9 Conn. App. 30 | Conn. App. Ct. | 1986
The defendant appeals, and the plaintiff cross appeals, from the judgment of the trial court after a jury verdict for the plaintiff in this action for the bad faith breach of an implied contract to act as surety on construction performance and payment bonds. The jury returned a verdict for the plaintiff in
The jury could reasonably have found the following facts. The plaintiff corporation was a general contractor engaged almost exclusively in public construction. The defendant is a specially chartered insurance corporation licensed to do business as a surety company. On December 14,1973, the parties entered into a General Agreement of Indemnity “whereby the plaintiff agreed to indemnify and save the defendant harmless from and against every claim, cost, judgment and expense caused to the defendant as a consequence of issuing surety bonds for and on behalf of the plaintiff.”
After May, 1974, the defendant became concerned about the plaintiffs financial condition. On September 6,1974, the defendant wrote a letter to Fazio stating that “[o]ur concern has reached the point where we wish to call a moratorium on issuing any further bonds (bid or performance) until we have had an opportunity to review additional information which [we] requested that you furnish to us.” (Emphasis added.) Following a meeting of the parties in late September, the defendant placed a restriction on the parameters of Pace’s construction bids, limiting Pace to projects of six or seven hundred thousand dollars per bid.
On June 27, 1975, the defendant issued a bid bond, through its agent Fazio. This bond was to be attached by the plaintiff to its proposal to construct senior citizens housing for the town of Trumbull at a cost of $625,000. This bid was accepted by the town. Fazio previously had assured the plaintiff that the requisite payment and performance bonds would follow if the contract were awarded to it. When informed of the prospective award of the project to the plaintiff, the defendant advised Fazio that it was refusing to issue performance and payment bonds for the project. Unable to obtain substitute bonding, the plaintiff lost the Trumbull contract. Pursuant to the bid bond furnished by the plaintiff, Trumbull made claim against the defendant for $5003, the spread between the Pace proposal and the next lowest bid. Although the defendant paid the claim and demanded indemnification from the plaintiff’s principals under the blanket agreement of December 14, 1973, it never took legal recourse to obtain reimbursement. The plaintiff thereafter was unable to obtain supporting bonds necessary for obtain
The plaintiff commenced this action on February 22, 1977. In the first count of its substitute complaint, Pace sought compensatory damages for breach of an implied contract. The second count claimed compensatory damages for breach of an implied contract that the defendant allegedly was estopped to deny. Punitive damages were demanded in the third count on the ground that the defendant breached its implied contract in bad faith and “acted outrageously and maliciously toward the plaintiff with willful disregard for plaintiffs rights under the terms of its implied agreement with the plaintiff, and with the intention of causing [the plaintiff] severe economic and financial loss.”
After trial, the jury made the following responses to interrogatories as the basis for its verdict: (1) Under its first count, the plaintiff proved the existence of an implied contract which obligated the defendant to issue as surety performance and payment bonds for the Trumbull project; (2) under the second count, the defendant was estopped to deny its obligation to issue as surety performance and payment bonds for the Trumbull construction; (3) the plaintiff’s loss of profits on the Trumbull contract was $47,860; (4) the plaintiffs failure to obtain payment and performance bonds from the defendant resulted in its going out of business and causing it damages of $224,815; and (5) because the defendant acted in bad faith, the plaintiff was entitled to punitive damages of $68,168.
The defendant filed a motion to set aside the verdict and a motion for judgment notwithstanding the verdict. The plaintiff, in turn, filed a motion seeking an award of statutory interest on the compensatory dam
The defendant’s first two claims of error
I
Construction of the Indemnity Agreement
The defendant’s first argument challenges the trial court’s interpretation of the General Agreement of Indemnity executed on December 14,1973. The defendant asserts that paragraph nine of the indemnity agreement belies any claim of an implied contract to issue performance and payment bonds. That paragraph authorizes the defendant, “at its option [to] decline to execute or participate in, or procure the execution of, any such bonds without impairing the validity of this General Agreement of Indemnity.” The trial court had dismissed this argument as a matter of law by ruling that while the defendant was free to refuse to issue any bid bond, once it chose to issue a bid bond there arose an agreement, implied in fact, that Travelers would issue the necessary performance and payment bonds.
We agree with the trial court that paragraph nine of the agreement does not insulate the defendant from liability for refusing to issue a bond which it was otherwise obligated to issue.
II
Implied Agreement Based Upon Custom and Usage
The defendant argues that the court erred by introducing evidence of custom and usage as a basis for finding that an implied agreement to issue performance and payment bonds existed between the parties. The defendant asserts that custom and usage are inadmissible where the intent of the parties is expressed in a contract which is clear and unambiguous. The trial court correctly found that the indemnity agreement did not evidence the parties’ intent as to the defendant’s obligation to issue performance and payment bonds after issuing a bid bond. The trial court properly admitted evidence of custom and usage to demonstrate the existence and substance of an implied contract. Evidence of custom or usage is properly admissible when the subject matter, as here, is not a matter of common knowledge. Jacobson Electric Co. v. Rome Fastener Corporation, 156 Conn. 55, 60, 238 A.2d 415 (1968); see Calamari & Perillo, Contracts (2d Ed.) § 3-15. We reject the defendant’s claim that the court erred in its instructions to the jury on the issue of custom and usage.
The defendant claims that such instructions permitted the jury to speculate as to the parties’ intention based upon the general custom in the industry. The instructions allowed the jury to define the parameters of the parties’ agreement by reference to trade custom and usage. In its instructions, the court also cautioned the jury that custom and usage would not be the
In its brief, the defendant also points to a claimed inconsistency between the jury instructions and the court’s memorandum of decision relating to whether custom and usage may create an agreement or merely supplement an existing agreement. There is no such inconsistency in the court’s position as expressed in its jury instructions, and later as expressed in its memorandum denying the defendant’s motion to set aside the verdict and its motion for judgment notwithstanding the verdict. The claimed conflict is based upon parts of the charge taken out of context by the defendant. As the trial court observed relative to the defendant’s claim that the court charged that a contract may be “created” by custom and usage, “the defendant in bolstering its claim ignores the court’s instructions to the jury when it stated ‘[a]n agreement is supplemented or qualified by a reasonable usage with respect to agreements of the same type.’ ”
III
Damages
A
FORESEEABILITY
Several claims of error concern the jury’s award of damages. The defendant claims that the jury award of consequential damages included losses which were not foreseeable at the time the parties entered into the alleged implied contract. It also alleges that the award
“Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.” 3 Restatement (Second), Contracts § 351 (1). The trial court charged the jury in accordance with this recognized general principle.
B
FAIR MARKET VALUE AS A MEASURE OF DAMAGES
The defendant claims that the jury erred in awarding damages for the loss of the plaintiff’s business where there was no evidence as to its fair market value
“There are no unbending rules as to the evidence by which [damages for breach of contract] are to be determined.” Gordon v. Indusco Management Corporation, 164 Conn. 262, 273, 320 A.2d 811 (1973). “The general rule in breach of contract cases is that the award of damages is designed to place the injured party, so far as can be done by money, in the same position as that which he would have been in had the contract been performed. . . . In making its assessment of damages for breach of [any] contract the trier must determine the existence and extent of any deficiency and then calculate its loss to the injured party. The determination of both of these issues involves a question of fact which will not be overturned unless the determination is clearly erroneous.” Beckman v. Jalich Homes, Inc., 190 Conn. 299, 309-10, 460 A.2d 488 (1983). As previously stated, damages are not recoverable where the party in breach could not reasonably have foreseen such damage as a probable result of the breach at the time the contract was made. 3 Restatement (Second), Contracts §351.
We disagree with the defendant’s claim that evidence of the fair market value of the plaintiff’s business was insufficient to allow the award for damages. The trial court in its memorandum of decision specifically rejected the claim that the plaintiff’s damages were limited to the difference between the fair market value of the business before the breach and the fair market value after the breach. The court held that the facts of this case were unusual and justified additional compensation for losses incurred in winding up the plaintiff’s business. In evidence before the jury in its
The court’s charge with respect to the measure of damages for loss of the plaintiff’s business was proper. There was no error in its refusal to charge the jury, as requested by the defendant, on the measure of damages for loss of earnings and loss of the plaintiff’s business. The jury’s assessment of damages for loss of the plaintiff’s business after the defendant’s breach of contract was in accordance with the proper charge of the court. In acting on the postverdict motions of the defendant, the court did not err in finding that the evidence provided a sufficient basis upon which the jury could determine with a reasonable degree of certainty the loss resulting from the termination of the plaintiff’s operations.
The defendant also makes the related claim that the trial court erred in allowing the jury to consider losses
Even if the evidence of losses after June 1, 1975, were admissible, the defendant argues that it was erroneous to allow the jury to calculate the amount of the plaintiff’s damages based upon the differences in retained earnings from June 1,1975, through May 31, 1979. It argues that retained earnings, an indicator of stockholder’s equity, are irrelevant to the amount of damages suffered by the company. We agree that in certain cases retained earnings may be an inaccurate measure of loss to a corporation. Certain additions to, or subtractions from, the corporation’s accumulated income which are not directly attributable to its normal day-to-day operations may be reflected as retained earnings. Consequently, changes in retained earnings would then indicate gains or losses not otherwise attributable to damages in a breach of contract action. That, however, is not the case here.
The retained earnings of the plaintiff for the period from June 1, 1975, through May 31, 1979, were based solely upon operational income. The same damages would have been proven by the plaintiff through a calculation of the corporation’s net earnings or losses for the period June 1, 1975, through May 31,1979. See 22 Am. Jur. 2d, Damages § 178. By the defendant’s own computation in its brief, the total net loss for the period June 1, 1975, through May 31, 1979, as shown by the plaintiff’s financial records, admittedly amounts to $224,186, rounded off. A comparison of the combined
The defendant also argues that it was error to award the plaintiff damages for losses incurred for the period June 1, 1975, through May 30, 1979, as such losses included overhead expenses incurred as a result of completing other projects and were not the probable result of the defendant’s breach. It claims that the plaintiff completed its last project in 1976 and thereafter became defunct. It is not disputed that a significant amount of the losses incurred during the winding up of the plaintiff’s business was the result of overhead expenses incurred as the result of other projects. They were, however, the natural result of contracts existing between the plaintiff and third persons at the time of the breach and were, in the circumstances of the case, foreseeable. In this regard, the trial court stated in its memorandum of decision that “[a]s the defendant knew, the plaintiff had contract obligations that had to be completed, and the application of the entire overhead for the remaining business resulted in severe losses.”
The trial court instructed the jury relative to the plaintiff’s claim of resulting damages as follows: “You must take all the evidence into consideration, determine first whether the plaintiff proved its loss of profits with reasonable certainty; and, second, the amount of such loss is a question of fact for you to determine. Next, the plaintiff urges you to consider as an element of damage the loss it sustained as a result of the corporation going out of business. The claim is that as a result of the defendant’s breach of the implied contract to furnish the performance and payment bonds, it was unable to get another surety company to write bid, performance or payment bonds, and eventually became defunct or went out of business. . . . Loss of earnings is an element which you may consider in deter
Lost earnings may be awarded only where they are reasonably certain to result from the breach. 22 Am. Jur. 2d, Damages § 172. The jury’s finding in this regard was reasonable. We cannot conclude, therefore, that the trial court erred in refusing to set aside the jury’s award of damages.
Punitive Damages
The defendant claims that it was error for the trial court to allow an award of punitive damages on the third count in this action for breach of contract. The trial court allowed punitive damages on the third count as an extension of the doctrine expressed for the first time in our jurisdiction in Grand Sheet Metal Products Co. v. Protection Mutual Ins. Co., 34 Conn. Sup. 46, 375 A.2d 428 (1977). In Grand Sheet Metal, the trial court overruled the defendant’s demurrer to the plaintiff’s complaint asserting a tortious breach of contract and seeking recovery against its fire insurer beyond the amount of the policies in question on the ground of bad faith business conduct. The court’s ruling was on the ground that a bad faith breach of contract gave rise to a distinct tort claim, following Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 510 P.2d 1032, 108 Cal. Rptr. 480 (1973). Grand Sheet Metal Products Co. v. Protection Mutual Ins. Co., supra, 50. The California Supreme Court in Gruenberg held: “It is manifest that ... in every insurance contract there is an implied covenant of good faith and fair dealing. The duty to so act is immanent in the contract whether the company is attending to the claims of third persons against the insured or the claims of the insured itself. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.” Gruenberg v. Aetna Ins. Co., supra, 575.
The trial court, in its memorandum of decision, explains its reasoning for allowing punitive damages to the plaintiff in this manner: “Granted that this case
The plaintiff’s claim for attorney’s fees as punitive or exemplary damages is predicated on paragraph twenty-seven of the third count in the substitute complaint which alleges: “In so refusing in bad faith to give plaintiff said payment and performance bond as represented, and in so misleading plaintiff, the defendant acted outrageously and maliciously toward the plaintiff with willful disregard for plaintiff’s rights under the terms of its implied agreement with the plaintiff, and with the intention of causing it severe economic and financial loss.”
The guiding principle of law applicable to the recovery of punitive damages for breach of contract obligations, express or implied, is expressed in Triangle Sheet Metal Works, Inc. v. Silver, 154 Conn. 116, 127, 222 A.2d 220 (1966): “Punitive damages are not ordinarily recoverable for breach of contract. Restatement, 1
Breach of contract founded on tortious conduct may allow the award of punitive damages. Such tortious conduct must be alleged in terms of wanton and malicious injury, evil motive and violence, for “punitive damages may be awarded only for ‘outrageous conduct, that is, for acts done with a bad motive or with a reckless indifference to the interests of others.’ Restatement, 4 Torts § 908, comment (b).” Triangle Sheet Metal Works, Inc. v. Silver, supra, 128. Thus, there must be an underlying tort or tortious conduct alleged and proved to allow punitive damages to be granted on a claim for breach of contract, express or implied. Elements of tort such as wanton or malicious injury or reckless indifference to the interests of others giving a tortious overtone to a breach of contract action justify an award of punitive or exemplary damages. In our jurisdiction such recovery is limited to an amount which will serve to compensate the plaintiff to the extent of his expenses of litigation less taxable costs.
Our review of paragraph twenty-seven of the third count of the plaintiff’s complaint discloses allegations of tortious misconduct by the defendant in its refusal to furnish the payment and performance bonds in violation of its implied contract after issuing the bid bond on the Trumbull project. In substance, the plaintiff alleges therein malicious and wanton misconduct which
The court, therefore, did not err in refusing to instruct the jury, as requested by the defendant, (1) that since this is a breach of contract action, punitive damages are not recoverable as a matter of law, and (2) that since there is no contract of insurance, any claim for bad faith must fail as a matter of law. Our review of the court’s charge with respect to punitive damages for bad faith breach of contract shows that it comported with the law. The court did not err in this regard as further claimed by the defendant.
The defendant also challenges the jury’s finding of sufficient evidence to support its award and amount of punitive damages. Specifically, the defendant asserts that the evidence was insufficient to substantiate the plaintiff’s allegation in its third count that the “defendant acted outrageously and maliciously toward the plaintiff with willful disregard for plaintiff’s rights under the terms of its implied agreement with the plaintiff, and with the intention of causing it severe economic and financial loss.” The record demonstrates, and the jury could reasonably have found, that the defendant’s manager refused to review the plaintiff’s current financial statements before refusing to issue performance and payment bonds on the Trumbull project. The jury also could reasonably have found from the testimony of Vincent J. Fazio that the defendant’s manager “was going to get me and he was going to get the Paces.” In its answer to interrogatory number eight, the jury affirmatively found that “the plaintiff Pace [did] prove under the Third Count that the defendant Travelers
The defendant also challenges the amount of punitive damages, claiming that there was insufficient evidence demonstrating the reasonableness of the plaintiff’s litigation expenses. We need not consider the merits of this claim, as no objection was made at trial to the introduction into evidence of the retainer agreement between the plaintiff and its attorney which provided for legal fees of 25 percent of the recovery. See Deedy v. Marsden, 172 Conn. 568, 570, 375 A.2d 1032 (1977).
V
Evidentiary Rulings
During the course of the trial, the defendant attempted to admit into evidence two letters of intent purportedly issued by the defendant, through its attorney-in-fact, Vincent J. Fazio. These letters of intent were offered only for the purpose of attacking the credibility of the plaintiff’s witnesses, specifically Michael Pace and Fazio. The plaintiff objected to this offer on the ground that the letters were not authenticated. Fazio testified that the signatures that appear-on these letters were not his. The plaintiff also claimed that these documents, which related to bonds issued prior to the Trumbull project, were collateral to the case and therefore could not be used for impeachment purposes. The trial court sustained the objection on both grounds. With respect to the issue of relevancy, the trial court has broad discretion in such matters and may only be reversed where such discretion is abused. Turgeon v. Turgeon, 190 Conn. 269, 273-74, 460 A.2d 1260
VI
Promissory Estoppel
The defendant’s final claim is that the trial court erred in instructing the jury on the doctrine of promissory estoppel. The jury specifically found that an implied contract existed between the parties. Therefore, the issue of estoppel was never reached. For this reason, the trial court properly declined to review this claim.
VII
Plaintiff’s Cross Appeal For Interest
The plaintiff appeals from the trial court’s denial of the plaintiff’s postjudgment motion for prejudgment interest on the award of compensatory damages.
There is no error on the defendant’s appeal or on the plaintiff’s cross appeal.
In this opinion the other judges concurred.
For a general discussion on the indemnification of a surety see 11A Appleman, Insurance Law and Practice §§ 6661 through 6667.
In its instructions to the jury, the trial court defined the terms “bid bond,” “performance bond” and “payment bond” as follows: “A ‘bid bond’ is a promise by the contractor, which is guaranteed by a surety company, to indemnify the owner against loss resulting from the refusal of the contractor, upon awarding of the contract, to enter into the contract and furnish performance and payment bonds. A ‘performance bond’ is a promise by a contractor, which is guaranteed by a surety company, that the contractor will perform the contract. A ‘payment bond’ is a promise by a contractor, which is guaranteed by a surety company, that the said contractors and material men who supply services and material for the construction of the project, will be paid by the contractor.” There was no dispute at trial as to the definitions of these terms.
The defendant’s preliminary statement of issues lists thirty-eight claims of error which it has reduced in its brief to twenty in number. These numerous claims are, in effect, subsidiary points of law that are discussed under the three groupings of the principal issues on appeal. Practice Book § 3060F (a) and (d). We shall consider the claims of error in the form in which they have been briefed.
The parties and the court agreed that the issue of the interpretation of the agreement was a question of law for the court. Although this procedure conflicts with what we perceive the current state of the law to be; see, e.g., Harry Skolnick & Sons v. Heyman, 7 Conn. App. 175, 179, 508 A.2d 64, cert. denied, 200 Conn. 803, 510 A.2d 191 (1986); Finley v. Aetna Life & Casualty Co., 5 Conn. App. 394, 404, 499 A.2d 64, cert. granted, 198 Conn. 802, 501 A.2d 1213 (1985); we will decide the appeal on the theory on which it was tried and decided in the trial court.
The defendant cites Travelers Indemnity Co. v. Buffalo Motor & Generator Corporation, 58 App. Div. 2d 978, 397 N.Y.S.2d 257 (1977), in support of its claim that paragraph nine of the indemnification agreement insulates the surety from liability for failure to issue a bond. That case was brought by the plaintiff surety seeking indemnity based upon its bid bond after the defendant defaulted subsequent to the award of a contract. The default was due to the defendant’s inability to obtain the necessary performance bond. The court held that the language of the agreement clearly prohibited the defendant from asserting the plaintiffs failure to issue a bond as a defense to an indemnity action. That case is distinguishable from the present case, which is an action by the principal for breach of contract, rather than an action by the surety for indemnity. In the present case, the terms of the contract between the parties is directly at issue.
The trial court instructed the jury that “damages awarded to the plaintiff cannot go beyond those which you can fairly find to have been in the contemplation of the parties at the time they made the contract.”
The term “retained earnings” is defined as “accumulated net income, less distributions to stockholders and transfers to paid-in capital accounts . . . . ” Kohler, A Dictionary for Accountants p. 430. A general discussion of retained earnings is found in Davidson, Handbook of Modern Accounting chapter 27.
The jury’s award of compensatory damages for this loss based upon its answer to question seven of the interrogatories submitted to it was $224,815. The amount of this award appears to be in excess of the proof of $224,185 and was probably due to a transposition of figures.
The defendant claims for the first time in its reply brief that the trial court erred in its instructions to the jury in failing to limit the computation of the amount of damages to that described by the plaintiff in response to an interrogatory from the defendant. We will not review a claim raised for the first time in the defendant’s reply brief. R.A. Civitello Co. v. New
Although the plaintiff, in its preliminary statement of issues, claims that the court erred “in denying Plaintiff’s Motion for Interest on the jury’s award for breach of contract, attorney’s fees and punitive damages,” his postverdict motion requested interest only “on the [compensatory] damages as awarded by the jury in Counts One and Two.”
