CDB SOFTWARE INC v. KROLL (1998)

OPINION

CDB Software, Inc., the plaintiff below, appeals a jury verdict in favor of Charles Kroll, the defendant below.   Kroll appeals the jury's nominal award of damages.   We modify the judgment below and, as modified, affirm.  

Factual Background and Procedural History

CDB, founded by Richard Barry in 1985, is a small Houston company that develops and licenses software products for mainframe computer systems.   Before 1990, Barry owned 60 percent of CDB's stock and Jeanne Eaton owned 40 percent.

In 1988, Barry hired Kroll.   In October 1989, CDB began negotiations with Candle Corporation for CDB to convey ownership of an undivided interest in CDB's computer software products to Candle.   Under the deal, Candle would pay CDB a 15 percent royalty on fees Candle received from licensing the products over a ten-year period.

In November 1989, Barry resigned as CDB's president and director, but he continued to be majority shareholder and to earn income indirectly from CDB through an outside consulting firm called jtrak services, inc.¹  Barry's departure left Kroll as CDB's sole director, president, chief executive officer, and chief financial officer;  however, Kroll was not a shareholder.   In February 1990, CDB's shareholders (Barry and Eaton) appointed Fred Earhart, another CDB employee, to CDB's board of directors.

In 1990, Kroll decided he wanted to renegotiate his compensation package.   In February 1990, Kroll sent a letter to Earhart proposing that CDB and Kroll enter into a new employment contract and compensation arrangement.   Kroll asked Earhart to work with CDB's outside counsel, Gene Rooke, to create a compensation package for Kroll.   Rooke drafted three documents:  (1) the “Employment Agreement,” which provided a yearly salary of $150,000 for two years;  (2) the “Additional Compensation Agreement,” which gave Kroll a share in CDB's revenues;  and (3) the “Deferred Compensation Agreement,” which required CDB to deposit $150,000 into a trust account, with additional $50,000 deposits on December 31st of 1990 and 1991 (collectively, the compensation agreements).   The compensation agreements required CDB to pay Kroll these amounts even upon Kroll's death, disability, or termination.   On March 20, 1990, after discussing the compensation agreements with Barry, Kroll and Earhart signed the agreements.

Although Kroll, as CDB's president, had the authority to pay himself according to the terms of the compensation agreements, from 1990 until 1994, he did not.

By the summer of 1990, Barry owned 100 percent of CDB's stock.   In March 1994, Barry fired Kroll.   In April 1994, Kroll sent a letter to Barry demanding payment under the compensation agreements.   Barry refused.   In May 1994, Kroll notified CDB of its breach of the compensation agreements and demanded that the parties submit the dispute to arbitration.   Instead, CDB filed a declaratory judgment action, asking the court to determine that the compensation agreements were invalid and unenforceable.   Kroll filed a plea in abatement, answer, and counterclaim seeking damages under the compensation agreements.

The case was tried to a jury in April 1997 and the jury found as follows:

1.  Earhart and Kroll did not agree that submitting the agreements to the shareholders before April 15, 1990 was required before the compensation agreements became effective.

2.  CDB's failure to comply with the compensation agreements was not excused by Kroll's waiver, fraud, or Kroll's failure to comply with a material obligation of the compensation agreements.

3.  Kroll did not breach his fiduciary duty to CDB in connection with the compensation agreements.

4.  CDB's shareholders did not ratify the compensation agreements.

The jury awarded Kroll $516,000 for breach of the Employment Agreement, $876,613 for breach of the Additional Compensation Agreement, and $1.00 for breach of the Deferred Compensation Agreement.

Kroll filed a motion to disregard the jury's nominal award for breach of the Deferred Compensation Agreement, which motion the trial court denied.   The trial court also reduced the jury award for breach of the Employment Agreement from $516,000 to $300,000 and offset Kroll's total award by the stipulated amount that CDB paid Kroll while the compensation agreements were in effect.   The total of Kroll's award amounted to $539,271, plus interest, and $200,000 in attorney's fees.

On appeal, CDB raises nine issues:  (1) the evidence is legally and factually sufficient to support the jury's findings;  (2) the trial court erred in overruling CDB's motion for directed verdict and refusing to submit CDB's proposed issues on equitable estoppel, novation, accord and satisfaction, laches, and mitigation of damages;  (3) limitations barred Kroll's claim for damages;  and (4) the trial court erred in refusing to suggest a remittitur of $222,777 under the Additional Compensation Agreement.   Kroll brings one cross-issue, which challenges the jury's award of $1.00 for damages under the Deferred Compensation Agreement.

A. Limitations

In issue eight, CDB asserts the trial court erred in overruling its motion for judgment notwithstanding the verdict (JNOV) on the ground that part of the damages awarded to Kroll was barred by the statute of limitations.

1. Standard of review

 A JNOV is proper when a directed verdict would have been proper.  Tex.R. Civ. P. 301;  Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex.1991).   A motion for JNOV should be granted when (1) the evidence is conclusive, and one party is entitled to recover as a matter of law, or (2) a legal principle precludes recovery.  Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 227 (Tex.1990);  John Masek Corp. v. Davis, 848 S.W.2d 170, 173 (Tex.App.-Houston [1st Dist.] 1992, writ denied).   We review the denial of CDB's motion under the legal sufficiency standard.   See Brown v. Bank of Galveston, 963 S.W.2d 511, 513 (Tex.1998) (JNOV).

2. Limitations

 CDB filed its petition seeking a declaratory judgment and attorney's fees on June 15, 1994.   Kroll filed his counterclaim for breach of the compensation agreements on September 9, 1994.   CDB asserts that the four-year statute of limitations bars recovery of any payments due under the compensation agreements that accrued before September 9, 1990.   See Tex. Civ. Prac. & Rem.Code § 16.004(a)(3) (1986).   Kroll asserts that Civil Practice & Remedies Code section 16.069 precludes CDB's limitations defense.   That section reads as follows:

If a counterclaim or cross claim arises out of the same transaction or occurrence that is the basis of an action, a party to the action may file the counterclaim or cross claim even though as a separate action it would be barred by limitation on the date the party's answer is required.

Tex. Civ. Prac. & Rem.Code § 16.069(a) (1997).

CDB asserts Kroll's counterclaim is not among those contemplated by section 16.069 for a number of reasons:  (1) CDB sought only a declaration that the compensation agreements were invalid, not monetary damages;  (2) Kroll's counterclaim was not in opposition to a monetary demand;  and (3) CDB was the nominal plaintiff merely because it filed its action first.   CDB concludes that Kroll's breach of contract claim was not a true counterclaim.   CDB relies on McBryde v. Curry, 914 S.W.2d 616 (Tex.App.-Texarkana 1995, writ denied) for this assertion.

In McBryde, Curry lent McBryde money under a demand note signed on May 15, 1986.   McBryde named Curry as a beneficiary of his life insurance policy to the extent of his debt to Curry.   McBryde died in May 1994, and Curry presented a claim for $200,000 as a creditor of McBryde based on the demand note.   Because the other beneficiaries of the insurance policy disputed the claim, the insurance company filed suit and deposited the $200,000 into the registry of the court.   Curry was granted summary judgment on her claim.   The beneficiaries appealed, asserting Curry's claim was barred by the four-year statute of limitations.   Curry asserted that her counterclaim was timely under section 16.069.   The beneficiaries responded that Curry's claim was not a true counterclaim within the scope of section 16.069(a).   The Texarkana court held Curry's claim was not within the scope of section 16.069 because Curry was only a nominal defendant (no other party sought relief against her) and her claim was not in opposition to a money demand by the plaintiff (the insurance company was not demanding any relief).  Id. at 620.

Here, CDB's petition sought relief in the form of a declaratory action seeking a determination that the compensation agreements were unenforceable and attorney's fees.   Kroll's counterclaim sought a determination that CDB had breached the agreements.   See Latham v. Allison, 560 S.W.2d 481, 485 (Tex.Civ.App.-Fort Worth 1977, writ ref'd n.r.e.) (defining counterclaim as “a claim, which, if established will defeat or in some way qualify a judgment to which the plaintiff is otherwise entitled.   It embraces both setoff and recoupment, and also comprehends reconvention as well as all adversary actions by the defendant in a case.”);   see also Black's Law Dictionary 315 (5th ed.1979) (defining counterclaim as a “claim presented by a defendant in opposition to or deduction from the plaintiff's claim”).²  Accordingly, the trial court did not err in overruling CDB's motion for JNOV. See generally Hobbs Trailers v. J.T. Arnett Grain Co., Inc., 560 S.W.2d 85, 88 (Tex.1977) (holding that if appellee's breach of contract action had been asserted in a counterclaim or crossclaim, article 5539c, the predecessor to section 16.069, would have applied);  Barraza v. Koliba, 933 S.W.2d 164, 167-68 (Tex.App.-San Antonio 1996, writ denied) (plaintiffs filed declaratory action and asked for attorney's fees;  holding:  defendant's DTPA counterclaim timely under section 16.069);  ECC Parkway Joint Venture v. Baldwin, 765 S.W.2d 504, 513-14 (Tex.App.-Dallas 1989, writ denied) (Duvall-Giles asserted that section 16.069 did not apply because its claim against ECC was not for affirmative relief but only for attorney's fees that were contingent on outcome of Baldwin's claim against ECC;  holding:  claim for attorney's fees is a claim for affirmative relief, and, therefore, ECC's counterclaim against Duvall-Giles not barred by limitations).

We overrule CDB's eighth issue.

B. Kroll's Cross-Issue

Kroll asserts the trial court erred in refusing to disregard the jury's award of $1.00 for damages under the Deferred Compensation Agreement because his damages were $250,000 as a matter of law.

1. Standard of review

 Because Kroll had the burden of proof on this issue, we treat his cross-issue as asserting that the evidence conclusively establishes his damages under the Deferred Compensation Agreement at $250,000.   We first examine the record for evidence that supports the finding and ignore all evidence to the contrary.  Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex.1989);  Pizzitola v. Galveston County Cent. Appraisal Dist., 808 S.W.2d 244, 246-47 (Tex.App.-Houston [1st Dist.] 1991, no writ).   If there is no evidence that supports the finding, only then do we look to see if the contrary proposition was established as a matter of law.  Sterner, 767 S.W.2d at 690;  Pizzitola, 808 S.W.2d at 247.   If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld.  Sherman v. First Nat'l Bank, 760 S.W.2d 240, 242 (Tex.1988);  Neese v. Dietz, 845 S.W.2d 311, 312 (Tex.App.-Houston [1st Dist.] 1992, writ denied).

2. Sufficiency of the evidence

 The Deferred Compensation Agreement provides as follows:  “In the event [Kroll] is terminated for reason other than cause, [Kroll] shall be immediately vested in the Key Employee Trust and entitled to receive all of the assets therein and which thereafter accrue to such accounts.”   When Kroll was terminated, the trust account contained no assets.   Kroll admitted he was responsible for setting up the trust account, he did not set up the account, and he deferred setting up the account on his own and “it [was his] own personal loss for having done it.”   CDB contends this evidence is legally sufficient to support the jury's finding that $1.00 fairly and reasonably compensated Kroll for his damages resulting from breach of the Deferred Compensation Agreement.   We disagree.

Kroll's admission that he was responsible for setting up the trust account, but did not, and that it was his own personal loss for not having done so, does not negate the jury's finding that Kroll did not waive his rights under the Deferred Compensation Agreement.   The fact that the trust account did not contain any assets when Kroll was terminated does not negate his entitlement to any assets that would accrue to the account.

 A nonbreaching party is generally entitled to all its actual damages necessary to put it in the same economic position in which it would have been had the contract not been breached.  General Elec. Supply Co. v. Gulf Electroquip, Inc., 857 S.W.2d 591, 599 (Tex.App.-Houston [1st Dist.] 1993, writ denied).   Because the jury found that CDB's performance under the compensation agreements was not excused by Kroll's waiver or Kroll's failure to comply with a material obligation, Kroll was entitled to receive, as damages, the amount he would have received if the Deferred Compensation Agreement had not been breached.

The “Deferred Compensation Agreement” required CDB to deposit a total of $250,000 into a trust account.   The trial court erred in not disregarding the jury's award of $1.00 for damages under the Deferred Compensation Agreement because Kroll's damages under that agreement were $250,000 as a matter of law.

We sustain Kroll's cross-issue.

C. CDB's Conditional Cross-Issue

CDB asserts that, if this Court sustains Kroll's cross-issue, Kroll's recovery of $150,000 of the $250,000 under the Deferred Compensation Agreement is barred by the statute of limitations.   For the same reason we overruled CDB's eighth issue, we also overrule CDB's conditional cross-issue.

The discussion of the remaining points of error does not meet the criteria for publication, Tex.R.App. P. 47.4, and is, thus, ordered not published.

We modify the judgment below to award Kroll $250,000 under the Deferred Compensation Agreement and, as modified, we affirm the trial court's judgment.

D. Waiver

In issue one, CDB asserts the evidence was legally and factually insufficient to support the jury's finding that CDB's breach of the compensation agreements was not excused by Kroll's waiver.

1. Standard of review

At trial, the burden was on CDB to prove waiver. El Paso Natural Gas Co. v. American Petrofina Co., 733 S.W.2d 541, 553 (Tex.App.-Houston [1st Dist.] 1986, writ ref'd n.r.e.). Because CDB attacks the legal sufficiency of an adverse finding on an issue on which it had the burden of proof, we first examine the record for evidence that supports the finding and ignore all evidence to the contrary. Sterner, 767 S.W.2d at 690; Pizzitola, 808 S.W.2d at 246-47. If no evidence supports the findings, only then do we look to see if the contrary proposition was established as a matter of law. Sterner, 767 S.W.2d at 690; Pizzitola, 808 S.W.2d at 247. If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld. Sherman, 760 S.W.2d at 242; Neese, 845 S.W.2d at 312.

In reviewing a factual sufficiency point, we consider and weigh all of the evidence and set aside the verdict only if the evidence is so weak or the finding so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex.1986); Pizzitola, 808 S.W.2d at 247.

Waiver is the intentional relinquishment of a known right by actual renunciation or by intentional conduct inconsistent with claiming the known right. Tenneco, Inc. v. Enterprise Prod. Co., 925 S.W.2d 640, 643 (Tex.1996). CDB does not assert that Kroll expressly waived his rights under the compensation agreements. Instead, CDB contends that Kroll's silence over a period of four years constituted waiver. A party's silence or inaction over a period of time long enough to show an intention to yield the known right is enough to show waiver. Id.

2. Legal sufficiency of the evidence

We first examine the evidence under the legal sufficiency challenge. Kroll testified he deferred paying himself under the terms of the compensation agreements and he did not have CDB fund the trust account because he felt CDB needed to keep its limited cash reserves available to cover CDB's growing indebtedness to Candle and its loss of revenues.3 Kroll said that, until the day he was fired, he did his best to ensure that CDB was successful and part of that effort included deferring his compensation.

Kroll stated that shortly before the deal with Candle became final, Mike Rutledge, a lawyer representing CDB, jtrak, and Barry, told Kroll that Candle wanted Kroll to waive his compensation agreements. Kroll said that Rutledge, Barry, and he discussed Candle's proposal, but rejected the idea.

14850 Quorum Associates, Ltd. v. Moore Business Forms, Inc.

1. A disclosure statement and a list of material obligations not incurred in the ordinary course of business both referred to “Obligations under CDB employment contracts with [Kroll and two other employees], dated March 20, 1990․”

2. The disclosure statement referenced the commissions to be paid to Kroll: “In addition, Mr. Kroll and CDB entered into an employment contract dated March 20, 1990. The employment contract, which is attached hereto, provides that Mr. Kroll shall receive a commission, the rates of which will vary depending on the level and the nature of CDB's revenues.”

3. The purchase agreement stated that “The execution, delivery and performance of this Agreement and all other agreements of the Barry Group referenced by this Agreement have been duly authorized by all necessary corporate and other action․”

The deposition testimony of Bill Wood, the Candle employee chiefly responsible for negotiating the deal with CDB, was read to the jury. He testified that Barry and CDB represented and warranted that the compensation agreements were valid and binding on CDB. Wood stated that the representations in the purchase agreement by CDB that Kroll's compensation agreements were valid and binding on CDB was an important representation. Wood explained that Kroll “was deferring compensation and we [Candle] needed to understand that we were assuming no responsibility for-for paying deferred compensation fundamentally.” When asked if the representation underscored CDB's responsibility to pay the deferred compensation, Wood answered, “That's correct.” Wood stated that Candle was never told that Kroll's agreements were not valid and binding. Wood also testified that sometime between 1989 and 1992, Kroll told him he was deferring some of his compensation because of CDB's financial condition.

This evidence is legally sufficient to support the jury's finding that CDB's performance under the compensation agreements was not excused by Kroll's waiver.

3. Factual sufficiency of the evidence

We next consider the factual sufficiency challenge and review all the evidence stated above as well any contrary evidence.

The evidence contrary to the jury's finding included the following. Kroll did not pay himself in accordance with the terms of the compensation agreements, disclose he was deferring his compensation, or establish the trust fund. Barry testified that he did not see the compensation agreements until after Kroll was fired. Wood said he did not recall Candle's asking Kroll to waive the compensation agreements, and Barry said there was never a meeting to discuss Candle's request that Kroll waive the compensation agreements.

The jury's finding is not so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. The evidence is factually sufficient to support the jury's finding that CDB's performance under the compensation agreements was not excused by Kroll's waiver.

We overrule CDB's first issue.

E. Validity of Compensation Agreements

In issue two, CDB asserts the trial court erred in denying its motions for directed verdict and for JNOV because the compensation agreements were not valid corporate acts. CDB contends the compensation agreements were not valid corporate acts because they were not ratified by a majority of the directors.

1. Standard of review

A directed verdict is proper when (1) a defect in the opponent's pleadings makes them insufficient to support a judgment, (2) the evidence conclusively proves a fact that establishes a party's right to judgment as a matter of law, or (3) the evidence is legally insufficient to raise an issue of fact. Metzger v. Sebek, 892 S.W.2d 20, 40 (Tex.App.-Houston [1st Dist.] 1994, writ denied). We apply the same standard of review for a JNOV as that under section A.1., above.

We review the denial of CDB's motions under the legal sufficiency standard. See Cliffs Drilling Co. v. Burrows, 930 S.W.2d 709, 712 (Tex.App.-Houston [1st Dist.] 1996, no writ) (directed verdict); see also Brown, 963 S.W.2d at 513 (JNOV).

2. Sufficiency of the evidence

CDB asserts that a majority of the directors were required to approve the compensation agreements, CDB had only two directors (Kroll and Earhart), and Earhart signed the compensation agreements as a director, but Kroll signed in his individual capacity only. Therefore, CDB argues, a majority of CDB directors did not approve the compensation agreements because only one director (Earhart) signed the agreements.

The directors are the managers of a Texas corporation. Tex. Bus. Corp. Act art. 2.31 (1997); American Bank & Trust Co. v. Freeman, 560 S.W.2d 444, 446 (Tex.Civ.App.-Beaumont 1977, writ ref'd n.r.e.). A formal vote is not required to validate acts done at a directors' meeting unless a formal vote is required by statute, charter, or bylaw. 2 Fletcher, Cyclopedia of Corporations § 418 (Perm. Ed.1990). A written contract may be executed without a formal vote if all the directors are present and assent and no formal vote is otherwise required. Id. The ratification or adoption of a contract by a corporation through its board of directors may be implied. Id.

The Business Corporation Act does not expressly require a formal vote by the directors before an action of the directors is valid: “The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by law or the articles of incorporation or the bylaws.” Tex. Bus. Corp. Act art. 2.35 (1998) (emphasis added). CDB does not assert that its charter or bylaws required a formal vote before the compensation agreements could become effective.

The approval of the compensation agreements by CDB's board of directors may be inferred from the following acts taken by CDB's board: before Earhart and Kroll signed the compensation agreements, they discussed the agreements and held a directors' meeting to approve the agreements, subject to shareholder ratification; at the directors' meeting, Earhart voted to approve the compensation agreements and Kroll abstained from voting; and, after the directors' meeting, Earhart signed the agreements as a CDB director and Kroll signed in his individual capacity. The trial court did not err in overruling CDB's motions for directed verdict and for JNOV.

We overrule CDB's second issue.

F. Breach of Fiduciary Duty

In issue three, CDB asserts the evidence is legally and factually insufficient to support the jury's finding that Kroll did not breach his fiduciary duty to CDB, and, therefore, the trial court erred in denying its motions for directed verdict and for JNOV on this ground.

1. Standard of review

CDB attacks the legal sufficiency of the evidence supporting an adverse finding on an issue on which it did not have the burden of proof; therefore, CDB must demonstrate there was no evidence to support the adverse finding. Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex.1983); Stephanz v. Laird, 846 S.W.2d 895, 898 (Tex.App.-Houston [1st Dist.] 1993, writ denied). In determining whether the evidence is legally sufficient to support the jury's finding, we consider only the evidence and inferences that tend to support the finding and disregard all evidence and inferences to the contrary; if there is any probative evidence that supports the jury's finding, we must overrule the “no evidence” point of error. International Bank, N.A. v. Morales, 736 S.W.2d 622, 624 (Tex.1987); Stephanz, 846 S.W.2d at 899.

In reviewing a factual sufficiency point, we consider and weigh all of the evidence, and we will set aside the verdict only if the evidence is so weak or the finding so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. Cain, 709 S.W.2d at 176; Pizzitola, 808 S.W.2d at 247.

2. Legal sufficiency of the evidence

The jury charge defined “breach of fiduciary duty” as follows:

[A] failure to act with extreme measure of honesty, unselfishness, fairness, and good faith; or with fairness and full disclosure of all material information. In determining whether there is a breach of fiduciary duty, Lindsey Kroll bears the burden of showing the transaction was fair and fully disclosed to the shareholders.

The jury was asked whether Kroll “breached his fiduciary duty to [CDB] in connection with the agreements in question.” The jury answered “no.”

CDB asserts that a director or officer of a corporation must make full disclosure of all pertinent information in relation to the subject matter of any contract he negotiates with the corporation in which he has a personal interest. While we do not disagree with this general proposition, none of the cases on which CDB relies is applicable here because CDB does not assert the compensation agreements were unfair to CDB, Kroll breached his fiduciary duty by entering into the agreements, or Kroll did not disclose pertinent information in March 1990 when the compensation agreements were drafted, negotiated, and executed. General Dynamics v. Torres, 915 S.W.2d 45 (Tex.App.-El Paso 1995, writ denied) (involving usurpation of corporate opportunity); Estate of Townes v. Townes, 867 S.W.2d 414 (Tex.App.-Houston [14th Dist.] 1993, writ denied) (executor of estate breached his duty by withdrawing funds from estate for his personal benefit); Trevino v. Brookhill Capital Resources, Inc., 782 S.W.2d 279, 281 (Tex.App.-Houston [1st Dist.] 1989, writ denied) (title company breached fiduciary duty when it paid money out of escrow account without depositor's knowledge); Imperial Group (Texas), Inc. v. Scholnick, 709 S.W.2d 358 (Tex.App.-Tyler 1986, writ ref'd n.r.e.) (involving usurpation of corporate opportunity).

CDB asserts Kroll's four-year silence constituted a breach of Kroll's fiduciary duty, Kroll admitted he breached his fiduciary duty, and the uncontroverted testimony of CDB's expert established that Kroll breached his fiduciary duty. Kroll testified he did not disclose CDB's liability in the financial statements because CDB's books were kept on a cash basis; thus, the liability would not have been reflected on the financial statements in any event. Kroll also stated that CDB did not routinely maintain corporate minutes and resolutions.

The jury also heard testimony from Barry about a debt owed to him for his deferred compensation. Barry testified that Eaton became a shareholder on January 1, 1987 and that he and Eaton were parties to a shareholder agreement providing that neither of them could draw a salary unless they both approved. Barry said he did not pay himself $280,000 for the services he rendered to CDB before January 1, 1987. After January 1, 1987, Barry did not pay himself what he considered to be the debt owed to him because CDB did not have the money and he could not pay himself “without going through the formalities.” Barry admitted he did not include his deferred compensation in CDB's financial statements. In February 1989, CDB's board of directors, which at this time included only Barry and Kroll, approved a resolution reducing the debt to Barry to a promissory note. Kroll voted in favor of the resolution, and Barry abstained. Barry stated that he and Kroll were acting in accordance with CDB's bylaws and articles of incorporation when Kroll voted alone to approve the note to Barry.

Corporate officers and directors are fiduciaries, and the consequences of their acts as such are determined based on the facts in each case. International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 576 (Tex.1963). Kroll's actions did not amount to breach of a fiduciary duty because he voluntarily deferred his benefits under the compensation agreements for the good of the company. Cleaver v. Cleaver, 935 S.W.2d 491, 495-96 (Tex.App.-Tyler 1996, no writ) (under “business judgment” rule, alleged unwise, inexpedient, negligent, or imprudent decisions or conduct will not sustain a suit against the management of a corporation). CDB does not provide any support for its contention that a corporate officer or director who voluntarily defers his compensation breaches a fiduciary duty to the company.

We hold the evidence is legally sufficient to support the jury's finding that Kroll did not breach his fiduciary duty to CDB.

3. Factual sufficiency of the evidence

CDB bases its breach of fiduciary duty cause of action only on what Kroll did not do during the four years following execution of the compensation agreements: he did not pay himself in accordance with the terms of the compensation agreements, disclose he was deferring his compensation, establish the trust fund, place any reference to the compensation agreements in CDB's minutes, disclose any accruing liability under the compensation agreements in CDB's financial statements, or tell CDB's accountant about the compensation agreements or any accruing liability for unpaid compensation.

The jury's finding is not so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. The evidence is factually sufficient to support the jury's finding.

We overrule CDB's third issue.

G. Submission of Compensation Agreements to Shareholders

In issue four, CDB contends the evidence was factually insufficient to support the jury's finding that Earhart and Kroll did not agree the compensation agreements had to be submitted to the shareholders before the agreements became effective.

Earhart testified that, in drafting the compensation agreements, he represented CDB and its shareholders, Rooke represented CDB, and Kroll represented himself. After receiving Kroll's letter proposing the new compensation arrangement, Earhart sent a letter to Rooke, asking him for his advice on the arrangement and on the necessity for stockholder approval. Earhart stated he did not remember whether Rooke told him that the compensation agreements had to be approved by CDB's shareholders.

Earhart testified he wanted additional language inserted into the compensation agreements because he thought the compensation agreements should be approved by the shareholders. With Kroll in his office, Earhart called Rooke and told him he would not sign the compensation agreements unless language was added requiring shareholder approval. Rooke dictated the following language, which was then added to each of the compensation agreements: “This ․ Agreement is void if voted down by a shareholder majority vote on or before April 15, 1990. Otherwise this ․ Agreement is executed as of the date first above written.” Earhart stated that he asked Rooke, “Does this require a[sic] shareholder approval?” Earhart said that Rooke answered “Yes.”

Earhart testified he held a directors' meeting with Kroll and they approved the compensation agreements, subject to shareholder ratification. At the close of the meeting, Earhart said he signed the compensation agreements “strictly for the purposes of passing it up the line for shareholder approval.”

The following testimony from Rooke's deposition was read to the jury:

Q: Based on the discussion, was it intended that these [compensation] agreements would become effective solely because Mr. Kroll and Mr. Earhart signed these documents?

A: They were-they were going to sign these contracts. They weren't going to be effective until they'd been submitted to the stockholders. That was-that was the ground rule.

․

Q: In your discussion did Mr. Earhart indicate that this was an important provision to him?

A: My recollection is they [Earhart and Kroll] told me that they did not want to proceed with the [compensation agreements] without involving Dick Barry somehow in the approval process.

․

Q: Did you ever tell Mr. Earhart or Mr. Kroll that the [compensation] agreements would not be enforceable if they didn't have a shareholders' meeting.

A: I go back to the ground rules of the conversation when they called me. They-neither one wanted to proceed with the [compensation] agreements unless they involved Dick Barry somehow in the approval of these [compensation] agreements.

․

Q: Why the term “voted down,” “unless voted down” was used as opposed to “the shareholders will have a vote and if they approve it, it's binding, and if they don't, it's not”?

․

A: And so part of it, these guys [Earhart and Kroll] had said, no, we want to still be the directors, officer, [sic] and manage this company. And so what if they-it didn't seem to solve their concern-their concern about documenting this Employment Agreement if the shareholders then didn't take any action.

Q: Right.

A: And so they said, all right. We will sign it subject to giving it-the [compensation] agreement[s] to the stockholders. If the stockholders approve it, fine. If they vote it down, then it's voted down. And if the stockholders don't take any action, then at least they've been put on notice and we, as the directors, have exercised our authority and we proceed on.

Q: Would you agree that the “unless voted down” language did give the majority shareholder a way not to vote in favor of these agreements but still have them approved?

A: Yes.

Kroll testified that he understood the compensation agreements would be ratified by the shareholders in one of two ways-if the shareholders voted in favor of the agreements or if no vote was taken on the agreements. Kroll said shareholder approval was not required before the compensation agreements became effective, and he did not think Earhart's signature was conditioned on obtaining such approval. Kroll admitted that, when he left the March 20, 1990 meeting with Earhart, he understood that he would present the compensation agreements at the shareholders' meeting on or before April 15, 1990.

After the compensation agreements were signed, Kroll drafted a notice to the shareholders regarding the upcoming shareholders' meeting. The notice stated that one of the items for discussion was to “Ratify and confirm employment agreements with the company's President and Vice President.” Kroll sent a draft of the notice to CDB's attorney for approval. Kroll testified that CDB's attorney told him not to include the compensation agreements on the agenda for the shareholders' meeting. Acting on counsel's advice, Kroll sent the shareholders a notice that made no mention of the compensation agreements. Kroll presided over the April 12, 1990 shareholders' meeting at which the compensation agreements were not mentioned.

CDB argues that Earhart, Rooke, and Kroll's trial testimony is inconsistent with Kroll's position that shareholder approval was not required. However, the jury is the sole judge of the credibility of the witnesses and the weight to be given their testimony. Rego Co. v. Brannon, 682 S.W.2d 677, 680 (Tex.App.-Houston [1st Dist.] 1984, writ ref'd n.r.e.). This Court cannot substitute its opinion for that of the trier of fact and determine that it would reach a different conclusion. Hollander v. Capon, 853 S.W.2d 723, 726 (Tex.App.-Houston [1st Dist.] 1993, writ denied). The evidence in support of the jury's finding is not so weak or against the great weight and preponderance of the evidence as to be clearly wrong and unjust.4

We overrule CDB's fourth issue.

H. CDB's Affirmative Defenses

In issue five, CDB asserts the trial court erred in (1) overruling its motion for directed verdict on equitable estoppel, novation, accord and satisfaction, and laches, and (2) refusing to submit CDB's proposed issues on these defenses.

1. Standard of review

The overruling of a motion for directed verdict is reviewed under the “no evidence” standard. See Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 287 (Tex.1994); Cliffs Drilling Co., 930 S.W.2d at 712. A trial court may refuse to submit an issue only if there is no evidence to warrant its submission. Brown v. Goldstein, 685 S.W.2d 640, 641 (Tex.1985); Waldron v. Zapata Exploration Co., 878 S.W.2d 349, 350 (Tex.App.-Houston [1st Dist.] 1994, no writ). A trial court is obligated to submit the question if the evidence amounts to more than a scintilla, even if the evidence is insufficient to sustain an affirmative finding on that issue. Brown, 685 S.W.2d at 641.

2. Equitable estoppel and laches

CDB asserts that Kroll's silence and inaction prevents him from receiving any benefits from the compensation agreements under the doctrines of equitable estoppel and laches. CDB contends that it was harmed by Kroll's silence because four years passed before it learned Kroll would one day attempt to collect his deferred compensation. CDB contends this information was important in view of CDB's dire financial situation.

The doctrine of equitable estoppel requires (1) a false representation or concealment of material facts, (2) made with knowledge, actual or constructive, of those facts, (3) with the intention that it should be acted on, (4) to a party without knowledge or means of obtaining knowledge of the facts, (5) who detrimentally relies on the representations. Schroeder v. Texas Iron Works, Inc., 813 S.W.2d 483, 489 (Tex.1991). Reliance is a fundamental element of estoppel. Bluebonnet Sav. Bank v. Grayridge Apt. Homes, Inc., 907 S.W.2d 904, 912 (Tex.App.-Houston [1st Dist.] 1995, writ denied).

Laches requires (1) an unreasonable delay by one having legal or equitable rights in asserting them and (2) a good faith change of position by another to his detriment because of the delay. Rogers v. Ricane Enterprises, Inc., 772 S.W.2d 76, 80 (Tex.1989); Knesek v. Witte, 754 S.W.2d 814, 816 (Tex.App.-Houston [1st Dist.] 1988, writ denied).

Earhart stated that including Kroll's deferred compensation on CDB's balance sheet was important because “it would drastically affect the balance sheet of the company, plus the potential cash flow to have that kind of liability on the books.” Earhart testified he would have made different recommendations to CDB regarding the company's cash flow and future operations if he had known about the deferral of Kroll's compensation. Barry stated that he would have taken Kroll's deferred compensation into account in deciding whether to discontinue CDB's operations in 1992 when Candle decided to stop doing business with CDB. CDB's accountant, Phillip Hooper, testified that he would have wanted to know about any deferred compensation so that he could issue correct financial statements. Hooper said CDB's expenses were high and its sales were low; therefore, it was important to forecast CDB's cash position accurately. Hooper said a large liability such as Kroll's deferred compensation could drastically affect cash flow.

Estoppel and laches both require a change of position in reliance on the conduct of another. Although Earhart and Hooper spoke in terms of how a liability the size of Kroll's deferred compensation could affect cash flow or future operations, there is no evidence CDB suffered actual harm because it relied on financial statements that did not include a liability to Kroll or CDB took any action in reliance on financial statements that did not include a liability to Kroll. Barry did not state he would have closed CDB's doors had he known about the liability to Kroll. Because there was no evidence that CDB relied to its detriment on Kroll's silence, there is no evidence to support the affirmative defenses of estoppel or laches. Therefore, the trial court did not err in overruling CDB's motion for directed verdict and refusing to submit CDB's proposed issues on equitable estoppel or laches.

3. Novation and accord and satisfaction

From 1988 through mid-1990, Kroll received an annual salary of $60,000, commissions of 3 percent of CDB's revenue up to $1 million and 5 percent in excess of $1 million, and bonuses. In March 1990, Earhart and Kroll signed the compensation agreements. After the Candle deal closed in July 1990, CDB and Kroll agreed to increase Kroll's salary to $96,000 and decrease his commission to a straight 3 percent. From July 1990 to 1994, Kroll was paid $96,000 per year, plus commissions. Both CDB and Kroll agree that CDB's financial situation in 1990 necessitated the salary change, but they disagree on the effect of the change. CDB asserts that the 1990 agreement to pay Kroll an annual salary of $96,000, plus a 3 percent commission, was a novation of the compensation agreements. CDB also asserts that Kroll accepted the $96,000 salary and 3 percent commission in full satisfaction of any obligation on CDB's part under the compensation agreements. Kroll asserts the change was temporary and was not meant to extinguish the compensation agreements.

The elements of a novation are (1) a previous, valid obligation, (2) an agreement of the parties to a new contract, (3) the extinguishment of the old contract, and (4) the validity of the new contract. Mandell v. Hamman Oil & Refining Co., 822 S.W.2d 153, 163 (Tex.App.-Houston [1st Dist.] 1991, writ denied). A novation agreement need not be in writing or evidenced by express words of agreement, and an express release is not necessary to effect a discharge of an original obligation by novation. Bank of N. Am. v. Bluewater Maintenance, Inc., 578 S.W.2d 841, 842 (Tex.Civ.App.-Houston [1st Dist.] 1979, writ ref'd n.r.e.). The intent to accept the new obligation in lieu of and in discharge of the old one may be inferred from the facts and circumstances surrounding the transaction and the parties' conduct. Id.

Accord and satisfaction rests upon a new contract, express or implied, in which the parties agree to discharge the existing obligation by a lesser payment tendered and accepted. Jenkins v. Henry C. Beck Co., 449 S.W.2d 454, 455 (Tex.1969); Christian v. University Fed. Sav. Ass'n, 792 S.W.2d 533, 534 (Tex.App.-Houston [1st Dist.] 1990, no writ). The evidence must show an agreement that the debtor's payment fully satisfied the entire claim. Christian, 792 S.W.2d at 534. Such conditions must be plain, definite, certain, full, explicit, and susceptible to no other interpretation. Id.

Both Barry and Kroll testified that CDB's revenues would decrease because, instead of receiving 100 percent of the revenue from the sale of CDB products, CDB would receive only 7.50 percent of the revenues under the terms of its agreement with Candle. CDB's revenues would increase only once it began to produce new products, which could take years. Therefore, Barry suggested that he, Kroll, and certain other employees change the terms of their compensation. Barry testified that he and Kroll agreed to change Kroll's salary from $60,000 to $96,000 and Kroll's commission from 3 percent and 5 percent to a straight 3 percent. By contrast, Kroll testified Barry suggested the compensation changes as an interim measure while CDB waited to see how the Candle deal worked out.

There is no evidence that the change in compensation was meant to be permanent. There is no evidence that CDB and Kroll agreed to change the terms of the compensation agreements. Because there was no evidence that CDB and Kroll agreed to discharge CDB's obligations under the compensation agreements, there is no evidence to support the affirmative defenses of novation or accord and satisfaction. Therefore, the trial court did not err in overruling CDB's motion for directed verdict and refusing to submit CDB's proposed issues on novation or accord and satisfaction.

We overrule CDB's fifth issue.

I. Fraud or Material Breach

In issue six, CDB asserts the evidence was legally and factually insufficient to support the jury's finding that CDB's performance under the compensation agreements was not excused by Kroll's fraud or material breach.

1. Standard of review

We apply the same standard of review as that under section D.1., above.

2. Fraud

The jury charge defined “fraud” to mean the following:

(a) a party conceals or fails to disclose a material fact within the knowledge of that party, (b) the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth, (c) the party intends to induce the other party to take some action by concealing or failing to disclose that fact, and (d) the other party suffers injury as a result of acting without knowledge of the undisclosed fact.

a. Legal sufficiency of the evidence

Both Barry and Earhart were aware of the compensation agreements. CDB does not assert, and there is no evidence that, CDB did not have an equal opportunity to discover the fact that Kroll was deferring his compensation. The evidence is legally sufficient to support the jury's finding that CDB's performance under the compensation agreements was not excused by Kroll's fraud.

b. Factual sufficiency of the evidence

Kroll admitted he did not tell anyone he was deferring his compensation. After Barry fired Kroll, Kroll wrote notes to himself in which he said the compensation agreements were his “life vest.” CDB contends these written statements prove Kroll intended to induce CDB to breach the compensation agreements by his concealing his reliance on the agreements. As to harm, CDB asserts that knowing Kroll was deferring his compensation was important to CDB's financial condition and, had it known, it would have been better prepared to pay its debt to Kroll. However, we have already determined there is no evidence that CDB suffered any harm from Kroll's silence. The jury's finding is not so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. The evidence is factually sufficient to support the jury's finding.

3. Material breach

CDB contends Kroll breached the compensation agreements by deferring payment to himself under the agreements. We reject CDB's argument, which is an attempt to recast its waiver argument in a different light, for the same reasons we rejected CDB's waiver argument under issue one.

We overrule CDB's sixth issue.

J. CDB's Proposed Instruction on Mitigation of Damages

In issue seven, CDB asserts the trial court erred in refusing to submit a jury instruction on mitigation of damages.

1. Standard of review

The trial court should submit explanatory instructions and definitions that will enable the jury to render a verdict. Tex.R. Civ. P. 277; State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 451 (Tex.1997). The trial court has considerable discretion in deciding what instructions are necessary and proper in submitting issues to the jury. Nicolau, 951 S.W.2d at 451; Harris County v. Demny, 886 S.W.2d 330, 332 (Tex.App.-Houston [1st Dist.] 1994, writ denied). On appeal, we consider only whether the trial judge acted arbitrarily and do not substitute our judgment for the trial judge's. Demny, 886 S.W.2d at 332. We reverse jury charge error only if it probably caused the rendition of an improper judgment. Id.; Tex.R.App. P. 44.1(a).

2. Mitigation of damages

CDB contends Kroll could have mitigated his damages if he had made the payments required under the compensation agreements.

The doctrine of mitigation of damages does not apply here. An injured party must exercise reasonable care to minimize its damages resulting from the breach of a contract, if the damages can be avoided with only slight expense and reasonable effort. Great Am. Ins. Co. v. North Austin MUD No. 1, 908 S.W.2d 415, 426 (Tex.1995); Harris County v. Smoker, 934 S.W.2d 714, 721 (Tex.App.-Houston [1st Dist.] 1996, writ denied). The key phrase for our purposes here is “damages resulting from the breach of the contract.” CDB would require Kroll, standing in the time period before the breach of the compensation agreements, to look into the future and predict that breach. It was not error for the trial court to refuse the requested instruction.

We overrule CDB's seventh issue.

FOOTNOTES

1.   The record indicates the company's name is spelled entirely in lower case.

2.   Black's also defines “recoupment” as implying “that plaintiff has cause of action, but asserts that defendant has counter cause of action growing out of breach of some other part of same contract on which plaintiff's action is founded, or for some cause connected with contract.”  Id. at 1146.

FN3. When Barry hired Kroll in 1988, a lawsuit was pending in which Eaton had sued CDB and Barry personally. On May 8, 1990, CDB redeemed Eaton's shares and settled the lawsuit for $2 million. Candle financed the settlement by loaning CDB $2 million, payable in five-year installments, with a balloon payment due in May 1995. Candle also made additional funds available to CDB for its operating expenses. After the deal with Candle closed, CDB saw its revenues decrease, making it all the more dependant on Candle..  FN3. When Barry hired Kroll in 1988, a lawsuit was pending in which Eaton had sued CDB and Barry personally. On May 8, 1990, CDB redeemed Eaton's shares and settled the lawsuit for $2 million. Candle financed the settlement by loaning CDB $2 million, payable in five-year installments, with a balloon payment due in May 1995. Candle also made additional funds available to CDB for its operating expenses. After the deal with Candle closed, CDB saw its revenues decrease, making it all the more dependant on Candle.

FN4. Additionally, the compensation agreements were clearly ratified by the sole shareholder, Barry, as evidenced by the July 1990 purchase agreement with Candle..  FN4. Additionally, the compensation agreements were clearly ratified by the sole shareholder, Barry, as evidenced by the July 1990 purchase agreement with Candle.

O'CONNOR, Justice.