Summary
recognizing and enforcing a contract that "was terminable at will by ten days' advance notice"
Summary of this case from QFS Transp., LLC v. Wall St. Sys.Opinion
No. 83-315
Decided August 1, 1984.
Civil procedure — Appellate procedure — Court of appeals may order limited retrial, when — App. R. 12(D) and Civ. R. 42(B) — Contracts — Damages — Lost profits may be recovered, when — Punitive damages awarded, when.
O.Jur 3d Appellate Review § 695.
1. App. R. 12(D) and Civ. R. 42(B) together authorize a court of appeals to order a retrial of only those issues which resulted in prejudicial error.
O.Jur 3d Damages § 90.
2. Lost profits may be recovered by the plaintiff in a breach of contract action if: (1) profits were within the contemplation of the parties at the time the contract was made, (2) the loss of profits is the probable result of the breach of contract, and (3) the profits are not remote and speculative and may be shown with reasonable certainty.
O.Jur 3d Fraud and Deceit § 214.
3. In each case of alleged fraud the plaintiff, in order to be awarded punitive damages, must establish not only the elements of the tort itself but, in addition, must either show that the fraud is aggravated by the existence of malice or ill will, or must demonstrate that the wrongdoing is particularly gross or egregious.
APPEAL from the Court of Appeals for Butler County.
Plaintiff-appellant, Charles R. Combs Trucking, Inc. ("Combs"), is a corporation in the business of transporting sand and gravel from Watson Gravel, Inc. to various construction sites. Charles R. Combs is a truck driver and operates his close corporation as a sole proprietor. Since 1973, Combs' chief source of income has been the tonnage fees earned in transporting the sand and gravel.
Ronald Watson is the owner of the Watson mining site. In 1977, he employed eight to ten independent truckers to transport sand and gravel on a permanent basis. Watson assigned customer orders to the drivers on the basis of each trucker's seniority in dealing with him. The orders were rotated down the list until each trucker received one, and then down the list again until the day's orders were exhausted. By agreement, this relationship between Watson and the truckers was terminable upon ten days' notice given by either party.
Combs operated two trucks from the Watson site. These two trucks held the third and fourth positions of seniority, immediately behind two trucks operated by Watson. To maximize profits, Combs decided to purchase three new trucks with greater load capacities. Towards this end, Combs entered into an agreement with Watson and another independent trucker. The latter agreed to purchase Combs' two trucks and operate them out of Combs' seniority positions until April 1, 1978. At that time Combs agreed to return with two of his three new trucks and resume his former operations. Watson agreed to allow Combs to operate his third new truck from another Watson gravel pit.
In November 1977, Combs visited King Sales Service, Inc. ("King Sales"), a co-defendant, to purchase the three new trucks. Pursuant to a franchise agreement, King Sales was the exclusive dealer for the International Harvester Co., defendant-appellee, in that locale. Combs met with Marion King, the owner of King Sales; Francis Parrish, a salesman; and Thomas Winkler, the district sales manager for defendant. Combs wanted to purchase defendant's "Transtar" model, but it was not suited for the off-the-road hauling involved in gravel pit operations. However, King and Winkler assured Combs the "Transtar" could be modified for rough terrain hauling, primarily by substituting construction strength framing.
Combs insisted upon a March 1, 1978 delivery date for the trucks for three reasons: he had to resume his operations at the gravel pit by April 1, 1978 or forfeit his seniority positions; he had drivers committed to operating the trucks; and he wanted the benefit of an investment tax credit before the end of his corporate year. King and Winkler assured Combs the trucks would be produced by the March date. In fact, Winkler indicated the trucks would probably be produced in January 1978. As a result, Combs agreed to purchase the three trucks. Combs obtained financing for $188,000 from defendant and gave King Sales a $6,000 down payment.
Chick Little, general manager of King Sales, sent the completed order forms to defendant on November 28, 1977. Little specified a production request date of January 1978. Defendant returned copies of the orders indicating the trucks would be produced in March 1978.
In February, Little contacted various of defendant's employees to confirm the delivery date. He was informed there would be production delays occasioned by engineering problems and parts shortages. The record indicates that defendant's marketing relations manager made misrepresentations of an expected delivery date, knowing the trucks would not be produced for another three months.
At the end of March, defendant issued manufacturer's statements of origin for two of the trucks even though the trucks did not then exist. Plaintiff thereafter received title to these trucks. Throughout April, May, June, and July, defendant assured Little and Combs the trucks would be manufactured within three to ten days. In reliance upon these representations, Combs did not purchase new trucks from any other dealer. Defendant produced and delivered the trucks in August, but the trucks were not suitable for use as delivered. Watson informed Combs in September that he had forfeited his seniority positions at the gravel pit. The trucks were not suitable for use until January 1979. Combs has not resumed operations nor earned any income.
Plaintiff sued defendant for fraud and breach of contract, including a third-party beneficiary claim, in the Court of Common Pleas of Butler County. A jury returned a verdict in favor of plaintiff, and against defendant, in the amount of $900,000 in compensatory damages and $3,500,000 in punitive damages. The jury also found for co-defendant King Sales, a judgment which the plaintiff has not appealed. The trial court overruled defendant's motions for a directed verdict and judgment notwithstanding the verdict. Thereafter, defendant appealed to the court of appeals.
The appellate court held there was competent credible evidence to support a finding of fraud and that defendant had breached a contract with co-defendant King Sales to supply the trucks for which plaintiff was a third-party beneficiary. However, the court held the evidence presented on compensatory damages was inadequate to support the jury's verdict. Further, the court held the award of punitive damages and of attorney's fees as compensatory damages were improper as the plaintiff had not demonstrated the defendant's actions were particularly gross or egregious. Thus, while agreeing defendant's liability was established at trial, the court ordered a complete new trial because of the insufficiency of plaintiff's proof of damages. The court overruled several of defendant's other claimed errors on appeal finding the defendant had failed to object to a jury instruction relating to plaintiff's mitigation of damages, to one of plaintiff's witnesses testifying to an ultimate issue, and to plaintiff's counsel's closing argument.
The cause is now before this court pursuant to the allowance of plaintiff's motion to certify the record. Defendant has not taken a cross-appeal on the issues relating to its liability.
Messrs. Wochna, Fallon Iler, Mr. Don C. Iler, Messrs. Holbrock, Jonson, Bressler Houser, Mr. Hugh D. Holbrock, Mr. George N. Jonson and Mr. Timothy R. Evans, for appellant.
Messrs. Vorys, Sater, Seymour Pease, Mr. John C. Elam, Mr. Thomas B. Ridgley, Mr. Gerald P. Ferguson, Mr. Edward J. Utz and Mr. Seymour W. Croft, for appellee.
The pivotal issue is whether the court of appeals erred when it ordered a complete new trial when the only reversible error dealt exclusively with the award of damages.
The appellate court affirmed the jury verdict with respect to the issue of liability on the plaintiff's claim for fraud and breach of contract.
App. R. 12(D) and Civ. R. 42(B) together authorize the court of appeals to order a retrial of only those issues which resulted in prejudicial error. Inasmuch as the issue of liability has been established, the sole issue to be determined on retrial would be the amount of damages. The plaintiff-appellant herein need not retry its case as to liability of the defendant-appellee. That has been established. Prior testimony on the issue of fraudulent conduct is admissible on a retrial of the issue of damages and is proper in order to allow jury determination of both compensatory and punitive damages.
Upon consideration of the record, the court of appeals found insufficient evidence to support a finding of $900,000 in compensatory damages. We agree.
The general rule is that lost profits may be recovered by the plaintiff in a breach of contract action if: profits were within the contemplation of the parties at the time the contract was made, the loss of profits is the probable result of the breach of contract, and the profits are not remote and speculative and may be shown with reasonable certainty. 30 Ohio Jurisprudence 3d (1983) 100, Damages, Section 90.
Application of that maxim to the framework of this case shows:
(1) that profits were contemplated by the parties at the time of the contract; and
(2) loss of profits was the result of the breach of contract.
However, an award of lost profits for the remaining contemplated working years of Combs is not warranted. While age is relevant in contemplating damages in a wrongful death action, such consideration leads to speculation and not reasonable certainty in a breach of contract action.
The plaintiff's evidence of lost future profits as an item of compensatory damages need only be reasonable, not specific. Under the facts of the instant case, the fact that the contract between plaintiff and the gravel pit operator was terminable at will by ten days' advance notice does not limit recovery to that time period. Additional relevant evidence must be considered in arriving at an amount ( i.e., gravel pit reserves, the contract term between the pit operator and the customers plaintiff was servicing, the life of the new trucks etc.).
On the issue of goodwill, judgment was entered by the trial court in favor of plaintiff. The appellate court found error and stated:
"In the instant case, Combs, Inc. has failed to present any evidence to support a finding that its reputation for good service has been damaged in any way. * * * Certainly, the appellee's trucking business has suffered a loss of profits but to infer from that that it has also suffered a loss of goodwill is improper."
This analysis is incorrect. In this case the owner of Watson Gravel, Inc. and its secretary-treasurer testified that Combs was a good hauler, that he was reliable, and that because of his reliability plaintiff had obtained preferential positions at the pits. Although the plaintiff attempted to retain its positions, it nevertheless depleted its goodwill because it could not resume its operations by April 1, 1978.
Goodwill is an intangible, but it can be "used up" or "depleted." That is its value. A company attempts to build up goodwill to help it survive when circumstances strain the relationship between the company and its ability to do business as usual.
Testimony by the plaintiff established the loss of this particular contract diminished its business value by $975,000. Such evidence is for consideration by the factfinder after proper instruction from the court.
The issue not having been raised by the parties, this court does not address the legal principle of mitigation of damages in regard to loss of goodwill.
In this case, the trial court correctly submitted the issue of punitive damages to the jury.
This court has previously expressed the standard to be used in cases of malicious, wanton or gross fraud in Logsdon v. Graham Ford Co. (1978), 54 Ohio St.2d 336, at 340 [8 O.O.3d 349]:
"In each case of alleged fraud the plaintiff, in order to be awarded punitive damages, must establish not only the elements of the tort itself but, in addition, must either show that the fraud is aggravated by the existence of malice or ill will, or must demonstrate that the wrongdoing is particularly gross or egregious." Id. at fn. 2.
That standard paralleled to the evidence in this case showed convincingly a continuous course of egregious conduct by the defendant, most glaringly when the plaintiff received titles to two of the trucks and the trucks were not even in existence at the time.
It also follows that punitive damages being proper in this case, the aggrieved party may also recover reasonable attorney fees as compensatory damages. Langhorst v. Riethmiller (1977), 52 Ohio App.2d 137 [6 O.O.3d 101].
Accordingly, the judgment of the court of appeals is affirmed in part and reversed in part and the cause is remanded to the trial court for further proceedings not inconsistent with this court's opinion.
Judgment affirmed in part and reversed in part and cause remanded.
FORD, HOFFMAN, C. BROWN and J.P. CELEBREZZE, JJ., concur.
C. BROWN, J., concurs separately.
LOCHER, Acting C.J., and HOLMES, J., concur in part and dissent in part.
LOCHER, Acting C.J., sitting for CELEBREZZE, C.J.
FORD, J., of the Eleventh Appellate District, sitting for W. BROWN, J.
HOFFMAN, J., of the Fifth Appellate District, sitting for SWEENEY, J.
COX, J., of the Seventh Appellate District, sitting for LOCHER, J.
The conclusion we reach today, in reversing and remanding this cause for a new trial on the issue of damages only, is supported by this court's decision in Mast v. Doctor's Hospital North (1976), 46 Ohio St.2d 539 [75 O.O.2d 556]. In that case, we held that "* * * App. R. 12(D), in conjunction with Civ. R. 42(B), authorizes a Court of Appeals to order the retrial of only those issues, claims or defenses the original trial of which resulted in prejudicial error, and to allow issues tried free from error to stand." Id. at 541. Because the trial of the instant cause resulted in error solely on the issue of damages, remand for retrial on the question of liability is unnecessary and unwarranted.
While I agree with the majority as to the speculative nature of the lost profits in this case, I dissent due to the insufficiency of evidence produced in an effort to establish loss of goodwill and an award for punitive damages.
Goodwill is that aspect of business which attracts a clientele and generates profits due to the company's reputation for good service. Round-house v. Owens-Illinois, Inc. (C.A.6, 1979), 604 F.2d 990, 995. For a jury to ascertain an exact amount of damages for this type of loss is difficult at best.
However, in a contract action for compensatory damages, the trial court must separate evidence tending to show loss of future profits and that showing loss of goodwill. If not, the aggrieved plaintiff will be able to recover an amount of duplicate damages, as goodwill must be considered a principal factor of future profits.
In my view, plaintiff did not prove loss of prospective customers or any damage to its goodwill or business reputation. There was testimony that the company was a reliable hauler of sand and gravel. However, there was a total lack of evidence to support a finding that its reputation for good service had been tarnished. The only other evidence presented on this issue was by Charles Combs, himself, who testified that his business value diminished by $975,000 due to the loss of this particular contract. This testimony sounds in lost profits, not loss of goodwill. Even assuming that an owner of a business is competent to give opinion testimony as to the value of his company's reputation, I believe this testimony could not be the sole factor used to establish a loss of goodwill. Therefore, the court of appeals was correct in ruling that the trial court erred in failing to direct a verdict in favor of International Harvester on this issue.
The degree of culpability required to permit an instruction on punitive damages is a difficult question. An award of punitive damages is capable of great abuse and the trial court must carefully weigh a plaintiff's case before submitting the question to the jury.
There was no evidence in the record to demonstrate that any wrongdoing by the defendant was particularly gross or egregious as required by Logsdon v. Graham Ford Co. (1978), 54 Ohio St.2d 336, 340, at fn. 2 [8 O.O.3d 349]. Instead, the record established that the representations concerning the delivery date of the trucks were a result of a splintered bureaucratic process involving judgments made by different people who pass on different aspects of the problem at different times. The persons involved made decisions based on different types and amounts of information, and none of them possessed more than a small portion of the total amount of information involved. I would not hold the corporate defendant liable for punitive damages in this situation. Therefore, it follows that in the absence of an award for punitive damages, attorney fees are not recoverable by the plaintiff. See Columbus Finance v. Howard (1975), 42 Ohio St.2d 178, 183 [71 O.O.2d 174].
Accordingly, I would affirm the judgment of the court of appeals.
LOCHER, Acting C.J., concurs in the foregoing opinion.