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Business Law

Formation of Business Entities
    · Corporations
    · Professional Corporations
    · Professional Associations
    · Limited Liability Companies
    · General Partnerships
    · Limited Partnerships
    · Business Trusts
    · Family Trusts

Corporate Management

A director is liable to the corporation for damages resulting from breach of the duty owed to the corporation. These duties include the director's duty to exercise care in the management of corporate affairs, the duty to act fairly in transactions between the director and the corporation, the duty not to seize for personal gain a corporate opportunity, and the director's duty to exercise fairness in transactions between corporations with interlocking directorates. These duties arise from the nature of a director's relationship with the corporation, which has been generally characterized as similar to that of a fiduciary. Claims against directors for breaches of their fiduciary obligations to the corporation may generally be advanced only in a shareholder's derivative suit.

An agreement among the shareholders of a corporation that complies with statutory requirements is effective among the shareholders and the corporation even though it is inconsistent with one or more provisions of the Act. A shareholder agreement may restrict the discretion or powers of the board of directors. It may even eliminate the board of directors and permit management of the business and affairs of the corporation by its shareholders, or in whole or in part by one or more of its shareholders, or by one or more persons who are not shareholders. It may provide for the exercise of corporate powers, the management of the business and affairs of the corporation, or the relationship among the shareholders, the directors, and the corporation, as if the corporation were a partnership or in a manner that would otherwise be appropriate only among partners, provided that public policy is not violated. A shareholder agreement may address a variety of other matters otherwise governed by statute.

Securities Fraud

The Texas fraud statute makes two categories of acts involving stock in a corporation fraudulent: (1) transactions in stock where a false promise to do an act is made, and transactions involving stock (2) when a false representation of a past or existing material fact is made, when the false representation is: (a) made to a person for the purpose of inducing that person to enter into a contract; and (b) relied on by that person in entering into that contract. When there is a duty to speak, silence may be as misleading as a positive misrepresentation of existing facts. Subsection (a) of Section 27.01 was not amended; therefore, its provisions concerning false representation and false promise remain unchanged. Among other changes, the amendments added a third type of fraud. A person who (1) has actual awareness of the falsity of a representation or promise made by another person, but (2) fails to disclose the falsity of the representation or promise to the person defrauded, and (3) benefits from the false representation or promise is also held to have committed the fraud described in subsection. Actual awareness may be inferred when ``objective manifestations indicate that a person acted with actual awareness''

Partnerships and Joint Ventures

A ``partnership'' is an association of two or more persons to carry on a business, as owners, for profit, regardless of whether the persons intend to create a partnership or whether the association is called a ``partnership,'' ``joint venture,'' or other name. A partnership may be created only under the Texas partnership statutes or under similar statutes of other jurisdictions. An association or entity created under another set of statutes is not a partnership.

Until January 1, 1999, the expired Texas Uniform Partnership Act (TUPA), for partnerships formed before January 1, 1994, recognized a non-partnership entity called an ``association.'' An entity was an association if (1) the word ``associates'' or ``association'' was part of and consistently used in the entity's name; (2) the entity's assumed name certificate contained a statement to the effect that the association intended not to be governed by TUPA; and (3) the business the entity transacted was wholly or partly activity in which corporations may not engage

Business Relationships

The right of recovery for tortious interference with business relations by a third person is well established in Texas law. The theory of tortious interference encompasses two causes of action: (1) tortious interference with existing contracts and (2) tortious interference with prospective contractual relations . ``Generally, the theory of the tort of interference is that the law draws a line beyond which no member of the community may go in intentionally intermeddling with the business affairs of others''

The primary differences between tortious interference with an existing contract and tortious interference with prospective contractual relations are (1) the existence of a contract versus the reasonable probability of obtaining a contract, (2) the nature of the culpable conduct, and (3) the treatment of justification or privilege. In a 2001 opinion, the Texas Supreme Court examined the two types of interference torts, noting the confusion that had arisen between them over the years. The Court took ``the opportunity to bring a measure of clarity to this body of law,'' as least in regard to the types of culpable conduct that must be proven to establish liability.


A "contract'' is a promise or set of promises with legal consequences. Usually, this means that contractual promises are enforceable in a court of law. The law gives official recognition to the consensual promises of the parties and provides remedies when promises are not fulfilled.

The Texas Supreme Court has noted that every contract includes an element of confidence and trust that the parties will faithfully perform their obligations under the contract. However, the element of trust and confidence that is contemplated by ordinary contracts does not create a confidential relationship between the parties giving rise to fiduciary obligations, nor does the breach of an ordinary contractual relationship form the basis for an action in tort.


Once a money judgment is rendered and signed, the winning party (now the judgment creditor) is entitled to initiate procedures to enforce it. The types of enforcement mechanisms that are available depends on a number of factors, including the amount of time that has elapsed since rendition, and whether the judgment debtor has suspended enforcement of the judgment pending appeal, among others. In some cases, the defendant, now a judgment debtor, or the liability insurance carrier will arrange to pay the judgment. In other situations, the recalcitrant judgment debtor owns no nonexempt assets, or the existence and location of the judgment debtor's nonexempt property is not readily ascertainable. In these situations, the judgment creditor should take the following actions in order to preserve the judgment creditor's rights and in an effort to obtain satisfaction of the judgment:
1. Record an abstract of judgment in the judgment records of every county where the judgment debtor may own an interest in real property, currently or in the future, to perfect a lien on that interest.
2. Have a writ of execution issued and delivered to a sheriff or constable to levy on and sell some nonexempt property belonging to the judgment debtor and apply the proceeds of the sale to payment of the judgment.

If the judgment is not satisfied by these efforts, the judgment creditor has other tools to aid collection, including:
Discovery in aid of execution. If the judgment debtor's financial affairs and holdings are unknown or unclear to the creditor, as long as the enforcement of the judgment has not been suspended by supersedeas or court order, the creditor may serve the judgment debtor with postjudgment interrogatories, depose the judgment debtor, or use any other discovery device available to litigants under the Texas Rules of Civil Procedure, in an effort to find nonexempt assets owned or controlled by the debtor.
Turnover statute. If the creditor knows or learns through discovery that the debtor possesses or controls nonexempt property, but that property cannot be readily attached or levied on by ordinary legal process, the creditor can ask a court to assist by ordering the judgment debtor to ``turn over'' specific property to a sheriff, constable, or receiver to be sold or otherwise applied to satisfy the judgment.
Garnishment. If a third party is in possession of the judgment debtor's personal property or is indebted to the judgment debtor and the property or indebtedness is not exempt from legal process, the judgment creditor may ``garnish'' the property or funds in the hands of the third party Regardless of the collection method, the target is always some asset belonging to the judgment debtor that is not exempt from the judgment creditor's claim. The exemption provisions are numerous and complex, providing many exceptions and restrictions.

Lien on Real Property
Usually, when payment of a judgment is not forthcoming, the judgment creditor's first step is to prepare and record an abstract of the judgment, commonly called an ``AJ''. Proper filing of an AJ perfects a lien on the real property then owned or thereafter acquired by the judgment debtor. A district or county court clerk may prepare and issue an AJ for judgments rendered in district and county level courts for a small fee, on the request of the judgment creditor or the creditor's agent, attorney, or assignee. While some courts provide their own printed abstract forms, an abstract prepared and verified by the creditor or its attorney is the preferred practice. An abstract of judgment in a small claims or justice court, however, may be prepared only by an attorney, not by the judgment creditor. A judgment creditor proceeding without counsel in a small claims or justice court must apply to that court for an abstract of judgment to be prepared by the justice of the peace or judge who rendered the judgment.

An abstract of judgment is recorded in the judgment records as kept by each county clerk in Texas. Typically, the judgment creditor will present an AJ to the county clerk of the county where the judgment debtor has a principal residence and to the clerks of any other county where the judgment debtor may then own or in the future acquire an interest in real property. On payment of the appropriate fee, the county clerk will record the AJ in the judgment records, note the day and hour of the filing, and enter in the alphabetical index to the judgment records the name of each plaintiff and defendant in the judgment and the location (by volume and page numbers) in the records where the abstract is recorded. With some exceptions, once an abstract of judgment is duly recorded and indexed in a county, a judgment lien attaches to the judgment debtor's real property in that county.

Properly indexing a recorded abstract of judgment is of the utmost importance to the creation of the judgment lien. The normal presumption that a public official properly performed his or her duties does not apply to the creation of a judgment lien. Additionally, recording and indexing an abstract of judgment will not perfect or create a lien on the debtor's real property in the following situations:
1. When the judgment has become dormant. Recording an abstract of a judgment that has become dormant is ineffective to establish a judgment lien. A judgment becomes dormant unless enforcement by levy of execution is attempted at least once in the first 10 years after its rendition. After that, the judgment will become dormant unless a second writ of execution is issued before the lapse of 10 years after issuance of the first writ.  However, a dormant judgment can be revived by an action for debt brought not later than the second anniversary of the date that the judgment became dormant.
2. When the court finds the lien offers no substantial increase in the security for payment. Even though a judgment debtor has posted security, or is excused by law from posting security, to supersede enforcement of a judgment pending appeal  the judgment creditor nevertheless may record an abstract of judgment. But the judgment debtor, having superseded the judgment, may apply for a finding by the appellate court that the creation of the lien would not substantially increase the degree to which the judgment creditor's recovery would be secured when balanced against the costs to the judgment debtor after the exhaustion of all appellate remedies. If successful in obtaining such a finding, the debtor may file a certified copy of the finding in the real property records of each county where the abstract has been filed and, thus, nullify its effect and prevent perfection of a judgment lien

In connection with the exception based on court's findings, it should be noted that the judgment creditor may present evidence to the court to convince it to withdraw the finding. By filing a certified copy of the withdrawal order in the real property records, the judgment lien attempted by the recorded abstract comes into being as a perfected lien.

The perfection of a judgment lien puts the judgment creditor ahead of any subsequent claimant of an interest in or right to property of the debtor.  Because the lien's recordation and indexing puts any party dealing with property owned or to be owned by the judgment debtor on notice of the judgment creditor's interest, potential purchasers and mortgagees usually will insist that the judgment creditor's claim be extinguished or otherwise released or subordinated before consummating any transaction involving the property. Thus, the debtor, at some point in time, may be compelled to obtain a release of lien in order to buy, sell, or mortgage a property. Furthermore, the filing of an abstract may cast a cloud on the title of the debtor's homestead and this situation may be continued by the judgment creditor's periodic attempts to levy a writ of execution, impairing the debtor's ability to sell or encumber the property until a release of lien is obtained.

The usual principle of ``first in time'' to record determines the priority of judgment liens on the judgment debtor's real property. However, with respect to real property acquired after several abstracts have been recorded and indexed, the judgment liens attach simultaneously and, thus, share the proceeds prorata.

A perfected judgment lien has priority over any previous but unrecorded conveyance, mortgage, or deed of trust, absent actual notice to the judgment creditor. This formulation of the judgment lien's priority status calls attention to the following situations in which the lien is not superior and, thus, cannot defeat another party's claim to the property:
1) Possession and control of the property by a person other than the judgment debtor may be so openly and unequivocally at odds with unfettered ownership by the judgment debtor as to impute notice to the creditor of some outstanding interest or equitable claim.
2) Another party may have equitable title or an equitable right to title under an unrecorded contract for a deed. The statute that addresses the effect of unrecorded instruments applies only to conveyances, mortgages, and deeds of trust; it does not say that an unrecorded executory contract is void against creditors without notice. There is no requirement that an executory contract for a deed must be recorded. And, in the usual situation when the judgment debtor has sold property under a contract for a deed, the purchaser is in possession of the property and that possession should be deemed notice to the judgment creditor of the equitable rights of the purchaser.