Bessman v. Bessman

• Court: Kansas Supreme Court
• Citation: Bessman v. Bessman, 214 Kan. 510, 520 P.2d 1210 (Kan. 1974)
• Decision Date: 06 April 1974
• Docket Number: No. 47256,47256
• Parties: S. Mike BESSMAN, Appellee, v. David S. BESSMAN and Iris S. Bessman, Appellants.

Page 1210

520 P.2d 1210

214 Kan. 510

S. Mike BESSMAN, Appellee, v. David S. BESSMAN and Iris S. Bessman, Appellants.

No. 47256.

Supreme Court of Kansas.

April 6, 1974.

Syllabus by the Court

1. When a party has mistakenly designated a defense as a counterclaim, the court may treat the pleading as if there had been a proper designation.

2. Where the facts concerning a party's conduct are undisputed the legal consequences are not affected by the label placed upon such conduct by the court.

3. As a general rule an agent who realizes a secret profit through his dealings on behalf of his principal not only must disgorge the profit but also forfeits the compensation he would otherwise have earned.

4. Dishonesty and disloyalty on the part of an employee which permeates his service to his employer will deprive him of his entire agreed compensation, because he has failed to give the stipulated consideration for the agreed compensation, and because he cannot be paid for his own wrongdoing.

5. A 'faithless servant' will be denied his compensation only during the period of his faithlessness. Where the agreed compensation can be apportioned he will not be deprived of that portion of the compensation which is allocable to services which he has performed in an unexceptionable manner.

6. In an action for wages alleged to be due under an oral contract of employment it is held: (1) the fraud alleged in the defendant's counterclaim should be considered as a defense, and (2) the admitted conduct of the plaintiff amounted to a breach of his fiduciary duty to his employers so as to require a forfeiture of the compensation otherwise due for the period of his faithfulness.

Donald E. Lambdin, of Lambdin & Kluge, Chartered, Wichita, argued the cause and was on the brief for appellants.

Allyn M. McGinnis, of McGinnis & McGinnis, El Dorado, argued the cause and was on the brief for appellee.

FOTH, Commissioner:

This action was originally brought as a mechanic's lien foreclosure. By some process of apparent acquiescence and tacit understanding on the part of both court and litigants, it was tried as an action for wages under an oral employment contract. The trial court rendered an accounting, charging defendants with plaintiff's wages for 73 weeks and a number of advances made by plaintiff on their behalf, and crediting them with various payments made to or for plaintiff by them and others. It struck a net balance in plaintiff's favor of $8,657.40 and rendered judgment for that amount. Defendants have appealed, contending primarily that plaintiff had, through disloyalty and gross misconduct, forfeited his claim to unpaid compensation.

Plaintiff S. Mike Bessman is the cousin of David S. Bessman and the nephew of David's mother, the defendant Iris S. Bessman. In the summer of 1970 he was living in Las Vegas, Nevada, when he was approached by cousin David with an offer of employment. David and his mother Iris, who lived in Detroit, Michigan, owned a hotel in El Dorado, Kansas, known as the El Dorado Arms. They needed a manager, and offered the job to Mike. After some negotiation Mike accepted, and assumed his duties in El Dorado on August 21, 1970. Although there is some dispute over the terms of payment, the parties agree that Mike's salary was to be $250 per week.

As part of his duties as manager Mike was to oversee a general refurbishing of the hotel with a view to refinancing and possibly selling it. Soom after assuming those duties Mike embarked on a course of dealing with various contractors, suppliers, and one tenant, designed, among other objectives, to put cash in his pocket. The essential elements of these transactions were admitted by him either in answer to interrogatories or from the witness stand. He also admitted that his role in these transactions was never imparted by him to his employers. Five of these are relied on as invoking the 'faithless servant' doctrine, and we shall describe them in chronological order.

1. Lasting Interiors. This firm did redecorating work on the hotel, the exact nature of which does not appear in the record. In the course of this litigation it was granted judgment and foreclosure of a mechanic's lien in the amount of $1,989.20, plus a personal judgment against David and Iris Bessman for $299.04. In addition, it was apparently paid an undisclosed amount of money as work progressed. Mike Bessman, the plaintiff, gave the following answer to an interrogatory concerning this firm:

'Your plaintiff did make purchases on behalf of the hotel with funds of the El Dorado Arms from Earl Forgey of Lasting Interiors, and commissions were paid to your plaintiff in the amount of $800.00. The dates of these payments varied from October 16, 1970, up to and including September 16, 1971, and the plaintiff further states that the defendants were given credit for these commissions by a reduction of sums due and owing the plaintiff by the defendants, and those sums were disposed of by your plaintiff as his own just as he would have disposed of any other sums received on account of salaries or draws from the defendants.'

This answer is typical of the answers to other interrogatories. The amounts Mike secretly received were characterized by him as 'commissions,' and they were pocketed by him as part of his salary. He was perfectly willing to give his employers credit for them, at least when the chips were down.

2. Lewis and West. This firm was the general contractor doing work on the hotel from October through December, 1970. During this time they employed Mike ostensibly to serve as timekeeper on the job and to run errands for them. They also employed a personal friend of Mike's, one Bonnie Brown, to do 'accounting and auditing.'

Between November 10, 1970, and January 26, 1971, four checks totalling $2,400 were drawn by Lewis and West, payable to 'D. Michaels.' It was agreed by the parties that this was a pseudonym for Mike Bessman. These checks were all endorsed by Mike, and he agrees he received cash for them. At least one of them was cashed for him by Oakely Andrews, the Lewis and West agent in charge of the job and the person who signed the checks. Checks to Ms. Brown totalled $850, and were payable to 'B. Brown.'

Andrews, the man who could best tell the Lewis and West version of the transaction, left that firm in August of 1972, and was apparently unavailable at the time of trial. An officer of the firm, who had filed a $22,438.89 lien on their behalf, testified that the firm files contained no subcontracts in the name of either 'D. Michaels' or 'B. Brown,' nor were there any time records submitted by Mike or accounting records from Ms. Brown.

3. Culligan Water Conditioning. On January 22, 1971, Mike purchased an ice machine from this firm with $1,554.27 of hotel funds. He received a case rebate of $300 which he pocketed and treated as salary.

4. Reznick's Appliance Center. In June, 1971, Mike bought six or eight air conditioning units from this firm with an undisclosed amount of the hotel's money. He received a cash 'commission' from the firm of $398.65, which he likewise pocketed as salary.

5. Lillian Strouse. This lady served as bookkeeper for the hotel, and was a tenant as well. On August 10, 1971, she paid Mike $1,000, representing ten months' rent in advance less a 10% discount (although he gave her a receipt showing her rent was paid through August, 1972.) Mike kept the $1,000 and applied it on his salary. It was this transaction which brought about the end of Mike's employment. Mrs. Strouse told David Bessman about it on January 16, 1972, and he fired Mike the same day. The other transactions were discovered later.

Mike, it will be seen, regarded his personal acceptance of undisclosed 'commissions,' rebates and advance rentals as a form of self help, justified by the slow pay of his salary. (There was some dispute as to whether he was to be paid unconditionally, or only out of available profits; in any event payments to him from hotel funds amounted to only $7,455.) David and Iris, on the other hand, characterize them as 'kickbacks' or peculations. They contend that the trial court erred in not applying the faithless servant doctrine to declare that he had forfeited all right to compensation during the period of his faithlessness.

In his brief Mike makes no direct response to that contention. He seeks to avoid the application of the doctrine by urging first, that 'fraud' wasn't properly pleaded, and second, that the trial court refused to brand his actions as 'misconduct.' We shall examine these contentions first.

As previously noted, the petition alleged a contract to refurbish the property, and prayed for foreclosure of a mechanic's lien. The responsive pleading was in two parts, consisting of an answer and counterclaim. The answer amounted to a general denial, The counterclaim alleged an employment contract; that plaintiff had incurred expenses beyond his authority, resulting in liens for which he should be personally liable; and that he had received secret rebates and advance rentals without defendant's knowledge or authority. The prayer was for actual and punitive damages.

At the pre-trial conference various mechanics' liens were disposed of, but the record reveals no effort to define the issues to be tried in the main suit. Somewhere along the line plaintiff's claim to a lien appears to have been abandoned. The judgment that was ultimately rendered foreclosed the first mortgage on the hotel as a first lien, and various mechanics' liens subordinate to the mortgage. Plaintiff, however, was awarded only a personal judgment, sharing in priority with other unsecured creditors.

The question is whether defendants' pleading is sufficient to raise the issue of plaintiff's alleged wrongdoing as a defense to his claim for wages. Plaintiff says that the defense is one which amounts to fraud, and as such must be pleaded as an affirmative defense in the answer; assertion of the...