Court Opinion

ID: 9772009
Source: CourtListenerOpinion
Date Created: 2023-08-29 17:04:52.562595+00
Date Added: 2024-06-11T07:31:41.284363
License: Public Domain

HECHT, Justice,
joined by OWEN, Justice,
filed an opinion concurring in the judgment only.
The rule the Court adopts today exposes all agents, including corporate officers, directors and employees, to increased personal liability for the decisions they make on behalf of their principals. Even when an employer, corporation or other principal authorizes its agent to act on its behalf with a third party, the Court holds that the agent personally— not just the principal — may be liable to the third party. While the Court correctly relieves the corporate officer in this case of the judgment against him, it enlarges the threat of liability to all others in his position. The better rule, in my view, is that an agent is liable to a third party for tortious interference with a contract between that party and the agent’s principal if the agent’s conduct exceeded his authority.
Holligan, Inc. contracted to pay Rick Skinner $63,000 plus a percentage of its receipts. When it encountered financial difficulties, Holligan defaulted on its obligations to Skinner and eventually declared bankruptcy. Skinner sued Holligan and obtained a judgment against it which was never paid. Skinner then sued Holligan’s president, Graham Holloway, who was also a director of the corporation and owned more than forty percent of its stock. Holloway was the person who decided for Holligan what bills to try to pay and what bills would have to go unpaid for lack of funds, and consequently he made the decision for Holligan to discontinue pay-*799merits to Skinner. Although Skinner had failed to obtain Holloway’s personal guaranty of Holligan’s obligations to him, Skinner claimed that Holloway, by making decisions for Holligan, tortiously interfered with the contracts between Holligan and Skinner. Skinner complained that Holloway benefited from Holligan’s default because his annual salary was raised from $24,000 the year before the breach, to $33,750 the year of the breach, and to $45,000 the following year. The trial court rendered judgment on a jury verdict against Holloway for $78,631.61 in actual damages and $100,000 in punitive damages. The court of appeals affirmed. 860 S.W.2d 217.
This Court reverses the judgment against Holloway. The basis for its decision is its holding that an agent interferes with a contract between his principal and a third person only when he acts in a way that is both contrary to his principal’s interests and in furtherance of his own. The Court emphasizes the importance of both of these elements. An agent who acts to better his own interests cannot be liable for tortious interference if his actions are also in his principal’s best interests. Were it otherwise, an agent would be exposed to liability whenever his decisions to benefit his principal also happened to benefit himself. In this case, for example, evidence that Holloway’s salary was raised to reward him for minimizing Holligan’s obligations would support the trial court’s judgment.
While I agree with the Court that there is no liability for tortious interference in this case, I believe the rule it adopts for reaching that conclusion is flawed. It allows a third party to challenge whether an agent’s actions were in his principal’s best interests and to obtain a factual determination that they were not, irrespective of what the principal thinks. This result of the Court’s rule must be stressed. The rule allows a third party to show that an agent’s conduct was contrary to his principal’s interest, even if the principal asserts the opposite position, and certainly if the principal takes no position on the controversy at all. Further, this showing may be made with the benefit of hindsight, so that an agent is second-guessed about whether his decision really benefited his principal or not. I do not believe the law should burden an agent with this potential for liability to third parties, certainly not when his principal has no complaint.
This case illustrates the problem with the Court’s approach. There is no evidence that Holligan has ever taken the position— through its officers, directors, shareholders or employees — that Holloway failed to act in its best interest. Yet Skinner does take this position. In so doing, of course, Skinner is not trying to advance the interests of Holli-gan or its owners; he is advancing his own interests. Skinner contends that Holloway used the money Holligan saved by not paying Skinner to raise his own salary. The Court’s weak response to this contention is that Holloway’s raises did not coincide exactly with Holligan’s default, and did not equal the money withheld from Skinner. The Court leaves the distinct impression that but for these two minor factual problems, Skinner would have a good case. To the Court’s pronouncement that there is no evidence Holloway acted contraiy to Holligan’s best interests, Skinner might respond at least that Holloway got the corporation sued. The point is this: under the Court’s rule, Skinner can argue that Holloway did not act in Holli-gan’s interests when Skinner does not share those interests and when Holligan itself has no complaint, even though it was more directly affected by Holloway’s decisions than Skinner was.
Another illustration of the flaw in the Court’s rule is afforded by Morgan Stanley & Co. v. Texas Oil Co., — S.W.2d - (Tex.App. — Houston [14th Dist.] 1994, writ denied), a case involving tortious interference with prospective business relations, in which the Court denies the application for writ of error contemporaneously with today’s decision. There, Tenneco hired Morgan Stanley to sell Tenneeo’s wholly-owned subsidiary, Houston Oil and Minerals. Texas Oil made an offer to buy Houston Oil and Minerals, and indicated that it would increase its offer if necessary. When Tenneco decided to sell Houston Oil and Minerals to Seagull instead, Texas Oil made a higher offer, which Tenne-co rejected. Texas Oil then sued Tenneco, *800Morgan Stanley and Seagull, claiming that Morgan Stanley tortiously interfered with its prospective contract with Tenneco by convincing Tenneco to sell to Seagull. Texas Oil asserts that Morgan Stanley was motivated by the hope of doing more business with Seagull than it would have done with Texas Oil. Morgan Stanley, in its motion for summary judgment, averred that it acted at all times in the best interests of its principal, Tenneco. Texas Oil countered that an agent’s interference is not privileged when the interferor acts, “not to further the principal’s business, but primarily to further its own interests or out of malice.” The trial court granted Morgan Stanley summary judgment, but the court of appeals reversed, holding that a fact issue subsisted regarding whether Morgan Stanley acted in good faith and in Tenneco’s best interests. The court reached this conclusion despite the absence of any complaint by Tenneco about Morgan Stanley’s conduct.
This Court’s denial of Morgan Stanley’s application for writ of error is consistent with its decision in the present case. Although there is no question that Morgan Stanley acted at all times within the course and scope of its authority from Tenneco, its principal, and although Tenneco does not complain of any of Morgan Stanley’s actions, Texas Oil can recover damages against Morgan Stanley if it can persuade a jury that Morgan Stanley acted in its own best interests and not Ten-neco’s. The Court’s rule allows Texas Oil to mutate its breach of contract claim against Tenneco into a tort claim against Morgan Stanley, and to recover not only contract damages but tort damages, including punitive damages.
These two cases show how the Court’s rule places an agent or employee in the awkward position of answering not only to his principal but to third parties with whom the principal is dealing. The Court misses the whole point when it asserts that an agent must account to its principal for its behavior and may also be liable to a third party for tortious interference. Ante at 797, n. 4. The issue is not whether an agent can be liable for tortious interference, but what must be proved to establish such liability. The Court’s standard of proof clearly imposes a greater burden on agents than the standard I would adopt. The effect of the Court’s rule is to increase the agent’s exposure to personal liability for his principal’s breaches and allow recovery of tort damages when a claimant would otherwise be limited to contract damages. In the present case, for example, Skinner is attempting by this suit for tortious interference to obtain what amounts to Holloway’s personal guarantee of Holligan’s obligations, something Skinner could not obtain by negotiation. Holloway would have been better off if he had personally guaranteed Holligan’s note to Skinner: at least then he would not be liable for punitive damages. An action for tortious interference should not be used as an end run around bars to personal liability, or as a means of recasting a breach of contract as a tort to escape the limits on contractual recovery.
As the Court recognizes, a person cannot interfere with his own contract. When a person is authorized to act for another, his action’s are the other’s. In my view, an agent authorized to cause his principal to terminate a contract should not be liable for tortious interference when that decision turns out to be in the agent’s best interests and not the principal’s; he should be liable only if he acted outside his authority. The Court seems to fear that this rule would shield agents in circumstances when they should not be free of responsibility, but it cannot even imagine a single example. If there are any, they certainly do not raise the same threats as are raised by the flaws in the Court’s rule.
This emphasis on whether the agent was acting within the scope of his authority is consistent with the Court’s discussion in Maxey v. Citizens National Bank, 507 S.W.2d 722 (Tex.1974), in which we concluded that the duties a bank owed the party with which it contracted were not shared by the bank’s employees. We cited several cases concerning an agent’s liability for tortious interference with a contract between his principal and a third party. One, Russell v. Edgewood Independent School District, 406 S.W.2d 249 (Tex.Civ.App. — San Antonio 1966, writ ref d n.r.e.), held that even assum*801ing that a school district breached its contract with the plaintiff as a result of the school superintendent’s advice and direction, the superintendent was not individually ha-ble. The Maxey Court quoted from Bussell with approval: “‘Even the officers and directors of an ordinary corporation, while acting as such, are not personally hable even though they recommend a breach of a vahd contract.’ ” 507 S.W.2d at 725 (citations omitted). Maxey also quoted from Fletcher’s Cyclopedia of Corporations as follows:
“In so immunizing corporate directors from personal liability the law has proceeded on the theory that in so acting they are but the agents of the corporation and that the breach is that of the corporation, and hence it alone is answerable therefore, and, further, that to hold otherwise would tend to hinder directors of a corporation from acting on their judgment for the interest of their corporation and that they should be left free from possible liability of that kind.”
Maxey, 507 S.W.2d at 726 (citing 3 William M. Fletcheb, FletcheR Cyclopedia of the Law of Private Corporations § 1001 (perm, ed.)).
The cases cited in Maxey properly focus on whether the agent was acting within the scope of his authority. In 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 court briefly explained that the corporation’s president and a director were “not mere interlopers” and were not to be considered third parties who had no legal interest in the alleged contract: “[i]t is not shown that in any way they went beyond their powers or authority as officer and director of their corporation. It was their duty to protect the interests of the corporation. There is no evidence of fraud on their part.” Thus, they could not be held individually liable for causing the corporation to refuse to consummate the deal.
Maxey cites another case, Terry v. Zachry, 272 S.W.2d 157 (Tex.Civ.App. — San Antonio 1954, writ ref d n.r.e.) (Pope, J.) (disapproved only insofar as it characterized justification as an element of plaintiffs case in Sterner v. Marathon, 767 S.W.2d 686 (Tex.1989)), in which even actual malice was apparently deemed insufficient to subject a corporate agent acting within his authority to individual liability for interfering with his principal’s contract. The court reasoned:
An arbitrary refusal to pay an unliquidated and disputed claim is not the basis for a suit for malicious defense of a suit. Especially is this true when the debtor is solvent. Nor does the malicious insistence by a third person that an unliquidated and disputed or doubtful claim be contested, constitute an actionable cause. Such conduct is justified.
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Were the rule otherwise, an officer of a corporation would induce a corporate officer to resist a claim at the risk of invoking a personal action unless the corporation was absolutely correct. A wilful refusal to pay an unliquidated claim is not the basis for a separate and independent suit against the corporate officers who induced such action. 62 C.J., Torts, § 57, 86 C.J.S., Torts § 45; 30 Am.Jur., Interference, § 28, states the rule even more broadly: “It has been held, for example, that notice by a third person to a debtor not to pay his creditor by reason of which the latter is compelled to sue to recover the sum due him does not constitute sufficient ground to support an action for damages even though such notice is given maliciously. The interest on the debt is held to be compensation for the delay in payment.”
272 S.W.2d at 159-60 (citations omitted). In Terry, the court noted that the general rule was subject to an exception for corporate officers, quoting authority that a servant who causes a breach of his master’s contract with a third person is not a stranger, but the alter ego of his master: his acts are in law the acts of his employer, so that it is the master himself, by his agent, breaking the contract. Id. at 160. For this reason, an action against the agent fails just as an action would fail against the master.
More recent Texas cases, although not actually assessing liability against a corporate agent individually, recognize the possibility *802that agents can be liable for tortiously inducing a breach if, for example, they act outside the scope of their agency. See, e.g., John Masek Corp. v. Davis, 848 S.W.2d 170, 175 (Tex.App. — Houston [1st Dist.] 1992, writ denied) (affirming judgment for the son-in-law of an individual who controlled a withdrawing corporate partner, concluding that there was no evidence the son-in-law was anything other than an agent); Victor M. Solis Underground Util. & Paving Co. v. City of Laredo, 751 S.W.2d 582, 535 (Tex.App. — San Antonio 1988, writ denied); Gonzalez v. Gutierrez, 694 S.W.2d 384, 388 (TexApp. — San Antonio 1985, no writ) (reversing judgment because there was no showing that the defendant airport director’s actions went beyond the scope of his authority as an agent of the city, and because the city’s airport committee and city council were not obliged to accept director’s recommendations). In this same context, one case explained that an “agent does not interfere with his principal’s business so long as he acts within the agency’s scope, rather than pursues purely personal objectives.” See American Medical Int’l, Inc. v. Giurintano, 821 S.W.2d 331, 335-36 (Tex.App. — Houston [14th Dist.] 1991, no writ) (an agent is merely the alter ego of his principal, and their financial interest is the same).
Only one Texas case suggests that “malice” is sufficient to make an agent liable for tortiously interfering with his principal’s contract. In Eloise Bauer & Associates, Inc. v. Electronic Realty Associates, Inc., 621 S.W.2d 200, 203-04 (Tex.CivApp. — Texar-kana 1981, writ refd n.r.e.), the court held that the trial court erred in instructing that interference was privileged as long as it was in the course and scope of employment, since the jury could have believed, from, the evidence, that the interferor acted with malice, based solely on his own pecuniary interest, or interests other than his employer’s. This court simply misunderstood the applicable standard, which is, that an agent is protected not only if he is acting within the scope of his actual authority, but also if he in good faith believes he is acting within the scope of his authority. See Terry v. Zachry, 272 S.W.2d at 159-60.
As this review of the cases demonstrates, a rule based upon the scope of the agent’s authority is hardly a departure from established Texas law, as the Court contends. Ante at 797, n. 4. The rule I propose and the one adopted by the Court will often yield the same result. My concern, however, is for those cases when liability will be unjustly imposed on an agent who always acted within the scope of his authority, and for the increased burden the Court places on such agents to avoid liability.
The rule I propose is supported by caselaw outside Texas. In Wampler v. Palmerton, 250 Or. 65, 439 P.2d 601 (1968), the court noted that other courts had tended to shield corporate employees from liability for inducing breach of the corporate contract, often stating that they are not liable if the action was taken in “good faith” and for the benefit of the corporation. Id. 439 P.2d at 606. But the court stressed that the words “good faith” should not be employed to render a corporate officer or employee liable for engaging in morally questionable activities on behalf of his principal that nevertheless would not be tortious if he were acting for himself as the party to the contract. Id. at 607. A person contracting with a corporation, the Oregon court pointed out, could not reasonably have any contractual expectation that did not take into account that the corporation may be advised to breach the contract, in accordance with its interest:
So long as the officer or employee acts within the general range of his authority to benefit the corporation, the law identifies his action with the corporation. In such a situation the officer is not liable for interfering with a contract any more than the corporation could be liable in tort for interfering with it.

Id.

Similar issues on whether a corporate director, officer, or employee is liable for tor-tiously interfering with a contract have frequently arisen in other jurisdictions. See Thomas G. Fischer, Annotation, Liability of Corporate Director, Officer, or Employee for Tortious Interference with Corporation’s Contract, 72 AL.R.4th 492 (1989). Some states have recognized that a corporate di*803rector, officer or employee is generally not liable for tortiously interfering with a corporate contract because he is considered a party to the contract, as long as he acts to serve corporate interests, or unless his activity involves individual, separate tortious acts. Other courts have recognized that a corporate agent may be hable if he acts outside the scope of his authority, with malice, or to serve his own interests. Id. at 501-02. The opinions of courts in other jurisdictions present a variety of situations and judicial responses, and illustrate the problems invited by this Court’s approach. A number, for example, deal with interference by a supervisor or peers of a discharged employee with the employee’s formal or at-will employment contract. See, e.g., Wagenseller v. Scottsdale Memorial Hosp., 147 Ariz. 370, 388-89, 710 P.2d 1025, 1043-44 (1985) (at-will employee introduced summary judgment evidence to show discharge was caused by deterioration of personal friendship); Morriss v. Coleman Co., 241 Kan. 501, 738 P.2d 841 (1987) (since undisputed summary judgment evidence showed plaintiffs were considered good employees, a reasonable person could have inferred that they had been discharged because a superior disapproved of unmarried employees traveling together). The variety of situations in the caselaw demonstrates how tortious interference can expand to become the remedy of choice, displacing other actions with more limited remedies.
For these reasons I believe it is important that an action for tortious interference against an agent be limited to circumstances in which the agent has transgressed his authority. The Court’s broader rule is, in my view, prone to mischief. Accordingly, I concur only in the Court’s judgment.