not describe the real property or any part thereof.
2. The Petitioner: Harvey Edward Cooper in this cause, as well as in Cause No. 030452 did not inform his attorney, Mr. John Greer of the real property.
3. Harvey Edward Cooper believed that he had title to the real property, as his own, in good faith.
4. Considering the equities involved, funds expended, the 1971 Ford paid for, Louella Calvin Cooper Smith has an equity in the property of $1,000.00.”

At trial of the partition suits procedure was as though the action was an extension and continuation of the divorce suit as such suit related to community property. Both parties objected to the procedure when it appeared advantageous to do so. In a divorce suit a trial judge is empowered to divide the estate of the parties in a manner deemed just and right, having due regard for the rights of each party and any children of the marriage. Tex.Family Code Ann., Sec. 3.63. Thus, factors are considered that have no place in a partition suit. Also, the trial court’s power to divide property and adjust equities arising out of the dissolution of a marriage relationship must be exercised in the divorce suit. Kirkwood v. Domnan, 80 Tex. 645, 16 S.W. 428 (1891). In the action underlying this appeal, Mr. Cooper alleged the land was not partitioned in the divorce decree and Mrs. Smith agree, alleging they were co-tenants. It is well settled that when a divorce is granted without a partition of the land accumulated during the marriage or disposition otherwise made of it in a division of the estate of the parties in the divorce judgment, title to the land vests in the divorced parties as co-tenants. Kirkwood v. Domnan, supra; Taylor v. Catalon, 140 Tex. 38, 166 S.W.2d 102 (1942); Busby v. Busby, 457 S.W.2d 551 (Tex.1970).

III

The action below should not have been tried as an extension of the divorce suit, though as the proof developed it became immaterial. Rather, it should have been tried for what it was, an action for partition and adjustment of equities incidental to partition of the common property. See Thompson v. Whitfield, 203 S.W.2d 268 (Tex.Civ.App. Texarkana 1947, writ ref’d n. r. e.); Richardson v. Kuhlmyer, 250 S.W.2d 355 (S.Ct.Mo.1952); Palmer v. Protrka, 257 Or. 23, 476 P.2d 185 (1970). In the Missouri case, the court said:

“The circuit court may exercise a wide latitude in the adjustment of equities among the parties to a partition suit. The equities to be adjusted, however, must of necessity be those which have arisen from or are in some way connected with the real estate to be partitioned; they must be claims relating to the common property.”

The Oregon Supreme Court said:

“We think that in the interest of orderly procedure a suit for partition of property should be limited to an adjustment of the interests of the parties as co-tenants and that the equities of the respective parties arising out of the marital relationship are not relevant in making an allocation of the interests in the property or its proceeds.”

Though the three cases cited are not binding as precedents, they lay down a salutary rule that promotes diligence and orderly procedure.

IV

Appellee Cooper argues in support of the partition decree that it was proven that there was an agreement between Mr. Cooper and Mrs. Smith at the time of the divorce that he was to have the lots in suit and she was to have an automobile, Mr. Cooper agreeing to pay all indebtedness against the land and automobile. The argument is understood to assert that a nonjudicial partition of community assets was actually made by the parties before divorce. Mr. Cooper did not plead such partition or division; as shown earlier, he pled that the real estate was not partitioned. Further, the findings of the trial judge are inconsistent with a prior division and do not establish a prior nonjudicial division or partition of the community estate.

V

The rather unsatisfactory record in this appeal does not contain the judgment in the divorce suit. From the statements of the trial judge and counsel found in the Statement of Facts and the witnesses’ testimony, it appears that the divorce judgment, which was final at the time of the trial of the partition suit, made a partial division of the community estate of the parties. The divorce judgment awarded the parties the property each had in possession, including an automobile to Mrs. Smith free and clear of indebtedness against it. As previously shown, the pleadings of both parties agree that the two lots in suit were not partitioned or disposed of in the divorce proceedings. Thus, the record shows as a matter of law the only property belonging to the community estate of the parties that was not divided at the time the partition suit was instituted is the two lots. Under well settled principles heretofore cited, title to these lots vested in the parties as co-tenants.

Mrs. Smith’s first point of error will be sustained. The undisputed evidence is that Mrs. Smith is a co-tenant and as such entitled to partition. Sayers v. Pyland, 139 Tex. 57, 161 S.W.2d 769 (1942). Although statements in the briefs of the parties and the evidence in the record indicate that the lots are probably not susceptible of equal division because a house is located upon one of them, non-susceptibility was not proven conclusively. The trial court should have freedom in the conduct of a retrial to make such findings as the evidence supports. 68 C.J.S. Partition §§ 124 and 125. The proper order in the case is reversal and remand without instructions. Therefore, it is ordered that the judgment of the trial court be reversed and the case remanded for a retrial.


author: BARROW, Chief Justice.

text:
    Albert STAHL et al., Appellants, v. E. Harrison PRESTON et al., Appellees.
    No. 15581.
    Court of Civil Appeals of Texas, San Antonio.
    Sept. 8, 1976.
    Abraham D. Ribak, San Antonio, for appellant.
    W. R. Simcock, Cox, Smith, Smith, Hale & Guenther, William E. Schmidt, Duke, Branch & Schmidt, San Antonio, for appel-lee.
   BARROW, Chief Justice.

Appellants, Albert Stahl and John Ether-idge, have perfected their appeal from a take-nothing summary judgment granted appellees, E. Harrison Preston and Kenneth Rice, in appellants’ suit to recover six percent of the sales price paid by Rice for purchase of bank stock from Preston.

Appellants are licensed real estate brokers, but neither is licensed under the provisions of the Securities Act, and the principal question presented is whether they are barred from recovering a commission or compensation by § 34 of this Act. Appellants urge that they were employed as a “finder” rather than as a broker and no license was required. A finder has been defined as an intermediary who contracts to find and bring the parties together, but he leaves the ultimate transaction to the principals; he is the procuring cause, and his function ceases when negotiations between the principals begin. It is recognized that if, in addition to finding a buyer, seller, lender, or borrower, the unlicensed individual goes further and helps to conclude the transaction, compromising or composing differences between the parties, by way of example, he may not recover an agreed compensation. This distinction between a “broker” and a “finder” has been recognized in some states and at least suggested by one Texas case. See Rogers v. Ellsworth, 501 S.W.2d 756 (Tex.Civ.App.—Houston [14th Dist.] 1973, writ ref’d n. r. e.); Tyrone v. Kelley, 9 Cal.3d 1, 106 Cal.Rptr. 761, 507 P.2d 65 (1973); Annot., 24 A.L.R.3d 1160 (1969).

It is not necessary for us to determine if this narrow distinction is recognized in Texas in that the oral depositions of appellants, which were made a part of the summary judgment record, establish that appellants’ participation in this transaction went far beyond the limited activities permitted a finder.

On October 3,1974, appellants were given a non-exclusive listing by Preston to sell a 1,400-acre ranch in Comal County. In the course of the conversation between the parties in connection with this ranch listing, Preston indicated he would like to go into the oil business and that he would pay appellants a six percent commission if they sold a 78-acre ranch located near Sattler, along with his majority stock in the Canyon Lake State Bank at Sattler. Preston said he would not pay a commission for selling the bank stock alone in that the stock could be easily sold by him without the help of a broker.

Stahl had previously shown two ranches to Ken Rice and, therefore, contacted him in regard to purchase of this ranch and the bank stock. Rice said he was not interested in the land, but was definitely interested in purchasing the bank stock. When informed by Stahl that Preston would not pay a commission on the sale of the bank stock alone, Rice agreed to pay the commission if Preston would sell the stock. Etheridge testified that Preston subsequently recognized that the land market was depressed at that time and agreed to pay a six percent brokerage fee for the sale of the bank stock alone. On December 16, 1974, Rice and Preston signed a contract whereby Rice purchased 12,122 shares of the bank stock from Preston for $38.89 per share. Appellants were not parties to this agreement, but, upon learning of same, filed this suit seeking to recover six percent of the purchase price from either of appellees.

The testimony of appellants establishes that they played an active and significant role in the negotiations which eventually led to the sale of the bank stock. Over a period of approximately ten weeks they made a minimum of three trips a week to Sattler to see Preston at the bank. In addition, Etheridge telephoned Preston over thirty times during this period. About the same amount of time was spent by Stahl with Rice. Appellants transmitted both verbal and written information between the parties, including an unaccepted offer by Rice. Their efforts were directed towards keeping Rice interested in the bank stock while they tried to find a purchaser for the 78 acres or, as finally occurred, to get Preston to agree to sell the bank stock without the ranch. Appellants’ role was described by Etheridge as follows: “When you think you have a prospect, you don’t let him cool off; you keep going back and took [sic] what little information we could find out, like the Daily Statements and information that we could get from Harry Preston as to how he might deliver.”

This record establishes as a matter of law that the agreement between appellants and each of the appellees contemplated the sale of bank stock. Since neither appellant was licensed to sell securities, each is precluded from recovery by the express provisions of the Securities Act. Hall v. Hard, 160 Tex. 565, 335 S.W.2d 584 (1960); Thywissen v. FTI Corporation, 518 S.W.2d 947 (Tex.Civ. App.-Houston [1st Dist.] 1975, writ ref’d n. r. e.); Fry v. Shaw, 508 S.W.2d 142 (Tex.Civ.App.-Dallas 1974, writ ref’d n. r. e.).

The judgment is affirmed.

      . Tex.Rev.Civ.Stat.Ann. art. 581-34 (1964).
      “No person or company shall bring or maintain any action in the courts of this state for collection of a commission or compensation for services rendered in the sale or purchase of securities, as that term is herein defined, without alleging and proving that such person or company was duly licensed under the provisions hereof .

      . There is a dispute in the testimony concerning this promise; however, on this summary judgment proceeding, we must adopt the version given by Stahl.


author: KLINGEMAN, Justice.

text:
    Wanda BURNS, Appellant, v. Frank BURNS, Appellee.
    No. 15583.
    Court of Civil Appeals of Texas, San Antonio.
    Sept. 8, 1976.
    Rehearing Denied Oct. 6, 1976.
    Roberts & Schroeder, New Braunfels, for appellant.
    A. J. Saegert, Seguin, for appellee.
   KLINGEMAN, Justice.

This is a divorce case, but the herein appeal involves only the property division provided for in the judgment. Trial was to the court, who granted appellant’s petition for divorce and made a division of the property, awarding appellant various properties, including an automobile, a mobile home, a savings account in the amount of $6,504.45, various stocks, and other personal items, and awarding appellee other properties, including a 99.97-acre tract of land. At the time of the divorce there were no children under eighteen years of age born to or adopted by the marriage.

By two points of error appellant asserts that the trial court erred in (1) setting aside the 99.97-acre tract to appellee in the division of the property because such tract was purchased totally from the separate funds of appellant; (2) setting aside such tract to appellee because appellant was entitled to a reimbursement for the funds she expended out of her separate property for such tract.

Appellant and appellee were married on August 25, 1967. Appellant is forty-four years of age, a college graduate, and is a registered nurse. Appellee is sixty-one years of age and has a fifth grade education. Both were gainfully employed during the marriage, each receiving about the same wages, and their community paychecks from the years 1967 to 1972 totaled over $90,000.00. The 99.97-acre tract here involved was purchased by appellant and appellee during the marriage on February 12, 1970, with both appellant and appellee being the grantees in the deeds of conveyance. The consideration shown in the deed is the sum of $20,000.00, of which $5,600.00 was a cash down payment, and the balance of the consideration, aggregating $14,-600.00, was a vendor’s lien note executed by both appellant and appellee, payable in deferred installments.

Article 5.02 of the Tex. Family Code Ann. (1975) provides that property possessed during or on dissolution of marriage is presumed to be community property. In order to overcome this presumption, the party asserting separate ownership must clearly trace the original separate property into the particular asset on hand during the marriage. Our Supreme Court, in McKinley v. McKinley, 496 S.W.2d 540 (Tex.1973), stated:

In Tarver v. Tarver, 394 S.W.2d 780 (Tex.1965), this Court reiterated the basic presumption that all property possessed by a husband and wife when their marriage is dissolved is their community property. At the time Tarver was decided the presumption was created by Article 4619, Sec. 1, Vernon’s Texas Civil Statutes, and the presumption remains by the clear language of Section 5.02 of the Family Code, V.T.C.A.: ‘Property possessed by either spouse during or on dissolution of marriage is presumed to be community property.’ It is the general rule that to discharge the burden imposed by the statute a spouse, or one claiming through a spouse, must trace and clearly identify property claimed as separate property, Tarver v. Tarver, supra; Wilson v. Wilson, 145 Tex. 607, 201 S.W.2d 226 (1947); Chapman v. Allen, 15 Tex. 278, 283 (1885). It is further well settled that when the evidence shows that separate and community property have been so commingled as to defy resegregation and identification, the burden is not discharged and the statutory presumption prevails. Tarver v. Tarver, supra; Hodge v. Ellis, 154 Tex. 341, 277 S.W.2d 900 (1955).

It is clear from a careful reading and examination of the entire record that appellant did not meet the burden imposed upon her under the applicable statutes and case decisions. While there is testimony that at the time of the marriage appellant owned a rent house in Alice and a house in New Braunfels, there is also testimony that both of these properties were heavily encumbered; that community funds were used to pay on such indebtedness, and; that improvements were made on the property out of the community. Both properties were sold during the marriage. The parties, during their marriage, acquired three parcels of real estate, all of which were conveyed to both of them as community property, and community credit was also used in the acquisition of such properties. It is clear from the testimony of both parties that appellant was in charge of the community income and was in management and control of all funds during such marriage. It was her burden to trace any separate funds she allegedly used in the purchase of the property here involved and to overcome the presumption herein above described with clear and convincing evidence. This she wholly failed to do. The trial court recognized that there had been a contribution by appellant from her separate fund to the community, but found that from the testimony and record the exact amount and extent of such was not ascertainable, and stated that in order to compensate for this, the court, in its final settlement of property, would take this into account in balancing the equities of the parties.

Appellant makes no contention herein that the property division herein was unfair, unjust, or disproportionate nor does she contend that there was any fraud involved in regard to the conveyance of the tract here involved. Her sole complaint is of the alleged error of the court in characterizing the 99.97-acre tract as community property rather than her separate property and in not specifically characterizing her claim for reimbursement as a part of appellant’s separate property.

It is noteworthy that (a) the community earnings of appellant and appellee during the marriage (wages) were in excess of $90,000.00, which could have easily provided the funds to make the down payment on the property here involved and the deferred annual payments; (b) that in addition, appellant and appellee received substantial amounts from sales of properties, which properties were acquired during the marriage and were conveyed to the parties as community property; (c) that appellant, although active in the management and control of all funds of such marriage, failed to provide satisfactory evidence showing her contributions out of her separate funds, if any, in the purchase of the tract here involved.

Under the record herein the trial court correctly characterizes the tract here involved as community property.

Moreover, while in a proper case a spouse may be entitled to a right of reimbursement from the community estate to the separate estate for property purchased partially with separate funds and partially with community funds, it is incumbent upon the party claiming such right to reimbursement to present satisfactory evidence showing that such party’s separate funds were actually used in the purchase of the property involved. This was not done. It is clear that there was considerable commingling of separate funds and community funds during the marriage. The right of reimbursement is equitable in nature and may be considered by the court in a division of the property of the parties. It is clear from the record that the trial court took this into consideration. It is undisputed from the record that appellant was in almost complete control of the family finances during the marriage. Despite this fact, appellant failed to present any satisfactory evidence that any of her separate funds were used to purchase the tract here under dispute.

Although appellant makes some contention that a court cannot divest either party of the title to separate real estate, courts are vested with wide discretion and authority in the division of property in a divorce suit, and in the absence of an abuse of such discretion the trial court may divide the property, community or separate, in such a way as the court deems right and just, and it is not required that the property be divided equally. Bell v. Bell, 513 S.W.2d 20 (Tex.1974); Means v. Means, 535 S.W.2d 911 (Tex.Civ.App.—Amarillo 1976, no writ); Merrell v. Merrell, 527 S.W.2d 250 (Tex.Civ.App.—Tyler 1975, writ ref’d n.r.e.); Wilkerson v. Wilkerson, 515 S.W.2d 52 (Tex.Civ.App.—Tyler 1974, no writ); Tex. Family Code Ann., § 3.63. This Court, in Currie v. Currie, 518 S.W.2d 386 (1975, writ dism’d), stated:

It is well established that under Article 3.63 of the Tex. Family Code Ann. (1973), V.T.C.A., as well as the antecedent statute, the divorce court is given wide discretion in making a division of the estate of the parties, and the cause will be reversed only where there is a clear abuse of discretion. Bell v. Bell, Tex., 513 S.W.2d 20 (1974; [sic] Hedtke v. Hedtke, 112 Tex. 404, 248 S.W. 21 (1923); Cooper v. Cooper, 513 S.W.2d 229 (Tex.Civ.App.—Houston [1st Dist.] 1974, no writ); In re Marriage of McCurdy, 489 S.W.2d 712 (Tex.Civ.App.—Amarillo 1973, writ dism’d). In the exercise of this discretion, the court may consider, among other things, the age and physical condition of the parties, their relative need for future support, fault in breaking up the marriage, benefits the innocent spouse would have received from a continuation of the marriage, the size of the estate and the relative abilities of the parties. Wilkerson v. Wilkerson, 515 S.W.2d 52 (Tex.Civ.App.—Tyler 1974).

Under the record the trial court did not abuse its discretion in the division of the property, and we have concluded that the trial court’s property division is just and right. All of appellant’s points of error have been considered and all are overruled. The judgment is affirmed.


author: JAMES, Justice.

text:
    Yousef S. NAWAS, Appellant, v. Richard Joseph HOLMES, Appellee.
    No. 5581.
    Court of Civil Appeals of Texas, Waco.
    Sept. 9, 1976.
    Joe H. Staley, Jr. and George E. Bowles, Locke, Purnell, Boren, Laney & Neely, Dallas, for appellant.
    Gerald T. Waters, Dallas, for appellee.
   OPINION

JAMES, Justice.

This is a suit on a note by the payee against the maker. The central question before us is whether there was a conditional delivery of the note by the maker to the payee for a special purpose. Based upon a jury verdict, the trial court held that there was a conditional delivery for a special purpose. We affirm.

Plaintiff-Appellant Yousef S. Nawas brought this suit against Defendant-Appel-lee Richard Joseph Holmes for Holmes’s alleged failure to pay a $67,000.00 note made by Holmes individually payable to Nawas individually. Trial was had to a jury, which found:

(1) That Holmes delivered the note in question to Nawas upon the condition that if the indebtedness reflected in the December 1968 statement of Nawas to Holmes and Sons Tours, Inc. was not paid, (a $66,-820.00 debt) that the note would secure the payment;

(2) That the indebtedness which was related to the note in question was paid in full; and

(4) That Nawas is not indebted to Holmes and Sons Tours, Inc., on the account existing between them.

Pursuant to the jury verdict the trial court entered judgment that Nawas take nothing against Holmes, and that Holmes take nothing against Nawas, from which Nawas appeals.

Appellant asserts error of the trial court in “admitting parol evidence of an agreement which tended to vary the terms of a written promissory note;” in “admitting parol evidence of payment of the note by a third party pursuant to an agreement which was inadmissible,” and further contends that there is no evidence to support the jury’s answers to Special Issues Nos. 1 and 2 hereinabove. We overrule all of Appellant’s points and affirm the trial court’s judgment.

Nawas was a resident and citizen of Beirut, Lebanon, and had been in the travel industry since 1949, and at the time of trial was the sole owner of Nawas Tourist Agency which operated twenty offices throughout the world, including three in the United States. Holmes was working for Alitalia Airlines in Lebanon when he met Nawas and later approached Nawas with a proposal that Nawas help underwrite Holmes’s starting a travel agency in Dallas, Texas. Nawas advanced $25,000.00 to Holmes for the venture with the understanding that $9,000.00 was for 30% stock ownership in the company and $16,000.00 was a loan; he did not receive a note for this amount. Holmes put up $5,000.00 and was 70% owner of the company’s stock. The company’s name was Holmes and Sons Tours, Inc., it was headquartered in Dallas, Texas, and business operations commenced in 1968. At the end of the first year of operation, Holmes and Sons Tours, Inc., (hereinafter called “Holmes Agency”) was indebted to Nawas in the sum of $66,820.00. The debt came about primarily through business dealings wherein the Holmes Agency sent tour groups to the Mediterranean and Middle East areas, and Nawas arranged and paid for the hotel and other accommodations for such groups. Holmes said the $66,820.00 debt was caused by undercapital-ization of the company and the Nawas Agency’s increasing prices of services supplied to Holmes’s customers after the Holmes Agency had made firm commitments; whereas Nawas contended the debt was caused by bad management on Holmes’s part. At any rate, at the end of the 1968 tour season, the Holmes Agency owed Nawas $66,820.00.

Holmes’s business required that he travel a great deal. Holmes testified he was afraid that if he were killed in an airplane crash, Nawas would have no way of recovering the money owed to him by the Holmes Agency, so he (Holmes) took out a term life insurance policy on his life. He was advised that since Nawas was not a citizen of the United States, that Nawas could not be made the beneficiary, so he made his wife, Mrs. Patricia Holmes, the beneficiary, and made the note in question to Nawas which would allow him to collect the money in the event of his (Holmes’s) death at a time when the note could not be paid by the Holmes Agency. Holmes testified that the note was blank, that is, a blank promissory note form, when he signed it and that Nawas filled it in later. Nawas denied that it was blank when Holmes signed it. Be that as it may, the note sued upon is shown to be in the principal amount of $67,000.00, dated March 15, 1969, payable on demand, with the rate of interest and place of payment left blank; is payable to Yousef S. Nawas and signed by Richard Joseph Holmes. At the time the note was given, Holmes did not receive any additional consideration. Nawas testified that the note was given in connection with the first year’s indebtedness, and that no additional funds or any other consideration was given for the note, except the account indebtedness already incurred.

In May 1970, the Holmes Agency paid Nawas $60,000.00, and in June 1970, the Holmes Agency paid Nawas $30,000.00 on the account. Holmes’s testimony is that after these two payments the Holmes Agency had overpaid Nawas by $5573.00, and that the Holmes Agency was at that time in a credit situation. In other words, according to Holmes’s testimony the $66,-820.00 indebtedness, which was the occasion for the note, had as of June 25, 1970, been paid.

Further charges were incurred in 1970 by the Holmes Agency with Nawas, which Holmes testified were made after the account had been paid as of the June 25, 1970 payment of $30,000.00; however, these charges to the Holmes Agency were more than offset by payments and other credits, so that at the time the Holmes Agency ceased doing business, the account to Na-was was overpaid by $9835.00. Defendant’s Exhibit No. 7 was a statement of accounts for the Holmes Agency with Nawas Tourist Agency, which showed total charges against the Holmes Agency of $479,293.00, total credits in favor of the Holmes Agency of $489,127.00, and a balance in favor of the Holmes Agency of $9835.00.

The Defendant specially pleaded that the note in question was delivered to Nawas as a guaranty only of the payment of the indebtedness incurred by the Holmes Agency, and further pleaded payment of the note. As stated, the jury found that the note was delivered to Nawas upon the condition that if the indebtedness reflected in the December 1968 statement of Nawas to the Holmes Agency (the $66,820.00 indebtedness) was not paid, the note would secure payment, and that said indebtedness was paid in full.

Article 3.306 of the Business and Commerce Code of Texas provides, insofar as it pertains to the case at bar, as follows:

“Unless he has the rights of a holder in due course any person takes the instrument subject to
(3) the defenses of . delivery for a special purpose.”

Parol evidence is admissible in a suit between the original parties (as in the case at bar) to show a conditional delivery of the note for a special purpose, and proof of such conditional delivery constitutes a valid defense in law. Article 3.306, Business and Commerce Code of Texas; Williams v. Jones (Tex.Com.App.1932) 122 Tex. 61, 52 S.W.2d 256, opinion adopted; Moser v. John F. Buckner and Sons (Waco, Tex. Civ.App.1955) 283 S.W.2d 404, no writ; Heights Savings Ass’n v. Cordes (Houston 1st, Tex.Civ.App.1967) 412 S.W.2d 372, no writ. Delivery of an instrument is legally regarded as a question of mutual intent and purpose of the parties, and is ordinarily a question for the jury. See Bynum v. Peoples State Bank of Turkey (Amarillo, Tex.Civ.App.1951) 243 S.W.2d 190, no writ, and the cases therein cited. There is no liability until the occurrence or performance of the condition, and on failure of the condition, a note conditionally executed and delivery ceases to be payable. 9 Tex.Jur.2d, “Bills and Notes,” section 36, p. 47.

The thrust of Appellant’s argument is that this parol condition concerning the note is one affecting payment thereof, and therefore such parol condition is not admissible or enforceable. We agree that if the parol condition in the case at bar were one affecting payment, that same would be inadmissible. There is a distinction between a parol condition affecting the delivery of a written obligation and one affecting its payment. The former is enforceable, whereas the latter is not if it operates to add to, take from or vary the terms of the written agreement. Helmke v. Prasifka (San Antonio, Tex.Civ.App.1929) 17 S.W.2d 463, writ refused. We believe and hold that the parol condition in the case at bar, to wit, that the note was a guaranty for an indebtedness, was one affecting the delivery of the note for a special purpose, and that therefore evidence of such parol condition was properly admitted by the trial court. Helmke v. Prasifka, supra. Delivery upon a condition or for a special purpose only may be shown by parol evidence as between the immediate parties, as here. Kuper v. Schmidt (1960) 161 Tex. 189, 338 S.W.2d 948.

We have carefully reviewed and examined the cases cited by Appellant, and find them to be cases wherein the parol condition was one affecting payment of the written obligation, and therefore are not applicable to the case at bar.

In view of our holding that the parol condition was one affecting the delivery of the note for a special purpose, to wit, as a guaranty for a debt, then it was not error for the trial court to admit evidence concerning this parol condition, as it did. Moreover, the evidence is legally sufficient to support the jury’s answers to Special Issues Nos. 1 and 2, that is, that the note was delivered by Holmes to Nawas as guaranty for the debt, and that such debt had been paid in full.

Appellant complains of the trial court’s admitting evidence of payment of the note by a third party, to wit, the Holmes Agency. We overrule this contention. Payment may be made with the consent of the holder of a note by any person including a stranger to the instrument. Art. 3.603, Business and Commerce Code.

All of Appellant’s points have been carefully considered, and are overruled. Judgment of the trial court is affirmed.

AFFIRMED.