Mancorp, Inc. v. Culpepper

Decision Date12 December 1990
Docket NumberNo. C-9515,C-9515
Citation802 S.W.2d 226
PartiesMANCORP, INC., Petitioner, v. John C. CULPEPPER, Jr. and Culpepper Properties, Inc., Respondents
CourtTexas Supreme Court
OPINION

SPEARS, Justice.

Mancorp, Inc. sued John C. Culpepper, Jr. and Culpepper Properties, Inc. for breach of a construction contract. Mancorp alleged that it had performed the contract by completing work on the First Bank Galleria building in Bryan, Texas, and that it was owed $510,650, the unpaid balance under the contract. Culpepper and Culpepper Properties, Inc. counterclaimed for breach of contract, breach of warranty, and deceptive trade practices, alleging material defects in the building. The jury found (1) that Mancorp substantially performed its contract with Culpepper Properties, Inc., (2) that Culpepper Properties, Inc. was entitled to an offset for necessary repairs to the building totalling $289,376.90, (3) that Culpepper Properties, Inc. was the alter ego of John C. Culpepper, Jr., (4) that Mancorp was not in breach of its contract with Culpepper Properties, Inc., and (5) that Mancorp was entitled to reasonable and necessary attorneys' fees. Culpepper and Culpepper Properties, Inc. moved for judgment non obstante veredicto on the jury's alter ego finding. The trial court rendered judgment for Mancorp in the amount of $221,273.10 (contract price less the offset) but rendered judgment n.o.v. for Culpepper on the alter ego finding. The court of appeals reformed the trial court's judgment by reducing Mancorp's recovery by $2000, and affirmed the judgment as reformed. 781 S.W.2d 618. We reverse the judgment of the court of appeals and remand this cause to that court for consideration of the factual insufficiency point that Culpepper raised in the appeal below.

ALTER EGO

In order to uphold a trial court's judgment notwithstanding the verdict, an appellate court must determine that no evidence supports the jury's findings. Williams v. Bennett, 610 S.W.2d 144, 145 (Tex.1980). When reviewing a no evidence point, an appellate court is limited to reviewing only the evidence tending to support the jury's verdict and must disregard all evidence to the contrary. Sherman v First Nat'l Bank, 760 S.W.2d 240, 242 (Tex.1988) (per curiam); Garcia v. Insurance Co. of Pa., 751 S.W.2d 857, 858 (Tex.1988) (per curiam). If more than a scintilla of evidence supports the jury finding, it must be upheld. Garcia, 751 S.W.2d at 858. Thus, appellate courts must consider the evidence and inferences as they tend to support the verdict and not with a view toward supporting the judgment. See, id. ("If there is more than a scintilla of evidence to support the jury finding, it must be upheld.") (emphasis added). With this standard in mind, we now examine the evidence to determine whether the jury's alter ego finding is supported by more than a scintilla of evidence.

Under the alter ego theory, courts disregard the corporate entity when there exists such unity between corporation and individual that the corporation ceases to be separate and when holding only the corporation liable would promote injustice. Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex.1986). An alter ego relationship may be shown from the total dealings of the corporation and the individual. Id. This showing may include evidence of "the degree to which corporate formalities have been followed and corporate and individual property have been kept separately, the amount of financial interest, ownership and control the individual maintains over the corporation, and whether the corporation has been used for personal purposes." Id.

In the instant case, the court of appeals found that the only testimony concerning alter ego was that of Culpepper. His testimony showed noncompliance with corporate formalities and payment of alleged corporate debts with his personal checks. The court of appeals viewed this testimony standing alone, and the reasonable inferences drawn from it, as constituting no evidence that Culpepper Properties, Inc. is Culpepper's alter ego. The court also considered evidence of checks drawn on the account of "John C. Culpepper, Jr., Bank Tower Project," which Culpepper wrote without a designation that he was the agent of Culpepper Properties, Inc., to be no evidence of alter ego and further stated that Culpepper's business card--"Culpepper Properties, Inc., John C. Culpepper, Jr., his self"--amounted to less than a scintilla of evidence. Finally, the court could find no evidence of gross fraud that would result in injustice.

Instead of considering this evidence and the reasonable inferences supporting the jury's finding of alter ego, the court of appeals drew inferences from the evidence which tended to support the trial court's judgment n.o.v. that Culpepper Properties, Inc. was not the alter ego of Culpepper. Certainly, reasonable minds could differ about whether Culpepper's testimony established that Culpepper failed to observe corporate formalities. However, it was not unreasonable for the jury to infer from Culpepper's testimony that he and the corporation were alter egos. The evidence of the checks could support an inference that the account was used solely for Culpepper's personal business investments. Similarly, evidence of Culpepper's business card may have led the jury to infer that Culpepper considered Culpepper Properties, Inc. indistinguishable from himself.

These pieces of evidence, however, do not stand alone; we consider them along with other pieces of evidence. There was testimony that throughout their dealings Culpepper led Mancorp to believe it was dealing with Culpepper as an individual. During negotiations, Culpepper told Mancorp's vice president that he personally backed the First Bank Galleria project. All of these pieces of evidence, taken together and in light of other evidence in the record showing Culpepper's and Culpepper Properties, Inc.'s total dealings, 1 constitute more than a scintilla of evidence to support a finding that there is such unity between the corporation and the individual that the separateness of the corporation has ceased. See Castleberry, 721 S.W.2d at 276.

Likewise, there is more than a scintilla of evidence that failure to pierce the corporate veil will result in injustice. See Matthews Constr. Co. v. Houston Pipe & Supply Co., 796 S.W.2d 692, 693 (Tex.1990) (when corporate form is used as essentially unfair device courts may act in equity and disregard corporate form to avoid inequitable result). "Where a corporate entity is owned or controlled by an individual who operates the company in a manner indistinguishable from his personal affairs and in a manner calculated to mislead those dealing with him to their detriment," the corporate fiction may be disregarded in order to prevent injustice. See Loomis Land & Cattle Co. v. Wood, 699 S.W.2d 594, 597 (Tex.App.--Texarkana 1985, writ ref'd n.r.e.); see also Sagebrush Sales Co. v. Strauss, 605 S.W.2d 857 (Tex.1980). In contract cases, inequity frequently results from reasonable reliance on the financial backing of the corporation's owners should the corporation become insolvent. Pan Eastern Exploration Co. v. Hufo Oils, 855 F.2d 1106, 1133 (5th Cir.1988). 2 Without this reliance on an owner's representations of financial backing, a contract claimant would otherwise assume the risk of insolvency as part of its bargain with the corporate entity. Id. (citing Bell Oil & Gas Co. v. Allied Chem. Corp., 431 S.W.2d 336 (Tex.1968); Edwards Co. v. Monogram Indus., Inc., 730 F.2d 977 (5th Cir.1984) (en banc)).

Viewing the evidence in the light most favorable to the jury's verdict, the evidence in this case tends to show the following: (1) Ryan Mortgage Company made the construction loan for the First Bank Galleria project to Culpepper Properties, Inc. and Culpepper individually; (2) Culpepper personally guaranteed the loan; (3) Culpepper told Richard Darrah, Mancorp's vice president, that he was personally behind the project; (4) Ryan Mortgage confirmed to Darrah that Culpepper was personally behind the project; (5) Culpepper did business under the corporate name of Culpepper Properties, Inc. and personally under the name Culpepper Properties; (6) Mancorp submitted the proposal for the bank project to "Culpepper Properties," not Culpepper Properties, Inc.; (7) Culpepper signed an order for changes in the construction documents personally under the name of Culpepper Properties; and (8) Mancorp thought it was doing business with Culpepper, the individual, and that he was paying for the job. The record also shows that Ryan Mortgage foreclosed on the project and that two of the project's creditors went unpaid. Based on this evidence, a jury could reasonably infer that injustice would result if Culpepper was not held personally liable because Mancorp relied on Culpepper's misleading representations to the effect that he was backing the project. Moreover, the evidence of the mortgage company's foreclosure of the project and the fact that two of the project's creditors were unpaid could have led the jury to reasonably infer that Mancorp might go unpaid by Culpepper Properties, Inc., and this would result in injustice. 3 Therefore based upon the evidence concerning the total dealings between Culpepper and Culpepper Properties, Inc., we hold that more than a scintilla of evidence supports the jury's alter ego finding and the court of appeals erred in concluding otherwise.

DESIGNATION OF WITNESSES

By conditional application, Culpepper and Culpepper Properties, Inc. assert that Mancorp engaged in a calculated scheme of deception and surprise during discovery. This scheme, it is argued, resulted in the surprise testimony of Mancorp's expert witness--David Othold of Stewart Construction Consultants. Culpepper contends that Mancorp engaged in a trial by ambush and that...

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