Summary
authorizing recovery of attorney fees by party harmed by opposing party's bad-faith breach of contract
Summary of this case from Murtagh v. Emory Univ.Opinion
38253.
DECIDED JUNE 23, 1960. REHEARING DENIED JULY 12, 1960.
Breach of employment contract. Fulton Civil Court. Before Judge Parker. January 8, 1960.
Slaton, Robertson, Brookins Tidwell, for plaintiff in error.
Houston White, Beryl H. Weiner, contra.
1. The trial court did not err in overruling the general demurrer for reasons stated in the body of this opinion.
2. An action alleging a breach of a contract and alleging bad faith in the transaction out of which the cause of action arose authorizes a claim for expenses of litigation under the provisions of Code § 20-1404.
3. The trial court did not err in overruling the defendant's special demurrer directed at the exhibits attached to the plaintiff's petition for the reason stated in the opinion.
DECIDED JUNE 23, 1960 — REHEARING DENIED JULY 12, 1960.
John W. Coble filed an action against Edwards-Warren Tire Company, Inc., in the Civil Court of Fulton County. Succinctly the petition alleged an employment contract between the plaintiff and the defendant. A copy of the extensive contract was attached as an exhibit to the petition which set out in detail the method as to how the plaintiff's compensation would be calculated. The plaintiff alleged that on July 31, 1959, he was entitled to $3,221.04, which was due and payable on October 1, 1959. On August 31, 1959, the defendant, through its attorney and secretary, by a letter, terminated the employment contract. On October 1, 1959, the plaintiff met with the attorney for the defendant and the defendant's vice-president to receive payment due under the contract. During the course of the conference prior to the delivery of the check in the amount of $3,221.04, the defendant's attorney told the plaintiff that the check represented the net amount due the plaintiff for commissions owed him by the defendant corporation through July 31, 1959. Thereupon, the defendant's attorney handed the plaintiff the check, and the plaintiff agreed that the amount stated was correct. The plaintiff noticed an endorsement on the check but did not read it thoroughly. The plaintiff asked the defendant's attorney whether or not the endorsement meant that the defendant was paying the plaintiff's commissions due through July 31, 1959, and did not include commissions which would be due for August and September, 1959. The defendant's attorney replied in the affirmative. Neither of the defendant's officers mentioned that the endorsement was intended to release all claims of whatever kind and character through July 31, 1959, which the plaintiff might have against the defendant corporation. The plaintiff consulted his attorney who advised him that the endorsement would release the defendant corporation from any and all claims of whatever kind and character the plaintiff might have against the defendant through July 31, 1959. The endorsement was as follows: "The undersigned does hereby acknowledge full, final and complete settlement, satisfaction and payment in full of any and all claims of whatever kind or character I may have against the Edwards-Warren Tire Co.; and does hereby fully and finally release and discharge the Edwards-Warren Tire Co. from any and all liability or obligations to the undersigned to and through the 31st day of July, 1959."
The petition further alleged that the plaintiff's attorney drafted a release in accordance with the intention of the parties to show a release for the commissions paid through July 31, 1959, only. This proposed release was as follows: "The acceptance of this check by the undersigned endorser acknowledges full, final and complete payment by Edwards-Warren Tire Company of all sums due the undersigned endorser under the contract of August 21, 1958, through July 31, 1959, for one percent (1%) commission due under the terms of said contract, each of the parties understanding that the only additional sum due under said contract is the one percent (1%) commission accrued to the endorser under the terms of said contract for the period from August 1, 1959, through September 30, 1959." The plaintiff's drafted release to be placed upon the check was submitted to the defendant's attorney as an acceptable release to the plaintiff. The defendant's attorney refused such proposed endorsement and stated that the $3,221.04 was due plaintiff, but that, nevertheless, the defendant was demanding and insisting on an endorsement originally placed on the check when it was delivered to the plaintiff. The plaintiff thereupon informed the defendant's attorney that the release demanded by the defendant was unacceptable to him and that he would not sign such a release.
Later the plaintiff's attorney telephoned the defendant's attorney and insisted that the defendant pay the $3,221.04, without the necessity of the plaintiff having to sign a complete and final release of any and all claims of whatever kind and character the plaintiff might have against the defendant through July 31, 1959. The defendant's attorney stated that the plaintiff would have to sue the company to obtain the sum unless the plaintiff signed the complete and final release as originally placed on the check, and if the plaintiff did sue the defendant corporation, the corporation would pay the sum since there was no dispute that the $3,221.04 was due to the plaintiff for the net commissions through July 31, 1959. On the same date the plaintiff returned the check to the defendant by letter, as the plaintiff refused to accept the check as presented by the defendant corporation.
The petition alleges that on November 3, 1959, the defendant, through its attorney, wrote a letter to the plaintiff's attorney setting up a counter-claim against the plaintiff with respect to two separate transactions: (1) A counter-claim of approximately $765 for putting back into shape, physically and mechanically, a truck which was placed by the plaintiff for the use of a customer of the defendant. (2) A claim for re-imbursement of approximately 9 days services, which the defendant claims were not rendered by the plaintiff due to absence of the plaintiff on various personal business. The petition alleged that the counter-claims were false and were known to be false by the defendant's officers and made for the purpose of creating an apparent justiciable controversy between the plaintiff and the defendant in order that the defendant could avoid the expenses of litigation in the event of a suit. The defendant, through its attorney, has, since October 1, 1959, demanded that the plaintiff, as a condition precedent to receiving the $3,221.04, sign a full, final, and complete release and discharge of all claims he may have of whatever kind and character against the defendant. The plaintiff has refused to accept such terms or conditions, and has refused to execute such release, because the plaintiff is under no legal obligation or duty to do so. The defendant has wilfully, maliciously, and in bad faith broken the employment contract in failing to pay to the plaintiff the amount due him under the terms of the contract, and that the plaintiff has been required to employ an attorney to draft, file, and handle this suit in order to collect the $3,221.04 from the defendant. The defendant has acted in bad faith, has put the plaintiff to unnecessary trouble and expense and is stubbornly litigious.
The petition prays for judgment against the defendant in the amount of $3,221.04, plus interest, and the sum of $1,000 as expenses of litigation.
To this petition defendant filed general and special demurrers. The defendant later withdrew two of its special demurrers and on hearing the trial court overruled the general demurrer, and all but one of the defendants' special demurrers. To the overruling of the demurrers the defendant excepted and filed an appeal.
1. The plaintiff in error insists on the general demurrer, the special demurrers with reference to the expenses of litigation, and the special demurrers to the exhibits attached to the petition. As there is no general insistence on the other demurrers, the court will treat them as abandoned.
The defendant assigns error on the court's overruling of the general demurrer. It is the defendant's contention that the plaintiff could have obtained the amount sued for simply by endorsing the defendant's check and cashing it.
Under the contract the plaintiff was to be compensated for his services. This was obviously the consideration to the plaintiff to work. Upon his performance and at the appropriate time specified in the contract, the plaintiff was entitled to payment in legal tender. In Heath v. Miller, 205 Ga. 699 ( 54 S.E.2d 432), it was held that under the provisions of Code § 20-1105, the only proper conditions attached to a valid tender are either a receipt in full or a surrender of the obligation, and such tender cannot be predicated on a condition unauthorized by law. The release attached in this case as a condition to be accepted prior to cashing the check was not only a receipt in full for the amount of the check, but also contained a release of all claims, including other claims than that under consideration. Accordingly the tender was invalid because it was conditioned on an improper demand. The plaintiff did not refuse the check because it was not legal tender, but refused it because it required an improper condition precedent to receiving the proceeds of the check.
The argument of the defendant overlooks the fact that the petition prays for actual damages in the amount of $3,221.04, which was alleged to be the amount due the plaintiff for the performance of the contract. The failure of the defendant to pay the consideration was alleged to be the breach of the contract, and the amount owing was the actual damages. The trial court did not err in overruling the general demurrer.
2. The major question is whether or not the plaintiff has alleged sufficient facts to authorize expenses of litigation as provided in Code § 20-1404, as follows: "The expenses of litigation are not generally allowed as a part of the damages; but if the defendant has acted in bad faith, or has been stubbornly litigious, or has caused the plaintiff unnecessary trouble and expense, the jury may allow them."
The legal principles governing the proper authorization of attorney's fees are discussed in Traders Ins. Co. v. Mann, 118 Ga. 381 ( 45 S.E. 426), but it must be remembered that in the Mann case no facts were alleged to show bad faith other than a simple refusal to pay and the court did not have before it the question of bad faith in carrying out the terms of an express contract.
In a decision expressly limited to the question of bad faith the court stated in the Mann case, supra, ". . . expenses of litigation are not allowed for bad faith in refusing to pay, but where he `has acted in bad faith' in the transaction and dealings out of which the cause of action arose. The language of section 3796 [ Code § 20-1404] clearly points to bad faith prior to the institution of the action, rather than to the motive with which the particular suit is being defended — `has acted in bad faith,' not `is acting.' . . . `Refusal to pay' in bad faith, under Code § 2140, is not the legal equivalent of `having acted in bad faith' under Code § 3796; and it will be seen from the decisions cited that in not a single case has it ever been held or intimated that bad faith in refusing to pay was ground for such damages. The measure of damages in case of breach of contract is usually capable of exact computation, and the same result flows to the plaintiff whether the refusal was because of inability, unwillingness, or bad faith. Good faith in refusing to pay would not lessen, nor bad faith increase, the plaintiff's damages in an action ex contractu. Civil Code, § 3906.
"The provisions of the Civil Code, § 5701, that `no person shall be deprived of the right to prosecute or defend his own cause in any of the courts of this State, in person, by attorney, or both,' is a privilege granted the defendant, as well as the plaintiff. And if the original contract was made in good faith, if there is an ordinary breach, if the cause of action itself is not colored or poisoned by bad faith on the part of the defendant, he will not be mulcted with additional damages because he refuses to pay. Some defendants fail to pay because they are not able, others because they are not willing, and many because they dispute the liability. The costs which are taxed against the losing party, and the interest allowed for the failure to pay promptly, are the only damages which the law imposes in such cases. . ."
Where parties enter into a contract in good faith and there is a breach of the contract with no allegations or evidence to show bad faith, stubborn litigiousness, or unnecessary trouble and expense, the expenses of litigation will not be allowed. McKenzie v. Mitchell, 123 Ga. 72 ( 51 S.E. 34); Traders Ins. Co. v. Mann, 118 Ga. 381, supra; Robinson v. Holst Weber, 96 Ga. 19 (3) ( 23 S.E. 76). Under some cases bad faith refers to fraud and deceit present when the parties entered into the contract. Smith v. Williams, 117 Ga. 782 ( 45 S.E. 394, 97 Am. St. Rep. 220); Pone v. Barbre, 57 Ga. App. 684 ( 196 S.E. 287). Bad faith is not implied by a mere refusal to pay a disputed claim. State Mutual Ins. Co. v. McJenkin Ins. c. Co., 86 Ga. App. 442 (2b) ( 71 S.E.2d 670). Nor, ordinarily, will the simple refusal to pay a debt, which results in requiring a party to employ counsel and institute legal action, imply bad faith or authorize expenses of litigation ( Traders Ins. Co. v. Mann, 118 Ga. 381, supra; Pferdmenges, Preyer Co. v. Butler, Stevens Co., 117 Ga. 400, 43 S.E. 695), nor a refusal to pay when there is an honest dispute. Lovell v. Frankum, 145 Ga. 106 ( 88 S.E. 569); Murphy v. Morris, 96 Ga. App. 513 ( 100 S.E.2d 623).
A statement in Stelling v. Richmond County, 81 Ga. App. 571 ( 59 S.E.2d 414), that bad faith in contemplation of Code § 20-1404, does not refer to bad faith in the breach of a contract, but refers to bad faith in the entering into the contract, or where it is procured by fraud or deceit, is disapproved in so far as it conflicts with this decision. As will be shown hereinafter, the authorities cited in the Stelling case where bad faith is an issue generally follow an interpretation of Traders Ins. Co. v. Mann, 118 Ga. 381, supra, which does not appear, i. e., that bad faith in a breach of a contract will not authorize expenses of litigation. This interpretation is perhaps a misconstruction of some of the language of the Mann case with reference to the manner in which the suit is defended. Thus, the actions of a defendant in defending a suit will not authorize attorney's fees. As pointed out in the Mann case, supra, "The language of section 3796 [Code § 20-1404] clearly points to bad faith prior to the institution of the action [italics ours], rather than to the motive with which the particular suit is being defended — `has acted in bad faith,' not `is acting.'"
In other words, the elements of bad faith which will authorize expenses of litigation in an ex contractu action are those acts relative to the conduct of entering into a contract or to the transaction and dealings out of which the cause of action arose ( Traders Ins. Co. v. Mann, 118 Ga. 381, supra; Sunbrand Supply Co. v. Garment c. Corp., 99 Ga. App. 72, 107 S.E.2d 680; Glover v. Bankers Health c. Ins. Co., 30 Ga. App. 308, 117 S.E. 665), but do not have reference to the motive with which the defendant defends an action after a cause of action has occurred. Edwards v. Kellogg, 121 Ga. 373 ( 49 S.E. 279).
A distinction seems to be that bad faith can occur at the inception of the contract ( Smith v. Williams, 117 Ga. 782, supra; Pone v. Barbre, 57 Ga. App. 684, supra) or in carrying out the provisions or obligations of the contract ( Felder v. Paulk, 165 Ga. 135, 139 S.E. 873; Glover v. Bankers Health c. Ins. Co., 30 Ga. App. 308, supra). The latter rule is implicit in the application of the opinion of the Felder case, supra, which allowed expenses of litigation where the defendant appeared to have acted in bad faith in not carrying out certain provisions of a contract. The Felder and Mann cases are not in conflict as we interpret the rule announced in the Mann case. We construe "transactions and dealings out of which the cause of action arose" to mean not only the negotiation and formulation of the contract, but also included in the performance of the contractual provisions. Also, it must be remembered that there were no facts alleged in the Mann case to support an allegation of bad faith, other than the refusal to pay. That the mere refusal to pay, standing alone, will not constitute bad faith is the holding in the Mann case, and it does not undertake to say that bad faith in a breach after the inception of the contract will not authorize attorney's fees as some later cases have intimated.
The breach of the employment contract in the instant case is the transaction which gave rise to a cause of action. If the breach of the contract, which is the cause of action, is colored or poisoned by bad faith, expenses of litigation may be allowed. It is not a question of how the case is being defended; instead, it is how the contract was breached. Our holding is consistent with the ruling of Traders Ins. Co. v. Mann, 118 Ga. 381, supra. The elements of bad faith in the instant case occurred prior to the institution of the suit.
In Glover v. Bankers Health c. Ins. Co., 30 Ga. App. 308, supra, the court specifically found the cause of action to be for the breach of an entire contract which was the transaction and dealings out of which the cause of action arose. The court went on to properly award attorney's fees under Code § 20-1404.
With the conclusion that a breach of a contract accompanied by bad faith will authorize the jury to award attorney's fees, the court is faced with the question of whether or not the defendant's acts in the instant case constituted bad faith. In construing this Code section we find the courts in previous decisions, without defining bad faith, have found certain facts to constitute bad faith, while other facts do not. See Bowman v. Poole, 212 Ga. 261 ( 91 S.E.2d 770); B-X Corp. v. Jeter, 210 Ga. 250 ( 78 S.E.2d 790); Williams v. Harris, 207 Ga. 576 ( 63 S.E.2d 386). Black's Law Dictionary defines "bad faith" as: "The opposite of `good faith', generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive."
Traders Ins. Co. v. Mann, 118 Ga. 381, 385, supra, states that the same element of bad faith must appear in an ex contractu action as would appear in a tort case to warrant their recovery. In a tort case, Dodd v. Slater, 101 Ga. App. 358 ( 114 S.E.2d 167), the court defines bad faith as ". . . state of mind affirmatively operating with a furtive design or some motive of ill will."
The allegations of the petition show that the plaintiff had fully performed his contractual obligations, that the defendant was fully able to pay the consideration, and that the defendant admitted the obligation but capriciously refused payment unless the plaintiff would sign a release of any cause of action which the plaintiff might have against the defendant of any nature whatsoever. It is further alleged that the plaintiff was willing to give a release of any claims under the contract for which the payment represented, but refused to release all other rights that he might have. This allegation distinguishes the instant case from Watson v. Williams, 102 Ga. 852 ( 29 S.E. 476), where an employee refused to give a receipt for payment of his wages upon termination. It is alleged that the defendant admitted through its attorney that the corporation would pay the $3,221.04, but unless the petitioner gave the extensive release, the plaintiff would have to sue the corporation to obtain payment.
In applying the above principle of law to the instant case where a party willfully breaches a contract with an employee by refusing payment of the consideration when such employer admits the amount due and states that the amount will be paid upon suit being brought therefore against the defendant, and with the express ulterior or sinister motive not prompted by an honest mistake as to one's rights or duties, but for the purpose of coercing the employee to surrender all rights to any cause of action or complaint of any nature whatsoever against the employer by requiring a full release from the employee before payment and thereby breaches such employment contract, such breach constitutes the transaction out of which the cause of action arose and is colored with bad faith which may authorize attorney's fees. See Western Atlantic R. Co. v. Smith, 15 Ga. App. 289 ( 82 S.E. 906). It may well be that this litigation involves an honest dispute or simple breach without bad faith, but these are matters of defense which, upon proper proof, may negate the grounds for attorney's fees. These questions cannot be decided on demurrer, but must be determined on the trial of the case. The trial court did not err in overruling the demurrers directed to those allegations of the petition showing facts to authorize attorney's fees.
3. The petition contains as exhibits six letters, all of which constitute the correspondence relative to the plaintiff's refusal to cash the check with the attached release. The contents of the letters are not alleged in the paragraphs of the petition, and the exhibits are accordingly not repetitious. They are not argumentative, in that they only state the contents of the release of claims attached to the check as being the reason for rejecting the check in question.
We find no case except Pace v. Cochran, 144 Ga. 261 ( 86 S.E. 934), and Martin v. Greer, 31 Ga. App. 625 ( 121 S.E. 688), where it was held error to refuse to strike an exhibit from a petition as against the objection that the party was pleading his evidence. That ruling involved, in the Pace case, a photograph of the injured plaintiff taken long after the injuries complained of. It is well settled that photographs, X-rays, etc., are not proper matter for pleading, but letters usually are. In the present case it was necessary to set out the matter contained in the plaintiff's letters in order to show a wilful refusal and thus lay the foundation for that part of the cause of action relating to attorney's fees. We think it makes for neater pleading to do this by exhibit than to rephrase the contents of the letters by setting them out in substance in the allegations of the petition.Judgment affirmed. Gardner, P. J., Townsend and Carlisle, JJ., concur.