Hall v. Farmers Ins. Exchange

• Citation: 1985 OK 40,713 P.2d 1027
• Decision Date: 21 May 1985
• Docket Number: No. 59584,59584
• Parties: 113 Lab.Cas. P 56,099, 4 IER Cases 189, 1985 OK 40 Ned HALL, Appellee, v. FARMERS INSURANCE EXCHANGE, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company, Farmers New World Life Insurance Company and Bob Cassity, Appellants.
• Court: Supreme Court of Oklahoma

Page 1027

713 P.2d 1027

113 Lab.Cas. P 56,099, 4 IER Cases 189,

1985 OK 40

Ned HALL, Appellee, v. FARMERS INSURANCE EXCHANGE, Truck Insurance Exchange, Fire

Insurance Exchange, Mid-Century Insurance Company,

Farmers New World Life Insurance Company

and Bob Cassity, Appellants.

No. 59584.

Supreme Court of Oklahoma.

May 21, 1985.

As Amended on Denial of Rehearing

Jan. 14, 1986.

David E. Nichols, Peter T. Van Dyke, Oklahoma City, Ray H. Wilburn, Dennis King, Tulsa, for appellants.

James S. Steph, Okmulgee, for appellee.

DOOLIN, Vice Chief Justice.

This cause concerns a dispute between Appellants, who are various insurance companies doing business as Farmers Insurance Group (hereafter "Farmers"), together with their District Manager, Cassity and Appellee Hall, who for many years was an insurance agent selling policies for Farmers. Halls' association with Farmers began in April, 1962, and continued until 1978. In 1968, Hall and Farmers entered into the particular agency contract from which this litigation arose.

During the ten-year life of the contract in question, each party performed to the satisfaction of the other. Hall's agency flourished and in 1978, he had a gross income of approximately $42,000, of which some $35,000 was derived from renewal premiums paid by policyholders to whom Hall had sold Farmers policies over the years. In that same year, Farmers was sufficiently pleased with Hall to write him letters of commendation for his production.

In 1978 however, disagreements arose between Hall and Cassity concerning the types and methods of sales which were to be emphasized by Farmers agents. Their troubles deepened when Hall led a group of other agents in protesting what was considered by them to have been the termination without good cause of a fellow Farmers agent by Cassity. After several months of increasing acrimony between the two men, Cassity notified Hall, by letter dated September 21, 1978, that Farmers was terminating his agency as of December 21, 1978.

On that date, Cassity tendered to Hall a check in the amount of $38,000 for the contract value of Hall's agency, according to the terms of the contract with Farmers. Hall refused the tender, claiming he was being wrongfully terminated and was entitled to future income from renewal premiums in the amount of $305,964.16.

In anticipation of the effective date of termination, Hall filed suit for breach of contract, alleging termination without cause and claiming bad faith on the part of Farmers and Cassity. In his Second Amended Petition, the petition upon which the action was eventually tried, Hall asked for $225,000 as the reasonable amount of future commissions from renewal premiums under the agency contract, and $6,100 for additional renewal commissions on policies sold by him and accepted by Farmers following the effective date of the termination of the contract.

The matter was tried to a jury in December, 1982, and on December 17, the jury returned verdicts for Hall and against Farmers and Cassity in the total amount claimed in his petition.

Following the jury's verdict and judgment thereon, Farmers and Cassity commenced this appeal and on June 19, 1984, the Court of Appeals Division # 1, reversed. ¹ On November 13, 1984, we granted certiorari to review the Court of Appeals decision.

Based on our examination of this case, we find the opinion of the Court of Appeals should be vacated and the judgment of the trial court affirmed in part and reversed in part.

The primary issue presented by this case is whether a party to a contract which is terminable at will, upon notice, may be held liable for damages if such termination is done in bad faith. Secondarily, and if we answer the first issue in the affirmative, we must determine the proper measure of damages in the situation now before us.

I.

Hall does not contest the right of Farmers to terminate the contract. His cause of action rests on the argument that a party to a contract terminable at will is liable in damages if it terminates without good cause and in bad faith.

The contract in question is a printed, form contract entitled Farmers Insurance Group Agent Appointment Agreement. It contains a provision that the contract may be terminated by either the agent or the company upon three months' written notice, and further contains a formula for computing the "contract value" of the agency, to be paid by Farmers to Hall upon termination.

Evidence presented at trial shows this to be the standard, agency contract drafted by Farmers which must be entered into by all its agents.

This Court has long recognized that parties should be free to contract for any lawful purpose upon such terms and conditions as they believe to be in their mutual interest. Such freedom is not absolute however, and the interests of the people of Oklahoma are not best served by a marketplace of cut-throat business dealings where the law of the jungle is thinly clad in contractual lace.

In this spirit, we have recognized, as have many jurisdictions, that each contract carries an implicit and mutual covenant by the parties to act toward each other in good faith. As we said in Wright v. Fidelity and Deposit Co. of Maryland: ²

A contract consists not only of the agreements which the parties have expressed in words, but also of the obligations which are reasonably implied.... Every contract contains implied covenants that neither party shall do anything that will destroy or injure another party's right to receive the fruits of the contract.

The implied covenant of good faith extends to a covenant not to wrongfully resort to the termination-at-will clause. As was so aptly stated by the New Hampshire Supreme Court in Monge v. Beebe Rubber Co.: ³

The employer's interest in running his business as he sees fit must be balanced against the interest of the employee in maintaining his employment, and the public's interest in maintaining a proper balance between the two. We hold that a termination by the employer of a contract of employment at will, which (termination) is motivated by bad faith or malice or based on retaliation is not in the best interest of the economic system or the public good and constitutes a breach of the employment contract. [parenthetical term supplied].

Though it might be correctly pointed out that Monge concerns a contract between employer and employee rather than between an agent and principal, we find nothing in that distinction which makes the application of the rule any less desirable.

Perhaps most nearly on point with the case before us is the Massachusetts case of Fortune v. National Cash Register Co. ⁴ In that case, the plaintiff was employed under a written "salesman contract" which was terminable at will, without cause, by either party on written notice. The contract provided the plaintiff would receive a weekly salary plus a bonus for sales made with a territory assigned to him. The plaintiff, after twenty-five years of service, received a termination notice, but stayed on to complete a sale in progress. After the sale was completed, the plaintiff was asked to retire and when he refused, he was fired. The plaintiff brought suit against his employers, claiming he was not paid the bonuses he was entitled to receive for the last sale. The employer moved for a directed verdict, arguing there was no evidence of any breach of contract, and the existence of a contract barred recovery under quantum meruit. The trial court ruled the plaintiff could recover if the termination and firing were in bad faith, submitted the issue...