Holloway v. Skinner
898 S.W.2d 793, 1995 WL 277114 (1995)
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Rule of Law:
A corporate agent is not personally liable for tortiously interfering with the corporation's contract unless the plaintiff proves the agent acted in a manner so contrary to the corporation's best interests that the actions could only have been motivated by personal interests.
Facts:
- Rick Skinner owned an Alvin Ord’s sandwich shop franchise.
- Graham Holloway and his father-in-law, Tom Culligan, formed a new corporation, Holligan, Inc., with Skinner to own and operate the franchise.
- As part of the agreement, Holligan, Inc. issued a $63,000 promissory note to Skinner and agreed to pay him a six percent royalty on gross receipts. Holloway served as the corporation's president.
- During negotiations, Skinner unsuccessfully attempted to get a personal guarantee from Holloway on the Corporation's obligations.
- Between 1981 and 1984, the Corporation experienced severe cash flow problems and failed to make some payments owed to Skinner.
- In 1984, Skinner left his managerial position at the Corporation due to a deteriorating personal relationship with Holloway.
- The Corporation defaulted entirely on its obligations to Skinner in July 1985.
- During the period of financial distress and default, Holloway's salary increased from $24,000 to $45,000 over two years, though the corporation's overall salary expenses decreased due to staff reductions.
Procedural Posture:
- Rick Skinner sued Holligan, Inc. for breach of contract and obtained a judgment against the corporation.
- Holligan, Inc. subsequently filed for bankruptcy, and the judgment remains unsatisfied.
- Skinner then filed a new suit in state trial court against Graham Holloway personally for tortious interference with the contract.
- A jury returned a verdict for Skinner, and the trial court entered judgment against Holloway.
- Holloway, as appellant, appealed to the intermediate court of appeals, which affirmed the trial court's judgment.
- Holloway, as petitioner, then appealed to the Supreme Court of Texas, which granted his application for writ of error.
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Issue:
Does a corporate officer tortiously interfere with a corporate contract by causing the corporation to breach it, if the officer's actions were not so contrary to the corporation's best interests that they could only have been motivated by personal interests?
Opinions:
Majority - Justice Cornyn
No. A corporate officer does not tortiously interfere with a corporate contract unless the plaintiff proves that the officer acted so contrary to the corporation's best interests that their actions could only have been motivated by personal interests. A corporation acts through its agents, and an agent's actions on behalf of the principal are generally deemed the principal's acts. To allow a claim against an agent for inducing a breach would effectively permit a party to sue itself for tortious interference. The law protects corporate officers who make decisions in good faith for the corporation's benefit, even if those decisions lead to a breach of contract. Here, Skinner failed to provide any evidence that Holloway's decision to default on payments, while the corporation faced severe financial distress, was an act of self-dealing rather than a business judgment made to protect the corporation's interests. The mere existence of a personal benefit, such as a salary, is insufficient to establish that an officer acted with a willful and intentional motive to interfere for personal gain.
Dissenting - Justice Hightower
Yes. The majority errs by misplacing the burden of proof and by concluding there is no evidence to support the jury's verdict. Legal justification is an affirmative defense, meaning the burden should be on the defendant (Holloway) to prove he acted in the corporation's best interests, not on the plaintiff (Skinner) to prove he did not. The majority's holding effectively shifts this burden, undermining established precedent. Furthermore, there was more than a scintilla of evidence that Holloway tortiously interfered; while the corporation was financially distressed and defaulting on its obligations to Skinner, Holloway, who controlled the corporation, gave himself significant pay raises. A jury could reasonably conclude from this evidence that Holloway induced the breach to benefit himself personally at the expense of the corporation's creditors.
Concurring - Justice Hecht
No. While the result is correct, the majority's reasoning is flawed. The proper test for an agent's liability should be whether the agent acted outside the scope of their authority, not whether they acted against the principal's best interests. The majority's 'best interests' test improperly allows third parties to second-guess an agent's business decisions and sue them personally, even when the principal corporation has no complaint. This creates instability and exposes agents to undue liability. Because Holloway acted within his authority as president when making financial decisions for the corporation, he cannot be held personally liable for tortious interference.
Concurring - Justice Enoch
No. An agent is not liable for interfering with the principal's contract if the agent acts within their corporate authority, which includes a requirement to act in good faith. The majority's 'best interests' test is not an element of 'willful and intentional interference' but is instead the correct way to determine if an agent has acted outside their authority and should be treated as a stranger to the contract. A plaintiff can show an agent acted outside their authority by proving the agent's actions were so contrary to the corporation's interests that they could only have been motivated by personal gain. Because Skinner presented no such evidence, Holloway was acting within his authority and cannot be held liable.
Analysis:
This decision significantly strengthens the protection afforded to corporate officers and directors when making business decisions that result in a breach of contract. By placing a high burden on the plaintiff to prove that an officer's actions were exclusively self-serving and contrary to the corporation's interests, the court limits the scope of tortious interference claims in the corporate context. This standard protects the business judgment of corporate agents, allowing them to prioritize creditors and manage financial distress without constant fear of personal tort liability. The case effectively makes it more difficult for contract creditors to circumvent the corporate shield and hold officers personally accountable, forcing them to rely on contract remedies against the corporation itself.
