Kamlar Corp. v. Haley

• Citation: 224 Va. 699,299 S.E.2d 514
• Decision Date: 21 January 1983
• Docket Number: No. 801166,801166
• Court: Virginia Supreme Court
• Parties: KAMLAR CORPORATION v. Jesse C. HALEY, Jr. Record

Page 514

299 S.E.2d 514

224 Va. 699

KAMLAR CORPORATION v. Jesse C. HALEY, Jr.

Record No. 801166.

Supreme Court of Virginia.

Jan. 21, 1983.

Murray H. Wright, Richmond (McGuire, Woods & Battle, Richmond, on briefs), for appellant.

Andrew J. Ellis, Jr., Richmond (M. Scott Hart; Mays, Valentine, Davenport & Moore, Richmond, on brief), for appellee.

Before CARRICO, C.J., and COCHRAN, POFF, COMPTON, THOMPSON, STEPHENSON and RUSSELL, JJ.

RUSSELL, Justice.

This case requires that we reexamine the availability of punitive damages to a party aggrieved by a breach of contract. Jesse C. Haley, Jr. brought an action against Kamlar Corporation for breach of a written five-year contract of employment. The motion for judgment also included counts alleging fraud, conspiracy, insulting words and libel against Kamlar and three of its individual employees. The tort counts were either nonsuited or struck by the trial court, except claims for libel and conspiracy against one of the co-defendants, Donald L. Arbogast. The jury returned verdicts in Haley's favor against Kamlar in the amount of $98,000 compensatory damages and $150,000 punitive damages on the breach of contract count. The jury returned a separate verdict assessing $10,000 general damages, but no punitive damages, against Arbogast on the tort counts. The judgment against Arbogast is final and is not before us.

We granted this appeal to Kamlar upon the questions whether the trial court erroneously permitted the jury to consider punitive damages for breach of a purely contractual duty and also erred in certain evidentiary rulings. Upon examining the record we are satisfied that the evidentiary rulings complained of were within the trial court's discretion, which was not abused. We shall, accordingly, discuss only the question of punitive damages.

From 1968 until 1976, Haley was the manager and sole stockholder of Haley Excelsior, Inc., which owned and operated a plant producing excelsior, wood chips, and pine-bark mulch near Doswell, in Caroline County. The excelsior business dwindled in the early 1970's, and Haley sold the equipment related to that operation. In the mid-1970's, Haley made several approaches to Kamlar, a North Carolina firm engaged in the pine-bark mulch business, in an effort to sell the assets of Haley Excelsior, which was losing money.

In September 1976, the parties agreed on the terms of a sale whereby Kamlar would acquire the assets of Haley Excelsior for $150,000 cash, with a five-year contract of employment for Haley at $20,000 per year, plus ten percent of the pre-tax profits of the Doswell operation. Haley was also to become a director of Kamlar and receive certain fringe benefits. He was to serve as manager of the Doswell plant, in effect continuing his former activities, but as Kamlar's employee. He was interested in the contract of employment because it would keep him gainfully occupied in the business he knew best until he reached retirement age.

The agreement was evidenced by three documents: a "Memorandum of Understanding" dated September 30, 1976, a "Bill of Sale," and an "Employment Agreement," both dated November 1, 1976. The "Memorandum" provides: "Buyer is to purchase certain assets from seller, a full and complete list of which is marked Exhibit A and is attached hereto and incorporated herein by reference." When the "Memorandum" was executed, "Exhibit A" did not exist. The parties were then uncertain as to the assets which were to be included in the sale. Several days later, a vice-president of Kamlar toured the Doswell plant with Haley and made up a handwritten inventory. This formed the basis of a typed inventory of articles sold, which was attached to the "Bill of Sale" marked "Schedule A."

The Doswell plant continued to lose money after the sale. Kamlar's officers had reservations as to Haley's management abilities before entering into the transaction with him, and they were not reassured by his performance as their manager.

In April 1977, Haley discovered a hydraulic pump, unused and still in its original shipping crate, buried under a pile of "junk" in the plant's time-clock room. He recognized it as one he had purchased long before the sale of the business to Kamlar. He had intended to use it to repair a piece of equipment, but had accomplished the repair without it. He had then decided to return the pump for credit, but had forgotten about it. He checked "Schedule A" attached to Kamlar's "Bill of Sale" and, finding no mention of the pump, concluded it was his. He caused it to be returned to the supplier and received a check in payment in the amount of $523.47, which he deposited to his personal account.

Donald L. Arbogast was assistant manager at the Doswell plant, having been hired by Haley in early 1977. On September 14, 1977, Haley and Arbogast had a "heated argument" over a matter unrelated to the pump. Later that day, Arbogast called Kamlar's vice-president in North Carolina, stating that Haley had been stealing corporate assets, that he could no longer work with him, and that he wanted to resign. This resulted in a visit to Doswell by Kamlar's president, Albert Oettinger, the following day. Arbogast privately related to Oettinger a long list of complaints about Haley, including the alleged conversion of the hydraulic pump.

After discussing the matter by telephone with Kamlar's counsel, Oettinger prepared a typewritten affidavit including all of Arbogast's complaints, which Arbogast signed before a notary public. Oettinger then confronted Haley with Arbogast's affidavit. Haley denied its accusations but admitted selling the pump, contending that it was his property. He asked to be permitted to present the issue to Kamlar's board of directors of which he was a member, and to abide by its determination as to the ownership of the pump. He offered to reimburse the corporation if the board determined that the pump had been included in the sale to Kamlar. Oettinger refused this request and asked Haley to sign a "confession" and a resignation. Haley refused. Oettinger promptly discharged him. Kamlar confirmed this action by a letter to Haley dated September 19, 1977, which stated that Haley was being terminated for the "unauthorized disposal of Corporate Assets" and the "illegal conversion and use of Corporate Funds." Arbogast, on several occasions, told people in the community that Haley had been fired for stealing company property.

Kamlar argues that the trial court, having sent the case to the jury only on a breach of contract theory, erred in granting Instructions 13 and 14, which submitted the question of punitive damages. ¹ Haley points to the trial court's analysis of the evidence, in the light most favorable to Haley, in overruling Kamlar's post-trial motions:

This case went to the jury as to Kamlar on the question of whether Kamlar breached its employment contract with the Plaintiff and, if so, whether that breach was committed maliciously or in wilful or reckless disregard of Haley's rights. There was abundant evidence to support both contentions. The evidence, taken in the light most favorable to Haley, showed that Kamlar's principal officers were dissatisfied with Haley's performance at the plant, that they accepted without question a document defamatory to Haley, that they failed even after requested to review the documents governing Kamlar's purchase from Haley, and that they denied Haley a chance to explain. This amply supports the inference that Kamlar's officers seized on the occasion of Arbogast's complaint as a pretext for getting rid of Haley.

We, too, must view the evidence in the light most favorable to Haley, and thus accept the premise that there was evidence to support a finding by the jury that Kamlar discharged Haley with an ulterior motive, in wilful disregard of his rights. The dispositive question, then, is whether a bad motive, underlying a breach of contract, in the absence of an independent, wilful tort, will support an award of punitive damages.

This question remained open for many years in Virginia. In Wood v. Amer. Nat. Bank, 100 Va. 306, 40 S.E. 931 (1902), a depositor sued his bank for negligently failing to honor his check. The action was brought ex delicto, although the court observed that the bank's relationship with the depositor was based on an implied promise. We stated that if a bank were to dishonor a check with "such gross negligence, and such a disregard of the bank's duty and the plaintiff's rights, as might have warranted the jury in finding that it was acting in bad faith and oppressively and tortiously " [Emphasis added], punitive damages might be appropriate. Id. at 312, 40 S.E. at 933. The facts of that case were found insufficient to support such an award.

In Anchor Co. v. Adams, 139 Va. 388, 124 S.E. 438 (1924), tenants sued a landlord for unlawfully entering the leased premises, tearing off the roof, rearranging partitions, and erecting scaffolding, thus destroying the lunchroom business conducted by the tenants. The landlord had contractual relationships with the tenants, by consenting to an assignment from a predecessor tenant and by agreeing to an extension of the predecessor's term. We affirmed an award of punitive damages for the wilful destruction of the plaintiff's business. The gravamen of the plaintiff's case was not limited to the landlord's breach of contract, but was based upon the landlord's independently tortious conduct. The award of punitive damages was approved upon the authority of Peshine v. Shepperson, 58 Va. (17 Gratt.) 472 (1867), which was an action ex delicto for destroying a business by the levy of an illegal attachment.

The question was settled by Wright v. Everett, 197 Va. 608, 90 S.E.2d 855 (1956). There, owners of a house sued a real estate broker for his failure to exercise proper care as their rental agent. The action was framed ex delicto, but this was immaterial because the plaintiff could have elected to...