Janice Longoria and John Stryk, Jr. v. Robert Stryk, Individually and as the Independent of the Estate of John Stryk

Stryk v. Stryk TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN ON MOTION FOR REHEARING NO. 03-96-00014-CV Janice Longoria and John Stryk, Jr., Appellants v. Robert Stryk, Individually and as the Independent Executor of the Estate of John Stryk, Deceased, Appellee FROM THE DISTRICT COURT OF FAYETTE COUNTY, 155TH JUDICIAL DISTRICT NO. 95V-172, HONORABLE DAN R. BECK, JUDGE PRESIDING The opinion and judgment issued by this Court on September 18, 1996, are withdrawn and the following opinion is substituted in its place. This is an appeal from a summary judgment in a declaratory judgment action brought by appellants Janice Longoria and John Stryk, Jr., against appellee Robert Stryk concerning his actions as independent executor of John Stryk's estate. On cross-motions for summary judgment, the trial court rendered judgment for appellee approving of his actions in paying partnership debts with estate funds. The trial court denied all further relief requested by the parties. We will reverse the trial court's judgment. BACKGROUND The material facts are undisputed. John Stryk died in 1994. By his will, he specifically bequeathed his one-third partnership interest in the Stryk Jersey Farms (the "farm") to his son Robert, who owned the remaining two-thirds partnership interest. The will also bequeathed the remainder of Stryk's estate to his four children, Robert, Janice, Mary Ann, and John, Jr., in equal shares. According to the terms of the will, Robert became independent executor of John's estate. At the time of John's death, the farm was indebted to Flatonia State Bank in the amount of $104,471.40 on various promissory notes which were secured by partnership property. John's estate also included $31,878.92 in cash along with other property. In administering the estate, Robert applied $25,123.80 towards some of the Flatonia notes. Thereafter, Robert executed two deeds, transferring the partnership interest to himself and distributing the remainder of the estate's assets to the four residuary beneficiaries. Robert's payment on the notes reduced the amount of the cash assets in the residual estate from $31,878.92 to $6,755.12, and reduced the farm's debt from $104,471.40 to $79,347.20. John, Jr., Janice, and Mary Ann (1) filed a declaratory judgment action against Robert seeking to force him to repay into the estate all funds used to satisfy the farm's debts. Robert counterclaimed, seeking to have the court validate his actions and rescind the various deeds distributing the estate's assets. On cross-motions for summary judgment, the trial court granted judgment in favor of Robert, expressly validating his actions in using the estate's cash assets to pay the farm's debts. The trial court denied all other relief. John, Jr., and Janice appeal the trial court's judgment. Robert cross-appeals the trial court's refusal to set aside the deeds distributing the estate's assets and to award attorneys' fees. DISCUSSION The standards for reviewing a summary judgment are well established: (1) the movant for summary judgment has the burden of showing that there is no genuine issue of material fact and that it is entitled to a judgment as a matter of law; (2) in deciding whether there is a disputed issue of material fact issue precluding summary judgment, evidence favorable to the nonmovant will be taken as true; and (3) every reasonable inference must be indulged in favor of the nonmovant and any doubts resolved in its favor. Nixon v. Property Management Co., 690 S.W.2d 546, 548-49 (Tex. 1985). All parties agree that there are no disputed material fact issues precluding judgment as a matter of law. In two points of error, appellants urge that Robert improperly applied estate assets to pay farm debts. When John died, the partnership dissolved. Tex. Rev. Civ. Stat. Ann. art. 6132b, §§ 29, 31(4) (West 1970). The dissolution of a partnership does not, however, require that the business cease operating. See id. §§ 38(2)(b), 41. In the instant cause, the written partnership agreement expressly provided that, upon dissolution, the remaining partner(s) could elect to continue operating the business. Therefore, it was unnecessary to liquidate the business. In fact, there is no record evidence to suggest that Robert liquidated the business. Furthermore, in the absence of a duty to liquidate, Robert was under no obligation to immediately pay off the Flatonia notes. Moreover, Robert admitted in deposition testimony that while the bank never made demands on the notes, he paid them anyway with estate funds. An independent executor serves as a trustee of the estate funds and owes a fiduciary duty to the beneficiaries. See Humane Soc'y v. Austin Nat'l Bank, 531 S.W.2d 574, 577 (Tex. 1975), cert. denied, 425 U.S. 976 (1976). As executor, Robert's primary duty was to preserve the assets of the estate for the distribution to the beneficiaries. Id. at 580. In paying off part of the farm's debt to Flatonia, Robert increased the value of his interest in the farm and decreased the value of the beneficiaries' interests in the remainder estate. Well-settled law prohibits executors from seeking personal gain at the expense of the beneficiaries. Id. Robert responds that he was justified in paying the notes because John was personally liable on the debt. Robert points out that the will ordered that "all my just debts . . . be paid out of my estate," and therefore, in carrying out the terms of the will, he was required to pay his father's debt on the notes. It is true that a partner in a general partnership is personally liable for all the partnership debts jointly and severally with all other partners, and that following death, creditors may satisfy the obligation from the decedent's personal estate. Gray v. Federal Deposit Ins. Corp., 841 S.W.2d 72, 82-3 (Tex. App.--Houston [1st Dist.]), vacated and writ dism'd by agr. per curiam, 848 S.W.2d 85 (Tex. 1992). In this respect, John and Robert had the same liability on the debt. However, the fact that John was personally liable on the debt did not make it his personal debt. It is undisputed that the debt was a partnership debt used to finance partnership interests. Therefore, the will did not authorize Robert to pay the notes with estate assets. To justify his actions, Robert further argues that, as a specific legatee, he was entitled to receive his father's partnership interest free of debt pursuant to the exoneration-of-liens doctrine. According to the doctrine, when a testator owes a debt secured by a lien on specific property, the debt must be paid from the personal estate so that the beneficiary may receive the property debt-free. Currie v. Scott, 187 S.W.2d 551, 554 (Tex. 1945); Brady v. Nichols, 308 S.W.2d 100, 111 (Tex. Civ. App.--San Antonio 1957), modified per curiam, 312 S.W.2d 381 (Tex. 1958). Robert's argument is misplaced. The doctrine requires that the testator owe the debt. See Currie, 187 S.W.2d at 554; Brady, 308 S.W.2d at 111. Here, the partnership incurred the debt, which was fully secured. Again, John's personal liability on the debt does not transform it into his personal debt. In sum, Robert was not justified in applying estate funds towards paying partnership debts. We sustain both of appellants' points of error. Robert has raised two points of error on cross-appeal concerning his ability to gain reimbursement from the estate. Robert contends that in carrying out the terms of the will, he was required to pay one-third of the partnership's debts on the bank notes, representing his father's partnership interest in the debt. Robert paid some of this amount from the cash assets of the estate but claims that there is an additional $9,729.65 to be paid. Robert seeks to rescind the deeds distributing the estate in order to recoup $9,729.65 and pay off the remaining portion of his father's share of the debt. Therefore, Robert claims that the trial court erred in refusing to set aside the deeds and/or impose a constructive trust on the assets. Robert further claims that he is entitled to $10,000 in attorneys' fees for successfully defending appellants' suit. As we have already determined, Robert was not entitled to apply estate funds to the partnership debts. Therefore, he is not entitled to an additional $9,729.65 to pay any more of the partnership debts. Furthermore, because we have sustained appellants' points of error and will reverse the trial court's judgment, Robert is not entitled to attorneys' fees as a prevailing party. We overrule both of Robert's points of error. CONCLUSION Under John Stryk's will, his cash assets were to be divided equally among his four children. Three of the residuary beneficiaries brought this declaratory judgment action against their brother Robert, challenging his $25,123.80 payment from the estate to the Flatonia State Bank. By summary judgment motion, they asked the trial court to order Robert to repay to the estate for distribution to them $18,842.85, being their share of the misapplied funds. We hold that Robert was not entitled to apply estate cash assets to pay the partnership's debts. In doing so, he compromised his duties as executor of the estate. However, only two of John's children appeal the trial court's adverse judgment in favor of Robert. Therefore, we reverse the trial court's judgment and render judgment that Robert be required to repay appellants' share of the funds applied toward the partnership debt. We remand the cause to the trial court for entry of judgment consistent with this opinion. Furthermore, we remand the issue of appellants' attorneys' fees to the trial court for further consideration in its discretion. Marilyn Aboussie, Justice Before Justices Powers, Aboussie and Jones Reversed and Rendered in Part; Reversed and Remanded in Part Filed: November 6, 1996 Do Not Publish 1. Mary Ann is not a party on appeal. ebt did not make it his personal debt. It is undisputed that the debt was a partnership debt used to finance partnership interests. Therefore, the will did not authorize Robert to pay the notes with estate assets. To justify his actions, Robert further argues that, as a specific legatee, he was entitled to receive his father's partnership interest free of debt pursuant to the exoneration-of-liens doctrine. According to the doctrine, when a testator owes a debt secured by a lien on specific property, the debt must be paid from the personal estate so that the beneficiary may receive the property debt-free. Currie v. Scott, 187 S.W.2d 551, 554 (Tex. 1945); Brady v. Nichols, 308 S.W.2d 100, 111 (Tex. Civ. App.--San Antonio 1957), modified per curiam, 312 S.W.2d 381 (Tex. 1958). Robert's argument is misplaced. The doctrine requires that the testator owe the debt. See Currie, 187 S.W.2d at 554; Brady, 308 S.W.2d at 111. Here, the partnership incurred the debt, which was fully secured. Again, John's personal liability on the debt does not transform it into his personal debt. In sum, Robert was not justified in applying estate funds towards paying partnership debts. We sustain both of appellant