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 2004-09

Elliott, William H.,Jr. v. Stephen Whitten ( 2004 )


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  • Opinion issued September 23, 2004

                                  









      In The  

    Court of Appeals

    For The   

    First District of Texas  




      NO. 01-02-00065-CV




    WILLIAM H. ELLIOTT JR., Appellant


    V.


    STEPHEN WHITTEN, Appellee  




    On Appeal from the 334th District Court

     Harris County, Texas

    Trial Court Cause No. 97-57977  




    * * *




      NO. 01-02-00065-CV




    STEPHEN WHITTEN, Appellant


    V.


     WILLIAM H. ELLIOTT JR., Appellee




      On Appeal from the 334th District Court

     Harris County, Texas

    Trial Court Cause No. 97-57977  




    MEMORANDUM OPINION  

              William H. Elliott Jr. appeals from a judgment, rendered upon a jury verdict, awarding Stephen Whitten $350,000 in actual damages on Whitten’s claim for fraudulent inducement of contract. Whitten, in turn, appeals the granting of Elliott’s motion for judgment not withstanding the verdict (“JNOV”) on the jury’s award of exemplary damages. We determine (1) whether Whitten’s fraudulent-inducement claim was precluded as a matter of law because the oral agreement upon which it was based was allegedly unenforceable under the statute of frauds and (2) whether legally and factually sufficient evidence supported the jury’s liability and damages answers. We affirm the judgment in part, reverse it in part, and remand the cause.

     

    Background

              Elliott was the founder of I-Star, a closely held corporation that provided, among other things, security services to commercial clients. Elliott approached Lanax, a company with which Whitten had been consulting, to develop an interactive security system for I-Star. Lanax contracted with I-Star to manufacture the equipment, to build the system, and to teach I-Star how to install and to operate the system.

              Lanax encountered difficulties in implementing the system. Although the Lanax contract eventually fell through, I-Star continued working with Whitten on a consulting basis. Whitten and I-Star initially agreed orally that Whitten would receive $1,000 per week for his consulting services, which agreement, according to Whitten, was to last only two weeks. Whitten asserted that, in October 1994, the parties orally agreed that Whitten would continue working for $1,000 per week, plus 25% of I-Star’s stock. Elliott denied that such an oral agreement for stock existed. The October 1994 oral agreement was the alleged contract upon which Whitten would later base his first fraudulent-inducement claim (“the first fraud”).

              Sometime in December 1994, Whitten became an I-Star employee, although his compensation did not change. Whitten asserted that, in June 1996, when I-Star was in particular need of outside capital, he offered to give up his 25% equity interest in I-Star in exchange for becoming I-Star’s exclusive hardware supplier. Whitten testified that Elliott verbally accepted this offer. Elliott denied at trial that the June 1996 agreement existed. This June 1996 oral agreement was the event upon which Whitten would later base his second fraudulent-inducement claim (“the second fraud”).

              The parties’ relationship fell apart after the second fraud, and Whitten resigned in November 1997. He asserted that Elliott had made several oral promises to compensate him for certain contract services after he resigned, but that I-Star did not fulfill those promises. Elliott denied having made certain of these promises and claimed that Whitten had voluntarily modified others of them.

              In November 1997, I-Star sued Whitten in trial court cause number 97-57977, based on a “Consulting and Severance Agreement” (“the C&S agreement”) between Whitten and I-Star, seeking attorney’s fees and a declaration of the following matters: a declaration of the parties’ rights under the C&S agreement; a declaration that I-Star had no obligation under the C&S agreement to give Whitten an interest in I-Star; and a declaration that the C&S agreement called for arbitration of any claims that Whitten might have. Whitten’s answer asserted that the C&S agreement was invalid and alleged the defense of forgery. In April 1998, Whitten counterclaimed against I-Star, alleging that the C&S agreement was invalid, asserting claims for breach of contract, quantum meruit, and fraudulent inducement, and seeking actual and exemplary damages and attorney’s fees. Whitten simultaneously moved to join Elliott as a third-party defendant to Whitten’s counterclaims.

              In July 1998, despite having moved to bring in Elliott as a third-party defendant in I-Star’s suit against Whitten, Whitten filed his own lawsuit against Elliott individually and as “acting on behalf of [I-Star]” in another court under trial court cause number 98-317-98. Whitten alleged claims for fraud and sought actual and exemplary damages and attorney’s fees. Elliott answered, asserting as affirmative defenses the C&S agreement and arbitration, and advised the court that another suit involving the same transactions had already been filed. Both causes were eventually consolidated under the first suit’s cause number.

     

              The consolidated cause went to trial before a jury in April 2001. The jury found that the parties had not agreed to the C&S agreement; found that Elliott had committed fraud in connection with the promise to give Whitten 25% of I-Star’s stock (the first fraud); awarded Whitten $375,000 in actual damages for the first fraud; found that Elliott had also committed fraud by inducing Whitten to give up the 25% equity interest in I-Star (the second fraud); awarded Whitten $125,000 in actual damages for the second fraud; found that Elliott was acting on I-Star’s behalf when he committed both frauds; and awarded Whitten $1 million against I-Star and $250,000 against Elliott as exemplary damages. To avoid a double recovery, Whitten elected to recover for the first fraud only. Upon Whitten’s motion for judgment and his later motion to modify the judgment, and upon Elliott and I-Star’s motions for JNOV, for new trial, and, alternatively, for remittitur, the trial court signed an amended final judgment that rendered a take-nothing judgment on Whitten’s claims against I-Star; that rendered judgment against Elliott individually for $375,000 in actual damages, for pre- and post-judgment interest, and for court costs; that awarded no exemplary damages to Whitten; that denied I-Star’s request for declaratory relief; and that denied any party’s attorney’s fees. Both parties appeal.

    Elliott’s Appeal  

    A.      Viability of Whitten’s Fraudulent-Inducement Cause of Action

              In issue one, Elliott argues that the trial court erred by not directing a verdict on Whitten’s fraudulent-inducement claim for the first fraud, and, alternatively, by not disregarding the jury’s verdict on that claim, because the claim was based on an oral promise to transfer stock that was allegedly unenforceable under the statute of frauds.

              1.       Standard of Review

              “A court may instruct a verdict if no evidence of probative force raises a fact issue on the material questions in the suit.” Prudential Ins. Co. of Am. v. Fin’l Rev. Servs., Inc., 29 S.W.3d 74, 77 (Tex. 2000). A directed verdict for a defendant may be proper when a plaintiff fails to present evidence raising a fact issue essential to its right of recovery or if the plaintiff admits or the evidence conclusively establishes a defense to the plaintiff’s cause of action. Id. JNOV is proper when a directed verdict would have been proper, i.e., when no evidence supports the jury finding, when a fact necessary to the finding is conclusively established to the contrary, or when a legal principle precludes recovery. See Tex. R. Civ. P. 301; Salinas v. Rafati, 948 S.W.2d 286, 289 (Tex. 1997); John Masek Corp. v. Davis, 848 S.W.2d 170, 173-74 (Tex. App.—Houston [1st Dist.] 1993, writ denied).

              Elliott’s challenges generally involve questions of law, which we review de novo. See In re Humphreys, 880 S.W.2d 402, 404 (Tex. 1994) (“[Q]uestions of law are always reviewable de novo.”). To the extent that Elliott’s challenges concern disputed fact issues, we consider only the evidence that is in the light most favorable to the jury’s verdict, taking all reasonable inferences in the verdict’s favor. See Szczepanik v. First S. Trust Co., 883 S.W.2d 648, 649 (Tex. 1994) (directed verdict); Navarette v. Temple Indep. Sch. Dist., 706 S.W.2d 308, 309 (Tex. 1986) (JNOV).

              2.       Haase v. Glazner

              Elliott’s issue one is premised on Haase v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001). To the extent that a claimant seeks to recover the benefit of the bargain made in a non-existent, invalid, or unenforceable contract, the claimant may not recover under a theory of fraudulent inducement. Id. at 796, 798-99. This result ensues because proof that a party relied to its detriment on an alleged misrepresentation is an essential element of a fraud claim, and one cannot detrimentally rely on an invalid or non-existent agreement. Id. at 798. Additionally, fraudulent inducement requires proof of the contract’s existence. Id. at 798-99. Therefore, with regard to a contract that the statute of frauds makes unenforceable, the statute’s purpose would be frustrated by allowing recovery of benefit-of-the-bargain damages under a fraudulent-inducement theory. Id. at 799.

              Haase applies only if the underlying contract is invalid or unenforceable. See id. at 798-99. Elliott’s sole argument below was that, because Whitten admitted that no writing signed by I-Star or Elliott reflected the oral agreement underlying the first fraud, the statute of frauds made that oral agreement unenforceable. Whether a contract falls within the statute of frauds is a question of law. Bracher v. Dozier, 346 S.W.2d 795, 796 (Tex. 1961). The statute of frauds is an affirmative defense. See Tex. R. Civ. P. 94.

     

              Elliott relies on two statutes in support of his statute-of-frauds argument. First, Elliott argues that former Business and Commerce Code section 8.319 makes the oral contract underlying the first fraud unenforceable. See Act of May 25, 1967, 60th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2512, repealed by Act of May 27, 1995, 74th Leg., R.S., ch. 962, § 1, 1995 Tex. Gen. Laws 4760, 4767 (appearing at Tex. Bus. & Com. Code Ann. § 8.113 (Vernon 2002)) [hereinafter “former section 8.319”]. Second, Elliott argues that Business and Commerce Code section 26.01 makes the oral contract unenforceable because the agreement was allegedly unperformable within a year. See Tex. Bus. & Com. Code Ann. § 26.01 (Vernon 2002).

                        a.       Business and Commerce Code Section 8.319

              Concerning Elliott’s challenge based on former Business and Commerce Code section 8.319, we note that former section 8.319 provided, in pertinent part:

    A contract for the sale of securities is not enforceable by way of action or defense unless

     

    (1)there is some writing signed by the party against whom enforcement is sought or by his authorized agent or broker sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price; . . . .


    Former section 8.319, Act of May 25, 1967, 60th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2512 (emphasis added).

              We disagree with Elliott’s challenge under former Business and Commerce Code section 8.319 for two reasons. First, the oral agreement underlying the first fraud was not a “sale of securities” to which former section 8.319 could apply. Whitten testified that, before Elliott’s oral promise to give him I-Star stock, Whitten had agreed to consult with I-Star for $1,000 per week for two weeks. At the end of that time, Whitten testified that he could no longer work for that sum and that he instead proposed working for I-Star as an exclusive manufacturer, plus $2,500 per week. Whitten testified that, when that proposal fell through, he then proposed continuing to work for I-Star for $1,000 per week, plus a 25% equity interest in I-Star. Therefore, the contract underlying the first fraud was one of continued employment. “[T]he statute of frauds [under former section 8.319] does not apply to all agreements involving stock or securities,” but instead applies only to agreements for the sale of securities. Williams v. Gaines, 943 S.W.2d 185, 190 (Tex. App.—Amarillo 1997, writ denied); see also Former section 8.319, Act of May 25, 1967, 60th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2512. The Uniform Commercial Code, under which former section 8.319 also fell, defines a “sale” as the “passing of title from the seller to the buyer for a price.” Tex. Bus. & Com. Code Ann. § 2.106(a) (Vernon 1994). An employment agreement in which the one employed is to receive stock does not fit this definition of “sale” and is thus not an agreement for the sale of securities under former section 8.319. See Bowers Steel, Inc. v. DeBrooke, 557 S.W.2d 369, 373-74 (Tex. Civ. App.—San Antonio 1977, no writ) (holding that former section 8.319 does not prohibit enforcement of oral employment contract for which consideration is corporate stock). Accordingly, former section 8.319 could not apply to the oral agreement underlying the first fraud.

              Second, even if the oral agreement constituting the first fraud were for a sale of securities, former section 8.319 would still not apply. Elliott claimed that, because the agreement to give Whitten 25% of I-Star’s stock occurred in 1994, former section 8.319 applied. We disagree. In repealing former section 8.319, the Legislature provided, “This [supplanting] Act does not affect an action or proceeding commenced before this Act takes effect.” Act of May 27, 1995, 74th Leg., R.S., ch. 962, § 21, 1995 Tex. Gen. Laws 4760, 4787. The triggering date for the 1995 law’s application is thus the date of the filing of an action or proceeding, not the date of the oral agreement. See id. The 1995 act’s effective date was September 1, 1995. See id., § 20, 1995 Tex. Gen. Laws at 4787. This suit was not filed until 1997. Accordingly, former section 8.319, which had been repealed by the time that suit was filed, does not apply.  

              The Legislature replaced former section 8.319 in 1995 with current section 8.113. See id., § 1, 1995 Tex. Gen. Laws at 4767. Section 8.113 provides:

    A contract or modification of a contract for the sale or purchase of a security is enforceable whether or not there is a writing signed or record authenticated by a party against whom enforcement is sought, even if the contract or modification is not capable of performance within one year of its making.


    Tex. Bus. & Com. Code Ann. § 8.113 (Vernon 2002). Therefore, even if Elliott were correct that the statute-of-frauds provision applicable to securities sales applies to the oral agreement underlying the first fraud, current section 8.113 would apply, not former section 8.319. Section 8.113 exempts securities sales from the statutes of frauds entirely, even if the contract is not performable within one year of its making. See id.

              For these reasons, we reject Elliott’s claim that former section 8.319, or any statute-of-frauds provision specially applicable to securities sales, precludes enforcement of the oral agreement to give Whitten 25% of I-Star’s stock.

                        b.       Business and Commerce Code Section 26.01

              Elliott next argues that Business and Commerce Code section 26.01 makes the oral contract unenforceable because the agreement was allegedly unperformable within a year. See Tex. Bus. & Com. Code Ann. § 26.01. Section 26.01 provides in pertinent part:

    (a)A promise or agreement described in Subsection (b) of this section is not enforceable unless the promise or agreement, or a memorandum of it, is

     

    (1)in writing; and

     

    (2)signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.

     

    (b)Subsection (a) of this section applies to: . . .

     

    (6)an agreement which is not to be performed within one year from the date of making the agreement; . . . .


    Tex. Bus. & Com. Code Ann. § 26.01(a), (b)(6).

              When the time for performance of a contract is uncertain and performance can conceivably occur within one year, the statute of frauds does not apply. Miller v. Riata Cadillac Co., 517 S.W.2d 773, 775 (Tex. 1974); Iacono v. Lyons, 16 S.W.3d 92, 95 (Tex. App—Houston [1st Dist.] 2000, no pet.). “If performance within a year is a possibility that is consistent with the provisions of the agreement, the fact that performance within one year is not required or expected does not bring the contract within the statute of frauds.” Walker v. Tafralian, 107 S.W.3d 665, 669 (Tex. App.—Fort Worth 2003, pet. denied); Iacono, 16 S.W.3d at 95. That is, section 26.01(b)(6) does not apply if the contract, from its terms, could possibly be performed within a year, however improbable performance within one year might be. Iacono, 16 S.W.3d at 95.

              It is undisputed that the oral employment agreement containing the promise of stock was not for a definite term. Elliott relies solely on the following testimony from Whitten’s deposition:

    Question:“But my point is, you just said that everybody understood [that] while [the oral consulting agreement underlying the first fraud] may not be forever [in its duration], it would be at least for a couple of years that you intended to fulfill some obligation to the company to work even on a consulting basis. Correct?

     

    Answer:Correct.


    This testimony does not conclusively prove that Whitten’s consulting work or employment could not have been completed within a year. See Miller, 517 S.W.2d at 775; Iacono, 16 S.W.3d at 95. Moreover, Whitten also testified that the parties “did not determine an ending period” for the oral consulting agreement and that he never assumed that that agreement was “for perpetuity,” and he disagreed with the statement that that agreement contemplated a duration of at least more than one year. Accordingly, we hold that the record does not conclusively show that section 26.01(b)(6) applies to the oral agreement underlying the first fraud.

              Because that oral agreement was not barred under either statute-of-frauds theory advanced by Elliott, Haase’s prohibition does not apply.

              We overrule issue one.

     

    B.      Challenges to the Jury’s Verdict on Liability

              In issue two, Elliott argues that the evidence was legally and factually insufficient to support the jury’s verdict on liability (jury question two).

              1.       Standards of Review

              Whitten had the burden of proof on his fraudulent-inducement claims. Accordingly, to prevail on his legal-sufficiency challenge, Elliott must demonstrate that there is no evidence to support the jury’s relevant answers. See Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983). In our review, we consider all evidence in the light most favorable to the prevailing party, indulging every reasonable inference in that party’s favor, and disregard all evidence and inferences to the contrary. Assoc. Indem. Corp. v CAT Contracting, Inc., 964 S.W.2d 276, 285-86 (Tex. 1998). If more than a scintilla of evidence supports the finding, the no-evidence challenge fails. Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998).  

               To prevail on his factual-sufficiency challenge, Elliott must demonstrate that there is insufficient evidence to support the finding. See Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986) . In our review, we consider and weigh all of the evidence, and we will set aside the verdict only if the evidence that supports the finding is so weak as to render the finding clearly wrong and manifestly unjust. See id.

              2.       Sufficiency of the Evidence

              Elliott argues that there was legally and factually insufficient evidence of each element of the first fraud relating to liability. Given our disposition below, we need consider only Elliott’s legal-sufficiency challenge under this issue.  

              “Texas law has long imposed a duty to abstain from inducing another to enter into a contract through the use of fraudulent misrepresentations.” Formosa Plastics, 960 S.W.2d at 46. To show fraud, a plaintiff must show a material misrepresentation that was either known to be false when it was made or was asserted without knowledge of its truth and that was intended to be acted upon, that was actually relied upon, and that caused injury. Id. at 47. A promise of future performance is an actionable misrepresentation if, at the time that he made the promise, the maker had no intention of performing the promise. Id. at 48. Intent to deceive is a fact question uniquely within the realm of the factfinder because it depends on witnesses’ credibility and the weight to be given their testimony. Spoljaric v. Percival Tours, 708 S.W.2d 432, 434 (Tex. 1986).

              Because intent to defraud cannot normally be shown by direct proof, that intent must usually be proved by circumstantial evidence. Spoljaric, 708 S.W.2d at 435. Such circumstantial evidence may include the party’s subsequent acts, even though the party’s relevant intent is his intent at the time that he made the misrepresentation. Spoljaric, 708 S.W.2d at 434. For example, although the mere failure to perform a contract, standing alone, is not evidence of fraud, the subsequent failure to perform “is a circumstance to be considered with other facts to establish intent.” Spoljaric, 708 S.W.2d at 435. “‘Slight circumstantial evidence’ of fraud, when considered with the breach of promise to perform, is sufficient to support a finding of fraudulent intent.” Id. Similarly, a party’s denial that he ever made the promise may be a factor showing no intent to perform when he made the promise. Id.   

              Jury question two provided as follows:

    QUESTION NO. 2

     

    Did William H. Elliott, Jr. commit fraud against Stephen Whitten in connection with the promise, if any, to give him a 25% equity interest (stock) in InterStar Systems, Inc.?


    Instructions

     

    Fraud occurs when—

     

    a.a party makes a material misrepresentation,

     

    b.the misrepresentation is made with knowledge of its falsity or made recklessly without any knowledge of the truth and as a positive assertion,

     

    c.the false representation is made to a person for the purpose of inducing that person to enter into a contract,

     

    d.the misrepresentation is made with the intention that it should be acted on by the other party, and

     

    e.the other party acts in reliance on the misrepresentation and thereby suffers injury.

     

    A promise to do an act in the future is actionable fraud when made with the intention, design and purpose of deceiving, and with no intention of performing the act.

     

    While a party’s intent is determined at the time the party made the representation, it may be inferred from the party’s subsequent acts after the representation is made. Failure to perform, standing alone, is no evidence of the promissor’s intent not to perform when the promise is made. However, that fact is circumstantial evidence to be considered with other facts to establish intent. A party’s denial that he ever made a promise is a factor showing no intent to perform when he made the promise.

     

    “Misrepresentation” means—

     

    (a) a false statement of fact, or (b) a promise of future performance made with an intent not to perform as promised.

     

    Answer “Yes” or “No.”

     

    ANSWER: Yes   

     

                        a.       Material misrepresentation and knowledge of falsity

              Elliott argues that no evidence supports the jury’s implicit determination that Elliott made the oral agreement to give Whitten stock with an intent not to perform or with knowledge of the statement’s falsity. We disagree. We first note that Elliott’s claim that Whitten testified that the parties discussed the stock issue for over a year without resolution is incorrect: Whitten actually testified that the parties agreed to the stock-for-work arrangement in October 1994 and that they repeatedly talked about the deal or Whitten’s stock ownership for over a year afterwards. Although Elliott is correct that, under the charge, his failure to perform on, and his denial of the existence of, the stock-for-work agreement cannot by itself constitute evidence of intent not to perform, that evidence did not stand alone. Rather, viewed in the appropriate light, Whitten presented other circumstantial evidence of Elliott’s intent not to perform: Whitten (1) produced memoranda from Whitten to Elliott asserting Whitten’s equity interest in I-Star, along with Elliott’s admission that he did not, at least in writing, correct Whitten’s stated impression of having equity in I-Star; (2) presented evidence that the parties repeatedly talked about the stock-for-work deal or Whitten’s stock ownership for over a year after the agreement’s making; (3) testified that Elliott had told Whitten to keep the oral agreement underlying the first fraud confidential, without reducing it to writing; (4) presented evidence that Whitten could not afford to work for $1,000 per week (the rate under the parties’ initial two-week agreement), Whitten thus proposed working as I-Star’s exclusive manufacturer with additional compensation of $2,500 per week, Elliott rejected the $2,500-per-week offer because (among other things) Elliott could not afford it, Elliott nonetheless wanted Whitten’s consulting work, and, shortly after the $2,500-per-week proposal fell through, the parties agreed to the $1,000-per-week-plus-stock arrangement; and (5) seriously impeached Elliott’s veracity on various matters relating to the parties’ relationship and agreements. Accordingly, we hold that there was legally sufficient circumstantial evidence to support the jury’s implicit finding that Elliott made a material misrepresentation that he knew was false.

                        b.       Misrepresentation made for the purpose of inducing Whitten into a contract


              Elliott argues that no evidence supports the jury’s implicit determination that Elliott committed the first fraud with the intent of inducing Whitten into a contract. Elliott’s focus under this challenge is not on evidence of his intent to induce Whitten into a contract, but instead on evidence of the contract itself. Specifically, Elliott relies on Whitten’s deposition testimony that no writing signed by I-Star or Elliott reflected the oral agreement underlying the first fraud. This argument parallels Elliott’s earlier argument under Haase that the oral contract underlying the first fraud was unenforceable, and we reject it for the reasons discussed with respect to that challenge. Moreover, Whitten’s theory of the case was that the contract into which Elliott induced him to enter by the first fraud was a contract of continued employment with I-Star for a particular weekly fee, not, as Elliott separately implies, a contract to sell stock. Accordingly, we hold that the evidence supporting the jury’s implicit determination that Elliott committed the first fraud with the intent of inducing Whitten into a contract is not legally insufficient for the reasons that Elliott argues.

                        c.       Intent that Whitten act upon the misrepresentation

              Elliott argues that no evidence supports the jury’s implicit determination that Elliott committed the first fraud with the intent that Whitten rely on the misrepresentation. In addition to the circumstantial evidence cited above concerning Elliott’s intent not to perform, the record showed that Elliott needed Whitten’s assistance and that he could not afford Whitten’s proposal that Elliott pay him $2,500 per week, which Whitten made a few weeks before the parties made the oral agreement underlying the first fraud. Together, this was some circumstantial evidence that Elliott misrepresented that Whitten had equity in I-Star so that Whitten would stay for the lesser weekly amount that Elliott could afford to pay him. Accordingly, we hold that there was legally sufficient evidence to support the jury’s implicit finding that Elliott committed the first fraud intending that Whitten rely on his misrepresentation.

                        d.       Detrimental reliance

              Elliott argues that no evidence supports the jury’s implicit determination that Whitten detrimentally relied on the oral agreement underlying the first fraud. To the extent that Elliott’s argument is a rehashing of his argument under Haase, we reject it for the reasons already stated. Additionally, Whitten testified that he relied on the oral stock-for-work agreement, that he would not have continued working for I-Star had Elliott not promised him equity in I-Star, and that he could have made more money elsewhere or would have asked for more money from I-Star had he not been promised equity in I-Star. Accordingly, we hold that there was legally sufficient evidence to support the jury’s implicit finding that Whitten detrimentally relied on the oral agreement underlying the first fraud.   

              We overrule Elliott’s issue two to the extent that Elliott raises a legal-sufficiency challenge.

    C.      Challenges to the Jury’s Verdict on Damages

              In part of issue three, Elliott argues that the trial court erred in refusing to instruct the jury on the measure of damages. In the remainder of issue three, Elliott alternatively argues that the jury’s award of actual damages for the first fraud is not supported by legally or factually sufficient evidence.

              1.       The Charge and the Verdict

              The jury found $375,000 in damages in response to the following question:

    If your answer to Question No. 2 is “Yes,” then answer the following question, otherwise do not answer the following question.


    QUESTION NO. 3

     

    What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Stephen Whitten for his damages, if any, that were proximately caused by the fraud in connection with the promise to give Stephen Whitten a 25% equity interest (stock) in InterStar Systems, Inc.?


    Instructions

     

    Do not include interest on any amount of damages you find.

     

    Answer in dollars and cents for damages, if any:

     

    ANSWER: $ 375,000


              A claimant may recover benefit-of-the-bargain damages or out-of-pocket damages for fraudulent inducement. See Formosa Plastics Corp. USA, 960 S.W.2d at 49. The out-of-pocket measure of damages allows recovery for the actual injury suffered, which is measured by the difference in the value of that with which the party has parted and the value of that which he has received. Id. The measure of benefit-of-the-bargain damages is the difference between the value as represented and the value received. Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 682 (Tex. 2000). Jury question three contained no instruction limiting the measure of damages to either theory.  

              2.       Whitten’s Theories of Damages

              Whitten sought, as alternatives, both out-of-pocket damages and benefit-of-the-bargain damages. His theories of damages for the first fraud were as follows:

    a.His benefit-of-the-bargain damages would be the value of the stock that Whitten claimed that he should have received under the oral agreement.

     

    b.His out-of-pocket damages would be the difference between what Whitten actually received working for I-Star and the fair-market value of his services had he not been tricked into continuing work for I-Star for less money.


              Elliott asserts that Whitten abandoned or waived his out-of-pocket recovery theory. We set out the applicable record to show why we disagree. Whitten’s “live” pleadings alleged both a quantum meruit claim to recover “the reasonable value of his services” and a fraud claim, for which Whitten alleged that he was seeking the value of the stock as damages. However, during the directed-verdict discussion, Whitten clarified that the only measure of damages that he sought for the first fraud was the out-of-pocket measure and that he sought the stock’s value only for the second fraud. During the charge conference, Whitten at first requested that the damages question for the first fraud define the measure of damages in terms of what appears to be benefit of the bargain; however, Whitten ultimately requested that the first fraud’s measure of damages be defined as both benefit of the bargain and out of pocket, and the trial court refused that request, instead allowing counsel to argue evidence supporting their theories of damages during closing argument. In closing argument, the only evidence concerning actual damages that Whitten discussed was the stock’s value, which is a benefit-of-the-bargain measure. However, I-Star’s counsel then discussed the sufficiency of Whitten’s evidence concerning his earning capacity (an out-of-pocket measure).

              Given that the jury question contained no instruction on the measure of damages, and that Whitten’s evidence and arguments to the court supported both damages measures, we do not construe Whitten’s failure to mention evidence of out-of-pocket damages during closing argument as a waiver of that measure of damages. See Robinson v. Robinson, 961 S.W.2d 292, 300 (Tex. App.—Houston [1st Dist.] 1997, no writ) (holding that waiver is intentional relinquishment of known right or intentional conduct inconsistent with intent to claim that right). We further disagree with Elliott that Whitten necessarily abandoned out-of-pocket damages for fraudulent inducement when he withdrew his quantum meruit claim. Quantum meruit and fraudulent inducement are different causes of action. In abandoning an alternative claim of quantum meruit, Whitten did not also abandon an out-of-pocket recovery theory under his independent fraudulent-inducement claim. Compare Vorrt Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex. 1990), and Truly v. Austin, 744 S.W.2d 934, 938 (Tex. 1988) (setting out quantum meruit elements or noting that quantum meruit is remedy independent of contract) with Formosa Plastics Corp. USA, 960 S.W.2d at 46 (setting out fraudulent-inducement elements and noting that fraudulent-inducement-to-contract claim requires existence of contract).  

              3.       Total Failure to Instruct the Jury on the Measure of Damages

              Elliott first argues that the trial court erred in failing to instruct the jury on the appropriate measure of damages.

              “Damages must be measured by a legal standard, and that standard must be used to guide the fact finder in determining what sum would compensate the injured party.” Jackson v. Fontaine’s Clinics, Inc., 499 S.W.2d 87, 90 (Tex. 1973). The court’s charge should limit the jury’s consideration to facts that are properly part of the allowable damages. Allied Vista, Inc. v. Holt, 987 S.W.2d 138, 141 (Tex. App.—Houston [14th Dist.] 1999, pet. denied). A jury question that fails to guide the jury on any proper legal measure of damages is fatally defective. Jackson, 499 S.W.2d at 90. However, a party complaining of a damages instruction that is entirely omitted must preserve that error. See Tex. R. Civ. P. 278. A party who does not properly preserve a challenge to the total omission of a jury instruction may not complain of the error on appeal; in such cases, we review the sufficiency of the evidence based upon the charge submitted, even if erroneous. See F.S. New Prods., Inc. v. Strong Indus., Inc., 129 S.W.3d 606, 625 (Tex. App.—Houston [1st Dist.] 2004, pet. filed) (holding same, when challenge to lack of instruction on measure of damages was not preserved).

              Elliott did not argue below that the total failure to submit any instruction on damages was error for the reason that it left the jury to speculate—his specific appellate complaint—and he at first implied that the court could omit any instruction if it chose not to include an instruction on benefit-of-the-bargain damages.   However, by the time that the trial court ruled on the damages instruction, Elliott had specifically requested a benefit-of-the-bargain instruction. This sufficed to advise the trial court that the question was flawed because it omitted an instruction on the measure of damages. Cf. Tex. Dep’t of Human Servs. v. Hinds, 904 S.W.2d 629, 637-38 (Tex. 1995) (holding that proposed written instruction, although not substantially correct, nonetheless preserved error because, among other things, it called trial court’s attention to missing element). Therefore, Elliott’s appellate complaint sufficiently comports with his trial objection to avoid waiver for that reason.

              Elliott waived his challenge for another reason, however. Elliott did not submit a written instruction on the measure of damages. Instead, Elliott verbally requested an instruction on benefit-of-the-bargain damages and referred to the pattern jury charge for that instruction. See Texas Pattern Jury Charges PJC 110.3, Sample A (7th ed. 2002). “Failure to submit a definition or instruction shall not be deemed a ground for reversal of the judgment unless a substantially correct definition or instruction has been requested in writing and tendered by the party complaining of the judgment.” Tex. R. Civ. P. 278 (emphasis added). The submission must be made before the charge is submitted to the jury. F.S. New Prods., Inc., 129 S.W.3d at 624-25 (holding that challenge to omission of instruction on measure of damages has to be raised before submission to jury to be preserved).

              Over a decade ago, the Supreme Court began relaxing the rules concerning preserving charge error in certain contexts. See State Dep’t of Highways & Pub. Transp. v. Payne, 838 S.W.2d 235, 239-41 (Tex. 1993); see also Galveston County Fair & Rodeo, Inc. v. Glover, 940 S.W.2d 585, 586 (Tex. 1996); Lester v. Logan, 907 S.W.2d 452, 453 (Tex. 1995); Alaniz v. Jones & Neuse, Inc., 907 S.W.2d 450, 451-52 (Tex. 1995); Hinds, 904 S.W.2d at 638 (all following Payne). In Payne, the trial court gave the jury an erroneous broad-form negligence question that omitted an element of the proper legal theory. See id. at 238-39. The State objected to the charge and also requested a question on the omitted element. See id. at 239. The court noted that even if the State’s objection was insufficient, its requested question preserved error by sufficiently calling the trial court’s attention to the State’s complaint that the missing element, and thus the proper legal theory, had not been submitted to the jury. See id. at 239-40. The Payne court held, “There should be but one test for determining if a party has preserved error in the jury charge, and that is whether the party made the trial court aware of the complaint, timely and plainly, and obtained a ruling. The more specific requirements of the rules should be applied . . . to serve rather than defeat this principle.” Id. at 241. However, the Payne court expressly stated that it adhered to the rule that “we do not revise our rules by opinion.” Id.

              The Payne court considered whether a submitted question could function as an objection to an erroneous jury question, on which the opposing party relied, that omitted an element of the proper legal theory. See id. at 239-41; see also Alaniz, 907 S.W.2d at 451-52 (applying Payne and Rule of Civil Procedure 273 to determine that party with burden to submit question had preserved error to court’s refusal to submit question on damages); Glover, 940 S.W.2d at 586 (applying Payne to hold that party without burden to submit question sufficiently preserved error concerning defective question by tendering written questions and accompanying instructions). Although the Payne court relaxed the standard for preserving charge error, it also refused to rewrite the rules judicially. Payne, 838 S.W.2d at 241. Then as now, the rules allow objections to be made in writing or orally, and the rules also provide that an objection suffices to preserve error concerning a trial court’s failure to submit a jury question upon which the opposing party relies and that thus might result in a deemed finding under Rule of Civil Procedure 279. See Tex. R. Civ. P. 272, 278; Gilgon, Inc. v. Hart, 893 S.W.2d 562, 566 (Tex. App.—Corpus Christi 1994, writ denied). Nothing in these rules expressly prohibits a written request’s substituting for an objection; therefore, the Payne court could simultaneously make the preservation rules more flexible (one of its stated goals) without rewriting the rules judicially (its other stated goal).

              In contrast, the part of rule 278 applicable to instructions—as opposed to that portion of the rule concerning questions—requires that challenges to instructions’ omission be preserved by written submission in substantially correct form “by the party complaining of the judgment” (potentially Elliott or Whitten), not only by the party relying on the related question (only Whitten). Tex. R. Civ. P. 278. Because rule 278 expressly requires a written submission to preserve error concerning an omitted instruction, our allowing a verbal objection or an oral recitation of the instruction in lieu thereof would rewrite rule 278 judicially, in contravention of Payne. See Payne at 241. This Court has previously distinguished Payne to hold just this. See Mason v. S. Pac. Transp. Co., 892 S.W.2d 115, 117 (Tex. App.—Houston [1st Dist.] 1994, writ denied) (holding that plaintiff waived complaint about omission of instruction when he objected to omission, but did not submit written instruction as required by rule 278; distinguishing Payne because of rule’s plain language); see also Harris County Flood Control Dist. v. Glenbrook Patiohome Owners Ass’n, 933 S.W.2d 570, 580 (Tex. App.—Houston [1st Dist.] 1996, writ denied) (without mentioning Payne, holding that plaintiff’s reading of instruction into record did not preserve error under rule 278). Since Payne, other courts have held that “if omission [of an instruction or definition] from a question is error that might be the subject of either party’s appeal, . . . the rules [require] that the complaining party must have . . . tendered remedial language” in writing to preserve error. Hart, 893 S.W.2d at 566 (emphasis added) (distinguishing Payne to so hold, when defendant had only orally objected to omission of instruction). Under this authority, an oral objection or the reading of the instruction into the record, by itself, will not preserve error, even after Payne. See Fairfield Estates L.P. v. Griffin, 986 S.W.2d 719, 724 (Tex. App.—Eastland 1999, no pet.) (holding that defendants waived complaint about trial court’s failure to submit instruction on measure of damages, despite defendants’ having objected and orally requested inclusion of instruction); Glenbrook Patiohome Owners Ass’n, 933 S.W.2d at 580 (holding that objection and reading instruction into record did not preserve error under rule 278). We follow these courts and hold that Elliott has waived his appellate challenge for this reason.

              We overrule this portion of issue three.

              4.       Sufficiency of the Evidence Showing Benefit-of-the-Bargain Damages


              Elliott next contends that there was no evidence of benefit-of-the-bargain damages, i.e., the value of the stock at the time of the first fraud. We review for some evidence of the stock’s value at any time prior to the spring of 1996.   Cf. Pabich, 71 S.W.3d at 509 (“[W]hen calculating the value of stock in order to determine the amount of damages to award an injured party who had an ownership interest in the corporation, evidence of the value of the corporation at the time the alleged injury occurred is required.”).

              Whitten presented no expert testimony of the value of the stock that he received. Viewed in the appropriate light, the only evidence relating to the stock’s value was as follows. Elliott testified that, in either 1996 or 1997, he had offered Whitten 25% of I-Star’s stock for $500,000, which offer Whitten did not accept. In about March 1996, Elliott told Whitten that a prospective purchaser was going to offer $6 million for 40% of I-Star, but that deal fell through. In 1996, I-Star was in “serious” and “desperate” need of cash. To remedy the problem, Elliott sought outside investors, telling one of them that I-Star was worth $5 million. In a private placement that occurred in January of 1997, 12 investors paid either $1.875 or $2.185 million for between 46% and 49% of I-Star’s stock. At least $1 million of that sum was used to pay off I-Star’s debts the same month. By June of 1997, I-Star had insufficient working capital to continue operations, it was questionable whether I-Star would survive, and I-Star’s situation was “beyond the point of redemption” by new sales or business. I-Star never paid any dividends to its stockholders.

              We hold that this is no evidence of the value of the stock before the second fraud in the spring of 1996. I-Star was a closely held corporation. “There can be no cash market value of corporate stock where it has not been sold in sufficient quantities to establish a prevailing sales price.” Roberts v. Harvey, 663 S.W.2d 525, 528 (Tex. App.—El Paso 1983, no writ). There is no evidence that I-Star’s stock was sold until January 1997, months after Whitten had released his stock in the spring of 1996. Cf. Pabich v. Kellar, 71 S.W.3d 500, 509 (Tex. App.—Fort Worth 2002, pet. denied) (holding that evidence of closely held corporation’s stock value before and after torts sued upon was no evidence of its value at time of torts, when jury charge asked for value on date of torts). Additionally, because fair-market value generally requires a willing, uncoerced offer and acceptance, testimony concerning unconsummated offers to sell or to buy I-Star’s stock is no evidence of the stock’s fair-market value. See Roberts v. Burkett, 802 S.W.2d 42, 46 (Tex. App.—Corpus Christi 1990, no pet.) (concerning stock); Southwestern Bell Tel. Co. v. Wilson, 768 S.W.2d 755, 762 (Tex. App.—Corpus Christi 1988, writ denied) (concerning closely held stock); see also Lee v. Lee, 47 S.W.3d 767, 785 (Tex. App.—Houston [14th Dist.] 2001, pet. denied).  

              “In the absence of testimony or evidence of a reasonable cash market value of corporate stock, the method employed in determining the worth or value of such stock is to determine the difference between the value of the assets and the amount of liabilities of the corporation.” Harvey, 663 S.W.2d at 528; accord Pabich, 71 S.W.3d at 509; Williams, 943 S.W.2d at 193; Mercantile Bank & Trust, Inc. v. Cunov, 749 S.W.2d 545, 549 (Tex. App.—San Antonio 1988, writ denied). Whitten directs us to no evidence concerning the value of I-Star’s assets, and the only possibly evidence of liabilities was that I-Star had around $1 million of debts and was in serious need of capital in 1996 to continue functioning. This is no evidence to support the jury’s verdict of $375,000 in damages.

              Accordingly, the jury’s verdict can in no way be supported under a theory of benefit-of-the-bargain damages. See Burkett, 802 S.W.2d at 46 (in suit by employee arising out of unfulfilled promise to pay employee weekly salary plus 25% equity in closely held corporation, holding that trial court erred in asking jury to determine fair-market value of stock, when no relevant evidence of that value existed, and when principal evidence was unaccepted offer to sell some corporate assets to employee). We sustain issue three to the extent that Elliott argues that there is no evidence of benefit-of-the-bargain damages.

              5.       Sufficiency of the Evidence Showing Out-of-Pocket Damages  


              We also understand Elliott to challenge the legal and factual sufficiency of the evidence showing out-of-pocket damages, i.e., the fair-market value of Whitten’s services while at I-Star, less what he was actually paid there. Following is the evidence, viewed in the most favorable light, concerning Whitten’s out-of-pocket damages. Whitten testified that the “fair value of [his] services while [he] worked at [I-Star]” was $991,000, that I-Star paid him a little over $120,000, and that the difference between the two values was about $871,000. Whitten did not in any way explain the basis for this conclusory testimony of his out-of-pocket damages.   Other than this conclusory testimony, there was also evidence that, when Whitten consulted for Lanax on unspecified dates, he charged $75 per hour, plus expenses and a 20% commission on each sale. Whitten and Elliott agreed at first that Whitten would work for two weeks at $1,000 per week; when the two-week term ended, Whitten proposed $2,500 per week, plus expenses, which Elliott did not accept. Sometime in or shortly after the fall of 1994, the parties agreed that Whitten would receive $1,000 per week, plus 25% of I-Star’s stock. Whitten sometimes worked 14- or 16-hour days for I-Star, and occasionally worked double shifts, as needed; there is no testimony, however, of the total hours that he worked for I-Star. When Whitten resigned in November 1996, Elliott told him that he would receive a $200 royalty on “everything [I-Star] sold” for two years, plus a $150-per-hour consulting fee. I-Star later unilaterally changed the royalty to $100 for three years. In any event, Whitten never received any $200 royalties from I-Star. Whitten later agreed, at I-Star’s request, to reduce his consulting billing to $50 per hour, with the understanding that he would be reimbursed the difference between $150 and $50 per hour later. Whitten was also to receive from Lanax a $200 royalty or commission on certain of its custom-designed equipment that I-Star would order and 5% of gross sales on other equipment of Lanax’s.

              The fact finder may believe all, some, or none of a witness’s testimony and, generally speaking, is not required to believe even the witness’s uncontradicted testimony. Hill v. Clayton, 827 S.W.2d 570, 574 (Tex. App.—Corpus Christi 1992, no writ). “As a general rule, the fact finder has broad discretion in assessing damages when the law provides no precise legal measure.” First State Bank v. Keilman, 851 S.W.2d 914, 930 (Tex. App.—Austin 1993, writ denied). We will not disregard the jury’s damages finding merely because the jury’s reasoning in reaching its figures is unclear. Id. Additionally, a jury has discretion to award damages within a range of evidence presented, as long as a rational basis exists for the jury’s damages calculation. “A jury may not, however, arbitrarily assess an amount neither authorized nor supported by the evidence presented at trial.” Id. “In other words, a jury may not ‘pull figures out of a hat’; a rational basis for calculation must exist.” Id. (quoting Neiman-Marcus Group, Inc. v. Dworkin, 919 F.2d 368, 372 (5th Cir. 1990)). “A jury’s finding [on damages] may be disregarded if the amount ‘was not the result of a deliberate and conscientious conviction in the minds of the jury and the court.’” Keilman, 851 S.W.2d at 930-31 (quoting Mills v. Jackson, 711 S.W.2d 427, 431 (Tex. App.—Fort Worth 1986, no writ)).

              Because the damages question lacked any instruction on the measure of damages, we hold that, viewed in the appropriate light, Whitten’s conclusory testimony of the “fair value” of his services was some evidence that their fair-market value was at least the $375,000 found by the jury, assuming that the jury did not believe his $991,000 valuation entirely. However, we hold that the evidence was factually insufficient to support the jury’s finding. Whitten’s conclusory testimony gave the jury no basis for calculating anything but the $871,000 ($991,000 value less $120,000 paid) to which he testified without speculation. Contrary to Whitten’s argument by post-submission brief, the jury could not simply divide the $871,000 figure by one of the three hourly contract rates that Whitten had charged ($50, $75, and $150) because Whitten’s hourly rate was always coupled with some additional form of remuneration: royalties, commissions, expenses, or some combination of the three. There was no testimony of the total hours that Whitten worked for I-Star. There was no range of damages inside of which the jury could pick a figure. Neither was there evidence of the fair-market value of comparable services at similar times and in similar circumstances in the relevant market. There was simply nothing besides Whitten’s conclusory statement that could sufficiently guide the jury in calculating damages to avoid speculation. Indeed, the jury’s answers of $375,000 and $125,000 for the first and second frauds together totaled $500,000—the sum that Whitten argued could be considered the stock’s value, but that was no evidence of its value. Given the paucity of evidence that Whitten presented, the jury—albeit understandably—appears to have been left to pull a figure out of a hat, without any rational basis to support its finding. Cf. Keilman, 851 S.W.2d at 930-31.

              Accordingly, we hold that the evidence supporting the jury’s damage finding for the first fraud is so weak as to render the finding clearly wrong and manifestly unjust. See Cain, 709 S.W.2d at 176; cf. Keilman, 851 S.W.2d at 931 (holding evidence factually insufficient to support jury’s finding of amount of unauthorized interest—a calculation analogous to damages calculation—when finding appeared to have pulled out of a hat).  

              We overrule the portion of issue three arguing that the evidence is legally insufficient, but we sustain the portion of issue three arguing that the evidence was factually insufficient.

    D.      Elliott’s Remaining Challenges

              Given our disposition of Elliott’s issue three, we need not reach his issue four, in which Elliott argues that the trial court erred in denying a new trial because of Whitten’s incurable closing argument; his issue five, in which Elliott argues that the trial court erred in awarding Whitten pre-judgment interest; and the portion of his issue two, in which he argues that factually insufficient evidence supported the jury’s liability determination.

    Whitten’s Appeal

              In the sole issue in his appeal, Whitten argues that the trial court erred in granting Elliott’s motion for JNOV on the jury’s answer awarding exemplary damages against Elliott personally. Given our disposition of Elliott’s appeal, we need not reach this issue under Whitten’s appeal. See Williams, 943 S.W.2d at 194 (holding that appellate court’s setting aside award on basis of actual damages requires setting aside exemplary damages, as well).


    Conclusion

              We affirm those portions of the judgment (1) rendering judgment on Whitten’s claims against I-Star, (2) rendering judgment on I-Star’s claims, and (3) expressly or implicitly denying any party’s request for attorney’s fees. We reverse the judgment of the trial court in all other respects and remand the cause for further proceedings.  

     

     

                                                                 Tim Taft

                                                                 Justice


    Panel consists of Justices Taft, Jennings, and Hanks.