Summary
In Holland v. Spartanburg-Herald-Journal Co., 166 S.C. 454, 165 S.E. 203, 84 A.L.R. 1336 (1932), the South Carolina Court faced the problem in a case which involved an employment contract.
Summary of this case from Dawkins v. National Liberty Life Insurance Co.Opinion
13460
July 29, 1932.
Before GRIMBALL, J., Spartanburg, May, 1931. Affirmed.
Action by W.W. Holland against the Spartanburg Herald-Journal Company. From an order striking out of complaint certain allegations, plaintiff appeals.
The complaint, notice, and order of Hon. W.H. Grimball, directed to be reported, are as follows:
COMPLAINTPlaintiff alleges:
1. That the plaintiff is now and was at the times hereinafter mentioned a citizen and resident of the county and State aforesaid, and known by the defendant to have been more than thirty years engaged in the newspaper publishing business, and actively and exclusively occupied as business manager of the Spartanburg Herald and Journal.
2. That the defendant is now and was at the times hereinafter mentioned a corporation duly chartered under the laws of the State of South Carolina, as a publisher of newspapers, with its principal place of business at Spartanburg, South Carolina.
3. That in April, 1929, this plaintiff, together with C.O. Hearon, were the owners of all the capital stock of the Spartanburg Herald-Journal Company, and that at said time sold to one William LaVarre all of their right, title, and interest in the capital stock of said company for an agreed sum of money, and upon the further consideration that this plaintiff should continue his employment with the defendant for a period of three years as business manager of said corporation, at an annual salary of Eight Thousand ($8,000.00) Dollars per year, payable in equal monthly installments; a substantial part of the consideration of said sale, without which the same would not have been made, was the continuance of plaintiff as business manager of said newspaper for a period of three years at a salary of Eight Thousand ($8,000.00) Dollars per year, payable in equal monthly installments of Six Hundred Sixty-six and 66/100 ($666.66) Dollars, which part of the contract was evidenced by a written instrument simultaneously with the sale, and which was a vital and moving factor in the plaintiff's agreement to sell his stock in the corporation.
4. That subsequent thereto in November, 1930, all of the capital stock of the defendant corporation was purchased by the International Paper Company, a large paper manufacturer of this country.
5. That subsequently thereto qualifying shares of the capital stock of said corporation were issued to C.O. Hearon, of Spartanburg, S.C. and Edgar A. Neely and Rembert Marshall, both of Atlanta, Georgia, to enable them to qualify as directors of the defendant corporation.
6. That on the first day of December, 1930, a meeting of the stockholders of the Spartanburg Herald-Journal Company was held in the City of Spartanburg, S.C. at which all of the stock of said company, with the exception of two shares, was represented either in person or by proxy, and among other things done at said meeting, C.O. Hearon, of Spartanburg, S.C. and Edgar A. Neely and Rembert Marshall, of Atlanta, Georgia, were elected directors of the corporation to serve until the next annual meeting or until their successors are elected and qualified.
7. That immediately after the adjournment of the stockholders' meeting herein above referred to, a meeting of the directors was called, at which all of the directors of the company were present. In said meeting, among other things that were done, appears the following:
"Agreement entered into this 18th day of April, 1929, between W.W. Holland of the first part and William LaVarre of the second part, witnessed:
"That said LaVarre has by an agreement this day executed, contracted to purchase all of the stock of the Spartanburg Herald-Journal Publishing Co., on or before May 15th, 1929, and as a part of the consideration agrees to employ the said Holland as Business Manager of the Spartanburg Herald-Journal for a period of three years from the date of consummation of purchase, at the rate of Eight Thousand Dollars ($8,000.00) per year, in monthly payments. And the said Holland agrees to such duties.
"Witness said parties by their hands and seals the day and year above written.
"It is resolved that Spartanburg Herald-Journal Company assume the obligations of the said William LaVarre under said contracts."
8. That under the resolution so adopted by the directors of the defendant herein, with full knowledge that the same was a substantial part of the consideration of plaintiff's sale of the stock he owned in the corporation, and with full knowledge of his business standing and reputation for a long period of years as business manager of the paper of the corporation, and that his whole business training and experience were in the newspaper field, Spartanburg Herald-Journal Company ratified the contract herein before entered into by and between William LaVarre and the plaintiff herein, under the terms of which he was to be continued as business manager of said corporation for a period of three years from the 27th day of April, 1929, to the 27th day of April 1932, at a salary of Eight Thousand ($8,000.00) Dollars per year, payable in monthly installments of Six Hundred Sixty-six and 66/100 ($666.66) Dollars per month.
9. That at another meeting of the directors of said corporation held on the same date, among other matters transacted by said Board of Directors, the following appears: "W.W. Holland was elected business manager of the company."
10. That this plaintiff had been for a number of years the active business manager of said corporation and from and after the date of his election to this position on December 1st, 1930, he continued to act in that capacity under the directions of the officers of said corporation.
11. That during the month of March, without any notice whatsoever the defendant herein, through its executive officer, Edgar A. Neely, notified the plaintiff herein that he was discharged and ordered him to forthwith vacate the building operated by the defendant, and to remove therefrom any personal effects which he might have, and discontinuing his salary from and after March 5th, 1931.
12. That the defendant herein, under its contract with the plaintiff, is due and owing to the plaintiff herein the sum of Nine Thousand Two Hundred Five and 7/100 ($9,205.07) Dollars, with interest on each monthly installment at the rate of seven per cent per annum until paid.
13. With evil and malicious intent and for the purpose of bringing humiliation to the plaintiff and of discrediting him as a newspaper man and injuring his means of earning a livelihood, and with willful and malicious disregard of plaintiff's right under the contract and employment, and in willful and malicious disregard of the defendant's obligations, the defendant has fraudulently breached its contract with this plaintiff, in that, without cause, it has discharged the plaintiff herein from his position as business manager of said corporation, and has fraudulently failed and refused to pay to this plaintiff the monthly installments of salary called for by his contract, and has appropriated to itself the funds due this plaintiff by the defendant for its own uses and purposes; has by its fraudulent actions deprived this plaintiff of his source of livelihood and has maliciously and with intent to injure and defraud, discharged the plaintiff herein from the position to which he had been elected with the defendant in such a manner as to make it almost impossible for him to secure a position with any one else, and said discharge was made by the defendant with the intention of discrediting and injuring this plaintiff in the making by him of his future livelihood; that the manner and method of his discharge has not only deprived him of the money due and owing to him by the defendant but has tended to discredit him as a business manager of a newspaper and to create in the minds of other business men that he was incompetent and incapable of performing his duties as such; that the manner and method of his discharge was such as to have created in the minds of other business men a prejudice or bias against this plaintiff to such an extent as to make it impossible for him to secure another position of like kind or of any kind, from which he can derive a livelihood, that said action on the part of the defendant has injured him in the great sum of Fifty Thousand ($50,000.00) Dollars.
Wherefore, this plaintiff demands judgment against the defendant for the sum of Fifty-nine Thousand, Two Hundred Five and 7/100 ($59,205.07) Dollars, actual and punitive damages, with interest as alleged; for the costs and disbursements of this action; and for such other and further relief as to this court may seem just and proper.
DEFENDANT'S NOTICEPlease Take Notice, That on the 1st day of June, 1931, at ten o'clock A.M., or as soon thereafter as counsel can be heard, we will appear before Hon. T.S. Sease, presiding Judge for the Court of Common Pleas for Spartanburg County, South Carolina, and move to strike out from the complaint in the above-entitled action Paragraphs four, five, and six, and the following in Paragraph 13 — "With evil and malicious intent and for the purpose of bringing humiliation to the plaintiff and of discrediting him as a newspaper man and injuring his means of earning a livelihood, and with willful and malicious disregard of plaintiff's right under the contract of employment, and in willful and malicious disregard of the defendant's obligations. * * * (on line 7) fraudulently * * * (on line 10) fraudulently * * * and has appropriated to itself the funds due this plaintiff by the defendant for its own uses and purposes; has by its fraudulent actions deprived this plaintiff of his source of livelihood and has maliciously and with intent to injure and defraud * * * in such manner as to make it almost impossible for him to secure a position with any one else, and said discharge was made by the defendant with the intention of discrediting and injuring this plaintiff in the making by him of his future livelihood; that the manner and method of his discharge has not only deprived him of the money due and owing to him by the defendant but has tended to discredit him as a business manager of a newspaper and to create in the minds of other business men that he was incompetent and incapable of performing his duties as such; that the manner and method of his discharge was such as to have created in the minds of other business men a prejudice or bias against this plaintiff to such an extent as to make it impossible for him to secure another position of like kind, or of any kind, from which he can derive a livelihood * * *" upon the ground that said paragraphs are irrelevant, redundant and immaterial. Said motion to be based upon the pleadings in the cause.
ORDERDefendant's motion came on for hearing in the Court of Common Pleas on the 27th day of January, 1932, on which hearing the following order was made:
This matter comes before me upon motion of the defendant, seasonably noticed, to strike from the complaint certain allegations as irrelevant and redundant under the provisions of Section 421 of the Code of Civil Procedure (1922).
The instant action was brought to recover damages for a breach of an employment contract. It appears from the complaint that the plaintiff entered into a certain contract with one William LaVarre, whereby the plaintiff was employed by LaVarre, who purposed purchasing the entire capital stock of the Spartanburg Herald-Journal Company, as business manager of said corporation for a period of three years at an annual salary of eight thousand dollars. Subsequently this contract was adopted and assumed by the Spartanburg Herald-Journal Company. Immediately preceding the institution of this action, the defendant discharged the plaintiff, as alleged in the complaint, "without cause," whereupon this action was begun to recover damages based upon this anticipatory breach.
The defendant seeks first to strike out Paragraphs four (4), five (5) and six (6) of the complaint. These allegations set forth who are the owners of the capital stock and who are the directors of the Spartanburg Herald-Journal Company. Such averments are irrelevant to the issues raised by plaintiff's pleadings and can only be calculated to influence unfairly the minds of the jury to the prejudice of the defendant. If the plaintiff has a valid contract with the defendant, it is no moment, so far as this proceeding is concerned, who owns the capital stock or who are the directors of the defendant. I am, therefore, of opinion that the said paragraphs should be ordered stricken from the complaint.
The defendant asks, secondly, that all allegations set forth in Paragraph thirteen (13) of the complaint, wherein the plaintiff seeks to allege malicious and fraudulent intent with which, it is alleged, the defendant breached its contract with the plaintiff, be stricken as irrelevant and redundant.
It is the position of the plaintiff that these allegations are relevant and are sufficient, if proved, to entitle plaintiff to recover punitive, as well as actual, damages.
It is the settled rule of this State that such damages only are recoverable for the breach of a contract as "naturally and proximately" result therefrom. Nor will the fact that such contract is breached with willful or fraudulent intent alter this established standard for assessing damages or permit the allowance of punitive damages.
As stated by Mr. Chief Justice Gary in a leading case: "There is no doubt as to the general principle that in an action for breach of contract the motives of the wrongdoer are not to be considered in estimating the amount of damages, and that he is only liable for such damages as are the natural and proximate result of the wrongful act." Welborn v. Dixon, 70 S.C. 108, 115, 49 S.E., 232, 234, 3 Ann. Cas., 407.
In Prince v. State Mut. Life Insurance Company (1907), 77 S.C. 187, 192, 57 S.E., 766, 768, Mr. Chief Justice Pope, quoting from Sedgwick on Damages, tersely puts the matter in this language: "It may be considered to be established that the motives of the defendant in breaking his contract are to be disregarded, and consequently exemplary damages are not recoverable."
As pointed out by Mr. Justice Hydrick in his customary clear language, punitive damages are never recoverable in an action for the breach of a contract unless the breach "is accompanied by a fraudulent act" as distinguished from a "fraudulent intent." Donaldson v. Temple, 96 S.C. 240, 243, 80 S.E., 437.
Looking to the allegations of Paragraph thirteen (13) it will be observed that such paragraph, viewed in the most indulgent light, merely avers that the defendant breached its contract with the plaintiff with malice or fraudulent intent. It nowhere sets forth such facts as are necessary to entitle the plaintiff to recover punitive damages herein. It appears clear, therefore, and I so hold, that the plaintiff cannot recover punitive damages upon this complaint.
Since the motives of the defendant in breaching its alleged contract with the plaintiff "are to be disregarded," it seems proper that the language of Paragraph thirteen (13) of the complaint, as set forth in defendant's notice of motion herein, should be stricken.
It is, therefore, ordered that Paragraphs four (4), five (5) and six (6) of the complaint be stricken out as irrelevant and redundant.
It is further ordered that the allegations of Paragraph thirteen (13) of the complaint, as set forth with particularity in the notice of motion herein, be stricken out as irrelevant and redundant.
Messrs. Perrin Tinsley and J.W. Boyd, for appellant, cite: Breach of contract accompanied by fraud will warrant jury giving punitive and compensatory damages: 70 S.C. 108; 160 S.E., 721. In action for damages arising from contract only entitled to recover such as are results of breach: 29 S.C. 68; 114 S.C. 533; 81 S.C. 181; 77 S.C. 182; 162 S.C. 621. Messrs. Nicholls, Wyche Russell, for respondent, cite: An allegation is irrelevant when issue made by its denial has no connection with cause of action: 71 S.C. 340; 51 S.E., 121; 64 S.C. 509; 42 S.E., 597; 100 S.C. 415; 84 S.E., 994; 10 L.Ed., 274. As to recovery of damages for wrongful discharge: 66 S.C. 135; 44 S.E., 559; 108 A., 288; 8 A.L.R., 334; 6 L.R.A. (N.S.), 82; 71 S.C. 1; 50 S.E., 544. Punitive damages never allowed in breach of contract unless accompanied by fraud: 96 S.C. 240; 80 S.E., 437; 110 S.C. 233; 96 S.E., 295; 77 S.C. 187; 57 S.E., 766; 58 S.C. 56; 36 S.E., 437; 131 S.C. 12; 127 S.E., 270.
July 29, 1932. The opinion of the Court was delivered by
This appeal is from an order of Hon. W.H. Grimball, Circuit Judge, striking out of the complaint certain allegations upon motion of the defendant. It, therefore, becomes necessary to report in connection herewith the complaint, the notice to strike out, and the order of Judge Grimball.
The order from which this appeal is taken must be affirmed. In addition to the reasons assigned by the Circuit Judge, a few additional observations may be pertinent.
The facts need not be here repeated, as they are fully set forth in the pleadings and order which we have directed to be reported. We will, therefore, confine our remarks to the law applicable to those facts.
The exceptions present two main questions: (1) Was there error in striking out Paragraphs 4, 5 and 6 of the complaint; and (2) was there error in striking out portions of Paragraph 13, thereby depriving the plaintiff of a valid and legal claim? Consideration of these questions will be taken up in the order named.
These three paragraphs of the complaint refer to the purchase of the capital stock of the defendant by International Paper Company; that certain shares of stock were issued to a citizen of Spartanburg and to two citizens of Atlanta, Ga., in order that they might be qualified as directors; and that a meeting of the stockholders of the defendant was later held at which the three citizens above referred to were elected directors. The motion to strike out was made upon the ground that those paragraphs contained allegations which were irrelevant, redundant, and immaterial.
Many times has the word "irrelevant" been defined by the Courts. The definition in Mutual Lumber Company v. Southern R. Co. in 100 S.C. 415, 84 S.E., 994, taken from Pomeroy's Code Remedies, is quite clear and to the point to the effect that it must make an issue "which has vital connection with the plaintiff's cause of action."
The cause of action as alleged in the complaint is for breach of contract. As the complaint was complete without allegations as to who owned the stock and who constituted the board of directors of the defendant, it cannot be soundly held that those allegations had a vital connection with the cause of action. The allegations were, therefore, irrelevant and were properly stricken out on motion. See Watford v. J.K. Windham Co., 64 S.C. 509, 42 S.E., 597, and Gadsden v. Catawba Water Power Co., 71 S.C. 340, 51 S.E., 121.
The portions of Paragraph 13 which were stricken out of the complaint had to do with allegations of malicious and fraudulent intent, the same being the basis for punitive damages. If punitive damages be not a proper element in this case, then it goes without saying that the order of the Circuit Judge was correct. Our attention will, therefore, be directed to this inquiry.
There are two leading cases in this State on the subject of damages for breach of contract. They have been often cited and universally followed. They are Sitton v. McDonald, 25 S.C. 68, 60 Am. Rep., 484, and Welborn v. Dixon, 70 S.C. 108, 49 S.E., 232, 3 Ann. Cas., 407. The former holds that in actions arising from breach of contract the amount of recovery is limited to such damages as are the direct, natural and proximate result of the breach. The latter holds that where the breach of contract is accompanied by a fraudulent act then punitive damages as well as actual damages may be recovered. It is not always an easy matter to say just what damages are permissible under the first case, and it is still less easy to determine the punitive damage feature based upon fraud as outlined in the second case. We will mention some of the decided cases.
Donaldson v. Temple, 96 S.C. 240, 80 S.E., 437, was a case in which both actual and punitive damages were claimed for an alleged breach of contract. The opinion declares that there was no sufficient allegation of a fraudulent breach of contract, although the nature of the contract and the allegations as to its fraudulent breach are not set forth in the report of that case. We gather from the dissenting opinion, however, that the ground of fraud was the neglect and refusal of the defendant to furnish money as per the terms of the contract; such refusal being characterized as willful and wanton. These allegations were held insufficient to support a claim for punitive damages based upon a fraudulent act accompanying the breach of contract. In Reaves v. Western Union Tel. Co., 110 S.C. 233, 96 S.E., 295, 297, the Court cites Welborn v. Dixon, supra as authority for the declaration that "punitive damages are not recoverable for the mere breach of a private contract, in the absence of circumstances giving rise to a cause of action for fraud."
"It is needless to say that proof of the mere violation of a contract will not support an allegation of fraud," is the language of the Court in Caldwell v. Duncan, 87 S.C. 331, 69 S.E., 660, 663. This statement is quoted with approval in Coleman v. Stevens, 124 S.C. 8, 117 S.E., 305.
The motives of one who breaches a contract may be disregarded in estimating the amount of recoverable damages. Only in cases of a fraudulent act accompanying the breach can the recovery be more than such damages as are the natural and proximate result of the breach. Prince v. State Mut. Life Insurance Co., 77 S.C. 187, 57 S.E., 766.
In Givens v. North Augusta Electric Imp. Co., 91 S.C. 417, 74 S.E., 1067, 1070, the case of Welborn v. Dixon, supra, is again followed; the Court saying: "* * * punitive damages are not recoverable for breach of contract, except where the breach is accompanied by an intent to defraud." This opinion was by Mr. Justice Hydrick, who later in Donaldson v. Temple, supra, changed the word "intent" to "act."
In Latimer v. York Cotton Mills, 66 S.C. 135, 44 S.E., 559, the Court cites many cases and holds that the measure of damages for breach of contract for personal services is the salary to be paid for the contract time, less mitigating facts.
The correctness of the principles embodied in the foregoing authorities can hardly be disputed. The appellant, however, contends that his case should be governed by the cases of Sullivan v. Calhoun, 117 S.C. 137, 108 S.E., 189, and Winthrop v. Allen, 116 S.C. 388, 108 S.E., 153, 156. A brief review of these cases shows that facts in the first-mentioned case punitive damages were allowed for breach of contract because of the fraud on the part of the defendant. Property was leased to the defendant "on halves," and after the crop was well under way the plaintiff ran the defendant off the premises, gathered the crop, and refused to make any accounting to the defendant for his part thereof. The taking of the part of the crop which belonged to the defendant was the fraudulent act, as held by the Court, upon which punitive damages were allowed.
The second case relied upon ( Winthrop v. Allen) was a tort case. The opinion states that the allegations as to breach of contract were merely preliminary to the action on tort. It is true that the opinion in this case tends to criticize cases of Prince v. State Mut. Life Insurance Company and Givens v. North Augusta Electric Imp. Co., above cited, yet when it is considered that the Winthrop case was dealing solely with a claim in tort while the Prince and Givens cases were in contract, the criticism can be easily understood and the cases readily reconciled. In the Winthrop case the defendant set up a counterclaim in tort against a suit by his landlord for rent under a rental contract. The Circuit Judge dismissed the counterclaim, and upon appeal to this Court the respondent relied upon the Prince, Givens, and similar cases. In reversing the ruling of the Circuit Judge in dismissing the counterclaim which was based on tort, the Court said: "Even if the language we have quoted is susceptible of the interpretation that punitive damages are recoverable when there is a breach of contract accompanied with a fraudulent act, but that such damages cannot be recovered, when the tortious act is committed willfully or wantonly, then it is a mere dictum which is not to be followed."
It is perfectly clear that punitive damages are always recoverable for a "tortious act committed willfully or wantonly," but we cannot say that the Winthrop case intended to overrule the long line of cases following Welborn v. Dixon, which dealt solely in contract. In fact, the doctrine of Welborn v. Dixon, can be traced back to Rose v. Beatie, 2 Nott McC., 538, which, in turn, relies upon several old English cases for its authority.
Following the Winthrop case in holding that reference to the contract may be merely preliminary to the action in tort are the cases of St. Charles Merc. Co. v. Armour Co., 156 S.C. 397, 153 S.E., 473, and Spratt B. L. Ass'n v. Roper, 160 S.C. 240, 158 S.E., 495.
In addition to the Winthrop case, another case arises to somewhat becloud the issue. Huffman v. Moore, 122 S.C. 220, 115 S.E., 634. That case was a suit for actual and punitive damages for breach of warranty in the sale of an automobile. The charge of the Circuit Judge which was approved proved under the authority of Sullivan v. Calhoun, supra, but by a divided Court, was as follows: "If you should find that the defendant wantonly or recklessly, or in utter disregard of the plaintiff's rights, breached the contract of warranty, you could find punitive damages against the defendant."
This charge is not authorized by the case of Sullivan v. Calhoun, and the case should be overruled as being in conflict with the adopted view of the South Carolina cases, if warranty be a contract and if the cause of action be on contract. However, we gather from the meager report of the case that the real foundation of the suit was based on tort. In this view the decision can be sustained on the strength of the above quotation from the Winthrop case. There may be an agreement to give a warranty to a contract, but the warranty itself is not the contract; it is merely collateral or incidental thereto and, to that extent, is a part thereof.
After this discussion of the authorities, we return to the case before us. According to the appellant, his cause of action is for a "breach of contract of employment," and, as before stated, he seeks to bring himself under the rule as to punitive damages recognized in the cases of Sullivan v. Calhoun, Winthrop v. Allen, and Bradley v. Insurance Co., 162 S.C. 303, 160 S.E., 721. We have fully discussed the Winthrop case. The other two involved the fraudulent acts of appropriating the property of the plaintiffs to the use of the defendants. In his attempt to bring himself within this rule, the plaintiff says that the defendant has appropriated to itself the salary which the plaintiff would have earned and that this was a fraudulent act. We cannot adopt this view. To do so would be equivalent to saying that every unpaid debt carries with it the implication of fraud on the part of the debtor; that the debtor has converted to his own use the money of another or that he has misappropriated that which was always his own.
The making of a contract is a legal right enjoyed by the public generally, and no man is denied the right to break a contract; but in so doing he makes himself liable for the consequences in such damages as are the natural result of his act. The mere fact that a contract was broken does not carry with it the stigma of fraud, bad faith, malice, or wantonness. Frequently a contract is broken from dire necessity or the utter inability of one party to perform, and such cases would be entirely free from fraud or other evil intent. To further illustrate the difference between claims for punitive damages in suits ex contractu and suits in tort, acts of willfulness will support punitive damages in tort cases ( Vance v. Ferguson, 101 S.C. 125, 85 S.E., 241) but will not in suits arising ex contractu ( Welborn v. Dixon, 70 S.C. 108, 49 S.E., 232, 3 Ann. Cas., 407), and especially in breach of contract cases, although in such cases the voluntary breach is of necessity an act of volition, or the exercise of the will, on the part of the one who breaks the contract.
The Judgment of this Court is that the order of the Circuit Court be affirmed.
MR. CHIEF JUSTICE BLEASE and MESSRS. JUSTICES STABLER, CARTER and BONHAM concur.