Mancorp, Inc. v. CULPEPPEER , 34 Tex. Sup. Ct. J. 157 ( 1990 )

OPINION

SPEARS, Justice.

Mancorp, Inc. sued John C. Culpepper, Jr. and Culpepper Properties, Inc. for breach of a construction contract. Man-corp 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 Culpep-per 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 Man-corp 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. Cul-pepper, 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 Culpep-per’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 Cul-pepper 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 Cul-pepper Properties; and (8) Mancorp thought it was doing business with Culpep-per, 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 Culpep-per’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 Cul-pepper 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, Culpep-per 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 Man-corp’s expert witness — David Othold of Stewart Construction Consultants. Cul-pepper contends that Mancorp engaged in a trial by ambush and that Othold’s testimony caused the rendition of an improper judgment.

According to Culpepper, the trial court should have excluded Othold’s testimony because Mancorp failed to timely supplement its answers to Culpepper Properties, Inc.’s interrogatories and to timely designate its witnesses to include Othold. The thrust of Culpepper’s argument is that Mancorp did not show good cause for its failure to supplement until after the trial court’s discovery deadline. See Tex.R. Civ.P. 166b(6), 215(5). The trial court, however, found that good cause existed, and the court of appeals held that the trial court did not abuse its discretion in so finding. We do not reach the merits of this question because, even if good cause is lacking, Culpepper cannot meet its appellate burden.

Culpepper has failed to show how Othold’s testimony, even if improperly admitted, was calculated to cause and probably did cause the rendition of an improper judgment in the case. See Boothe v. Hauser, 766 S.W.2d 788, 789 (Tex.1989); Tex.R.App.P. 81(b). When erroneously admitted evidence is merely cumulative or does not concern a material issue dispositive of the case, the error is harmless. Boothe, 766 S.W.2d at 789; Gee v. Liberty Mut. Fire Ins. Co., 765 S.W.2d 394, 396 (Tex.1989). Harmfulness is determined by looking at the entire record to see whether the judgment was controlled by the testimony that should have been excluded. McKinney v. National Union Fire Ins. Co., 772 S.W.2d 72, 75 (Tex.1989); Gee, 765 S.W.2d at 396.

Othold’s testimony primarily concerned the specific question of whether Mancorp substantially completed the project. Man-corp presented other sufficient evidence besides Othold’s testimony, which included the testimony of six expert witnesses in building construction. The other witnesses also testified that the building was substantially and fully completed on time. We therefore hold that no harmful error was committed in admitting Othold’s testimony because his testimony was entirely cumulative.

ATTORNEYS’ FEES

On appeal below, Culpepper urged the court to offset the trial court’s judgment by an additional $2000 because Mancorp allegedly breached its express warranty that its work would be of good quality and free of defects, in violation of the Deceptive Trade Practices — Consumer Protection Act (DTPA). The trial court, however, refused to submit any questions to the jury regarding breach of warranty and DTPA liability. The court of appeals held that the trial court did not err in refusing to submit the questions, but that the jury nevertheless had found that Mancorp breached its express warranty of good workmanship and, therefore, reformed the trial court’s judgment to reflect an additional offset of $2000 pursuant to section 17.50(b)(1) of the DTPA. Culpepper complains here that the court of appeals erred by not reforming the judgment to reflect a further offset for attorneys’ fees authorized by the DTPA. Tex.Bus. & Com.Code Ann. § 17.50(d) (Vernon 1987).

We do not need to reach this argument because Culpepper did not receive an award for actual damages required under the DTPA as a prerequisite to attorneys’ fees. Leyendecker & Assocs. v. Wechter, 683 S.W.2d 369, 374 (Tex.1984). The trial court did not permit any DTPA or breach of warranty questions to go to the jury. Thus, there were no jury findings to support any damages under the DTPA or any other cause of action alleged. In fact, the jury refused to find that Culpepper sustained any damages.⁴

The court of appeals apparently interpreted the jury’s finding of $289,376.90 worth of faults or defects in the First Bank Galleria building to be the legal equivalent of an award for actual DTPA damages.⁵ They are not the same. Under well-established construction contract law, a building contractor who substantially performs is entitled to recover the full contract price less the cost of remedying those defects that are remediable, and less the reduction in value caused by defects that are not remediable. E.g., Vance v. My Apartment Steak House of San Antonio, Inc., 677 S.W.2d 480, 481 (Tex.1984); Guittard, Building Contracts: Damages and Restitution, 32 Tex.BJ. 91, 122 (1969). Thus, the cost of remedying any defects goes to the measure of Mancorp’s breach of contract damages, not Culpepper’s alleged DTPA damages. Culpepper was required to obtain a jury finding on its actual damages under the DTPA⁶ and it cannot now transform the jury’s finding of an offset for remediable damages into actual damages under the DTPA.

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 by cross-point in the appeal below.

HECHT, J., dissents, joined by PHILLIPS, C.J.

1 . The dissenting opinion in the court of appeals sets forth a summary of other evidence relevant to alter ego. 781 S.W.2d at 629-30. This list catalogues some of the total dealings between Culpepper and Culpepper Properties, Inc.

2 . The Fifth Circuit, in interpreting Castleberry, stated that the doctrine of alter ego liability does not hinge solely on the rationale of promoting reciprocal fairness:

[T]he rule is also designed to give incentives to those using the corporate form to obey the state’s laws fully by maintaining corporate formalities, and thus legal separateness, of the corporation. Persons who fail to maintain full corporate formalities cannot expect the state to grant them the limited liability that flows from the corporate form. The person invoking alter ego proper against a corporation, whether claiming in contract or tort, thus may be the recipient of a windfall. In theory, even if the corporation was adequately capitalized and even if the claimant did not rely on the financial backing of the corporation’s owners, the claimant is still entitled to

recover as a sort of private attorney general. Of course, the different species of corporate disregard seldom occur in pure form, so alter ego usually will be accompanied by assertions of unfairness to the claimant.

Pan Eastern, 855 F.2d at 1132; see also Gibraltar Sav. v. LDBrinkman Corp., 860 F.2d 1275, 1288 (5th Cir.1988).

3 . Question number four submitted to the jury asked whether Culpepper Properties, Inc. was Culpepper’s alter ego. The jury was instructed that "the corporation is the alter ego of an individual when there is such unity between the corporation and individual that the separateness of the corporation has ceased and holding only the corporation liable would result in injustice.” The jury answered “Yes.”

4 . The jury questions were as follows:

QUESTION NO. 5

Do you find that Mancorp, Inc. breached its contract with Culpepper Properties, Inc.?

ANSWER "YES” OR "NO.”

ANSWER: NO

If you have answered Question No. 5 “Yes,” and only in that event, then answer Question No. 6.

QUESTION NO. 6

Was such breach of contract a proximate cause of damages to Culpepper Properties, Inc.?

ANSWER "YES” OR "NO.”

ANSWER: _

5 . The jury was asked:

QUESTION NO. 2

Do you find that Mancorp, Inc. substantially performed its building construction contract with Culpepper Properties, Inc.?

DEFINITION: "Substantially performed” means the contractor must have, in good faith, intended to comply with the contract, and shall have substantially done so in the sense that the defects are not outside of the terms of the contract and do not constitute a deviation from the general plan contemplated for the work, and are not so essential that the object of the parties in making the contract and its purpose cannot without difficulty be accomplished by remedying them. Such performance permits only such omissions or deviations from the contract as are inadvertent and unintentional, are not due to bad faith, do not impair the structure as a whole, and are remediable without doing material damage to other parts of the building in tearing down and reconstructing.

ANSWER 'TES" OR "NO."

ANSWER: YES

If you have answered Question No. 2 "Yes,” and only in that event, then answer Question No. 3.

QUESTION NO. 3

Find the reasonable cost of remedying the defects or omissions, if any, in such a way as to make the building conform to the contract.

ANSWER IN DOLLAR AND CENTS, IF ANY.

ANSWER: $289,376.90

6 .Although Culpepper alleged in the court of appeals that the trial court erred in failing to submit its DTPA question to the jury, it does not complain here that the omission of the jury question was error.