State National Bank of El Paso v. Farah Manufacturing Co.

OPINION

This case centers around a management change clause contained in a $22,000,000.00 *667 loan agreement. The jury found Appellant bank, acting alone or in conspiracy with any of the other lenders, committed acts of fraud, duress and interference, proximately resulting in damages to Appellee, and set damages at $18,947,348.77. We reform and affirm.

The management change clause set forth in Section 6.1(g) of the February 14, 1977, loan agreement made it an event of default if there occurred:

Any change in the office of President and Chief Executive Officer of Farah [Manufacturing Company, Inc.] or any other change in the executive management of Farah [Manufacturing Company, Inc.] which any two Banks shall consider, for any reason whatsoever,uto be adverse to the interests of the Banks.

For space economy we will refer to individuals involved by surnames only unless the same surname for different individuals requires the addition of a given name or initials for clarity. William F. Farah will be referred to as Farah. His son, Jimmy Farah will be J. Farah; Farah Manufacturing Company, Inc. will be denoted by the initials FMC. The State National Bank of El Paso will be State National; Continental Illinois National Bank and Trust Company of Chicago will be merely Continental; Republic Bank Dallas N.A. (formerly Republic National Bank of Dallas) will be Republic; The Prudential Insurance Company of America will be called Prudential. Prudential was a separate creditor of FMC pursuant to a 1971 loan agreement. An amended and restated creditors’ agreement included Prudential and was made part of the February 14, 1977, loan agreement. Where dates indicate a month only, the year intended is 1977; otherwise the year will be shown. Chief Executive Officer will be denoted as CEO; Chief Operating Officer by the letters COO.

As to the facts, certain events require preliminary mention. FMC began in 1919 as a family owned apparel manufacturer. Farah became CEO in 1964. In 1967 FMC went public. By 1970, the company had plants in Texas and overseas with annual sales of $136,000,000.00. Beginning in 1972, the firm suffered a strike and a nationwide boycott. The strike was settled in 1974. During the period 1972-1976 FMC experienced a pre-tax loss of $43,965,-000.00. On July 9, 1976, the FMC Board named one of its members, Leone, as CEO of FMC replacing Farah. On February 14, 1977, a preexisting loan agreement between FMC, State National, Continental and Republic was amended and included the management change clause previously set forth. At the following March 7 Annual Directors’ Meeting, Farah made a presentation to be reinstated as CEO. Within days thereafter, Frost, Kozmetsky, Leone and Lerner resigned as directors. Leone remained, however, as CEO. On March 14, Farah made his management presentation to the lenders at Republic in Dallas. Republic was the agent bank for the lenders. Two days later, Farah met Bunten, Senior Vice-President of Republic, on an airplane going to New York. Farah testified that as a result of what he understood Bunten to say, regarding FMC management, he (Farah) cut his New York merger effort short and returned to El Paso, Texas, to prepare to resume control of FMC as CEO. Conroy, a director of FMC, as well as of State National, let the lenders know that he too was available to be CEO. On March 15, Bunten of Republic named Tom Foster of Republic to handle the FMC loan. Tom Foster hired attorney Donohoe to assist him. On March 18, the FMC Board reconvened. Farah pressed his bid to be CEO. Azar was elected a director. Director Gordon Foster was designated to ask the lenders for their position on a management change. On March 19, Conroy met with Azar, the possible swing director, to urge his own candidacy for CEO. Azar initially rejected Conroy. The next day Conroy met with Houghton, a State National vice-president, who had previously worked for Farah at FMC. Houghton tried to discourage Azar’s support of Farah. On March 21, the lenders met again at Republic in Dallas and Tom Foster and attorney Donohoe left for El Paso. On March 22, Donohoe drafted and Tom Foster signed and delivered the *668 lenders’ response to the management query from the FMC Board. That day also saw a meeting between the lenders and Director Gordon Foster, and a meeting between the lenders and Conroy. On March 23, the lenders faced Azar and Farah; Con-roy was elected CEO replacing Leone and Gordon Foster was elected Chairman replacing Farah. On the same day, Continental met with consultant Galef. On April 4, the following were elected to the FMC Board: Pulley, a recently retired Republic officer who had originally approved the FMC loan; Williams, who was also a director of State National; and Jaynes, who had originally declined, asserting a conflict of interest, and reconsidered at the request of Gordon Foster.

On May 27, at the instance of the lenders, FMC hired Galef as consultant. On July 30, Conroy resigned as CEO and Galef was elected to that office. The fall of 1977 saw litigation between Farah and the directors. The terms of the settlement released the directors from all claims asserted in this present suit. Under Galef, on October 4-6, some FMC machinery was auctioned and sold. On November 15, the mill auction was held. During November both Farah and Azar resigned from the FMC Board. In January, 1978, Farah initiated his proxy fight. In that regard in March 1978, Farah prevailed in litigation brought against him by Clifford and Virginia Farah to remove Farah as trustee under the trust holding their stock. The loan was restructured on April 3, 1978. Four days later Galef was out and Farah was again CEO of FMC.

State National Bank, defendant below and Appellant here, characterizes the case as one arising out of warnings issued to FMC in March, 1977, by Republic, State National and Continental in reliance on the management change clause above set forth. Appellant’s position is that when Farah attempted to persuade FMC’s board to elect him CEO, the banks stated their intent to enforce their right under the loan agreement to treat Farah’s election as a default and call their loan. Appellant insists that the warnings of the banks did not exceed their legal rights under the change clause (and otherwise) and further that FMC failed to adduce evidence to establish a cognizable cause of action. State National maintains that the banks made the loan to FMC in reliance upon FMC’s assurances in 1976 that the company was under new management and that the banks would be protected by the management change clause against any future change in management. It is also maintained by State National that the covenant was a provision freely given by FMC, that it was undisput-edly lawful, and that the subsequently strengthened and amended clause was approved by the entire FMC board with the clear understanding that the covenant could be used .to resist an effort by Farah to return as CEO.

On the other hand, FMC, plaintiff below and Appellee here, asserts the general position that under the management change clause, when it became apparent that Far-ah was about to regain control of FMC, which was unacceptable to the banks, that the banks had two legitimate options. They could attempt to call the loan or elect not to and live with Farah as CEO. Instead, Appellee maintains, the banks chose a third option and unlawfully prevented Farah’s election and installed directors and officers to keep Farah out of management. The claim is made that the “hand picked minions” mismanaged the company and stripped it of valuable assets for unnecessary loan prepayments. Further, Appellee asserts, when the banks defrauded and coerced FMC’s directors to prevent Farah’s return to management, they defrauded and coerced FMC itself. When they installed their own choice of management, stacked the FMC board and undertook the actions to exclude Farah from management, the banks interfered with FMC’s management and corporate governance rights through an unlawful course of conduct marked with deception and coercion. These alleged wrongful acts are stated to have proximately caused damages to FMC in two respects. First, the incompetent management installed and perpetuated by the *669 banks resulted in losses and auction sale ' damages. Second, their preventing the election of competent management caused losses and lost profits. Appellee finally contends Farah fought his way back into control, saved the company from bankruptcy and restored it to profitability.

The case before us was in trial for over two months, resulting in a statement of facts of some seven thousand pages and exhibits of over two thousand pages. The jury of twelve received the case on December 30, 1981, and returned its verdict on January 13, 1982. Ten members of the jury in response to special issues found that the State National, acting alone or in conspiracy with any of the other lenders, at any time after February, 1977, committed any act or acts of:

Question No. 1A. Fraud

Question No. IB. Duress

Question No. 1C. Interference

Question No. 2. Proximately causing as to 1A, IB and 1C, damages to FMC as follows: (conditioned on an affirmative answer to any or all of 1A, IB, or 1C above)

Question No. 3A. Actual losses after March 23, 1977 — $2,668,000.00.

Question No. 3B. Lost profits after March 23, 1977 — $15,482,500.00.

Question No. 3C. The difference between market value and actual sale prices of assets and equipment sold at auction sales — $721,848.77.

Question No. 3D. Lost profits from auction sales — $75,000.00.

Further in response to Questions Nos. 4 and 5, the jury found that the acts previously inquired about were not actuated by malice and therefore fixed no exemplary damages. The trial court overruled State National’s motion for judgment non obstan-te veredicto and entered judgment on the verdict. State National’s motion for a new trial was overruled.

State National raises twenty-seven points of error, essentially attacking the legal and factual sufficiency of the evidence to support the jury’s findings to special issue Questions Nos. 1A, IB, 1C, 2, 3A, 3B, 3C, and 3D previously set forth as well as the conspiracy finding in the preface portion of Question No. 1. Additional points urge that as a matter of law FMC did not have an actionable claim for fraud, duress or interference; that as a matter of law FMC is not entitled to damages for lost profits and auction sales. Other points urge error in submission of Questions Nos. 1 and 3, and in the admission of certain evidence. A final point asks the judgment be reversed and rendered or alternatively reversed and remanded. FMC urges a cross-point that the trial court erred in defining malice in connection with exemplary damages, and two conditional cross-points regarding exclusion of evidence and the denial of an order to produce.

In that many of the points of error concern legal and factual insufficiency assertions, we set forth here the standards of review we apply to such points to avoid repetition under each of them. In considering a “no evidence” legal insufficiency point, we consider only the evidence which tends to support the jury’s findings and disregard all evidence and inferences to the contrary. Garza v. Alviar, 395 S.W.2d 821 (Tex.1965). A factual insufficiency point requires us to examine all of the evidence in determining whether the finding in question is so against the great weight and preponderance of the evidence as to be manifestly unjust. In re King’s Estate, 150 Tex. 662, 244 S.W.2d 660 (1951). The reviewing court cannot substitute its conclusions for those of the jury. If there is sufficient competent evidence of probative force to support the finding, it must be sustained. Carrasco v. Goatcher, 623 S.W.2d 769 (Tex.App.—El Paso 1981, no writ). It is not within the province of the court to interfere with the jury’s resolution of conflicts in the evidence or to pass on the weight or credibility of the witness’ testimony. Benoit v. Wilson, 150 Tex. 273, 239 S.W.2d 792 (1951). Where there is conflicting evidence, the jury’s verdict on such matters is generally regarded as conclusive. Montgomery Ward & Co. v. Scharrenbeck, 146 Tex. 153, 204 S.W.2d *670 508 (1947); Clark v. National Life & Accident Ins. Co., 145 Tex. 575, 200 S.W.2d 820 (1947).

Before beginning a discussion of the points of error, we will expand on certain evidence previously outlined indicating in part the position of the parties in regard thereto, with a further factual treatment under the points as appropriate. Appellant’s version of the facts covers over sixty pages of its original brief and that of the Appellee some one hundred pages. Appellant’s supplemental response to Appellee’s statement of facts covers an additional seventy-eight pages of statement of facts. We will be as sparing as possible.

Following the strike and boycott of 1972-1974, and substantial losses, on March 3, 1976, the FMC Board unanimously elected Leone, an FMC director since 1973 and chosen by Farah to succeed him, as president and COO. Farah retained his positions as board chairman and CEO. Farah assigned to Leone nearly all executive responsibility in expectation that Leone would offer a different style of management. The lenders had no input in Leone’s election. On the same day, Farah’s son, J. Farah, was elected as a director. The board then consisted of Farah, J. Farah, Conroy, Leone, Gordon Foster, Frost, Koz-metsky and Lerner.

At its meeting on July 9, 1976, the board demanded that Farah resign as CEO. A resolution, introduced by Farah and naming Leone as new CEO, was passed. Farah retained the title of board chairman, a ceremonial position with no management responsibilities. His resignation as CEO was demanded on the basis that he was the cause of FMC’s management problems and poor financial condition.

Farah later deemed Leone incapable of properly managing the company and unable to quickly adjust to changes in market demand for fashions. Under Leone, FMC’s sales and profits declined. Farah urged Leone to change his practices. Both Leone and the board viewed this as unwarranted interference.

In the spring of 1976, FMC had begun to seek a $30,000,000.00 loan to survive losses. An interim agreement was arrived at to be followed in October, 1976, by a finalized loan agreement. Both contained management change clauses. On February 14, 1977, a restructured collateralized loan agreement was reached. FMC maintains that the appraised value of the collateral was $72,000,000.00 which amount is disputed by State National. This latest agreement had the strengthened management change clause earlier set forth in this opinion.

At a shareholders’ meeting on March 7, 1977, Farah sought to have a new board of directors elected to insure his return to management. Farah proposed to the board that he be elected CEO. Several factors induced him to change his mind and to vote for the incumbent board which he believed would elect him CEO anyway. Because of the management change clause, the board declined absent a statement of position from the lenders. The lenders initially refused to assert a position. The board-suggested Farah personally present his management proposal to the lenders. He did so at Republic in Dallas on March 14, 1977, stressing his return as CEO was the only way to save FMC. After his presentation, Farah was asked to leave the meeting so the lenders could discuss the matter. State National voiced opposition to Farah. No decision was reached. Farah was informed of their indecision and that a change in CEO could constitute a violation of the management change clause. FMC Director Conroy, unknown to Farah, let the lenders know of his (Conroy’s) interest in becoming CEO. Conroy was also a director of State National. As of March 14, the lenders knew that if Leone resigned, his successor would be either Farah or Conroy. As stated, Republic was the agent bank for the lenders, including Prudential. On March 15, Bunten of Republic, assigned the daily handling of the loan to Tom Foster of Republic. Tom Foster hired attorney Dono-hoe to assist him.

On March 16, Farah talked to Bunten, the senior loan officer of Republic, on a *671 flight to New York and repeated the proposal he had made to all the lenders in Dallas two days before. Farah testified, “[h]e (Bunten) said he felt that we ought to disregard the covenant as being boiler plate, they had it in all of their agreements, and run the business and get the thing back in shape.” Farah began planning his return to management. Leone tendered his resignation as CEO on March 17. On March 18, Lerner resigned from the board. (Frost and Kozmetsky had resigned on March 9). Farah nominated three new directors. Only Azar accepted. He was elected. Farah demanded he (Farah) be elected CEO. The directors resisted and Director Conroy asked to be named CEO. Conroy stated the management clause was designed to exclude Farah. Gordon Foster noted a potential default in the loan, and the board named him to talk to the lenders. On March 18 and 19, Gordon Foster talked to Tom Foster, in support of Conroy for CEO. Tom Foster testified from his notes of that meeting that Farah had a probable three of the five directors’ votes for CEO. Conroy met with Azar conveying his own desire to be CEO. Azar persisted in his support of Farah in talking to Conroy and Houghton of State National. Azar in speaking to Houghton learned that Hough-ton believed Farah to be incapable, and he expressed to Azar his bitterness and anger toward Farah in a business sense. Notes prepared by Bettina Whyte of Continental reflect the feeling of that bank that if Farah were elected he should be strongly controlled and have life made miserable for him.

Attorney Donohoe met with Tom Foster on March 20 to determine his course at the March 21 lenders’ meeting. Tom Foster’s notes indicate the alternatives discussed. One note indicated Azar was viewed as the swing vote on the board in probable favor of Farah. The lenders met on March 21. State National opposed Farah. Attorney Smith for State National testified that the bank’s initial participation in the loan had been reliant upon Farah’s noninvolvement in management and the inclusion of the management change clause. Continental’s position was similar.

The lenders analyzed the ramifications of FMC’s bankruptcy, should a default be declared, and their exposure to liability for changes in FMC management. According to the testimony of Daugherty, President of State National, the lenders felt that their only legitimate options, should Farah become CEO, were to either call the loan or let Farah hold office unmolested. Daugherty testified that neither choice was acceptable to the banks. They were adverse to the bankruptcy of FMC. As FMC was not otherwise in default on the loan at the time, State National was unwilling to put El Paso’s largest private employer into bankruptcy.

Notes regarding the lender meeting of March 21 in Dallas appear at pages 8575-76 of the documentary portion of the statement of facts. These were identified by Bettina Whyte of Continental and received in evidence. As identified therein and through Whyte’s testimony, it appears that the following were present: attorney Smith, Houghton and Updike from State National, Bunten, Tom Foster and attorney Donohoe from Republic, Jim Wilson and Bettina Whyte. The notes as deciphered by Whyte conclude with Bunten’s plan: (1) Willie [Farah] stay on as chairman; (2) Name Conroy or Conroy and Leone as president and COO; (3) Tell Willie we pull the plug if he goes in as CEO; (4) Willie work for merger only; and (5) whoever is running it, follow Willie’s plan and be endorsed by Willie. The notes finally conclude with “[w]e'll take any management other than Willie.” In addition to the notes, when asked if any decision had been made on March 21 to call the loan if Farah were elected CEO, Whyte responded, “[t]here was no decision.”

There is some evidence from State National that the lenders had agreed on March 21 to put FMC on notice that a default would be declared under the management change clause should Farah be elected CEO and to call the loan and to immediately accelerate the debt. However, *672 there is other evidence that a decision regarding default had not been reached on March 21. In addition to the testimony of Whyte, Matkin, Chairman of the Board of State National, testified that he did not think a decision to default had ever been made. Boyer of State National testified that State National had decided to call the loan if Farah returned to CEO; however, he could find no reference to any such decision in the loan committee minutes. Testimony conflicts as to whether a default would occur automatically upon Farah’s election or whether it would require a subsequent decision. Tom Foster and Dono-hoe were instructed to attend the upcoming board meeting and to advise the board of the lenders’ position. Donohoe testified by deposition that he was not authorized to tell FMC that there would be a default if Farah was elected, nor was he authorized to say that there would have to be another meeting of the lenders before any default would be declared regarding that as his “business.” He maintained that no decision had been made to call the loan at the Dallas meeting of March 21. He responded that to tell the board there might never be a default declared could be misleading. He also acknowledged that telling them that default would not be waived could create the impression there was going to be a default.

Then on March 22, Donohoe drafted a letter conveying the lenders’ position to the board. The letter approved by all the lenders was signed by Tom Foster and delivered to Gordon Foster prior to the board meeting to be held that day. Farah testified that at the time of the board meeting he was unaware of the lenders’ meeting of the previous day. He anticipated he would be elected CEO and that his election would be approved by Bunten of Republic, to whom he had spoken on the plane trip to New York. The letter of March 22 read in part:

The Banks wish to advise the Board that a change of executive management which includes the election of Mr. William Farah as chief executive of the Company or results in his being the power to generally supervise and control the operations and affairs of the Company is unacceptable to the Banks, and the Banks will not grant any waiver of default based thereon. The Banks are, however, willing to consider a waiver of the default clause ... if the Board decides that a change in the office of the Chief Executive of the Company (involving others than Mr. Farah) is in the best interests of the Company. The Banks do not intend hereby and do not waive any default based on the developments in the Company constituting a material adverse change of circumstances .... The Banks are still considering their position regarding the events which have and are coming to their attention.

Tom Foster testified that the lenders did not want to call the loan and create a default which would result in FMC’s bankruptcy. He admitted that, if Farah were elected, the lenders had a choice of either doing nothing or attempting to call the loan. Although the interpretation of the letter was left to the board, he conceded that the statement of the lenders, that they would not waive a default, could have created an impression that there would be a default if Farah were elected. He admitted that the “clear understandings” set forth in the further portion of the letter which read:

Mr. Farah has been making serious efforts to take over the operating management of the company, contrary to what we thought were the clear understandings of the Banks and Company....

were not expressed in the loan agreement. He also conceded that the loan agreement did not pertain to the election of directors.

Gordon Foster presented the letter to the board. Farah disregarded it as inconsistent with what Bunten had told him. J. Farah decided to cast his vote for Leone to remain as CEO. Gordon Foster warned the board it could not vote to put FMC in default and that the loan would probably be called if Farah were elected. Azar testified that the letter gave him the impression *673 that the lenders would close the company or call the loan if Farah were elected. Far-ah nominated Richard Jaeger and Charles Wood as directors hoping that their presence on the board would insure his election as CEO. Gordon Foster and other directors took exception to these nominations. The meeting was recessed without an election of new directors or CEO.

Afterwards, Gordon Foster met with the lenders and told them of Leone’s pending resignation and that Farah, who would continue his efforts despite the letter, would be elected unless he were stopped in some manner. He also told them that Conroy still wanted to be CEO and that Wood and Jaeger would probably be elected at the next day’s board meeting. Gordon Foster admitted having testified on a prior occasion that the lenders then discussed the forthcoming removal of Farah. Attorney Smith denied such discussion but admitted the likelihood of Farah’s election at that point. Tom Foster also so conceded and added that the lenders would either have to accept Farah or to call the loan. The lenders then met with Leone to confirm his desire to resign as CEO and with Conroy, who expressed his interest in the position.

Gordon Foster, who had earlier agreed to support Conroy, viewed Conroy as the only choice for CEO since Farah was unacceptable to both him and the lenders. Tom Foster supported Conroy since Conroy was the one who State National wanted as CEO.

On March 23, the lenders met to discuss the position they would take at FMC’s board meeting to be held later that day. Tom Foster’s notes from the meeting reveal the following alternatives: (1) stop the board meeting if the lenders do not want Farah in; (2) get a new board with probable lender indemnification if the lenders want other management; and (3) allow Far-ah to have the position for 30-60 days after which the loan will be called. Other possible actions included: (1) making a public statement; (2) shrinking the board; and (3) going to New York to sell the company. His notes also reflect: (1) Farah is unacceptable to lenders; (2) based on information received to date, there appears to have been a change in executive management and a material adverse change in the company, both of which are events of default enabling acceleration; (3) institute the plan to declare a default unless the following occurs: (a) an independent board is created with Farah preferably off, and (b) the lenders will make no commitment but will assist the board in finding outside directors (employees unacceptable); (4) lenders want a CEO reaffirmed or elected today; (5) issue a press release stating: (a) election of a new board, (b) a CEO is in place, and (c) Farah endorsed the changes; and (6) Farah should pursue a merger. Foster testified about various factors which he felt constituted a material adverse change. Donohoe differed with Foster’s plans to convey to the board that a default would be declared under the management and material adverse change clauses in the event of Far-ah’s election.

Also on March 23, the lenders then met with Azar, J. Farah, Conroy and others at Azar’s own place of business in El Paso. Azar described Donohoe as the spokesman for the lender group and said Donohoe opened the meeting by saying that “Willie [Farah] was not acceptable as a chief executive officer and president.” Azar said he told Donohoe that Farah was the only one who could turn the company around. When asked what else Donohoe had said, Azar responded, “[w]ell, it got to the point where if Willie Farah was elected president of the company, why, he would automatically bankrupt the company and he would padlock it the next day.” Azar said that after talking to attorney Thomas on the phone he came back and told Donohoe that “he could take his loan agreement and shove it up his ass.” Azar explained he did that “trying to determine how serious they were about bankrupting and closing the company, what was his intent. I intended to push him to the very brink and very edge and find out.” Azar said Donohoe’s response was “[w]e will.” Azar said he then believed Donohoe would bankrupt and padlock the company if the board elected *674 Farah. He said as a result of the meeting, “I was fearful of putting the company in bankruptcy. So I agreed to talk to Mr. Farah and ask him to stand down and not stand for election.” In regard to Azar’s personal liability, although there was considerable testimony to the contrary, Azar testified Donohoe told him that he (Azar) would be personally liable as a director if he caused FMC’s bankruptcy by electing Farah. There is evidence that Azar had access to and consulted with legal counsel during the meeting.

Also, at the Azar meeting, J. Farah criticized his father’s views on management of FMC and indicated he could not support him for CEO, expressing emotional pressure and danger from the management change clause. There was also a discussion regarding the replacement of Leone as CEO, the unacceptability of Farah for that position and the desire of Conroy to acquire that office. In addition to his own vote, Conroy had J. Farah’s support. Initially disagreeing with Conroy’s capabilities, Azar reversed his position at the Azar meeting and decided to abandon his support of Farah. Azar also testified that the lenders never told him that they would not, in fact, bankrupt FMC if Farah were elected. Several of those in attendance at the Azar meeting testified that Donohoe did not make any statement regarding bankrupting and padlocking the company. Tom Foster admitted that Azar was not informed of the lenders’ meeting of March 21 or any decision that a default would be declared only after Farah’s election or that a default might never be declared.

Farah testified that he had Wood and Jaeger present before the board meeting later on March 23, expecting to have them elected to the Board. The same four lender representatives who were present at the meeting at Azar’s place of business earlier were also nearby, including attorney Dono-hoe of Republic. Farah said that prior to the board meeting, Donohoe “started in” on him by telling him that he (Farah) had been a very incompetent person, had lost $37,000,000.00 and that he (Donohoe) was going to put the company into bankruptcy and padlock the doors the next morning. Farah testified Donohoe “pounded on the table right in front of me, right in my face there,” and repeated the statement regarding bankrupting the company and padlocking the doors. Farah said he put the papers he was preparing for the meeting in his briefcase and left the room. Farah said he believed what Donohoe told him and “he (Donohoe) scared the devil out of me.” Several witnesses testified that neither Do-nohoe nor any other of the lender representatives told Farah that FMC would be bankrupted or padlocked.

In accordance with his representation that he would talk to Farah, Azar met with Farah prior to the board meeting. Azar testified he told Farah that the lenders wanted Farah to resign as board chairman and to elect in his stead Gordon Foster (an employee of El Paso National Bank) and Conroy (a director of State National) as CEO. Azar asked Farah to stand down and told him of assurances by the lenders that they would bankrupt and padlock the company. Azar said he (Azar) believed there was no other way to save FMC and that the election of Gordon Foster and Con-roy was the only way to prevent FMC’s bankruptcy. Farah testified he believed what Azar and Donohoe had told him and that after talking to Azar, “I went to the board meeting, nominated Mr. Conroy to be chief executive officer and Mr. Gordon Foster to be Chairman.”

Gordon Foster and Conroy were unanimously elected as nominated. Azar testified that his feelings for Conroy had not changed. Gordon Foster testified that in his opinion, in spite of reservations, Conroy was the only one available who could assume the position. The lenders agreed not to deem Conroy’s election as an event of default.

There is evidence that Wood and Jaeger were not nominated nor elected at the board meeting due to the lenders’ objection to their election. The lenders regarded them as Farah’s personal employees and Tom Foster described them as Farah’s *675 “puppets.” The evidence shows that such an election was unacceptable to the lenders. There is no provision in the loan agreement regarding changes in the board. State National maintains that there is no evidence of any statement being made by a lender representative to a board member regarding the lenders’ position on Wood and Jaeger. Gordon Foster testified that they were not elected due to opposition from other board members. Farah testified that it was the March 22 letter which kept him from nominating Wood and Jae-ger. It is the State National’s position that the election of the CEO depended upon the exercise by Farah of his voting power which Farah knew he had but which he failed to exercise. The minutes of the March 23 board meeting in evidence state in part:

Mr. Donohoe, representing Republic ..., came into the meeting along with Mr. Smith, representing the State National ... as well as Mr. Updike, Senior Vice President of The State National Bank. Mr. Donohoe indicated that the Banks objected to the nomination of Mr. Charles Wood and Mr. Richard Jaeger to the Board .... The Banks would be willing to discuss more positions with responsible individuals. The Banks wanted to be in a position to assure candidates that they could come on the Board without any substantial liabilities to themselves.

Attorney Smith of State National testified that he and Donohoe did not go into the boardroom. Smith did state the opinion, however, that the management change clause prohibited FMC from doing indirectly what it could not do directly (i.e. electing Wood and Jaeger in order to put Farah in control).

FMC cites to testimony and documentary evidence constituting admissions by the lenders of their complicity in the events of March 23. In this respect, notes prepared by Bettina Whyte reflect the insistence by Republic to remove Farah as board chairman and to choose a replacement for Leone acceptable to the lenders. Daugherty was cross-examined regarding an interview of Daugherty by the Texas Business Magazine indicating that State National was instrumental in selecting Conroy as FMC’s CEO. Daughtery responded he was not sure he was quoted correctly and that perhaps “instrumental” was too strong a word. Also, a form letter received in evidence, without objection, as Plaintiff’s Exhibit No. 138 was sent to from fifty to one hundred of FMC’s customers by Houghton on State National letterhead. The letter dated April 18, 1977, states in part:

I am writing this letter to solicit your support of a thing very close to me personally, to the City of El Paso and I believe, to retail trade everywhere. I am sure you have read reams of material about Farah Manufacturing over the past year or more. The company recently went through a control struggle. The creditors, State National Bank of El Paso, Republic National of Dallas, and Continental Illinois of Chicago, blocked such a move because of a covenant in the loan agreement which prohibited change in the Chief Executive Officer without consent of the lender. The company has been through much turmoil and strife during the past six years; we felt this change would not help that situation. However, now, under the able leadership of William (Bill) Conroy, who held the office of Executive Vice President while I was with Farah, and who recently has been in charge of foreign operations, things will hopefully turn around....

After March 23, Farah pursued merger negotiations with Vanity Fair Corporation (VF). On March 24, the lenders met to discuss the FMC situation. By the end of the month, Tom Foster and other lender representatives had conducted numerous meetings and discussions with Gordon Foster and Conroy concerning FMC’s financial condition, rumors of a new move by Farah to regain control and the new director candidates, Pulley, Jaynes and Williams. Bun-ten, Donohoe and Tom Foster spoke with Pulley regarding his candidacy. Pulley, a long-time employee of Republic, agreed to serve only if he were indemnified by Republic. Republic agreed and executed an *676 indemnity agreement. Continental and State National refused to participate in the proposed indemnity.

By April 1, Bettina Whyte’s notes indicate that the “ship has stopped rocking” and the management situation was under control and that Pulley, Jaynes and Williams would be elected as directors. Although the evidence shows that Gordon Foster knew that they would be proposed as directors, neither Farah nor Azar knew that new directors would be elected on April 4. Farah and Azar further testified they were also unaware of who the candidates were until the day of the board meeting. Tom Foster admitted that, on April 4, there was no requirement that additional directors be elected to the board since the existing five directors were sufficient to conduct business.

Upon their arrival at the April 4 board meeting, Pulley, Donohoe and Tom Foster met with Williams, Jaynes, Gordon Foster and Conroy. Williams, a member of the State National Board, was recommended to the board by Conroy, also a member of the State National Board. Williams was elected. Azar cast the only dissenting vote on the basis of a conflict of interest arising from Williams’ service on the State National Board. Jaynes, who was nominated by Azar, was elected unanimously. Close to both Farah and Gordon Foster, Jaynes was considered by Farah to be competent and independent.

After the election of Williams and Jaynes, J. Farah resigned from the board to permit the election of Pulley. Pulley was nominated by Farah to fill that vacancy. Azar dissented because of conflict of interest, Pulley’s connections with Republic. By resolution, the board unanimously approved the proposed indemnity agreement. An executive committee with essentially the full power of the board was created and included Gordon Foster, Pulley, Williams and Conroy.

FMC emphasizes testimony regarding Pulley’s continuing ties to Republic, his efforts for State National and his final approval for Republic’s participation in the loan to FMC, and his close association with Tom Foster in other “workout” arrangements such as a Republic loan to another company, Jeteo. In that instance Pulley had worked with both Donohoe and Tom Foster. The Jeteo loan was made jointly with El Paso National Bank at a time when Jeteo was encountering financial problems. El Paso National Bank was the successor trustee to Farah on the trust stock of Clifford and Virginia Farah. Young of El Paso National Bank had been involved in his bank’s participation with Republic in the Jeteo loan. He had given his approval, at the request of Republic, for Gordon Foster, an employee of his bank, to become chairman of FMC’s board. Gordon Foster had dealings with Prudential and was a servicing officer for El Paso National Bank on loans to competitors of FMC. Conroy, a State National shareholder, had loans from State National.

After the April 4 meeting, FMC’s board consisted of Farah, Azar, Conroy, Gordon Foster (chairman), Williams, Jaynes and Pulley. Although Farah testified that he voted for each of the new members so as not to cross Donohoe, there is evidence that Farah felt comfortable with the new board as being comprised of good businessmen. There is also evidence from FMC witnesses regarding the honor, dedication, ability and contributions of Conroy, Gordon Foster, Williams, Jaynes and Pulley and the fact that none of them breached any fiduciary duty or were dominated by the lenders. State National cites to testimony to support its position that none of the lenders had instructed the directors on how to vote for the director nominees on April 4.

According to FMC, the board became a five-to-two voting board with Farah and Azar in the minority on most occasions. According to State National, there is no evidence that, after March 23, 1977, any particular vote of any FMC director or any of FMC’s daily decisions were dictated by the lenders.

The record shows that with FMC’s financial condition still declining, while Conroy was CEO, the question of hiring Grisanti *677 and Galef arose. The consulting firm was known to both Continental and Republic. Tom Foster for Republic, acting as agent for the lenders, “respectfully requested” that FMC hire the firm in connection with a revision in the loan agreement. The revision was designed to eliminate existing defaults and to provide additional funds. Tom Foster admitted that there was nothing in the loan agreement which allowed the lenders to name consultants for FMC. On May 27, the board voted to hire Grisanti and Galef for $1,000.00 per day. Farah and Azar voted in favor of retaining the firm. Azar testified he viewed its employment as “pretty much a requirement” to continue or increase the loan. Galef accepted the consultant role.

From the evidence it appears that after concluding that Conroy could not save FMC, Galef proposed to the lenders in June that he replace Conroy as CEO. He indicated to them his plan to make sizeable loan prepayments during the next several months by selling company assets. The lenders approved of his becoming CEO. Galef presented his proposal to the board and expressed that he could have FMC “in the black in 90 days.” Tom Foster admitted that Galef’s projection for profitability never materialized. Galef also proposed that Farah be used as a consultant in manufacturing and management. At the July 30 board meeting, Galef was unanimously elected as CEO. Farah testified he supported Galef in order to save FMC from Conroy and because Galef had asked him (Farah) to serve as a consultant. Farah viewed this as the only way he could return to management. Azar testified he supported Galef because Galef had agreed to use Farah and because of the continued existence of the management change clause.

State National had expressed opposition to Farah as a consultant. Unable to determine whether Galef s election was adverse to their interests, the lenders did agree to waive the management change clause in favor of Galef’s election. The consternation caused by Galef’s suggestion to use Farah, according to Tom Foster, was reported to him by Gordon Foster. Once elected, Galef did not use Farah as a consultant.

State National cites to evidence reflecting that FMC’s inventories, operations and operating costs were reduced during the several months while Conroy was CEO. Conroy testified that he had been required to take writedowns on inventory that Farah had previously committed the company to purchase. On the other hand, FMC maintains that the evidence shows Conroy was indecisive and inexperienced in merchandising, marketing, sales and manufacturing, and that although he had time to do so, Conroy failed to take any action to remedy problems in the 1977 fall line of products. FMC asserts the evidence shows Conroy maintained unnecessary and excessive administrative expenses and operating costs which included regional sales offices and international manufacturing facilities. FMC lost production contracts because it was unable to timely deliver quality goods. As Conroy continued to miss his budget and sales projections, FMC’s sales and order rates continued to decline. Conroy resigned from the board on September 24, 1977.

FMC also maintains that the evidence shows Galef was inexperienced in the men’s apparel business. Galef failed to make improvements in the 1977 fall line and was responsible for introducing the 1978 spring line which was too expensive, poorly priced and contrary to market demand. The spring line, although heavily advertised, received poor public response. As a result thereof, many orders were can-celled and excess inventory accumulated. With FMC losing much of its market to competitors by early 1978, Farah testified that Galef introduced the 1978 fall line with the dominant theme the same as that in the previously unsuccessful spring line.

FMC presented evidence showing that Galef expanded FMC’s regional sales operations, increased costs of selling and advertising expenses, maintained high administrative costs and eliminated credit analysis *678 for new customers. He raised employees’ salaries but fired or forced the resignation of many of FMC’s top salesmen. FMC experienced delivery problems and a decline in manufacturing efficiency. Mill credit deteriorated and interest costs increased. Galef’s efforts failed to have FMC meet his forecasts for sales and profits (losses). Orders were cancelled, sales declined and losses continued to increase.

While Galef was CEO, assets of FMC were sold at internationally publicized auctions. The net proceeds from the sales were used to make prepayments on FMC’s loan. FMC points to the evidence that the auctions stripped it of valuable assets and that its competitors purchased much of the machinery and equipment for use in competition with FMC and that State National financed the purchase of certai