Mercury Life & Health Co. v. Hughes

• Decision Date: 22 September 1954
• Docket Number: No. 12623,12623
• Citation: 271 S.W.2d 842
• Parties: MERCURY LIFE & HEALTH COMPANY et al., Appellants, v. William E. HUGHES, Appellee.
• Court: Texas Court of Appeals

Page 842

271 S.W.2d 842

MERCURY LIFE & HEALTH COMPANY et al., Appellants, v. William E. HUGHES, Appellee.

No. 12623.

Court of Civil Appeals of Texas, San Antonio.

Sept. 22, 1954.

Rehearing Denied Oct. 20, 1954.

John Peace, Edward Penshorn, Robert Sawtelle, Lang, Byrd, Cross & Ladon and Cox, Patterson & Smith, San Antonio, for appellants.

Hubert W. Green and Boyle, Wheeler, Gresham & Davis, San Antonio, for appellee.

W. O. MURRAY, Chief Justice.

This is a suit by William E. Hughes against Mercury Life & Health Company, Mercury United Life Insurance Company, both being Texas insurance corporations, Leonard Hyatt, H. C. Plumly, T. H. W. Vordenbaum, C. B. Fulton and James A. Savage, seeking to recover damages for the breach of a contract wherein William E. Hughes was made general manager of the Mercury Life & Health Company for a period of ten years, with the privilege of renewal for another ten years at the option of William E. Hughes.

The trial was to a jury and, based upon answers to special issues, judgment was rendered in favor of William E. Hughes against the defendants jointly and severally in the sum of $226,779.63. Exemplary damages in the sum of $50,000 in favor of William E. Hughes against Leonard Hyatt, H. C. Plumly and James A. Savage were also awarded. All of the defendants have appealed.

The date of the alleged contract was May 6, 1944. Appellants defended principally upon the ground that the contract was void and unenforceable as being against public policy, because (1) it was executed by virtue of a contractual arrangement to control the management of Mercury Life & Health Company in perpetuity, and was voted at a directors' meeting in which all persons voting had a direct, personal financial interest in the benefits of the contract, and (2) it purported to make of appellee virtually the company for a period of twenty years, thus precluding the management of the company's affairs by its board of directors and its policyholders.

A controversy between William E. Hughes and Leonard Hyatt as to the management of Mercury Life & Health Company has been going on for some time. See Hyatt v. Mercuty Life & Health Company, Tex.Civ.App., 202 S.W.2d 320; Hyatt v. Hughes, Tex.Civ.App., 221 S.W.2d 998; Hughes v. Sanders, Tex.Civ.App., 243 S.W.2d 211. The facts leading up to the present phase of this controversy are set out in great detail in the opinion of this Court in Hyatt v. Hughes, Tex.Civ.App., 221 S.W.2d 998, and reference is here made to that opinion for a full statement of such facts.

In view of the full statement in our former opinion, we will here only briefly state such facts as we deem absolutely necessary.

In 1943 Leonard Hyatt was operating the Mercury Life & Health Company, hereinafter referred to as Mercury, under a management contract which virtually made him the company. On November 30, 1943, Hyatt sold to Hughes a 51% interest in Mercury, retaining for himself a 49% interest. Under this contract of sale Hyatt was to be the president of the company and Hughes chariman of the board of directors. At all annual policyholders' meetings Hughes was to have the privilege of voting by proxy 51% of the policyholders and Hyatt 49%. Hughes had the privilege of naming three directors, Hyatt two. This arrangement was to last as long as the company continued.

After this contract was executed Hughes suggested that the general management contract which stood in the name of Hyatt should be changed to his name, inasmuch as he held the controlling interest in the company. This suggestion was followed and on May 6, 1944, a contract was entered into by the board of directors giving to Hughes the power to run the company as though he was the actual owner of it. This contract was similar in every respect to that formerly held by Hyatt. Hughes entered into a separate agreement with Hyatt to the effect that as soon as his contract was approved by the State Board of Insurance Commissioners he would convey to Hyatt a 49% interest in the contract. Hughes' contract was approved by the board, but he did not convey the 49% to Hyatt. This failure resulted in the suit of Hyatt v. Hughes, Tex.Civ.App., reported in 221 S.W.2d 998. In that case we hold, among other thing, that Hyatt's contract was not sufficiently complete, definite and certain to support his suit for a breach thereof.

After Hyatt had lost his suit against Hughes, he and others attended a policyholders' meeting on January 20, 1947, and were successful in electing directors of Mercury who were favorable to him and unfavorable to Hughes. Hyatt v. Mercury Life & Health Company, Tex.Civ.App., 202 S.W.2d 320. These new directors cancelled Hughes' contract, which under its terms would have otherwise continued for some seventeen more years, and this suit for damages by Hughes for such breach followed.

Appellants' first point is that the contract upon which appellee's suit is based is void and unenforceable, being in violation of the public policy of this State.

There were four directors present when the contract of May 6, 1944, was entered into with Hughes. These four directors were, William E. Hughes, his wife, Edith C. Hughes, James A. Savage and Leonard Hyatt. Each one of these directors had a direct personal financial interest in the letting of this contract. Hughes and his wife were to receive 51% of the net profits of the company, Hyatt was to receive the remaining 49%, and Savage was to ultimately receive $50,000 for advertising the company over his radio station located in Monterrey, Mexico. The contract of May 6, 1944, was simply the putting into...