Ragon v. O'Charley's

IN THE COURT OF APPEALS OF TENNESSEE FILED AT KNOXVILLE August 17, 1998

Cecil Crowson, Jr. Appellate C ourt Clerk

JERRY W. RAGON and JERRY ) C/A NO. 03A01-9711-CH-00499 LEBR ON R AGO N, a Partne rship ) d/b/a ACTION LINEN SERVICE, ) HAMILTON CHANCERY ) Plaintiffs-Appellees, ) HON. R. VANN OWENS, ) CHANCELLOR v. ) ) AFFIRMED IN PART, O’CH ARL EY’S , INC., ) REVERSED IN PART, ) AND REMANDED FOR A NEW TRIAL Defend ant-App ellant. ) ON THE ISSUE OF DAMAGES

ROBERT D. BRADSH AW and B. STEWART JENKINS, JENKINS & BRADS HAW, P.C., Chattanooga, for Plaintiffs-Appellees.

JOHN G. JACKS ON, CHAM BLISS, BAHNER & STOPHE L, Chattanooga, for Defend ant-App ellant.

O P I N IO N

Franks, J.

In this breach of contract action for damages, the jury returned special verdicts in plaintiffs’ favor, and the Chancellor entered a judgment for damages against defendant. Defendant has appealed. The issues on appeal raised by defendants are:

I. Whether the C hancellor erred in not sustaining O ’Charley’s objection to defective verdict, or in the alternative in not granting a new trial, as the jury’s verdict w as inconsiste nt and con trary to the manifest weight of the evidence?

II. Whethe r in the alternativ e, the Chan cellor erred in refusing to suggest a remittitur, as the jury’s award of damages was excessive and contrary to the manifest weight of the evidence?

III. Whether the C hancellor erred in failing to grant O ’Charley’s motion in limine, and/or for directed verdict on the alleged Hixson contract. As the proof clearly showed, the plaintiff destroyed and rescinded a copy of the alleged contract with the intent to release O’Charley’s from any obligation it may have had under the a lleged con tract?

The focal point of this dispute is a contract for linen service entered between plaintiffs and defendant’s kitchen manager, Jason Giacchi, at the Hixson restaurant. Plaintiff had begun providing linen service to defendant’s Dalton restaurant in 1993. The original contract with the Dalton restaurant was an oral agreement1 with the kitchen mana ger to su pply linen s.

Plaintiff Jerry Ragon testified that he first contacted the general manager of the “Shallowford Drive” restaurant in Chattanooga, Jerry Madden, about providing linen service to O’Charley’s restaurants. Madden advised that he was under a contract with another service, but informed of the opening of the Dalton restaurant. Madden referred Ragon to Alan Goins who would be the manager of the Dalton restaurant, and plaintiff s entere d into an oral agr eemen t to prov ide linen service for the D alton ou tlet. Subsequently, Madden advised that defendant had purchased the Black Eyed Pea restaurant in H ixson and was con verting it to an O’Cha rley’s. Madd en told plain tiff to contact W es Wilkers on, who would b e the gene ral manag er of the H ixson restau rant, about supplying linen services. Plaintiff w ent to the Hixson restaura nt where constru ction w as und erway, an d appro ached Wilke rson ab out pro viding linen se rvice. Wilkerson told him to talk to Jason Giacchi who was the kitchen manager and handled the linen for the restaurant. Plaintiff spoke with Giacchi and discussed the type of 1

Plaintiffs subsequently entered into a written contract executed by the manager with the Dalton restaurant.

service needed, and they negotiated a contract for linen service. Plaintiff explained that he wanted a written contract because the Hixson restaurant needed uniforms supplied, which plaintiffs would have to purchase, as well as the increased volume would require addition al equip ment to service that volu me.

A boiler plate contract was furnished Giacchi who filled it out with the aid of p laintiff, a nd Gia cchi sig ned as k itchen m anage r and R agon a lso sign ed. Giacchi retained the original and Ragon the copy. Subsequently, plaintiff was called by Alan Goins at the Shallowford restaurant, who advised that his linen contract was up with the other company, and plaintiff entered into an oral agreement to provide linen service for the Shallowford restaurant. He explained that a written contract was not neede d, since he w as only supplying linens, and th at plaintiff ha d an adeq uate invento ry to servic e this res taurant.

Plaintiff testified that on January 8, 1996, plaintiffs went to the Hixson store on a regular service call and was advised by the manager that he had a new linen company, and that “I needed to gather my stuff and get out of the store”. He denied that he had received any complaints about the quality of his service prior to the abrupt termination.

In the specia l interrogatorie s submitted to the jury, the jury w as asked if Giacchi h ad “actual a uthority” to exec ute the con tract, to which the jury respon ded in the negative. The jury was also queried as to whether Giacchi had “apparent authority” to execute the contract. The jury responded affirmatively, and the Trial Judge ap proved th is verdict.

Defendant co ntends under the first issue that these findings are inconsistent, and argues that there was no evidence that defendant had ever allowed a kitchen manage r to sign such contracts, there w as no evidence that kitche n managers had theretofore signed such contracts, and no proof was offered that plaintiff had ever *4 been told that kitchen managers could sign such contracts. These findings are not inconsistent, but contrast the distinction between actual and apparent authority. Our Supreme Court gave this explanation in O’Sh ea v. Fir st Fed. S avings , etc., 218 Tenn. 619-624 (1966), and said:

It is further the settled law of this State that a general agent is authorized to act within the apparent scope of his authority, though this may be different f rom his ac tual powe rs; that is to say, an ag ent may bind his principa ls by acts w ithin the g ener al scope of his appare nt au thority, notwithstanding the use of powers in excess of authority actually given by the principa l.

Accord ingly, the lack of evidence of actual au thority does no t necessarily def eat a find ing o f app aren t auth ority.

The issue thus beco mes whether the re is material evidence to supp ort the jury’s verdict. We are only authorized to set aside a jury verdict if there is no materia l eviden ce to su pport it. T .R.A.P . Rule 1 3(d).

In ad ditio n to the fo rego ing, p laint iffs offered the te stimony of Da rryl MacC onkey, w ho had served as the fi rst assista nt man ager at th e Hixs on resta urant. He testified that he had never heard of plaintiff when he went to work at the Hixson store, but was told by Giacchi that plaintiff was providing the linen service. He further testified:

Q. Did you at some point in time see written proof that Action Linen Service would be the provider of the linen service there?

A. Yes, I did.

Q. What did you see?

A. I saw a contract from Action Linen.

Q. Did you have occasion to look at the contract and see who had signed it?

A. I glanced at it, but I was in the process of filing a lot of warranties and stuff, trying to get the of fice put together.

Q. Now explain that to us. How did you come about filing

warra nties, etc .?

A. Wes Wilkerso n was the gene ral manager and h e had Shelly Perry and myself filing all the warranties on the equipment in the kitchen that fall in my domain as being a first assistant, so we wer e filing th em a way.

Q. And yo u had o ccasion to file the docum ent that yo u’ve .

A. Yes.

Q. You’ve . . . referred to.

A. Yes.

A good statement of what the plaintiff is required to show to establish the apparent authority of the agent is set forth in 3 Am.Jur.2d Agency §80, p.587:

In order to establish that an agent had the apparent authority to do the act in question, it must be established (1) that the principal has manifested his consent to the exercise of such authority or has knowin gly pe rmitt ed th e age nt to assu me th e exe rcise of su ch au thority, (2) that the third person knew of the facts and, acting in good faith, had reason to believe, and did actually believe, that the agent possessed such authority, and (3) that the third person, relying on such appearance of authority, has ch anged his position and will be injure d or suffe r loss if the act done or transaction executed by the agent does not bind the principal.

Accord: Rich Prin ting Co. v. M cKellar’s E state, 46 Tenn. 444, 478-9 (1959). We conclude there is mate rial evidence to support th is verdict. Th e trier of fact c ould reasonably infer that the manager2 had knowingly permitted the agent to enter into the contract from the foregoing evidence. Evidence that an agent who acts with the knowledge and approval of his principal is circumstantial evidence of what the agent was au thorized to do. Boillin-Harrison Co. V. Lewis & Co., 182 Tenn. 342, 187 S.W.2 d 17. Rich Printing Co.

We find the first issue to be withou t merit.

The jury’s verdict approved by the Trial Judge was for $52,960.00 as 2

There is material evidence that a manager had “actual” authority to enter such contracts. *6 liquidated damages for breach of the Hixson restaurant contract, and unliquidated dama ges of $33,00 0.00 fo r the bre ach of the Da lton resta urant co ntract.

Defendant’s second issue questions the propriety of the damages awarded, on two bases. It asserts that the $33,000.00 award of actual damages for the breach of the Dalton contract “is contrary to the manifest weight of the evidence” and that there is no evidence to support the jury’s finding of liquidated damages for the breach of the H ixson c ontract.

We aga in observe that our revie w is not to w eigh the ev idence, bu t to determine if there is ma terial evidenc e to suppo rt the jury’s finding . T.R.A.P . Rule 13(d). Under the evidence, the liquidated damage clause in the Dalton contract set damages at $44,798.20. The jury, in answer to questions, concluded as to this contract amou nted to a n unen forcea ble pen alty, and fo und ac tual dam ages to be $33 ,000.00 . However, as to the Hixson contract, the jury found that the damages calculated by the liquidated damage clause was reasonable and not a penalty. It then found that the liquidated damage clause was enforceable, and set the liquidated damages as heretofore noted. The provision for liquidated damages in the Hixson and Dalton contracts state:

The parties agree that in the event of any termination of service by the customer in breach o f this contrac t, the supplier sh all be entitled to liquidated damages in the amount equal to forty (40%) percent of the average weekly fees charged for services hereunder prior to the date of termination, multiplied by the number of weeks remaining in the unexpired term of this c ontract. Said liquidation is n ot a penalty, but is intended to compensate the supplier for expenses which would have been absorbed and profit which would have been generated by the customer ’s fulfillmen t of its obligation under this c ontract.

Defendant co ntends that the liquidated dam ages awarded by the jury under the Hixson contract is “grossly in excess of actual damages”. The Supreme Court in V.L. N icholso n Co. v . Trans con Inv ., 595 S.W.2d 4 74, 484 (Tenn. 19 80), explained why and when liquidated damages are appropriate:

The term “liquidated damages” means a sum stipulated and agreed upon by the parties at the time they enter th eir contract, to b e paid to compensate for injuries, should a breach occur. 22 Am.Jur Damages 212, 19 65. See Railroad v. Cabinet Co., 104 Tenn. 568, 58 Southw estern 303 (1900). Th e reason fo r allowing p arties to stipulate the amou nt of dam ages is to crea te certainty whe re damag es are likely to be unc ertain an d not ea sily prove n. Railroad v. Cabinet Co., supra. The amount stipulated should be reasonable in relation to the terms of the contract and the certainty with w hich damages c an be measured ; there must exist a reasonable relationship between the amount and what might reason ably be ex pected in the ev ent of a breach . Id. If the provision is a reasonable estimate of the damages that would occur from a breach, then the provision is normally construed as an enforceable stipulation for liquidated damages.

The evid ence estab lishes that dam ages for b reach of c ontracts of th is nature are not easily established. Plaintiff testified to inventory investment in excess of $10,000.00, and included 40% of the cost for equipment, van, overhead, including insurance, license, rent and anticipated profits as elements of damages. He was of the opinion that his losses for breach of the contract exceeded the stipulated liquidated damages. In his analysis, he did the same cost scenario for the Dalton contract, and offere d an op inion th at his los ses for t hat brea ch we re slightly in excess of $40 ,000.00 .

While plaintiff was permitted to offer his opinion of damages without objection, there is no material evidence to support a finding that plaintiff’s actual dama ges bo re a reas onable relation ship to th e stipula ted dam ages in the con tracts. The evidence does not establish that plaintiff’s opinion of his losses is based on accurate analysis derived from sound cost accounting principles. Accordingly, we set aside the jury verdict on the amount of damages, and award a new trial on the issue of actual d amag es for b reach o f these c ontracts .

Prior to trial, defendant had withdrawn its defense of the unreason ableness o f the liquidate d damag e clauses, bu t took the po sition at trial that it intended to argue that liquidated damages were not the proper measure of damages under the contracts. The Trial Judge agreed to this procedure after the parties agreed *8 that the plaintiff could, after the defen dant’s proof, offer evid ence of his dam ages. It is clear the plain tiff suffere d damag es, but it is also cle ar that he w as not prep ared to offer evidence on the issue of actual damages. Because of the procedural tactics3 of defendant and our dissatisfaction with the sufficiency of the evidence on the issue of actual damages, we remand for a new trial on the issue of actual damages, for the breach of both contracts. On remand, plaintiff will be entitled to offer proof of damages in the nature of reasonable expenses made in preparation for performing these co ntracts. See 22 Am.Jur.2d Damages §596, and profits lost as a result of the breach of the contract. Plaintiff will be required to establish his lost profits to a reasonable degree of certainty, but since prospective profits are to some extent uncertain and problematical, uncertainty as to the amount of profits that would have been realized, will not prevent a recovery. 22 Am.Jur.2d Damages §625, p. 686.

Finally, defendant argues that it should have been granted a directed verdict on the Hixson contract because the proof established that plaintiff had destroyed and rescinded the contract with the intent of releasing defendant from any obligations under the contract. We do not agree. Plaintiff testified that he advised defenda nt’s agents th at he wou ld “tear up” the Hixso n contract if d efendan t would honor the other two contracts with their outlets. He further testified that the agent had indicated that plaintiff would lose the other business if he attempted to enforce the Hixson contract. However, after that conversation, plaintiff also lost the other contracts within a short time. Under these circumstances, there was material evidence to support the jury’s finding that there was no meeting of the minds on a “cancellatio n” of the H ixson con tract.

We aff irm the judg ment of th e Trial Co urt in part and reverse in p art, 3

After withdrawing the affirmative defense, defendant essentially raised it again during trial. *9 and remand for a new trial on the issue of damages for breach of the contracts.

The cost o f the appe al is assessed o ne-half to p laintiffs and one-half to defenda nt.

__________________________ Herschel P. Franks, J.

CONCUR:

___________________________ Charles D. Susano, Jr., J.

___________________________ William H. Inman, Sr.J.