*1 S042831.Aug. [No. 1995.] MILLS, INCORPORATED,
FREEMAN & Plaintiff and Appellant, COMPANY, BELCHER OIL Defendant and Appellant.
Counsel McClintock, Weston, Benshoof, Rochefort, MacCuish, Rubalcava & John Rochefort, M. Martha S. Saman Zia-Zarifi and Andrew M. Doty, Gilford Plaintiff and Appellant. DeVries, Sacks, Broillet,
Ian Herzog, Leonard Bruce Douglas Thomas Wrinkle, Paul, Kleifeld, Robert B. Roland Steven Stolpman, Steinberg, Gary Levine, McClean, Marias, Rose, Harvey Wayne William Klein Turley, & Miller, Rosen, David A. Starr & Edmund Regalia, L. Bernard & Regalia, Wood, Bonaccorsi, David P. Crowe & J. Michael Crowe and Day, Douglas L. as Amici Curiae on Day behalf Plaintiff and Appellant. Crawford, Jr., Narwitz, Sands, E. David A.
Stanley Engels, Leonard Forgie, & and Lemer A. Arthur Leonard for Defendant Appellant. Horvitz, Perrochet, & Jr.,
Horvitz Ellis J. Levy, Lisa John A. Tanke Taylor, Willemsen, Tanke, & Willemsen, McCutchen, J. Michael Tony A. Doyle, Enersen, Reese, & Brown John R. Robert A. Lewis and William Carpenter as Amici Curiae on behalf of Defendant and Appellant.
Opinion LUCAS, C. J. granted review in this case to We resolve some of confusion that widespread has arisen of our regarding application opin Service, ion in Seaman’s Direct Buying Inc. v. Standard Oil Co.
Cal.3d Cal.Rptr. 686 P.2d (Seaman’s). We held in that 1158] “when, case that a tort cause action lie might addition to breaching seeks to shield itself [defendant] bad liability by denying, cause, faith and without probable (Id. contract exists.” at p. case, In the the Court of present Appeal reversed judgment plaintiff retrial, and remanded the case for a limited but also suggested that “it is time for the Court to reexamine the tort of Supreme ‘bad faith denial of con- ” tract.’ We agree, do so here. As our proceed order review granting stated, “the issue whether, to be before this court is limited to argued circumstances, under what to a contract recover in tort for another bad faith denial of the party’s contract’s existence.” of certain light developments occurring subsequent that call into its continued question we find it validity, appropriate (See reexamine that decision. generally, Moradi-Shalal v. Fireman’s Fund Ins. Companies Cal.3d 287 758 P.2d Cal.Rptr. 58] (Moradi-Shalal).) As will we have concluded that the appear, Seaman’s court a tort cause of incorrectly recognized action based on the defendant’s bad *4 denial of the faith existence of a contract between the That parties. holding scholars, has been criticized widely by has caused legal considerable confu courts, sion lower and has been among the rejected courts several other by These critics jurisdictions. that the convincingly argue Seaman’s decision is flawed, and confusing and ambiguous, analytically promotes questionable After careful policy. considerations, review of all the we foregoing conclude our that should be overruled. holding
I. Facts facts, We first review the taken underlying from the Court of largely 1987, herein. In June Appeal opinion defendant Belcher Oil Company (Belcher Oil) retained the law firm of Lewis & Bockius Morgan, (Morgan) to defend it in a Florida lawsuit. Pursuant to a letter of understanding signed Belcher by (William Oil’s counsel general Dunker) and a Morgan partner (Donald Smaltz), Belcher Oil behalf, was to for costs incurred on pay its fees for including accountants. In after first February Dunk- obtaining authorization, er’s Smaltz express hired firm of plaintiff, accounting Mills, Freeman & (Freeman Mills), Incorporated and a financial provide and analysis for litigation Belcher Oil in the support Florida lawsuit. March, In an letter engagement was both signed and Freeman by Morgan time, & Mills. At about this William Dunker left Belcher Oil and was Neil replaced by Bowman. In April Bowman became dissatisfied with efforts and Morgan’s were lawyers Bowman asked discharged. Morgan for a summary and, work & performed by Freeman Mills at the same time, directed Smaltz to have Freeman & Mills their work for Belcher stop Oil. Smaltz did as he was asked. Freeman & Mills’s final statement was for $70,042.50 fees, $7,495.63 costs, $77,538.13. plus for a total of & billed but no was Free- payment forthcoming.
Freeman Mills Morgan, and, man & Mills then billed Belcher Oil for about sent directly year, bill, Bowman but no statements called about monthly regularly In Smaltz told Freeman & was payment forthcoming. August finally Mills that Belcher Oil refused to their bill. Freeman & Mills then wrote pay that the Bowman Bowman matter be resolved. September asking that Belcher Oil had not been consulted about the responded, complaining & & extent of Freeman Mills’s services Freeman Mills suggesting should whatever were claimed Morgan look to amounts due. payment Oil, & Mills filed action Belcher Freeman this
Ultimately, against alleging contract, (in its second amended causes of action for breach of complaint) contract,” “bad faith denial of meruit. Belcher Oil answered quantum trial, and the case to a in a was bifurcated with presented jury punitive reserved damages second to the evidence phase. According presented (as the first during amount owed Freeman & Mills indicated phase, $77,538.13. their statements) was its returned first verdict. On Freeman & Mills’s breach jury phase claim, found that jury Belcher Oil had authorized Morgan behalf,
retain Freeman & Mills on Belcher Oil’s & Freeman Mills had contract, its under performed Oil had obligations Belcher breached and that the amount of suffered & Freeman Mills *5 $25,000. was also answered jury the about affirmatively questions whether Belcher had Oil denied the existence of the contract and had acted fraud, Thereafter, with oppression, or malice. the its jury returned verdict $477,538.13 in awarding punitive and was damages judgment entered con- sistent with the verdicts. jury’s motions,
In three post-trial (1) Freeman & Mills asked for orders “correct- the ing” verdicts and jury’s the court’s to reflect judgment compensatory $77,538.13 damages $425,000 (on and punitive damages the ground that the jury’s intent); showed was questions this its true awarding attorney fees as sanctions for the tactics of litigation Belcher Oil’s attorneys; and on awarding interest the prejudgment award. compensatory damage Over Belcher Oil’s all opposition, three motions were with granted—but some in course changes the the correcting Freeman judgment—by giving $131,614.93 & Mills $25,000 in (the compensatory damages actually $77,538.13 awarded the by jury, plus included in the punitive damage award, $29,076.80 plus $400,000 for interest), prejudgment (not $425,000 as in requested) punitive damages.
Belcher Oil from the appealed “corrected” Freeman & judgment. Mills cross-appealed from a mid-trial order its denying amend its request fraud, not to add a cause of action an issue before us. presently
complaint The Court of no between the majority, finding “special relationship” Appeal Seaman’s, a tort under reversed the justify theory recovery to the trial retrial and remanded the case court a limited to the judgment (The breach of contract cause of action. issue of under plaintiff’s would Court of have sustained tort cause dissenting justice Appeal action and remanded for retrial of the issue as to both causes of damage action.) As will we affirm the of the Court of judgment appear, Appeal, that a tort is unavailable in this case. concluding recovery
II. The Seaman’s Decision
in
The tort of bad faith “denial of contract” was established
curiam
per
Seaman’s,
in
Both Oil of intent Standard a letter forth signed setting basic terms of their but that letter was arrangement, government subject status, continued credit approval of Seaman’s approval future Seaman’s showed the letter to agreement specific arrangements. and, thereafter, (Sea- lease with the city shortly signed 40-year city. man’s, 759-760.) 36 Cal.3d at thereafter, an oil reduced the available
Shortly shortage dramatically *6 and, of oil in November Standard Oil told Seaman’s that new supplies federal regulations allocation of to those that requiring petroleum products had been customers since 1972 its execution of a new precluded dealership agreement. Seaman’s obtained an from the response, exemption appropri- ate federal Standard Oil and agency. agency appealed persuaded order, reverse the but Seaman’s had the reinstated eventually exemption on a court determination that a contingent valid contract existed between (36 760-761.) Cal.3d at parties. pp.
Seaman’s then asked Standard Oil to to the existence of stipulate contract, that a stating refusal would force it to discontinue operations. Seaman’s, Standard Oil’s refused the “See representative request, telling you in and court.” Seaman’s business it sued Standard Oil collapsed for damages contract, fraud, on four of theories—breach breach covenant implied of faith and fair and interference with Seaman’s contractual good dealing, (36 761-762.) with the Cal.3d at relationship city.
The case was tried to a which returned its verdicts in favor of jury, fraud, on all theories except awarding and compensatory punitive (36 762.) Standard Oil damages. Cal.3d at We considered appealed. “whether, circumstances, and under what a breach of the covenant of implied and faith fair in a good dealing commercial contract to an may give rise (Id. action in tort.” For of we purposes completeness, quote Seaman’s at some length: that, California,
“It is well settled
in
the law
in
contract a
every
implies
stated,
covenant of
faith and fair
good
dealing.
Broadly
[Citations.]
covenant
that neither
requires
do
which will
anything
other
deprive
of the benefits of the agreement.
California courts have
[Citation.] [f]
covenant,
it,
recognized
existence
this
and enforced
in cases involving
a wide
variety
contracts.
In the seminal cases of Comunale v.
...[<][]
Traders &
[(1958)]
General Ins. Co.
“While the that the law proposition a covenant of faith implies good fair established, all dealing contracts well advanced proposition by Seaman’s—that breach of covenant rise to action always gives an tort—is so not clear. In tort holding action is available for breach of contract, the covenant in an insurance we have emphasized the ‘special insured, between insurer and relationship’ characterized elements of interest, public adhesion, and No fiduciary responsibility. doubt [Citation.] there are other with relationships similar characteristics and deserving similar legal treatment.
“When we move from such special relationships consideration in the remedy context the ordinary commercial we move into largely Here, uncharted and potentially dangerous waters. parties of roughly equal bargaining are free to power of their contours shape agreement *7 to include provisions attorney fees and in the event of liquidated damages They breach. not may be permitted to disclaim the covenant of faith good free, but are they least, within reasonable limits at to agree upon standards by which application the covenant be is to measured. such
contracts, of the covenant to between breach distinguish it be difficult may contract, tort remedies there is the risk that interjecting and breach This is not to that tort say parties. will intrude upon expectations context, but that it is wise to no in such a commercial remedies have place their with caution in determining scope application. proceed it to decide the broad of this case is unnecessary “For the purposes Indeed, to it is not even necessary predicate which poses. question to recognize covenant. It is sufficient on a breach liability implied when, remedies in addition to breaching a contract incur tort party in bad denying, liability by it seeks to shield faith itselffrom cause, contract exists. without that the probable added.] [Italics to tort liability, held to a contract bemay subject “It has been that party if he coerces the other more than is pay including punitive damages, ‘ lawsuit, made the threat of a “without due under the contract terms through ’ in the of the cause of action.” cause and with no belief existence probable difference, in between a contracting party There is little principle, [Citation.] manner, and a seeking excess in such contracting party obtaining payment a ‘stonewall’ all on a meritorious contract claim by adopting avoid in the court’) cause and with no belief (‘see without probable position you mere breach of Such conduct beyond existence of a defense. goes notions of business ethics. Accep contract. It offends accepted [Citation.] intrude a situation is not upon tance of tort remedies such likely of the contracting reasonable expectations bargaining relationship upset 768-770, omitted.) fns. (Seaman’s, 36 Cal.3d at supra, parties.” that, of a because a denial of the existence good Seaman’s concluded faith 770), the trial (Seaman’s, contract is not a tort 36 Cal.3d binding on the of bad was error court’s failure to instruct the jury requirement faith 774). (ibid.) (id. and that error was prejudicial III. Stare Decisis to our reconsid- Before various recent pertinent examining developments Seaman’s, we review certain well-established principles eration briefly of this court. These we confer opinions governing respect upon prior Moradi-Shalal, were summarized in 46 Cal.3d principles follows: is, course,
“. . . It a fundamental prior jurisprudential policy case, if must be followed even applicable precedent usually though anew, considered be decided the current This justices. might differently *8 decisis, known of as doctrine stare based on the policy, ‘is assumption that and in the are certainty, stability law predictability major objectives i.e., legal that should be able their conduct system; regulate and enter into with reasonable rules assurance relationships governing Witkin, 726, (9 758, (3d 1985) of law.’ Cal. ed. Procedure Appeal, § cited.) and see cases established, however, is
“It likewise well that foregoing policy reconsider, sufficiently flexible to this court and permit ultimately from, (Id., 759, its own an depart prior precedent case. appropriate § cited.) 903, cases As we stated Superior (1985) in Cianci v. Court Cal.3d ‘ 924, .. . [ajlthough the doctrine does indeed serve [stare impor- decisis] values, tant it nevertheless should not shield court-created error from correc- (Accord, (1988) 343, 356, ; tion.’ People v. Guerrero 44 Cal.3d . . . People 1104, 1147, (1987) ; v. Anderson 43 Cal.3d . . . Los v. County Angeles (1957) 672, 679, Anderson, Faus 48 Cal.2d .) . . . Justice Mosk noted for decisis, need stare flexibility ‘This is applying stating, especially when, here, so the error is related to a prior opinion] [in “matter concern” to continuing community (Anderson, large. [Citations.]’ ; 43 Cal.3d at . . . see also v. Monell New York City Dept, (1978) Social Services 436 U.S. . . . decisis not mechan- [stare ically applied prohibit statutes].) overruling prior decisions interpreting “Anderson also recognized reexamination of precedent become when necessary an subsequent developments indicate earlier decision was unsound, or has become ripe (Moradi- reconsideration. [Citation.]” Shalal, supra, 296-297; 46 Cal.3d at see also People Latimer 1203,1212-1216 Cal.4th 611], 858 P.2d Cal.Rptr.2d and cases cited.) below,
As we explain developments to the occurring subsequent Seaman’s decision decided, convince us that it was incorrectly that it has generated confusion, unnecessary results, costly litigation, it inequitable will continue to such produce effects unless and until we overrule it.
IV. Subsequent Developments A. Court Supreme Decisions—Subsequent of this opinions California court indicate reluctance, a continuing itself, reflected in originally to authorize tort recovery noninsurance contract breaches.
In Foley v. Interactive Data
Corp.
for the termination of a Declining rely wrongful discharged employee. (see 6) dictum in Seaman’s id. at & fn. p. regarding possible tort remedies for breach of the covenant of faith good availability implied context, covenant) (hereafter and fair in the dealing implied employment claim of we refused to afford such remedies for the contractual essentially (See in context. Foley, supra, breach of the covenant implied arising 683-693.) Cal.3d at our conclusion in we relied in on certain basic reaching Foley, part law, relevant to contract the need for
principles including “predictability about the cost of contractual and the of contract relationships,” purpose rather than damages compensate injured party punish breaching covenant, (47 683.) Cal.3d at on the we observed party. that, p. Focusing implied contracts, “[bjecause with the of insurance the covenant is a exception term, . . . for its breach has almost been always compensation (Id. 684.) limited to contract rather than tort remedies.” at p.
We insurance cases . . . were a acknowledged Foley major “[t]he law,” from traditional of contract and we stressed that departure principles the courts should take care” before “the “great extending exceptional ap (47 taken those cases” “another contract Cal.3d proach setting.” p. 690.) We that “the is not concluded employment relationship sufficiently similar to that of insurer and insured to warrant extension judicial (Id. 693.) additional tort remedies . . . .” proposed Thereafter, in Hunter v. Inc. 6 Cal.4th 1180-1182 Up-Right, (Hunter), 864 P.2d we held that Cal.Rptr.2d Foley’s analysis 88] would of tort for preclude recovery damages employer misrepresentations made to induce termination of In the course of our employment. analysis, Seaman’s, that, and without we nonetheless confirmed with the mentioning contracts, of insurance for exception remedies breach of the cove implied nant “have almost been limited (6 to contract Cal.4th at always damages.” p. 1180.)
We reasoned in that the Hunter defendant’s were misrepresentations i.e., to the end “merely means desired termination of employer, cannot serve employment. They for tort . . . .” predicate (Hunter, 6 Cal.4th at Similar would analysis apply defendant’s denial existence of the contract. such underlying Although conduct have been intended to the contractual “stonewalling” may terminate there is no reason it should relationship, logical serve as a why predicate tort damages. Most recently, v. Litton Applied Equipment Saudi Arabia Corp.
n
Ltd.
ment, Contract Law: Is the Seaman’s Tort California’s Detortification of (1992) 213, Dead? L.A. L.Rev. Loyola (hereafter Detortification Comment).)
Without case, analyzing particular facts of each it is sufficient to observe that our Seaman’s has holding lower courts with a presented number of unanswered questions, that these courts have reached vary- inconsistent, ing, and often (See, conclusions in Harris v. response. e.g., Atlantic (1993) 70, Co. 14 Cal.App.4th 77-80 Cal.Rptr.2d [17 649] Richfield (hereafter Harris) cases and [reviewing criticism noting of Seaman’s for out” “singling one of bad type faith contract breach for tort damages]; Internat., DuBarry Industries, Inc. v. Southwest Forest (1991) Inc. 552, Cal.App.3d 566-572 (hereafter Cal.Rptr. [282 DuBarry) 181] [review- ing conflicting cases and holding Seaman’s actual requires denial con- tract’s existence rather than mere denial of contract v. liability]-, Copesky 678, Cal.Rptr. 686-694 338] (1991) [280 229 Cal.App.3d Court Superior Credit, Business cases]; Security v. Careau & Co. review of [general Pacific (hereafter fn. 22 Cal.Rptr. 387] (1990) [272 222 Cal.App.3d
Inc. Sea generated by uncertainty” “confusion and Careau) [acknowledging 603, 610-611 (1990) 218 Cal.App.3d man’s]', Cooper Freytag & Lynch Seaman’s [ruling inapplica & (hereafter Freytag) Lynch Cal.Rptr. 189] Okun v. Morton set forth pleadings]; contract existence ble to denials Okun) (hereafter Cal.Rptr. 824-826 220] 203 Cal.App.3d covenant]; on breach of implied tort is based Seaman’s [concluding Cal.App.3d Ins. Co. Inc. v. Ins. Agency, Multiplex California Life [extending (hereafter Multiplex) Cal.Rptr. 12] 937-940 [235 *11 (1986) 181 Court v. Superior Koehrer liability]; denial of bad faith Seaman’s 1155, [extending 1170-1171 Cal.Rptr. 820] [226 Cal.App.3d benefits]; v. Quigley of contractual employee to deprive bad faith attempt 877, [noting Pet, Cal.Rptr. 394] 890-892 (1984) 162 Cal.App.3d Inc. Seaman’s, to bad faith its including application by uncertainties presented Court Wallis v. Superior “terms and performance”]; over contractual disputes [interpreting Cal.Rptr. 1118-1119 123] (1984) 160 Cal.App.3d nonin of covenant action for breach implied tort allowing as Seaman’s cases].) surance doubts raise Seaman’s holding, cases criticize our foregoing
Several of the that decision. of our reconsideration viability, urge to its continued as declin and Harris, criticism [noting at 79-82 14 (See Cal.App.4th p. supra, of in violation public breaches tort to contract to extend Seaman’s ing that fn. 27 Careau, at [“unfortunate” 222 Cal.App.3d p. supra, policy]; for could be imposed tort liability or justify why Seaman’s failed explain other of for bad faith assertion existence but not denial of contract bad faith 611 (maj. opn.) at defenses]; pp. 218 Freytag, supra, Cal.App.3d & Lynch the appellate have of this new tort perplexed contours [observing “[t]he Woods filed.”], (conc. of 616 opn. Seaman’s was almost from the day courts in view of Foley Seaman’s of J.) viability (Fred), general [stating “[t]he Okun, at 826 best”]; 203 Cal.App.3d p. [“we supra, to be tenuous at appears liability of tort the whole concept are others—that many are of the view—as reexamined”].) to be needs litigation in bad faith commercial indicate, arisen regarding conflict has much confusion and As these cases does the For example, our Seaman’s holding. and the scope application or from some covenant from breach of the implied Seaman’s tort derive Okun, at pp. 203 supra, Cal.App.3d tort (Compare other independent duty? Pet, Inc., Does 823-826, 162 at p. v. supra, Cal.App.3d with Quigley contract, as under a tort extend to a bad faith denial the Seaman’s 231 at Cal.App.3d DuBarry, supra, of its existence? (Compare well as denial
97 566-572, 937-940.) at Is a with 189 Multiplex, supra, Cal.App.3d pp. pp. a a between the relationship” contracting parties prerequisite “special at (Compare Multiplex, Seaman’s action? supra, Cal.App.3d Pet, Inc., Okun, at with supra, v. Quigley Cal.App.3d Forwarders, Co., 823-826; v. see also Air-Sea Inc. Air Asia Cal.App.3d pp. 1989) (9th cases].) Cir. F.2d 176 Ltd. [reviewing conflicting case, conflict extends to the foregoing “special relationship” present noted, the Court herein concluded that the previously Appeal between the requires special relationship showing stated, the Court of As “Whatever need there be to parties. may Appeal remedies to cover provide special there is no similar special relationships, reason, need routine business cases. For this we believe our colleagues Two Division were correct when they interpreted Seaman’s limit narrowly, where, the tort of bad faith ing denial contract to the situations in addition (which to whatever other elements be is required on which case depends cited), there conduct extraneous to the special relationship (as Morton, Seaman’s). (Okun there was in Cal.App.3d .) 823-826 . . . We also think it is time Court to Supreme review grant and resolve the conflict created Okun on the one hand *12 line of Quigley cases on the other.” Confusion and conflict alone not might a decision to justify abrogate Seaman’s, for we could to resolve all attempt the uncertainties engendered by that But decision. there are additional considerations that convince us to forgo Herculean predictably effort. of the Many pertinent Court Appeal decisions recognize reasons compelling policy supporting preclu- sion of tort remedies for contractual breaches outside the insurance context.
For 569, example, DuBarry, supra, at the court Cal.App.3d page refused to extend the Seaman’s tort to bad faith to contract claims. defenses The otherwise, court “If the rule explained: were then any party attempting to risk, defend a least, disputed contract claim would at the to very exposure of tort imposition and an and expensive time-consuming expan sion of the litigation into an as to the and inquiry motives state of mind of the breaching actions, The party. distinction between tort and contract and their different purposefully measures of would be blurred if damages, not erased. The insult to commercial would be predictability certainty only exceeded by the increased burden on the already overworked judicial system.” (I bid.) Many of these considerations are to the equally applicable Seaman’s tort itself. Harris,
Similarly, supra, the Court Cal.App.4th denied Appeal a tort for bad recovery faith contract breach in violation of public policy. considerations follows: policy elaborated the applicable
The court of the promisee contract remedies goal compensation “The traditional breach, promisor from the not resulting compulsion the loss for Therefore, not been ‘willful’ breaches have distin his perform promises. The on contract reme restrictions from other breaches. guished [Citation.] freedom not in tort law. They parties’ serve found purposes protect dies formation contract limiting over risks they promote bargain special breaches, efficient value of This encourages to the the promise. at lower and services cost goods in increased production resulting considerations, these overriding Because of policy society. [Citation.] out with in carving excep Court has caution proceeded California Supreme (14 restrictions. remedy to the traditional contract [Citations.]” tions 77.) at Cal.App.4th for in contract recovery Harris court set forth as reasons denying remedies for tort and (1) the different objectives underlying
breach cases breach, (2) the commercial assuring importance predictability (3) the con converting every in contractual dealings, potential stability tort, recovery, into a with punitive damage tract breach accompanying remedies. action legislative affording appropriate preference 81-82; see (Harris, also Cal.3d Foley, Cal.App.4th pp. fn. V., 102-103), consid- policy As we shall see (pt. post, pp. foregoing our overrule rather than erations decision to fully attempt support (We has asked its uncertain boundaries. observe us to clarify plaintiff there were take notice of certain records purportedly showing only judicial *13 claims few verdicts Seaman’s the 1981 involving during period jury Because are an inconclusive indicia of excessive jury litiga- 1994. verdicts tion, some the and because defendant has raised doubts regarding accuracy materials, of the submitted for judicial and the completeness application denied.) notice is
C. Criticism Jurisdictions by Courts Other of then, We decided Seaman’s in Since of other jurisdictions 1984. courts have either criticized or to follow our Of the declined Seaman’s all analysis. states, Montana has the tort of faith in arm’s only bad recognized typical contracts, commercial even and that state has the length recently qualified a the of a between by requiring showing contracting special relationship 767, 776]; (See (1990) 242 P.2d parties. Story Mont. 436 [791 Bozeman Farnsworth, see also Dead L.Rev. Contracts Is Not 77 Cornell 1037; Macintosh, Gilmore Too Soon: Contract Rises From the Ashes Spoke of , 496-497, 500; Bad Faith Tort L.A. L.Rev. the Loyola Comment, 235-236.) Detortification L.A. L.Rev. at Loyola supra, Ninth Circuit Kozinski his candid criticism of Judge expressed America, Intern., (9th a concurring Oki Inc. v. Microtech Inc. opinion America). criticism, Cir.1989) (Oki Among 872 F.2d 314-317 other Kozinski the and Judge unduly found Seaman’s holding imprecise confusing. stated, As he “It is a impossible draw distinction between a principled tortious denial a contract’s existence denial permissible liability the terms under contract. The test . . . seems to be whether conduct ‘offends notions of business ethics.’ accepted This gives [Citation.] license to on their judges rely gut feelings between a distinguishing result, and tort. As a both squabble the commercial world and the courts America, (Oki are burdened . . .” needlessly 315.) . 872 F.2d at p. Judge Kozinski also mentioned substantial costs associated with Sea man’s interference litigation, resulting with contractual relationships. most “Perhaps troubling, courts to willingness subordinate voluntary contractual to their arrangements own sense of public policy proper business decorum individuals of an deprives measure of freedom. important to enter right into contracts—to one’s adjust legal relationships by mutual too agreement easily smothered by [] officers government eager us tell what’s best (872 for us.” F.2d 316.) at Kozinski p. Judge concluded by observing “Seaman’s is (Id. candidate prime reconsideration.” at 317.) Forwarders, Co., Ltd., Air-Sea Similarly, Inc. v. Air Asia 184-185, F.2d pages Hall Judge observed that Seaman’s “ambiguous” holding had caused widespread confusion among lower courts. As Judge stated, “Indeed, Hall the Seaman’s court’s failure to it was not explain why necessary predicate its holding on the covenant of implied good faith and fair or to dealing, justify dramatically for the greater bad faith denial of the existence of a contract as to the bad faith compared dispute terms, a contract’s undoubtedly spawned confusion in the appellate division cases (Id. discussed fn. infra.”
Other federal courts have found similar difficulty interpreting apply- Thus, ing Seaman’s. in Elxsi v. Kukje (N.D.Cal. 1987) America Corp. 672 1294, 1296, F.Supp. Judge Aguilar observed: “The major difficulty confront- jurists and ing commentators trying understand and Seaman’s is the apply faithful interpretation of . . . passage [condemning “stonewalling” “without probable cause and with no belief in the existence of a defense”]. The initial . sentence . . states that new tort is of denial the existence
100 describes denial of existence a while subsequent passage of whether the sub- the dilemma involves determining liability. Ultimately, of sequent passage definitional or descriptive.” Moradi-Shalal, 287, 298, 46 Cal.3d in which we we stated in As other tide critical or from contrary authority were faced with a similar of decisions, “[Ajlthough holdings one of our regarding prior jurisdictions a and we remain free to steer controlling, contrary other states are not course, we of . . . indicates nonetheless the near unanimity agreement of continued to our advisability allegiance minority question should approach.”
D. Criticism Scholarly of has been critical our on Seaman’s also
Scholarly commentary generally (See, Bad Faith and underlying analysis. e.g., Ashley, Seaman’s holding 11.08, Actions; that the (1994) 28p. [stating Liability Damages § court, a new tort of based on creating “stonewalling” “inappo- Seaman’s balance,” of “lost touch having “can be described as out only site” authority, law”]; Putz & Commercial Bad with the traditions of contract Klippen, Remedy “Stonewalling” Fees—Not Tort Attorney Liability—Is Faith: 419, & “no (1987) (hereafter [finding 21 U.S.F. L.Rev. Putz Klippen) 459 from other denials rational denial of contract existence way” distinguish Sebert, Based in Actions Damages of Punitive and liability]; Nonpecuniary (1986) Contract: Full Achieving Objective Compensation Toward Upon of 1565, Sebert) that Sea- (hereafter 1640-1641 stating 33 U.C.L.A. L.Rev. to be man’s is an that is “both troubling likely “unhappy compromise” denial of mischievous” distinction” between by creating “meaningless breaches]; and other What’s So Good About existence Snyderman, Good Faith? The Good in Commercial Obligation Lending Faith Performance (1988) (hereafter 55 [stating U.Chi. L.Rev. 1363 Snyderman) disastrous of the bad faith tort “represents potentially expansion realm”]; Wallenstein, into the Covenant commercial Breach the Implied Good Faith and Fair A in Search Commercial Contracts: Dealing Wrong (1988-1989) 124 the advent Remedy U. West L.A. L.Rev. [“[w]ith Seaman’s, the root causes of the confusion surrounding implied Comment, covenant in Role commercial contracts began emerge”]; Good Faith in Lender Suits: Star Liability Rising Fading Gadfly (hereafter Comment) Ariz. L.Rev. Arizona that Seaman’s [stating an created “undefined new source of that will have the effect of liability” Comment, zealous Faith Tort “deter(ring) Extending the Bad advocacy”]; Doctrine to General Commercial Contracts L.Rev. B.U. that Seaman’s failed to articulate a [observing “generally applicable
101 would between mere breaches of contract and standard which differentiate Comment, tort of faith fair Tort duty dealing”]; breaches of the good Breach Contract: Tortious Breach Expansion Remedies of for of of Fair the Commercial Realm Dealing Covenant Good Faith and Into Implied of (hereafter Comment) (1986) [finding 86 Colum. L.Rev. 401 Columbia existence, of a contract’s “no distinction” between denial principled exist, or that Seaman’s ulti- concluding denial certain terms parts result “will be to commercial mate tort-level expose damages Comment, contract”]; whenever a refuses to under the Bad perform (1989) of Faith Lenders 60 Colo. L.Rev. 427 disclaimer [Seaman’s reliance covenant is inconsistent with of implied imposition Comment, existence]; faith denial of bad contract’s Lender Liability for (1987) Breach Good Faith Obligation 36 L.J. Emory of of Performance 917, 960 of tort is award contract breach “trouble- [Seaman’s Comment, some” and “easy misinterpret”]; Direct Ser- Buying vice, Inc. v. Standard Co.: Oil Tortious Breach the Covenant Good Faith of of and Fair Dealing a Noninsurance Commercial Contract Case 71 Iowa L.Rev. 898 leaves whether their attorneys guess [“Seaman’s commercial client’s conduct is merely healthy capitalistic competition faith.”]; Comment, manifest bad Detortification supra, Loyola L.A. L.Rev. at distaste for the Seaman’s growing among [“[a] districts, California in the Ninth appellate Circuit and other states man- dates that the Seaman’s"]; California Court . . Supreme . overrule Com- ment, the Uncharted Sailing Seas Bad Faith: Seaman’s Direct Buying of Service, Inc. v. Standard Oil Co. 69 Minn. L.Rev. (hereafter Comment) Minnesota that Seaman’s failure to [observing distin- its new tort guish from breaches of covenant implied of faith “exacer- good bated the confusion” the area].)
Many articles and foregoing commentaries observe that the Seaman decision, being unclear and subject has resulted multiple interpretations, in widespread confusion among the lower courts. (E.g., Snyderman, supra, 55 U.Chi. L.Rev. at tort could in all [Seaman’s applied be cases, breach resulting subversion of “complete the expectation damages standard”]; Sebert, 33 U.C.L.A. L.Rev. at pp.11640-1641 [decision because “troubling” it “singles out one of breach for particular sanc type tion—the bad faith contract”]; denial existence Detortification Comment, L.A. Loyola L.Rev. at fn. omitted p. 223, [“The Seaman’s tort has generated confusion among courts. Conse California decisions, in recent quently, almost court offers every different interpreta tion the tort. The one ... is that court similarity to limit every appears the tort’s application.”].) several
Additionally, of these commentaries the extreme emphasize diffi- courts culty experience in between distinguishing tortious denial of a con- tract’s existence and denial of permissible liability under the terms
102 Comment, 401-402; (Columbia 86 Colum. L.Rev. at supra, contract. pp. Comment, 223-228.) 26 L.A. L.Rev. at supra, Loyola pp. Detortification to establish a concerns the of proof required Further confusion quantum Comment, 26 (Detortification supra, denial of the existence of the 227-228; see 231 DuBarry, supra, L.A. L.Rev.at Cal.App.3d Loyola pp. and, discussed, is 572-575) whether or not proof required as previously pp. (Detortification between the contracting of a relationship” “special 229-231, Comment, cited). and cases L.A. L.Rev. at Loyola supra, criticisms commentaries raise a wide of additional variety The foregoing decision, of the Seaman’s including reconsideration widespread support and its holding, confusion among judges juries applying inappropriately awards, overcrowded court dockets and litiga- excessive damage speculative claims, tion, contract breach deterrence and delay complication ordinary formation, (See, Arizona of contract and restraint on zealous advocacy. e.g., 953; Comment, Comment, Columbia supra, 31 Ariz. L.Rev. supra, p. 402; Comment, L.A. Colum. L.Rev.at Detortification Loyola p. observes, 236-238.) As one article Seaman’s created “intolerable L.Rev. pp. court should and constitutes a that this “dangerous misstep”, uncertainty” (Putz L.Rev. at correct.” & U.S.F. Klippen, supra, “promptly Moradi-Shalal, 299, “the breadth we 46 Cal.3d at As stated page and, the flood of decisions of of the criticism ... is like disturbing contrary courts, not to to our determination whether or other state pertinent reconsider that decision. [Citation.]”
V. Seaman’s Should Be Overruled indicated, has uni generated As the Seaman’s decision previously form and its and and confusion uncertainty regarding scope application, These doubt about the or of its necessity desirability holding. widespread criticisms, doubts and or from this state express implied, decisions courts, from other adverse schol state federal echoed by generally above, overruled in comment cited convince us that Seaman’s should be arly favor of a rule for noninsurance contract general precluding recovery breach, at least in the absence of violation of “an duty arising independent 515) of tort law” 7 Cal.4th at (Applied Equipment, supra, principles under, of, other than the bad faith denial of the existence breached contract. above, stress,
As set forth Sea- critics other factors among favoring decision, man’s the confusion and abrogation, uncertainty accompanying affairs, the need for in commercial stability predictability potential for excessive tort and the rather than' damages, preference legislative action in judicial this area.
Even if we were the by unanimous criticism leveled at unimpressed nearly Seaman's, on reconsideration the in defects the have analytical opinion become It seems anomalous to characterize as “tortious” the bad apparent. faith denial of the existence of while as “contractual” the treating bad faith denial of or under an liability con- responsibility acknowledged cases, and, tract. In both has acted in bad faith accord- breaching party has committed acts offensive to ingly, presumably notions “accepted (Seaman’s, 770.) ethics.” business 36 Cal.3d at Yet to include bad supra, p. faith denials of within could convert scope potentially contract breach into a tort. every Nor would Seaman’s tort to limiting incidents involving “stonewalling” narrow its adequately scope. potential Such conduct “See breaching party, essentially telling promisee, court,” could you incidentally every breach of contract. accompany reasons, For all the we foregoing conclude that Seaman’s should be overruled. We in this should emphasize nothing be read as opinion affecting existing enforcement of the precedent cov- governing implied Further, enant in insurance cases. we here would nothing say prevent Legislature additional civil creating remedies for noninsurance contract breach, such including measures as costs and providing litigation attorney cases, fees in certain aggravated increased assessing dam- compensatory breach, lost ages covering and other losses profits attributable to the as well as restoration of the Seaman’s if the deems holding Legislature that course (See, Actions; appropriate. Bad Faith e.g., Ashley, Liability Damages, 11.05, uniform liberalization of contract damages [“[t]he § needed”]; rules is what is Putz & 21 U.S.F. L.Rev. at Klippen, supra, 481-499; Comment, 238; Detortification supra, 26 L.Rev. at p. Loyola Comment, Minnesota far, however, 69 Minn. L.Rev. at Thus the Legislature has not manifested an intent either to contract breach expand or to recovery provide damages contract breach. ordinary
VII. Conclusion judgment the Court of the trial court’s Appeal, reversing judgment favor and plaintiff’s the case for a retrial remanding limited to the issue of action, under breach of plaintiff’s contract cause of and for judg- ment in favor of defendant on bad faith denial of contract plaintiff’s cause of action, is affirmed.
Baxter, J., J., Klein, J.,* Werdegar, concurred. Justice, *Presiding District, Three, Appeal Court of Appellate Second assigned by Division Acting Chairperson of the Judicial Council. for its J., Concurring. except concur KENNARD, majority opinion I Inc. 6 Cal.4th Up-Right, Cal.Rptr.2d of Hunter discussion view, case because the Hunter has no this bearing 864 P.2d my 88]. here, unlike the conduct issue conduct of by plaintiff complained Hunter, arising the violation of duty does not amount to any independent discussion of Hunter of tort law. Accordingly, majority’s from principles to the reasoning to its and adds unnecessary holding nothing supporting that holding. *18 J.,
Arabian
concurred.
in the
I dis-
I concur
MOSK, J.,
judgment.
Concurring
Dissenting.
however,
Buying
Direct
with the
conclusion that Seaman’s
I agree,
majority’s
354,
Service,
(1984)
In this “independent duty arising my at common law. torts other those traditionally recognized than originate con- behavior to the There are some of tortious intentionally unique types tort Allowing tractual that do not fit into conventional categories. setting is of tort causes of action outside conventional categories the possibility recovery contract breach” majority’s holding, precluding 1The for “noninsurance good breach the covenant of faith misinterpreted. should not be We have found that the of tort, “special relation dealing by against fair an insurer an insured will sound in due to 809, (1979) (See Egan v. Mutual Omaha Ins. Co. 24 Cal..3d ship” parties. between the two Foley Corp. 141].) v. Interactive Data 47 Cal.3d Cal.Rptr. 620 P.2d [169 (Foley), to find a similar Cal.Rptr. 765 P.2d while this court declined 373] context, question “special relationship” employment explicitly it did not decide also (Id. 687-688.) majority As the relationship pp. whether be found elsewhere. such could allegedly special relation recognize, present parties case not concern involved in an does Therefore, Mills, Inc., special relationship existed. ship; Freeman & admits that no such court, this and left majority’s holding deciding question should not be taken as not before open by Foley, contracting relationships are between outside whether there good faith may give insurance field which rise to tort remedies for breach of the covenant dealing. and fair with the malleable and nature of tort law. evolving consistent continuously “ static, ‘The but and the of its law torts is anything development limits When it clear are entitled are never set. becomes interests plaintiff’s defendant, the conduct of the the mere fact that legal protection against ” the claim is novel will not of itself as a bar to the operate remedy.’ (Soldano v. O’Daniels 454-455 Cal.App.3d Cal.Rptr. 1183], 1971) 3-4.) (4th 37 A.L.R.4th Prosser on Torts ed. quoting law Seaman’s should be viewed within the context of this common facts, tradition of innovation. When it Seaman’s is understood of its light view, stands for the that a contract action also sound my proposition, may faith, in tort when the breach of contract intentional and in bad is certain aggravated by forms particularly egregious intentionally injurious Because, as will be there activity. is no such tortious explained, activity case, I concur in the present majority’s disposition. I will discuss below the various circumstances under which courts have found or find a *19 breach contract to be tortious—circumstances broader than be may suggested As I will by majority’s holding. explain, tortious breach of contract outside the insurance context be found when common, (1) tort, the breach is a traditional law such accompanied by as conversion; tortious, fraud or (2) the means used to breach the contract are or; deceit or undue involving (3) coercion one breaches party intentionally severe, the contract or that such a intending breach will cause knowing harm in unmitigatable the form of mental anguish, personal hardship, substantial I will then consequential damages. view explain why my Seaman’s was correctly decided. I will Finally, Seaman’s is explain why distinguishable from the case. present
I. The notion that a breach be tortious causes might conceptual difficulty because of the fundamental difference between the objectives “ ‘ contract and tort law. are actions created to protect “[Whereas] [c]ontract the interest in having promises actions are created to performed,” “[t]ort protect interest in freedom from various kinds of harm. The duties of conduct law, which rise to them are give and are based imposed by primarily on social not policy, based necessarily the will or intention of the upon ” . . . parties (Applied Equipment Litton Saudi Arabia Ltd. Corp. (1994) 503, 475, Cal.4th P.2d Cal.Rptr.2d (Applied 454] Equipment Corp.), v. Atlantic quoting Tameny Co. 27 Cal.3d Richfield 610 P.2d Cal.Rptr. 314].) 9 A.L.R.4th
This difference in has purpose its greatest in the practical significance differing types damages available under the two bodies of law. “Contract to those within the of the contemplation are limited generally damages or at the contract was entered into least foreseeable reasonably when parties time; damages them at that by consequential beyond expectations 7 Cal.4th at not recoverable.” (Applied Equipment Corp., supra, p. are as well as 515.) suffering, for emotional distress mental Damages (Id. 516.) “This are also not recoverable. generally p. punitive damages, contractual relations on available serves damages encourage limitation to estimate in advance the and commercial activity by enabling parties contrast, (Id. 515.) “In tort damages risks of their financial enterprise.” ‘For the injury are awarded to the victim suffered. compensate [Citation.] the measure damages breach of an not obligation arising which will for all the detriment proximately ... is the amount compensate Code, (Civ. been or not.’ whether it could have thereby, anticipated caused 516.) 3333.)” 7 Cal.4th at Both Equipment (Applied Corp., § are, under the distress damages damages proper emotional punitive circumstances, available to the tort victim. each law in the moral that
Tort and contract also differ significance places intentional tort is seen as reprehensible— intentional Whereas an injury. of another—the intentional breach of deliberate or reckless harming act, to be morally exemplified contract has come viewed as a neutral common law remark a contract at duty Justice Holmes’s keep “[t]he do not it—and you keep means a must if pay you prediction L.Rev. (Holmes, the Law 10 Harv. else.” The Path nothing that an inten- view is the economic insight This amoral supported *20 The efficient of contract create a net benefit to society. tional breach may contract occurs when the to exceeds gain breaching party breach of breach, of resources to loss the movement suffering allowing to party Posner, (1986) (See Economic of Law their more use. Analysis pp. optimal 107-108.) Contract law careful “not to exceed dam- compensatory must be 108.) (Id. want to ages if it doesn’t deter efficient breaches.” distinct, the while the behind contract and tort law are But purposes the law clear nor fixed. As line between two areas of is neither boundary observed, Justice Holmes also “the distinction between tort and breaches two, contract, found between the remedies for is not ready especially (Holmes, (1881) 13.) The have long permit- made.” Common Law Courts ted a a to a contract to seek tort if behavior constituting remedies courts contract breach also “have recognized duty. violates some tort extended the tort liability virtually every type for misfeasance An or an attorney where defective performance may injure promisee. title, surveyor, a a an examining abstractor a a physician treating patient, claim, or a a note or or a agent liability collecting lending money settling suit, insurer a all have been held liable in tort for their defending negli- . . . The which seems to have from the decisions gence. principle emerged in the United States is that there will be in tort for liability misperformance aof contract whenever there would be gratuitous performance without the contract—which is to whenever such in- say, misperformance foreseeable, volves unreasonable risk of harm to the interests of the Contract, (Prosser (5th 1984) & Keeton on Torts ed. Tort and plaintiff.” “ 660-661, omitted.) fns. Stated another which is a way, merely ‘[c]onduct tort, breach of contract is not a but the contract establish a relationship the exercise of care demanding and acts and omissions in proper perfor- ” Intern., Tenneco, mance (Groseth rise to tort Inc. may give liability.’ v. Inc. (S.D. 1981) 440 N.W.2d
Nor are the rules that determine whether the action will sound in tort or contract, both, clear-cut. When the breach of contract also involves to the or the physical injury destruction of promisee, tangible property, interests, opposed damage economic then the action will purely gener Thus, sound in tort. ally manufacturer that defective sells automobiles may be liable to an automobile dealer in contract for delivery nonconforming but will be liable in if goods, one of the automobiles nonconforming leads an accident But resulting physical also injury. society imposes tort duties to protect economic purely interests between contracting parties— such as the of care duty (see accountants for imposed Lindner malpractice Barlow, Davis & Wood Cal.App.2d Cal.Rptr. 101]), or on banks for (see wrongfully checks Weaver v. Bank dishonoring America 59 Cal.2d 644])—as 380 P.2d well Cal.Rptr. as the recognition intentional torts such as fraud. The com promissory failure to plete contractual perform obligation generally sounds but once a contractual has obligation a failure to which begun, perform injures promisee may (Prosser sometimes sound in tort. & Keeton on Torts, 661-662.) supra, pp. the most Perhaps reliable manner to differentiate between actions that are purely contract breaches and those that are also tort violations is the abstract rule: following courts will enforce the generally *21 breach of a law, contractual promise through contract when the except actions that constitute the breach violate a social that merits the policy of tort imposition remedies.
It is also true that public does not policy favor a always limitation on damages intentional breaches of contract. The notion that society gains from an efficient breach must be qualified that by recognition many intentional breaches are not (See efficient. Putz & Commercial Bad Klippen, Faith: Attorney Fees—Not Tort Liability—Is the Remedy “Stonewalling” 419, 21 U.S.F. (hereafter Sebert, L.Rev. 482 Putz & Klippen); Based Contract: To- Upon in Actions Damages Nonpecuniary
Punitive and
(1986) 33 U.C.L.A.
Full Compensation
the Objective
ward Achieving
Inc.
Sebert);
Systems,
Patton v. Mid-Continent
(hereafter
L.Rev.
(Patton).) As
Posner
1988)
Judge
explained
841 F.2d
(7th Cir.
of contract are
Patton,
“Not all breaches
In addition intentional breaches, for certain of tort remedies inefficient imposition deter business practices of contract serves punish breaches we For example, of the breach. wrongs independent constitute distinct social which the in cases damages recover exemplary plaintiff permit fraud, even though induced promissory contract was through breached was fraudulently the contract same loss whether has incurred the plaintiff (1978) 84 Cal.App.3d Inc. (See Companies, Walker v. Signal induced or not. to allow 119].) plaintiff Our determination Cal.Rptr. 995-998 [149 not justified recover exemplary to sue for fraud and to potentially loss, a fraudulently the breach of but the fact that greater by plaintiff’s from society’s standpoint, wrong, induced contract is a significantly greater danger grafting are aware of the than an breach. “We ordinary action. . . . of contract should be a breach on what ordinarily never However, who no is served by permitting public policy into to enter induce another fraudulently to fulfill his intended obligations Associates Palmas Center (Las Associates v. Las an Palmas agreement.” 301].) Cal.Rptr.2d Cal.App.3d illustrate, for intentional actions limiting the rationale for As the above *22 limitation promotes such contract to contract remedies—that breaches of commerce—is and hence advances and commercial stability predictability not one. invariably compelling Breaches accompanied by or deception infliction of intentional harm be so may of commerce and disruptive so in themselves that the value of reprehensible such deterring actions through the tort system loss in the outweighs marginal of predictability result. But in duties to deter imposing harmful intentionally acts courts must be among contracting parties, cautious not to fashion remedies which overdeter the illegitimate as a result chill legitimate Posner, (See Law, Thus, activities. Economic of 108.) Analysis supra, p. courts should be careful to tort remedies when apply only the conduct in is so clear in question its deviation from socially useful business practices be, fraud, that the effect of such tort duties will enforcing as in the case of aid rather than commerce. discourage above,
As observed not all tortious breaches of contract arise from conventional torts. Numerous courts have of recognized types intentionally tortious that occur activity exclusively within the context of distinctively a contractual The most familiar relationship. tortious breach of type insurer, contract in this state is that of the whose unreasonable failure to settle or resolve a claim has been held to violate covenant of faith good and fair Co., dealing. (Egan v. Mutual Omaha Ins. Cal.3d Tort imposed primarily because of the distinctive characteristics of the insurance contract: the nature of the fiduciary the fact relationship, that the insurer offers a type service that quasi-public financial provides mind, security and peace and the fact that the insurance contract is one of generally (Id. cases, adhesion. 820-821.) In these special between relationship insurer and insured the elevation of the cove supports nant of faith good and fair a covenant dealing, law in implied by every contract and used generally as an aid to contract (Foley, interpretation 684), 47 Cal.3d at into a tort duty.
Because the good faith covenant is so broad and this court all-pervasive, and others have been reluctant to expand recognition action for tortious breach of the covenant beyond (See insurance context. Foley, supra, 47 Cal.3d at special [no in the relationship employment cone, context]; 701, 715, but see id. at pp. (separate dis. opns. Broussard, J., Kaufman, J., Mosk, J.).) Unfortunately, the preoccupation of California courts with limiting potentially enormous of this tort scope has diverted attention away the useful task of identifying specific practices employed by contracting that merit of tort imposition remedies. Other jurisdictions not so have made preoccupied greater progress developing common law of tortious breach of contract. While the cases are not classification, easily amenable to to fit they into two broad appear categories. *23 one by contracting party first focuses on tortious means used
The category its For rights. another into contractual party foregoing to coerce deceive 1992) (3d Systems Medical v. Arden Medical Cir. Advanced example, Medical, 188, medical (Advanced), Inc. a distributor of F.2d Advanced an with a manufacturer of a agreement high-technol entered into products, device, was as the latter’s designated the former analysis whereby blood ogy com The manufacturing distributor for the mid-Atlantic region. exclusive Johnson, Johnson & which by disapproved was eventually acquired pany Instead of the merely breaching agreement, the exclusive distributorship. to Advanced & a tactics “drive variety Johnson Johnson used questionable contract,” not made products including marketing competing out Advanced, (Id. services. at pp. to its withholding support available law, court, held to a 190-191.) The that in addition applying Pennsylvania contract, to breach of there was sufficient evidence submit question “tortious on a of Johnson & Johnson’s to damages jury theory punitive 201-202.) (See (Id. Adam’s interference” its own contract. also with (1976) 276 P.2d Crater Well Inc. Ore. 789 Drilling, [punitive 681] to obtain uses threat of contracting prosecution when damages justified party Co., contract]; & v. T.G. & Henry John A. Ltd. more than owed under (10th 1991) 1072-1073 Y Co. Cir. 941 F.2d Stores [punitive to under law when tenant compel allowed Oklahoma commercial attempts defects the landlord’s to it from its lease fabricating landlord release land of such to the maintenance and letters defects sending complaining lender, v. Abriani former’s Jones reputation]; lord’s thereby disparaging (1976)169 upheld N.E.2d [punitive damages Ind.App. 649] down to when defendant mobile home salesman threatened forfeit plaintiffs’ if did not of a home with numerous plaintiffs accept delivery payment defects].) these One commen defects then to reneged promise repair derived from a tator another of this kind of tortious breach provides example major case that was to Seaman’s: a motion companion picture originally he of its if studio threatens to blacklist an actor one productions appearing Bad does not forfeit contractual to a right billing. (Ashley, his prominent 11.04, Faith Actions: and Damages Liability § use of The use of means to breach a contract can also entail the tortious contracting causing one of the for deception by purpose other contractual Green & Co. v. Detroit Motley, its party forego rights. (C.C.S.D.N.Y. 1908) Steel & Fed. Spring Co. example, was for the agent given territory an exclusive sales within plaintiff defendant, an made a automobile The defendant allegedly parts company. for the sham sale another sole itself company extricating purpose the contract with the court concluded it was tortious plaintiff. defendant, “to a third addition invite breaching *24 as way possibly in such in the contract breaking aid him with him and unite 397.) (Id. at p. for in an action nonperformance.” to escape who was of a plaintiff in a tort treatise to one cited the case court compared “ Hamlet, . . . and ‘actor, in the character . . . engaged perform an together prevent maliciously conspired and others that the defendants in the his exercising profession and from so performing, from plaintiff divers hired theater, procured of the conspiracy pursuance hired, so and the persons and hoot the to the theater plaintiff, to go persons Ass’n W. Civic TV v. Inwood Houston Cable (Ibid:2 see also did. . . cable when 1992) damages upheld S.W.2d 504 [punitive 839 (Tex.App. associations percentage homeowners contract pay terminates company members’ the association toway exchange rights of revenue forbids new federal law that a the associations informing by falsely property such making payments].) them when the has been found intentional breach
A second of tortious type to the suffering are party of the breach especially injurious consequences such breach, inflicts or intentionally knowingly and the breaching party outside the commercial occurred Cases of this have generally injury. type con- context, and contracts contracting parties involving manifestly unequal in which mental great anguish significance, matters of vital cerning personal cases, In these of the breach. are the result or hardship probable personal distress damages awards of emotional courts have substantial permitted for a extra sanctions both as a means of damages, providing and/or punitive vulnerable activities injurious against defendant engaging intentionally that of injury and as a ofway fully plaintiffs types parties, compensating as nor recoverable are neither amendable to mitigation generally readily (1987) 103 Nev. contract in K Mart v. Ponsock Corp. For damages. example, 1364, 1370], by Ingersoll-Rand P.2d on other grounds 39 disapproved [732 482-483, 133,137 Co. v. McClendon U.S. L.Ed.2d in tort for recognize recently party 2I held that a cannot be liable this court has Equipment Corp., supra, Cal.4th 503 (Applied interfering see with own [but its contract. Corp. Mosk, however, Applied Equipment conceded, J.].) opn. of if it is dis. Even than breach generally party with contract does no more correct that a who “interferes” its own tort, apply to the appears rule to me not to should not be held liable in party, a third but does so exceptional promisor only case when the not acts in concert with cases, liability. the material attempt promisee promisor’s to deceive the to the In these an se, design. wrongdoing conspiracy per the deceitful conduct and the fraudulent is not the but not render Although may argued entry stranger onto the scene does it be that “the mere of a (id. 517), the use contracting party’s socially morally reprehensible” breach more liability does in fact deception promisor’s third to conceal for a scheme terms, Moreover, if the culpability. in economic introduce an additional element of moral being to receive contract efficiency promoted by promisee law turns on the able breach, efficiency engages conspiracy undermines this damages for a then who in such a one actively only denying liability, conspiring but to conceal it. not 478], $50,000 S.Ct. the Nevada Court allowed a Supreme award of punitive to stand when an employer discharged on a long-term employee fabricated for the charge purpose latter’s contractual enti- defeating tlement to (See retirement benefits. also Ainsworth v. Franklin Cheese Cty. 871, 871, (1991) 156 Vt. Corp. A.2d [punitive damages 874-875] when a permitted defendant/employer discharged cause pretext good in order to extricate plaintiff/employee itself from the obligation pay *25 benefits].) severance
In other cases of this
an intentional
type,
breach of a
of habit-
warranty
a landlord or
ability by
contractor
building
has
rise to substantial
given
emotional
or
distress
punitive
awards. For
damages
Missouri
example,
courts
that a
recognize
wrongful eviction will sound in tort
well
as
(Ladeas
45,
contract.
52;
v. Carter
845 S.W.2d
(Mo.App.1992)
see also
(1948)
Emden v.
P.2d
Cal.App.2d
318-319
[wrongful
Vitz
[198
696]
eviction
tort];
accompanied by verbal abuse sounds in
Hilder v. St. Peter
serve greater than protection would ordinary otherwise damages provide has led our Legislature authorize special sanctions for various types intentional For breaches. one who is the victim of an example, intentional breach of of consumer warranty recover twice the goods may Code, 1794, amount of (Civ. actual damages (c)) subd. and treble damages § be awarded may to a retail seller who is “willful or injured by repeated” 1794.1, warranty (id., violations (a)). subd. Labor Code section 206 pro- § vides for treble the willful failure to after the Labor pay wages Commissioner determines the are But the fact wages owing. that the Legis- lature has acted in some instances to afford these does not special protections mean that it has the courts from preempted their traditional role of exercising fashioning appropriate remedies for various kinds of intentionally inju- rious conduct. sum, intentional breach of contract cited cases show that an the above extreme exhibits an breaching to be tortious when be found
may other either knowingly the contractual rights party, disregard so as to create substantial the vital interests of a promisee harming or dishon- or else coercion distress or hardship, employing mental personal contractual These cases its forego rights. to cause esty promisee that an intentional a number of recognition by jurisdictions illustrate context, and not contract outside the insurance accompanied breach of fraud, nonethe- tortious behavior such as conventional any promissory these kinds of aggravating be deemed tortious when accompanied by less circumstances. mind,
With this in I next reconsider the Seaman’s case.
II. *26 Service, Seaman’s, Inc. In 36 Cal.3d Seaman’s Direct Buying supra, Eureka, (Seaman’s), to sought a dealer in in the ship supplies City a new marina that the was city establish marine fuel dealership Oil federal with the Mobil build with funds. Seaman’s negotiated planning (Standard) and Oil of California for a supply Standard Company Company contract that would enable it to establish the city required dealership. a a contractual before it allow Seaman’s to lease such commitment would of the new marina. Seaman’s a tentative significant signed 10-year part Marine of the Chevron dealer with Standard. As agreement part agreement, well as a Standard consented to Seaman’s with a fuel discount as provide loan to life of the construct the new amortized over the fueling facility, thereafter, the lease it had agreement. Shortly sought Seaman’s entered into (Id. 759-760.) city. pp. after, conditions, Soon oil and a federal embargo changed went allocations customers program mandating among existing petroleum claimed into effect. Standard it could not fuel to Seaman’s because supply the federal and obtain the claimed it was Seaman’s program, willing help variance from federal Seaman’s obtained necessary regulation. successfully a order from there- the federal but Standard supply government, appealed, that it in fact interests. Stan- upon revealing was to Seaman’s antagonistic successful, reversed, dard’s federal and the court was but was later appeal directed Standard to fulfill Seaman’s the filing supply obligations “upon of a of a court decree a that valid contract existed between copy parties under state law.” Seaman’s asked Standard to to the existence of stipulate was, but “See Seaman’s testified Standard’s court.” reply you that if Standard had funds to Seaman’s could have borrowed cooperated, Instead, Sea- when the new marina opened. in business until 1976
remain sued and received 1975. Seaman’s early operations man’s discontinued (Seaman’s, award. and damages punitive large compensatory 760-762.) Cal.3d award Stan- against of the damages considering validity punitive fair we acknowl- faith and good dealing, breach of the covenant
dard for cases, in which special differed from the insurance case edged existed, and in which the and the insured between the insurer relationship action. We stated: rise to a tort may of the faith covenant give breach good of the tort to consideration we move from such special relationships “When contract, we move into commercial ordinary in the context remedy Here, of roughly waters. dangerous uncharted and potentially largely agreement the contours of their are free to shape equal bargaining power in the event of to include fees attorney liquidated provisions contracts, between distinguish it be difficult breach. ... In such contract, and there is the risk that of the covenant breach breach parties.” tort remedies will intrude upon expectations interjecting (Seaman’s, 36 Cal.3d at raised need to decide the claim that we did not
We then stated commercial faith covenant in ordinary that the breach of the good Instead, sufficient to recognize liability. contracts rise to tort gave “[i]t when, in addition to incur tort remedies that a to a contract may *27 denying, itself from liability by the it seeks to shield breaching cause, (Seaman’s, the contract exists.” faith and without probable bad v. Crater Well 769.) the of Adams holding 36 Cal.3d at We cited 679, 681, Inc., another that one who coerces party 556 P.2d Drilling, the threat of contract through to more than is due under the terms of the pay “ 1 in the with no belief exist made “without cause and lawsuit probable ’ ” concluded that (36 Cal.3d at We ence of the cause of action.” difference, obtain “[tjhere between a contracting little is principle, manner, avoid to seeking excess in such and a contracting party ing payment a ‘stonewall’ all on a meritorious contract claim by adopting liability in the court’) and with no belief (‘see without cause position you probable of the mere breach existence of a defense. Such conduct goes beyond (Seaman’s, supra, It offends notions of business ethics.” contract. accepted 769-770.) Cal.3d correct, view, to refusing rely general Seaman’s was in my of faith and fair as a dealing justification breach of the covenant good remedies, practices tort and instead to seeking identify specific imposing ethics.” Sea- Standard that violated notions of business used by “accepted do have to choose between man’s that courts not wisely recognized into faith covenant good of the implied of a breach transformation wholesale of action for tortious a cause recognize refusal to and the complete a tort however, to be holding appears contract. In retrospect, breach of because, narrow overly narrow. It was broad and overly both overly out, no there is logical the majority point cited by numerous authorities of the existence “bad faith denial of between the tort of to reason distinguish former contract.” The under a liability “bad faith denial a contract” and of bad faith are equally reprehen- the latter. Both forms but subspecies injurious plaintiff. on the defendant’s part equally sible reasons, because, it appears broad for a number Seaman’s was overly bad that involve tort for all breaches liability been unwise to have impose bad under the contract. Although denial of a contract or liability faith inexcusable, we should be liability may ethically faith denial of contractual for fear it activity tort on such hesitate to categorically impose or encourage. activities that we wish permit deter overly legitimate of a contract consists faith denial of the existence bad Specifically, not, rise taken individually, give on the defendant’s that do two actions part First, As defendant breaches its contract. intentionally to tort liability: above, and the freedom of efficient breach discussed because of our notions an intentional breach we have not considered generally of marketplace, tortious.
Second, under the to liability the defendant asserts a bad faith defense contract—or, We have such a defense more threatens to assert precisely, would be defense” that refused to tort of “malicious consistently recognize such a The refusal to recognize to that of malicious equivalent prosecution. court, defendant, haled into involuntarily of a “protect[s] right (1974) (Bertero National General Corp. conduct a defense.” vigorous Instead, 878].) P.2d 65 A.L.R.3d Cal.3d Cal.Rptr. to fit the “crime” has fashioned a more limited Legislature punishment *28 fees and other bad faith to a civil action: the awarding attorney defense of an- the result reasonable incurred as by litigation expenses party cause intended to other’s bad faith actions “that are frivolous or solely too, Proc., 128.5, (a).) (Code subd. So proper Civ. unnecessary delay.” § with bad faith denials to deter intentional breaches that are combined remedy as a fees to the plaintiffs is to award consistently attorney 493-495). But (See Putz 21 U.S.F. L.Rev. sanction. & Klippen, supra, defense, act, then the threat of such if a bad faith defense is not tortious Seaman’s, occurred in cannot be tortious. also considered view, decided, narrower on my Seaman’s was nonetheless correctly existence. As discussed than bad faith denial of the contract’s grounds above, for an intentional breach which a number of cases allow damages will result in emotional significant knows breaching probably party In the we do not as a rule distress or commercial personal hardship. sphere, distress—the frustrations that attend such permit recovery personal contracts, are of the realities breached unreliable the like part suppliers, the business to the market- Society go of commerce. expects enterprise losses, to seek substitutes to its and to seek contract mitigate damages place that cannot be But there are some commercial for those losses mitigated. be in which the harm inflicted on an cannot intentionally enterprise cases and in which are insufficient ordinary damages mitigated, compen- Seaman’s, such a case. In because of the unusual sation. Seaman’s is in motion combination of market forces and set regulation government conduct had a significance beyond oil Standard’s embargo, out of the oil breach: its effect was to shut Seaman’s ordinary practical words, inten- market it out of business. In other Standard entirely, forcing with with the that the knowledge breached its"contract Seaman’s tionally thus breached its contract breach would result Seaman’s demise. Having and, circumstances, with blithe for the severe under these rare disregard Seaman’s, it Standard was to tort subject caused unmitigatable injury justly damages. sum, I action for tortious breach of contract in a would an permit
commercial when a breaches a contractual setting intentionally obliga party exist, tion with neither nor belief that the does not obligation cause probable will in severe and when the intends or knows that breach result party to the other that are not damages readily subject consequential the more and such harm in fact occurs. This rule is a variant of mitigation, said, that, infliction of rule of tort law as Holmes “the intentional general action, which, is a as a matter of substantive cause of temporal damage[3] law, (Aikens . . . if defendant is to justification requires escape.” 154, 159, 3].) Wisconsin U.S. L.Ed. 25 S.Ct. A breach should not be considered if the court determines that it was tortious substantial, avoidance of some unforeseen cost on the justified by part even if such cost does not excuse that breaching party, party’s nonperfor 654E, (See mance. 3A Nor (1994 Corbin on Contracts Supp.) § should a tortious breach under these circumstances be if it is recognized clear that the the harm that risk under party suffering voluntarily accepted the contract. But the intentional or infliction of severe knowing consequen tial on a business bad faith enterprise through unjustified, “intentionally” 3Standard’s breach in which the inflicted harm in the sense law, i.e., *29 commonly extending only having term “intentional” is used in tort “not in the (or desire) having mind purpose mind a but also a belief bring given consequences about (or knowledge) given consequences substantially are to result the act.” certain (Prosser Torts, Person, & Keeton on Intentional Interference With the fn. omitted, added.) italics breach of a contract is both for the reprehensible costly party suffering whole, the breach and for as a and is therefore society sanc appropriately tioned the tort through system.
III. case, hand, on the other is present essentially billing dispute claimed, two commercial entities. Belcher Oil Company apparently between cause, faith and without bad that it had no contractual probable agreement is, with Freeman & Mills. That Belcher Oil not breached only intentionally its but then asserted a bad faith defense to its As liability. explained above, the solution which the has devised for this kind of Legislature fees, of the other and this is transgression awarding party’s attorney $212,891 what occurred—Freeman & Mills was awarded in attor- precisely fees to Code of Civil Procedure ney sections 128.5 pursuant (c). subdivision To the award of in addition to this permit punitive damages would sum balance in the upset legislative established sanc- litigation tions statutes and make tortious actions—intentional breach of contract and the assertion of a bad faith defense—which we have held not to consistently be tortious. basis,
On this I concur in the in favor majority’s of Belcher Oil disposition on the bad faith denial of contract cause of action.