This is an action in tort for damages for humiliation, embarrassment, loss of reputation and credit rating, which is claimed to have resulted from interference by defendants with a contract between plaintiff and Diamond Lake Lumber Company (Diamond Lake). The defendants Newman and Palmerton appealed from a judgment
One of defendants' assignments of error is the court's denial of their motion for a directed verdict. They contend there is insufficient evidence to substantiate a cause of action against them. The facts stated in the manner most favorable to plaintiff are as follows.
Diamond Lake was a corporation engaged in the operation of sawmills. Defendant Newman was its President, its managing officer, a member of its board of directors and a stockholder. Defendant Palmerton, Newman's father-in-law, was employed by Diamond Lake as a business advisor. He was an unsecured creditor of the corporation in the amount of about $200,000 and a co-signer of its performance bond on a timber purchase contract subsequently described. He had the right under a contract with Diamond Lake and its stockholders to assume the management of the corporation for the benefit of its unsecured creditors. He did not exercise this right at any time material to this litigation.
Diamond Lake purchased a large block of government timber. It entered into a contract with plaintiff to log the timber for it in compliance with its contract with the government and to haul the logs to Diamond Lake's mills. The parties contemplated that the contract would take five years to complete. The government contract required, as part of the logging, that timber access roads be built to government specifications. The anticipated cost of the road construction was in the neighborhood of $300,000. Plaintiff assumed this obligation as part of the logging. The cost of road construction was one of the factors considered in fixing the price he was to receive for logs delivered at Diamond Lake's mills.
On April 20, 1959, when the written contract was made between plaintiff and Diamond Lake, Diamond Lake's assets were less than its liabilities, and plaintiff had a net worth of about $40,000. Defendants knew that plaintiff lacked the financial resources with which to make the large, preliminary expenditures necessary for roads. The defendant Newman, both before and after the execution of the contract with plaintiff, verbally assured plaintiff that Diamond Lake would assist by advancing money toward the cost of the roads. The defendant Palmerton, after the signing of the contract, told plaintiff he would personally help finance plaintiff's road building for up to four years. The exact amount of the financing promised by both Diamond Lake and Palmerton was never specified. The written contract contained no provision for financing plaintiff by Diamond Lake.
Subsequently both Diamond Lake and Palmerton either loaned their credit or advanced funds for the benefit of plaintiff. The corporation incurred an obligation of $54,000 to a third party for the building of roads which were plaintiff's obligation under his contract. Palmerton co-signed plaintiff's note for $30,000 to obtain money for road construction. The corporation advanced $19,000 at the end of the 1959 logging season so plaintiff could pay his bills. It purchased culvert pipe for him in an unspecified amount at plaintiff's request. These were in addition to payments made pursuant to the contract for delivered logs. At the time of the breach in question, none of these advances had been substantially repaid by plaintiff. An oral agreement had been made at the end of 1959 that four dollars per thousand board feet of logs delivered would be withheld by Diamond Lake to reimburse it for money advanced for roads, but it appears that Diamond Lake had not availed itself of its right to do so prior to the time of the alleged breach.
The first logs were delivered under the contract in June of 1959. By the summer of 1960 Wampler had expended about $144,000 for roads, somewhat in excess of the financing provided by Palmerton and Diamond Lake. Wampler's financial situation was precarious. On July 25 he did
Diamond Lake had the funds to make the August 10 payment. Since Diamond Lake's liabilities exceeded its assets at the close of 1959 and 1960, and since the company incurred a net loss in 1960 of $160,069.84 and had an accumulated deficit of $232,048.37 in December 1960, it is likely that Diamond Lake's financial position was weak on August 10, 1960.
The relevant allegations of plaintiff's complaint are as follows:
Before it can be determined whether plaintiff's proof was sufficient, it is first
The interest protected by the interference with contract action is the interest of the individual in the security and integrity of the contractual relations into which he has entered. Economic relations are controlled by contract and the public also has an interest in maintaining the security of such transactions. Therefore the law provides protection.
The relief granted is of the broad type available in intentional tort actions and includes recompense for mental suffering, damage to reputation, and punitive damages.
In the usual interference with a contract situation, the person interfering is a complete stranger to the contractual relationship. A complicating ingredient is added where the party induced to breach its contract is a corporation and the third person who induces the breach is not a stranger, but is a person who, by reason of his position with the corporation, owes a duty of advice and action to the corporation. In the instant case, one defendant — Newman — was the President, and the other defendant — Palmerton — was employed as a business adviser of the corporation that was the party to the contract.
A corporation can only act upon the advice of officers or employes and through the actions of agents. Doing business through corporate structures is a recognized and necessary incident of business life. A party is usually able to abandon a disadvantageous but valid contract and be responsible for breach of contract only. Corporations would substantially be prevented from similarly abandoning disadvantageous but valid contracts, and from securing related business advice, if the officers and employes who advised and carried out the breach had to run the risk of personal responsibility in an action for interference with contract. Therefore, courts have tended to shield such persons from responsibility for inducing breach of the corporate contract, often saying that they are not liable if the action was taken in "good faith" and for the benefit of the corporation.
It is obvious that if the action or advice is to serve other interests than those of the corporation there can be no immunity because it is not rendered for the purpose which gives birth to the immunity.
The immunity of a corporate officer or employe, who is acting within the scope of his employment and for benefit of the corporation, to interfere with a corporate contract is often spoken of as "privilege."
In the present case, the action of defendants clearly was taken to benefit the corporation. Plaintiff alleges that the defendants intended, by inducing the corporate breach of contract, to enrich the corporation and thereby indirectly to improve their own financial conditions. We are then faced with the question whether lack of "good faith" exists where the selfish motivation of the corporate official or employe for inducing the corporate breach is to secure derivative benefits from the improved financial condition of the corporation.
Most corporate officers or employes have some sort of personal interest in the financial welfare of their principal, even though it may only be a hope of an
Since the plaintiff alleges that the defendants were acting to benefit the corporation, the motivation attributed to them establishes privilege and is insufficient to render them liable for the tort of interference with a contract. Such is the case even though plaintiff argues that the defendants intended to cause the corporation to take an unfair advantage of the plaintiff by means of the breach of contract.
The interest protected by the interference with contract action is the interest of the plaintiff in not having his contract rights interfered with by intermeddling strangers. However, so long as the person inducing the breach of a corporate contract is an officer or employe acting for the benefit of the corporation and within the scope of his authority, the plaintiff cannot show that this interest was invaded and therefore cannot maintain an interference with contract action.
On the other hand, there is no reason to protect corporate officers or employes who authorize, direct and participate in tortious conduct by their corporate principal. If the corporation commits a tort as a result of such intentional action on the part of its officers or employes, these agents are also responsible.
Plaintiff contends that the failure of Diamond Lake to make the August 10 payment was part of a scheme to obtain for Diamond Lake without payment the roads that Wampler was required to construct under the contract. According to plaintiff, Wampler was first induced to enter the contract and then encouraged, with promises of assistance, to invest all of his money and to utilize all of his credit for construction of the roads. It was planned, according to plaintiff, that the corporation would stop paying Wampler after the roads were substantially completed and before the bulk of the logs were removed. This was done with the motive of avoiding payment for the roads. Plaintiff further asserts that the defendants knew that Diamond Lake's alleged breach of contract would bankrupt the plaintiff, and he appears to suggest that bankrupting the plaintiff would, in some unexplained manner, benefit the corporation and thus defendants.
If, at the time Diamond Lake contracted with plaintiff, defendants had intended that Diamond Lake not pay plaintiff as promised, then defendants and Diamond Lake would be liable for the tort of deceit. Conzelmann v. Northwest Poultry & Dairy Prod. Co.
There was no evidence from which it could be inferred that at the making of the contract it was intended that Diamond Lake would breach its contract. Plaintiff cannot sustain an action for deceit. Nor does plaintiff contend in his brief that he has any such action.
If Diamond Lake breached the contract solely for the purpose of harming plaintiff and not for the purpose of advancing its self interest there is authority for the proposition that it would be liable in tort for the malicious injury caused.
It might be argued that defendants and the corporation would be guilty of prima facie tort if they caused the breach of contract for the purpose of obtaining for Diamond Lake without payment the value of the plaintiff's read construction. Some claim that an actual intent to harm is not a necessary element of prima facie tort.
As in almost all cases in which intent is in issue, there is no direct evidence of any bad motive or intent. Hence, it is necessary to ascertain whether there is sufficient circumstantial evidence of it.
The relationship between Diamond Lake and Wampler under their contract was such that, once Wampler constructed any roads, Diamond Lake would be able to utilize them whether it paid him and whether their contract relationship continued. Defendants did encourage plaintiff to fulfill the contract and build the roads. Diamond Lake did fail to pay Wampler on August 10 and did utilize the roads thereafter. Funds were available for payment. Such facts, however, are too equivocal to constitute proof of an intent to obtain for nothing the roads constructed by plaintiff by bankrupting plaintiff. It probably was known that Diamond Lake's failure to pay plaintiff might bankrupt him. Knowing that an act may bring about a result is quite a different thing from actually intending to bring it about. The facts shown are perfectly consistent with the conclusion that the non-payment in August was motivated solely by ordinary business considerations. One such consideration could have been defendants' fear that plaintiff was or was becoming unable to pay its bills and that Diamond Lake would have to pay off liens on its logs. It is extremely difficult to imagine that the defendants, who were experienced businessmen, could have really thought that Diamond Lake could benefit from bankrupting the plaintiff. The bankruptcy would serve to insure that Diamond Lake would be sued by the trustee in bankruptcy and forced to pay plaintiff's creditors for the road work done. In addition, a good part of the money invested in roads by plaintiff had been advanced by Diamond Lake and Palmerton. More substantial evidence than has been offered would be required to prove the existence of such an unlikely intent.
Defendants offered assistance to plaintiff with respect to road construction, and undoubtedly realized that he would be unable to build the roads without help. This assistance was not part of Diamond Lake's contract obligation. Nor does plaintiff contend that Palmerton or Newman were under any contractual obligation to him. Defendant Palmerton and Diamond Lake did provide substantial financial assistance but not all that plaintiff needed. These facts, too, are as consistent with an honest effort to assist Wampler in fulfilling his obligations under the contract as with an attempt to cheat him. Certainly defendants could not be accused of an intent to defraud for failing to furnish unlimited financing.
The evidence relating to an intent to take an unfair advantage of plaintiff by bankrupting him is so equivocal and insubstantial that it is insuffcient to pose a question of fact for the jury. Regardless of the name attributed to the alleged conduct of defendant and Diamond Lake, it smacks of double-dealing and fraud. Claims of this nature can only be proven by "circumstances of substantial character." Conzelmann, supra. It was not so in this case.
We know of no other tort theory under which it could be contended that defendants were liable to plaintiff because of Diamond Lake's breach of contract. The trial court erred in failing to grant the defendants' motion for a directed verdict.