War-Pak, Inc. v. Rice

604 S.W.2d 498, 1980 Tex. App. LEXIS 3801
CourtCourt of Appeals of Texas
DecidedAugust 7, 1980
Docket6172
StatusPublished
Cited by15 cases

This text of 604 S.W.2d 498 (War-Pak, Inc. v. Rice) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
War-Pak, Inc. v. Rice, 604 S.W.2d 498, 1980 Tex. App. LEXIS 3801 (Tex. Ct. App. 1980).

Opinion

OPINION

JAMES, Justice.

This is a suit for damages allegedly resulting from the cancellation of corporate stock and the termination of employment contracts. The suit was instituted by Ap-pellee Bob Rice, individually, against War-Pak, Inc., Amark Container Corporation, C. K. Henslee, Marion C. “Bud” Kimbell, Lester Justice, Tony Allen, and Lynn Foster. Rice’s pleadings alleged that the Defendants had “conspired to deprive him of his 25% ownership rights in Amark Container and to deprive him of his employment contract rights with that corporation and War-Pak, Inc.” Defendant Lynn Foster was dismissed prior to trial; Defendant Allen was non-suited during trial; and no issues were submitted as to Defendant Justice’s liability in this case. Trial was completed to a jury, which answered all special issues in favor of Rice, finding actual damages totalling $259,900.00 and exemplary damages totalling $133,000.00. The trial court disregarded some of the jury’s findings, and ordered a remittitur of part of the damages, and rendered final judgment in favor of Plaintiff-Appellee Rice against Defendants War-Pak, Henslee and Kimbell, jointly and severally, for recovery of $135,800.00 actual damages and for exemplary damages respectively of $10,000.00 against War — Pak, $4,167.00 against Henslee, and $1,000.00 against Kimbell, from which judgment War-Pak, Henslee and Kimbell have perfected this appeal. We affirm in part, reverse and render in part, and reverse and remand in part.

The factual basis and the history of this action are extremely complex and must be presented in some detail before the assigned errors can be discussed.

War-Pak, Inc. was organized and incorporated in Cleburne, Texas by Bob Rice and Tony Allen. Rice and Allen had both worked for various companies that manufactured and sold trash containers similar to what are sometimes called “Dempster Dumpsters.” In 1975 Rice and Allen decided to manufacture their own trash containers and they organized War-Pak, Inc. for that purpose.

The organizational meeting of War-Pak was held on November 6, 1975. At that time Rice and Allen were elected to serve as directors of the corporation until the first annual meeting of stockholders. Acting as directors, they issued 500,000 shares of stock to themselves, Rice receiving 255,000 and Allen receiving 245,000. The organizational minutes recited that this stock was issued in consideration of the “transfer” by Rice and Allen of “the sum of $26,000.00, plus a four cubic yard packer valued at $2000.00.” At this same meeting Rice was elected President and Treasurer of the corporation and Allen was elected Vice-President. Thus, in the beginning, Rice and *500 Allen were the sole stockholders of War-Pak, the only directors, and effectively the only officers.

The corporation was very thinly capitalized. It is undisputed that Rice and Allen had only paid $1000.00 in cash into the corporation at the time the stock was issued. The record shows that on November 10, 1975, they secured a $25,000.00 line of credit for War-Pak from a local bank, but this line of credit was for “operating expenses.” This $25,000.00 loan was ultimately paid by War-Pak, Inc. The corporation had no plant for manufacturing the trash containers and initially all manufacturing efforts had to be sub-contracted out to other firms.

In January of 1976, in an effort to raise additional capital, Rice and Allen decided to sell War-Pak stock to “10 or 15 other persons.” They set the value of the stock at $1.00 per share and further decided to require a minimum purchase of 5000 shares. The corporate records reflect that by January of 1977 Rice and Allen had sold at least 83,700 additional shares of stock to 13 stockholders, which stockholders included Appellants Henslee and Kimbell. At the 1977 annual stockholders meeting, the number of directors was expanded to five, and three stockholders — Henslee, Justice, and Rowland-were elected as directors, in addition, of course, to Rice and Allen. Subsequently, new officers were also elected, to wit, President-Tony Allen, Vice-President-Bud Kimbell, Sec.-Treas.-Bob Rice. In spite of the new directors and officers, Rice and Allen continued to run the company.

War-Pak’s future appeared brighter in January of 1977. The corporation had decided to build a manufacturing plant in Bosque County and had secured a, Small Business Administration loan in the amount of $126,000.00 ($25,000.00 of which was used to repay the original “line of credit” secured by Rice and Allen) to finance the construction. In addition, the corporation had collected about $85,000.00 in cash from the recent sales of stock. Unfortunately, however, the company continued to lose money. In June or July of 1977 the new stockholders, including Henslee, Kim-bell,and Justice, began to ask questions about the capitalization of the corporation, particularly about the issuance of the original 500,000 shares of stock to Rice and Allen.

At about the same time, Rice and Allen negotiated a deal with Lynn Foster to form a new corporation, to wit, Amark Container Corporation. Rice and Allen agreed to convey to Amark Container their 500,000 shares of War-Pak stock in exchange for 49% of Amark Container stock. Lynn Foster was to receive 51% of the Amark Container stock in exchange for certain patent rights which he had actually acquired from Bob Rice.

In July of 1977, Amark Container was officially incorporated. The purpose of Amark Container was hotly disputed in the record. Rice and Allen testified that it was organized solely as a means of securing a loan for War-Pak. Apparently Lynn Foster was a principal stockholder, director, and officer of another corporation called Amark International, Inc. Rice and Allen claimed that Foster had agreed to loan money to War-Pak but demanded a controlling interest in Amark Container as security. It is undisputed that Amark International did loan War-Pak $50,000.00 which loan was secured by all of the inventory and accounts receivable of War-Pak. On the other hand, Henslee, Kimbell, and the other stockholders of War-Pak believed that Amark Container was organized to isolate the new investors in War-Pak and to deprive them of the benefits of their interest in War-Pak. It is also undisputed that Rice and Allen were the only two War-Pak stockholders who were included in the creation of Amark Container. It is further undisputed that no meetings of War-Pak directors or stockholders were held after the incorporation of Amark Container, except as hereinafter shown. Furthermore, from July, 1977 to October, 1977, Amark Container totally controlled War-Pak. Rice and Allen managed Amark Container; Allen was President and Rice was Vice-President. Both of them entered into em *501 ployment contracts with Amark and began receiving salaries from Amark Container; in addition Rice and Allen continued to receive salaries as “employees of War-Pak.” Amark Container took control of all of War-Pak’s funds; it did all of the invoicing for products manufactured by War-Pak; and it kept all of the accounts receivable for the War-Pak products. Money was transferred from Amark to War-Pak only when necessary to meet expenses; all profit, if there was any, was retained by Amark Container. No funds, either in the name of Amark Container or War-Pak, were ever applied to pay the loan from Amark International to War-Pak.

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Bluebook (online)
604 S.W.2d 498, 1980 Tex. App. LEXIS 3801, Counsel Stack Legal Research, https://law.counselstack.com/opinion/war-pak-inc-v-rice-texapp-1980.