Ferguson v. Williams - 670 S.W.2d 327 (Tex. App. 1984)

Rule:

Negligence in the management of the affairs of a general partnership or joint venture does not create any right of action against that partner by other members of the partnership. It is only when there is a breach of trust, such as when one partner or joint venturer holds property or assets belonging to the partnership or venture, and converts such to his own use, would such action lie. In the ordinary management and operation of a general partnership or joint venture there is no liability to the other partners or joint venturers for the negligence in the management or operation of the affairs of the enterprise.

Facts:

Appellants Ferguson and Welborn, doing business as the F & W Development Company, purchased two apartment buildings containing thirty-two two-bedroom units located near Bergstrom Air Force Base from the U.S. Corp of Engineers. The buildings were to be removed to a new location, rehabilitated, leased to tenants, and then sold at a profit by the partners. Two months later, the appellants, running low on cash, contacted appellee Williams and sold him a one-fourth interest in the venture. With the infusion of the additional capital, the appellants purchased land near Bergstrom, depositing $5,000.00 as earnest money. Appellants used the balance of Williams' money to secure a $300,000.00 permanent mortgage loan commitment. However, because of their inability to obtain interim or construction financing, the venture failed and the buildings eventually were dismantled and materials sold to pay debts. Appellee instituted an action to recover funds invested and expended by him in a joint venture with appellants. The trial court filed findings of fact and conclusions of law holding that appellee's interest in the venture was an "investment contract" and thus a security, that the investment contract was not registered with the State Securities Board, that the investment contract was sold by appellants means of false representations, that appellants were negligent in the management of the venture, and that appellee was entitled to rescind and recover all funds invested or expended by him in the venture. Appellants sought review. 

Issue:

1. Was the appellee’s interest in the venture an investment contract?
2. Were the appellants negligent in the management of the venture, thereby entitling appellee to recover the funds he invested or expended in the venture? 

Answer:

1) No. 2) No.

Conclusion:

On review, the court reversed the trial court's decision and entered a take-nothing judgment in favor of appellants. The court held that appellee's interest was a joint venture partnership interest, not an "investment contract," within the purview of the Texas Securities Act, Tex. Rev. Civ. Stat. Ann. arts. 581-1, et seq. (1964 & Supp. 1982). Furthermore, that negligence in the management of the affairs of a general partnership or joint venture does not create any right of action against that partner by other members of the partnership, absent a breach of trust.