Holloway v. Skinner

• Decision Date: 08 June 1995
• Docket Number: No. D-4374,D-4374
• Citation: 898 S.W.2d 793
• Parties: 38 Tex. Sup. Ct. J. 582 Graham HOLLOWAY, Petitioner, v. Rick SKINNER and Alvin Ord's, Inc., Respondents.
• Court: Texas Supreme Court

Page 793

898 S.W.2d 793

38 Tex. Sup. Ct. J. 582

Graham HOLLOWAY, Petitioner, v. Rick SKINNER and Alvin Ord's, Inc., Respondents.

No. D-4374.

Supreme Court of Texas.

Argued May 4, 1994.

Decided May 11, 1995.

Rehearing Overruled June 8, 1995.

Michael Scaperlanda, Norman, OK, for petitioner.

Robert F. Neal, Austin, for respondents.

CORNYN, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, GONZALEZ, Justice, GAMMAGE, Justice, and SPECTOR, Justice, join.

In this case, we consider whether Graham Holloway, the president, director, and largest shareholder of Holligan, Inc. (the Corporation), can be held liable for tortiously interfering with a contract between the Corporation and a third party. Rick Skinner and Alvin Ord's, Inc. (collectively, Skinner), sued Holloway for, among other things, tortious interference with a contract between the Corporation and Skinner. The trial court rendered judgment on the jury's verdict against Holloway on the tortious interference claim. The court of appeals affirmed. 860 S.W.2d 217. Because Skinner presented no evidence that Holloway, in his personal capacity, willfully or intentionally interfered with the contract, we reverse the judgment of the court of appeals and render judgment that Skinner take nothing.

Skinner previously owned a sandwich shop franchise, Alvin Ord's. In 1981, Holloway and his father-in-law, Tom Culligan, approached Skinner about purchasing the franchise. Rather than negotiating an outright purchase, the parties settled upon a plan of joint ownership and agreed to form a corporation, Holligan, Inc., to control their holdings. Skinner contributed to the Corporation his company-owned Alvin Ord's stores, franchise agreements, the Alvin Ord's trade name, and trade secrets. Holloway and Culligan contributed their management services and additional capital. As part of this agreement, Skinner received a $63,000 promissory note from the Corporation, a six percent royalty on gross receipts from Alvin Ord's stores, stock, and a managerial position in the Corporation. ¹ Holloway served as the Corporation's president.

Between 1981 and 1984, the Corporation failed to make some payments due under the note and royalty agreement. In 1984, Skinner left his position at the Corporation because of a deteriorating personal relationship with Holloway. The Corporation defaulted entirely on its obligations to him in July 1985.

Skinner successfully sued the Corporation for breach of its obligations under the note and royalty agreement, but the Corporation filed for bankruptcy, and that judgment remains unsatisfied. Skinner then filed the suit against Holloway, claiming, among other things, that he tortiously interfered with the note and royalty agreement by inducing the Corporation to default on its obligations. In accord with the jury's verdict, the trial court rendered judgment against Holloway on the tortious interference claim. The court of appeals affirmed, holding that Holloway's status as a corporate agent did not bar Skinner's claim of tortious interference with the Corporation's contract, that some evidence supported the jury's finding that Holloway induced a breach of the contract, and that Holloway had not conclusively establish that his conduct was legally justified.

I.

Texas jurisprudence has long recognized that a party to a contract has a cause of action for tortious interference against any third person (a stranger to the contract) who wrongly induces another contracting party to breach the contract. See generally Raymond v. Yarrington, 96 Tex. 443, 73 S.W. 800, 802-04 (Tex.1903) (reciting the history of this cause of action and recognizing its viability in Texas). By definition, the person who induces the breach cannot be a contracting party. Were we to recognize the tortious interference claim when this identity of interest exists, any party who breaches a contract could be said to have induced his own breach and would therefore be liable for tortious interference. Such logic would convert every breach of contract claim into a tort claim. In most cases, however, this qualification is not an issue because the alleged tortfeasor is clearly a stranger to the contract.

Here, the act of interference was allegedly committed by an individual who was also the lawful representative of the contracting party. Such a case tests the limits of the general rule barring tortious interference claims when the inducing and the breaching party are one and the same. Cf. Copperweld Corp. v. Independence Tube Co., 467 U.S. 752, 771-72, 104 S.Ct. 2731, 2741-42, 81 L.Ed.2d 628 (1984) (holding that the identical economic interests of a parent corporation and its wholly-owned subsidiary render them legally incapable of conspiring with one another); Deauville Corp. v. Federated Dep't Stores, 756 F.2d 1183, 1196-97 (5th Cir.1985) (holding that a parent corporation cannot be liable for tortious interference with prospective business relationships of its wholly-owned subsidiary). The inducement and the breach were allegedly committed when the same person was functioning in distinctly different legal capacities.

Corporations, by their very nature, cannot function without human agents. As a general rule, the actions of a corporate agent on behalf of the corporation are deemed the corporation's acts. See, e.g., Terry v. Zachry, 272 S.W.2d 157, 160 (Tex.Civ.App.--San Antonio 1954, writ ref'd n.r.e.), disapproved on other grounds in Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex.1989). ² For this reason, we have held that "an officer or director [of a corporation] may not be held liable in damages for inducing the corporation to violate a contractual obligation, provided that the officer or director acts in good faith and believes that what he does is for the best interest of the corporation." Maxey v. Citizen's Nat'l Bank, 507 S.W.2d 722, 726 (Tex.1974). "Even the officers and directors of an ordinary corporation, while acting as such, are not personally liable even though they recommend a breach of a valid contract." Id. at 725 (quoting Russell v. Edgewood Indep. Sch. Dist., 406 S.W.2d 249, 252 (Tex.Civ.App.--San Antonio 1966, writ ref'd n.r.e.)). The reason for this rule has been explained as follows:

Doing business through corporate structures is a recognized and necessary incident of business life. A party is usually able to abandon a disadvantageous but valid contract and be responsible for breach of contract only. Corporations would substantially be prevented from similarly abandoning disadvantageous but valid contracts, and from securing related business advice, if the officers and employees who advised and carried out the breach had to run the risk of personal responsibility in an action for personal interference with the contract.

Wampler v. Palmerton, 250 Or. 65, 439 P.2d 601, 606 (1968). Based on this same rationale, we have emphasized that "a clear distinction should be maintained between individual liability as distinguished from that of the corporate employer." See Maxey, 507 S.W.2d at 726.

The elements of a cause of action for tortious interference with a contract are: (1) the existence of a contract subject to interference, (2) the occurrence of an act of interference that was willful and intentional, (3) the act was a proximate cause of the plaintiff's damage, and (4) actual damage or loss occurred. Browning-Ferris Indus. v. Reyna, 865 S.W.2d 925, 926 (Tex.1993); Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 939 (Tex.1991). The second element of this cause of action is of particular importance when the defendant serves the dual roles of the corporate agent and the third party who allegedly induces the corporation's breach. To establish a prima facie case under such circumstances, the alleged act of interference must be performed in furtherance of the defendant's personal interests so as to preserve the logically necessary rule that a party cannot tortiously interfere with its own contract.

We hold that to meet this burden in a case of this nature, the plaintiff must show that the defendant acted in a fashion so contrary to the corporation's best interests that his actions could only have been motivated by personal interests. ³ See Thomas G. Fischer, Annotation, Liability of Corporate Director, Officer, or Employee for Tortious Interference with Corporation's Contract with Another, 72 A.L.R.4 TH 492, 527-30 (1989) (cases cited). Inasmuch as it is the duty of corporate officers to protect the interests of the corporation, Southwestern States Oil & Gas Co. v. Sovereign Resources, Inc., 365 S.W.2d 417, 422 (Tex.Civ.App.--Dallas 1963, writ ref'd n.r.e.), the mere existence of a personal stake in the outcome, especially when any personal benefit is derivative of the improved financial condition of the corporation or consists of the continued entitlement to draw a salary, cannot alone constitute proof that the defendant committed an act of willful or intentional interference. See 3 LENORE M. ZAJDEL, FLETCHER CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 1001 (perm.rev.ed.1986); see also Welch v. Bancorp Management Advisors, Inc., 296 Or. 208, 675 P.2d 172, 178 (1983) (holding that even a corporate agent's "mixed motives" to benefit himself as well as the corporation are insufficient to establish liability); RESTATEMENT OF THE LAW (SECOND) OF TORTS, § 772 cmt. c (1979) (stating that by itself, "it is immaterial that the actor also profits by the advice or that he dislikes that third party and takes pleasure in the harm caused to him by the advice"). Were this not the rule, virtually every failure to pay a corporate debt would constitute a prima facie case of tortious interference against the corporate officer who decided not to pay the debt.

The dissent suggests that we have shifted the burden of proof on the affirmative defense of legal justification. We disagree. Although we acknowledge that whether to treat this issue as...