Summary
The Supreme Court of Texas held that damages for breach of a stock option agreement are generally measured by the difference between the contract price and the stock's value at the time of breach, rather than by later appreciation through trial. The court also held that the judgment debtor's payment to stop post-judgment interest did not moot the appeal, that the objection to the damages measure was preserved, and that the evidence did not support fraud or exemplary damages. The court rendered judgment for the time-of-breach damages, awarded statutory interest, and remanded for calculation and rendition of judgment.
Topics
Practice areas
Questions Presented
- Whether Jensen's payment toward the judgment to stop the accrual of post-judgment interest mooted his appeal.
- Whether Jensen preserved his objection to the submission of a lost-profits damages measure.
- Whether a dispute over the terms of an oral stock-option agreement and conduct occurring after formation supplied evidence of fraudulent intent.
- What measure of damages applies when a promisor breaches a stock-option agreement by refusing to deliver stock when the option holder exercises the option.
- Whether Miga was entitled to prejudgment and post-judgment interest on the time-of-breach damages.
Holdings
- A judgment debtor's payment toward a judgment does not moot an appeal when the debtor clearly expresses an intent to pursue appellate review and appellate relief is not futile. Jensen's payment to stop the accrual of post-judgment interest therefore did not moot his appeal.
- Jensen preserved his objection to the lost-profits damages submission because he timely and plainly informed the trial court that damages should be limited to the stock's value at the time of breach and obtained an adverse ruling.
- A promisor's later refusal to perform, dispute over the terms of an oral agreement, and post-formation conduct do not, without more, establish that the promisor lacked intent to perform when the agreement was made. Miga therefore had no fraud cause of action on the evidence presented.
- When a stock-option holder exercises the option and the promisor refuses to deliver the stock, contract damages are measured at the time of breach as the stock's value at the time set for delivery minus the contract price. Later appreciation through trial is not recoverable as lost profits on these facts.
- Prejudgment interest may be awarded on the time-of-breach damages and must be calculated as simple interest; post-judgment interest applies as provided by statute and is compounded annually.
Key quotations
“Thus, payment on a judgment will not moot an appeal of that judgment if the judgment debtor clearly expresses an intent that he intends to exercise his right of appeal and appellate relief is not futile.” (212)
“Because Jensen breached the contract on the same day Miga attempted to exercise his option, the correct measure of damages for Jensen's failure to perform on his promise is the traditional one: "the difference between the price contracted to be paid and the value of the article at the time when it should [have been] delivered...."” (215)
“The proper way to compensate Miga for his lost investment opportunity is through the award of interest on his time-of-breach damages.” (217)
Factual background
Jensen offered Miga an oral option to purchase 4.8% of Jensen's interest in privately held Pacific Gateway Exchange stock for $40,800. When Miga attempted to exercise the option in December 1994, Jensen refused, and continued refusals followed. PGE later split its stock and went public, substantially increasing its market value; a jury awarded Miga both time-of-breach damages and the later appreciated value as purported lost profits.
Procedural history
A jury found for Miga on breach-of-contract and fraud claims and awarded $1,034,400 in time-of-breach damages, $17,775,686 in purported lost profits, and exemplary damages. The trial court disregarded the fraud and exemplary damages findings but rendered judgment combining the two contract damages awards and awarded prejudgment interest. The court of appeals affirmed the rejection of fraud and exemplary damages, struck the $1,034,400 award as duplicative and the prejudgment interest award, and affirmed the lost-profits award. The Supreme Court of Texas held that Jensen's appeal was not moot, that his objection was preserved, reversed the lost-profits ruling, rendered judgment for $1,034,400, modified the interest award, and remanded for calculation of interest and rendition of judgment.
Remand instructions
The trial court was instructed to calculate 10% simple prejudgment interest on the $1,034,400 time-of-breach damages from the filing of suit through the date of judgment, calculate 10% post-judgment interest compounded annually through August 29, 2000, and render judgment accordingly.