K.W.S. Mfg. Co., Inc. v. McMahon, 5857

• Decision Date: 20 April 1978
• Docket Number: No. 5857,5857
• Citation: 565 S.W.2d 368
• Parties: 115 L.R.R.M. (BNA) 4189 K.W.S. MANUFACTURING COMPANY, INC., et al., Appellants, v. Samuel L. McMAHON, Appellee.
• Court: Texas Court of Appeals

Page 368

565 S.W.2d 368

115 L.R.R.M. (BNA) 4189

K.W.S. MANUFACTURING COMPANY, INC., et al., Appellants, v. Samuel L. McMAHON, Appellee.

No. 5857.

Court of Civil Appeals of Texas,Waco.

April 20, 1978.

Rehearing Denied May 11, 1978.

Sam J. Day and Carter L. Ferguson, McDonald, Sanders, Ginsburg, Phillips, Maddox & Newkirk, Fort Worth, for appellants.

Robert J. Wilson, Burleson, for appellee.

OPINION

JAMES, Justice.

This is a suit for 5% of the stock of a corporation based upon actionable fraud, and for wrongful termination of an employment agreement. Jury verdict and trial court's judgment were in favor of Plaintiff. We reform the trial court's judgment, and as reformed, we affirm same.

Plaintiff-Appellee Samuel L. McMahon brought this suit against Defendant-Appellants K.W.S. Manufacturing Co., Inc., a corporation, and Floyd W. Watkins, Chesley C. Sharp, and Anton Krsak, alleging Plaintiff was entitled to a 5% ownership interest in K.W.S. Manufacturing Co., Inc., and for actual and exemplary damages for fraud on the part of the individual Defendants Watkins, Sharp, and Krsak, whereby said Defendants allegedly induced Plaintiff to contribute time, materials, and money toward helping said Defendants set up the K.W.S. Corporation, and for further actual and exemplary damages for wrongful termination of Plaintiff's employment.

Trial was had to a jury which found:

(1) There was an agreement between Plaintiff McMahon and Defendants Watkins, Krsak, and Sharp providing that Plaintiff was to acquire five percent ownership in the company to be formed as a result of their efforts prior to February 23, 1972 (said date being the day K.W.S. was incorporated).

(2) Said agreement was breached by Defendants on March 4, 1975.

(3) The value of said 5% ownership on said date of Defendants' breach was $12,500.00.

(4) Said three individual Defendants Watkins, Krsak, and Sharp, prior to incorporation of K.W.S. made representations to Plaintiff McMahon that if he (McMahon) furnished time, labor, and materials, he would be given a 5% ownership interest in said corporation.

(5) Plaintiff relied upon such representation in performing the labor and furnishing the supplies on the project in question.

(6) Plaintiff has been damaged as a result of his reliance upon such representations that he would receive 5% interest for the time, labor, and contributions which he supplied;

(7) In the amount of $20,000.00 (actual damages);

(8) Defendants Watkins, Krsak, and Sharp acted with malice toward Plaintiff in making such representation. "Malice" was defined as "ill will, bad or evil motive, or such gross indifference to the rights of others as will amount to a willful or wanton act done intentionally or without just cause or excuse."

(9) $5,000.00 punitive damages should be awarded to Plaintiff against Watkins, Krsak, and Sharp for such representation.

(10) There was an agreement between Plaintiff and Defendant Watkins, Krsak and Sharp providing that Plaintiff would have employment with the company being formed for an indefinite period of time.

(11) Plaintiff is entitled to $6,000.00 actual damages as a result of his (Plaintiff's) termination of employment.

(12) That K.W.S., Watkins, Krsak, and Sharp acted with malice toward Plaintiff McMahon in terminating his employment.

(13) Plaintiff is entitled to $15,000.00 punitive damages against all four Defendants for such termination of employment.

Based upon the jury verdict the trial court entered judgment in favor of Plaintiff McMahon against Krsak, Watkins and Sharp, jointly and severally, in the amount of $37,500.00 for actual and exemplary damages; and in addition thereto, Plaintiff was awarded judgment against K.W.S. and said three above-named individual Defendants, jointly and severally, for $21,000.00 for actual and exemplary damages. From this judgment the four Defendants appeal.

Appellants' points one and two assert there is no evidence, and insufficient evidence that at the time the Defendants made the representations to Plaintiff (to the effect that Plaintiff would receive 5% ownership of the corporation to be formed), that Defendants did not intend to give Plaintiff such 5% ownership interest. We overrule these contentions.

Defendant K.W.S. Manufacturing Co., Inc. (hereinafter called "KWS") was incorporated on February 23, 1972. The company was formed and owned by the three individual Defendants, Watkins, Sharp, and Krsak. KWS specializes in the manufacture of screw conveyors or bulk material handling equipment. Prior to the incorporation of KWS, Watkins, Sharp and Krsak worked for Thomas Conveyor, a company also dealing in bulk material handling equipment. It was at Thomas Conveyor that each Defendant learned expertise in the various aspects of the screw conveyor business.

In the latter part of 1969 and early 1970, the three individual Defendants were contemplating the formation of their own business. Plaintiff McMahon was a neighbor of Defendant Krsak, and Plaintiff and the three individual Defendants began working part-time at nights and on weekends to set up this new business which was to manufacture screw conveyor equipment. Plaintiff had a full-time job with Loma Plastics, and was experienced in electrical and hydraulic equipment and machinery, which skill and know-how was needed for setting up this screw conveyor manufacturing operation. Plaintiff testified that he had been told by Watkins, Krsak, and Sharp that if he would help them set up and establish this business, he would receive a 5% ownership share of the business and a full-time job with the company the same as the three individual Defendants. Plaintiff testified that pursuant to this promise he worked a substantial amount of time, furnished some needed equipment, and paid in some money to help the venture get started. This new business was in direct competition with Thomas Conveyor, the firm by whom Watkins, Krsak and Sharp were employed. After a while, the Thomas Conveyor people found out about this new business, and thereupon fired Watkins, Krsak, and Sharp. Then, after this, said three individual Defendants began working full time in the new business; and on February 23, 1972, they incorporated this business under the Corporate name of KWS Manufacturing Co., Inc. One hundred shares of stock were issued, all of which was held by Watkins, Krsak, and Sharp.

Plaintiff-Appellee contends that by the jury's answers to special issues 4 through 9 inclusive, he has established the factual basis or elements for a judgment against Watkins, Krsak, and Sharp for actionable fraud. These jury findings establish (1) the Defendants' representation to Plaintiff that if he would furnish time, labor and materials as hereinabove mentioned, that they would give him 5% ownership of the company when it was formed; (2) that Plaintiff relied upon such representation, and (3) has been damaged as a result of such reliance, (4) in the amount of $20,000.00 actual damages; (5) the Defendants acted with malice toward Plaintiff in making such representation, and (6) Plaintiff is entitled to $5,000.00 punitive damages therefor.

However, Defendant-Appellants assert that Plaintiff-Appellee has failed to establish one essential element of his cause of action for actionable fraud against them, to wit: the representation in question made by the Defendants is a promise of an act to be performed in the future (as opposed to a misrepresentation of a past or present existing fact). Appellants argue that in such a case it is not a fraudulent misrepresentation unless Plaintiff-Appellee established that at the very time the Defendants made the promise they did not intend to perform it. We agree with Appellants' contention that this is a correct statement of the law. Plaintiff-Appellee had the burden of establishing this fact as a part of his cause of action for actionable fraud. See Precision Motors v. Cornish (Dallas, Tex.Civ.App., 1967) 413 S.W.2d 752, 756, NRE; Morgan v. Box (Dallas, Tex.Civ.App., 1969) 449 S.W.2d 499, 504, no writ; Citizens Standard Life Ins. Co. v. Gilley (Dallas, Tex.Civ.App., 1975) 521 S.W.2d 354, 356, no writ; Ryan Mortgage Investors v. Lehmann (Beaumont, Tex.Civ.App., 1976) 544 S.W.2d 456, 461, writ dismissed; 25 Tex.Jur.2d "Fraud and Deceit," Section 45, page 685.

In the case at bar, the burden of proof was upon Plaintiff-Appellee to establish that the Defendants did not intend, at the time the representation was made, to perform the promise to give Plaintiff-Appellee the 5% ownership in KWS at the future time when the corporation shall have been formed. The Plaintiff did not request an issue to this effect, but neither did the Defendants object to the failure of the trial court to submit such an issue. See Rule 279, Texas Rules of Civil Procedure. Under this state of the record, the trial court was authorized to make an implied finding to the effect that the Defendants did not intend, at the time the representation was made, to perform the promise to give the Plaintiff...