Justia.com Opinion Summary: Robert Bennett signed a one-year employment agreement with Sage. That summer, Bennett communicated to Sage that he would require an increase of almost triple his salary or he would transition out of the company. When Sage did not meet his demands, Bennett continued working for Sage but pursued other employment opportunities. Bennett's employment was terminated that fall. Bennett filed a complaint against Sage seeking severance payments. During trial, the circuit court granted Sage's motion to amend its pleadings to include a defense of repudiation and submitted the issue of repudiation to the jury. The jury ruled against Bennett, and Bennett appealed. At issue was whether a party may repudiate his contractual duties after performance has commenced. The Supreme Court held that (1) repudiation may apply to a contract that has been partially performed when future obligations under the contract are repudiated, and (2) the circuit court properly rejected Bennett's argument that he did not repudiate the contract as a matter of law. Based on the evidence, the jury was entitled to conclude that Bennett's communications while he attempted to transition out of the company constituted a repudiation of his future obligations under the contract.
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Present: Kinser, C.J., Lemons, Goodwyn, Millette, and Mims,
JJ., and Russell and Koontz, S.JJ.
ROBERT P. BENNETT
v.
OPINION BY
JUSTICE LEROY F. MILLETTE, JR.
June 9, 2011
Record No. 100199
SAGE PAYMENT SOLUTIONS, INC.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Jan L. Brodie, Judge
In this appeal, the primary issue we consider is whether
an employee’s repudiation of an employment agreement can be
used by the employer as a defense against a breach of contract
claim.
We hold that a party’s repudiation of future
obligations under a contract, even after performance has begun,
may constitute a defense to a breach of contract claim.
We
also address issues concerning repudiation as a matter of law,
amendment of the pleadings to conform to the evidence, and jury
instructions.
I. Facts and Proceedings Below
In February 2008, Bennett was promoted to the position of
President of Sage Payment Solutions, Inc. (“Sage”), and the
parties entered into an Executive Employment Agreement
(“Agreement”).
Under the Agreement, Bennett was to earn a
yearly salary of $360,000.
The Agreement, which was for an
initial term of one year with automatic renewals for successive
one-year terms, also contained two other provisions relevant to
this appeal.
The Agreement’s termination provision provided
Bennett with severance benefits consisting of a year’s salary
plus bonuses and other benefits unless Bennett resigned without
“good reason” as defined in the Agreement or was terminated by
Sage for good cause.
In addition, the Agreement contained a
“non-competition” clause restricting Bennett’s employment for a
period of twelve months after his employment ended.
On June 7, 2008, following oral discussions with Sage
about his compensation, Bennett wrote in an email to Sage that
he would require increased compensation to the $1 million
range, “or we agree to my transition out of the company.”
In
that email, Bennett also stated that if his compensation
demands could not be met, then
we can work out a mutually agreeable transition plan.
Perhaps the best approach would be to have me stay on
in my current position or as a consultant while you
are searching for or selecting a replacement from
within. In either event, I will want the clock
running on any post termination restrictions listed
in my employment agreement.
When Sage did not meet his compensation demands, Bennett
continued in the position of President but openly pursued other
employment opportunities as he worked with Sage on this
“mutually agreeable transition plan.”
Sage told Bennett that
it considered his email to constitute a resignation, and not
merely a request for a higher salary.
Bennett disagreed and
stated that he considered Sage’s refusal of his compensation
2
demands to be a termination of his employment.
Bennett’s
employment was ultimately terminated on September 30, 2008.
Bennett filed a complaint against Sage seeking severance
payments due under the Agreement.
On the third day of a jury
trial, prior to the close of Bennett’s case-in-chief, Sage
moved for leave to amend its pleadings to include a defense of
repudiation.
Bennett objected, arguing that “[a]ccording to
the definition of repudiation,” the facts of his performance do
not support it, because Bennett continued to work and continued
to perform his duties under the Agreement after he sent the
June 7, 2008 email.
The circuit court, nonetheless, granted
Sage’s motion to amend and submitted the issue of repudiation
to the jury.
After the issue was submitted to the jury and the
jury posed two questions concerning the instruction on
repudiation, 1 Bennett requested that the circuit court issue the
jury an additional instruction to clarify the definition of
repudiation.
1
The court refused to give such an instruction,
Jury Instruction N states:
If you find that Mr. Bennett repudiated or
rejected the Executive Employment Agreement by
conditioning his performance of his duties on the
Company’s acceptance of such changes beginning in May
2008, then you may not find [Sage] liable for breach
of contract for its subsequent rejection of his
demand for severance pay.
3
stating that Bennett had agreed to the instructions that were
previously given to the jury.
After the jury returned its verdict in favor of Sage,
Bennett moved to set aside the verdict, arguing that “the
evidence does not support a finding that [he] clearly and
unequivocally repudiated the entire performance of the
contract.”
The circuit court denied Bennett’s post-trial
motions, and he timely filed his appeal to this Court.
II. Standard of Review
We review this appeal under well-settled principles.
“When parties come before us with a jury verdict that
has been approved by the trial court, they hold the
most favored position known to the law. The trial
court’s judgment is presumed to be correct, and we
will not set it aside unless the judgment is plainly
wrong or without evidence to support it. We view the
evidence and all reasonable inferences fairly
deducible from it in the light most favorable to the
prevailing party at trial.” We review matters of law
de novo.
Syed v. ZH Technologies, Inc., 280 Va. 58, 68, 694 S.E.2d 625,
631 (2010) (internal citations omitted).
We review a circuit court’s grant or denial of a party’s
motion for leave to amend its pleadings, based on a variance
between the evidence and the pleadings, on an abuse of
discretion standard.
We have explained:
In a case of variance, Code § 8.01-377 gives a trial
court the discretion to apply the foregoing rule
reasonably either by permitting amendment of the
pleadings (and possibly postponing the trial) or, in
4
lieu of amendment, by having the facts determined and
rendering judgment, but only on the condition that no
prejudice results. While the statute is remedial in
purpose and should be liberally construed, it should
not be interpreted in a manner inconsistent with its
plain language.
Hensley v. Dreyer, 247 Va. 25, 30, 439 S.E.2d 372, 375 (1994)
(citations omitted) (holding that “the trial court abused its
discretion by concluding, in a manner inconsistent with the
statutory language, that the variance ‘could not have
prejudiced’” the appellant).
Additionally, upon review of the substance of jury
instructions given by a circuit court,
our responsibility is to see that the law has been
clearly stated and that the instructions cover all
issues which the evidence fairly raises. [A]
litigant is entitled to jury instructions supporting
his or her theory of the case if sufficient evidence
is introduced to support that theory and if the
instructions correctly state the law. The evidence
introduced in support of a requested instruction must
amount to more than a scintilla.
Williams v. Cong Le, 276 Va. 161, 166, 662 S.E.2d 73, 76 (2008)
(internal citations and quotation marks omitted).
III. Repudiation of a Contract
Repudiation may be asserted as a valid defense to a breach
of contract claim in Virginia.
The United States Court of
Appeals for the Fourth Circuit, applying Virginia law, has
recognized that
in the case of a bilateral contract for an agreed
exchange of performances, a repudiation of his duty
by one of the parties terminates the duty of the
5
other. It gives to the latter the legal privilege of
refusing to render the return performance; if sued
for such refusal, the plaintiff's repudiation is a
good defense.
WRH Mortgage, Inc. v. S.A.S. Assocs., 214 F.3d 528, 532 (4th
Cir. 2000) (emphasis added) (citation and internal quotation
marks omitted).
We agree with the holding in WRH Mortgage that
repudiation may be used as a defense to a breach of contract
claim.
The question presented now becomes whether the court erred
by allowing Sage to assert repudiation as a defense to
Bennett’s breach of contract claim based on Bennett’s demand
for increased compensation or his “transition out of the
company,” after he had already begun performance under the
Agreement.
While we acknowledge the line of Virginia cases
that characterizes repudiation before performance is due under
a contract as an anticipatory breach, we hold that repudiation
may also apply to a contract that has been partially performed,
when future obligations under the contract are repudiated.
See
Lenders Financial Corp. v. Talton, 249 Va. 182, 189, 455 S.E.2d
232, 236-37 (1995) (“[B]ecause defendant’s repudiation of this
executory contract constitutes an anticipatory breach,
plaintiff may sue on the contract without waiting for the time
of defendant’s performance to arrive”); Link v. Weizenbaum, 229
Va. 201, 203, 326 S.E.2d 667, 668-69 (1985) (holding that
6
although the defendant clearly repudiated before performance of
the contract commenced, “his repudiation could not serve as the
basis for a claim of breach of contract because his co-obligor
did not join in the repudiation either expressly or by
assent”).
Our holding in this case is supported by our decision in
Board of Supervisors of Fairfax County v. Ecology One, Inc.,
219 Va. 29, 245 S.E.2d 425 (1978).
In Ecology One, we applied
an anticipatory breach theory to a factual scenario in which
performance under a contract had already begun.
There, the
contract for the construction of public streets and drainage
facilities was formed in May 1973, and performance under that
contract was underway as of October 1974 but an inspection
revealed that the contractor’s “work had come to a complete
halt” in the early months of 1975.
427.
Id. at 31, 245 S.E.2d at
We held that the contractor had repudiated because it
“abandoned its contract,” and we reversed the circuit court’s
decision that the County had not made out a prima facie case
for anticipatory breach.
Id. at 33-34, 245 S.E.2d at 428.
In Ecology One, the contractor’s obligations required
continuous performance over a period of time.
S.E.2d at 426.
The evidence justified the jury’s conclusion
that the contractor had abandoned the contract.
S.E.2d at 428.
Id. at 31, 245
Id. at 33, 245
We stated that “the abandonment of a contract
7
will give rise to an action for anticipatory breach.”
Id.
In
reaching this decision, we properly recognized that a party’s
abandonment of his or her contractual duties under a continuous
performance contract, after performance has commenced,
constitutes an anticipatory repudiation.
The same result
applies in this case.
Our view is also supported by case law from the United
States Supreme Court.
In Franconia Assocs. v. United States,
536 U.S. 129 (2002), for example, the Supreme Court applied
repudiation principles to a factual scenario in which a party
repudiated after performance had commenced.
There, certain
property owners agreed to devote a portion of their properties
to low- and middle-income housing in exchange for low interest
mortgage loans issued by the government.
Id. at 132-33.
The
owners’ promissory notes allowed prepayment of the loans.
at 133.
Id.
But a subsequent act of Congress placed permanent
restraints on the prepayment of the owners’ loans.
Id.
The
owners filed suit against the government arguing that the act
“effected . . . a repudiation of their contracts.”
Id.
The
Supreme Court agreed with the owners and held that the act
“qualified as a repudiation of the parties’ bargain.”
133, 143.
Id. at
In so holding, the Court stated that “the promisor’s
renunciation of a ‘contractual duty before the time fixed in
the contract for . . . performance’ is a repudiation.”
8
Id. at
143 (quoting 4A Corbin on Contracts § 959, at 855 (1951)
(emphasis in original).
The Restatement (Second) of Contracts also supports the
view that a party may repudiate his or her contractual duties
after performance has commenced.
Section 250 defines
“repudiation” as:
(a) a statement by the obligor to the obligee
indicating that the obligor will commit a breach that
would of itself give the obligee a claim for damages
for total breach . . . or
(b) a voluntary affirmative act which renders the
obligor unable or apparently unable to perform
without such a breach.
Restatement (Second) of Contracts § 250 (1981).
Thus, the
Restatement’s definition does not provide that repudiation must
occur prior to the commencement of any performance under the
contract.
When a contract requires performance continuously for some
period of time, a party’s renunciation of his or her
contractual obligation may constitute a repudiation.
Arthur L.
Corbin, 9 Corbin on Contracts § 954, at 738 (interim ed. 2002)
(section entitled “Breach by Repudiation of Obligation”).
In
such cases, the repudiation of the contractual obligation is
“anticipatory with respect to the performances that are not yet
due.”
Id.
In sum, we hold that a party’s renunciation or abandonment
of his or her contractual duties, after performance has
9
commenced under a contract requiring continuous performance,
constitutes a repudiation, which may be treated by the party to
whom the duty is owed as an anticipatory breach of the
contract.
Therefore, the issue of Bennett’s alleged
repudiation was properly before the jury.
IV. Bennett’s Repudiation
In his June 7, 2008 email to Sage, Bennett communicated
his dissatisfaction with his salary:
[W]hile I would enjoy recommitting to Sage, the
inequity between my current compensation and what I
think my value is on the outside is substantial.
With that in mind, I am suggesting that either my
compensation be altered to something more in line
with my value, albeit discounted, or we agree to my
transition out of the company.
Bennett asserts that his communication with Sage was
simply an invitation to negotiate, and that it clearly
indicates his preference to stay with the company.
He argues
that his language did not evince a clear and unequivocal
repudiation of the Agreement covering the entire contract
because he also agreed to stay on for a period of time while he
transitioned out of the company.
But, while transitioning out
of the company, he expected the twelve-month time frame
restricting his employment under the non-competition clause,
which he referred to as the “clock,” to be “running.”
In response, Sage argues that there was ample evidence by
which the jury could find that Bennett had repudiated the
10
contract.
According to Sage, testimony at trial included
statements attributed to Bennett during a June 5th conversation
that July 1, 2008 was his “drop dead date” for his departure
and that he had effectively given notice of his resignation.
Also, Sage argued that Bennett never suggested that there was a
third alternative to his receiving a higher salary or leaving
Sage.
Finally, Sage contends that Bennett never suggested that
he would be willing to continue in his position at his current
salary of $360,000 and that he suggested his own departure
date.
We have held that “[i]t is firmly established that for a
repudiation of a contract to constitute a breach, the
repudiation must be clear, absolute, unequivocal, and must
cover the entire performance of the contract.”
Vahabzadeh v.
Mooney, 241 Va. 47, 50, 399 S.E.2d 803, 805 (1991) (citations
omitted); see also Restatement (Second) of Contracts § 250
(repudiation entails a statement or “voluntary affirmative act”
indicating that the promisor “will commit a breach” when
performance becomes due).
In this case, when Bennett told Sage, four months into his
year-long contract, that he would leave the company unless his
demand for increased compensation was met, the jury could have
found that Bennett repudiated his obligation under the
Agreement.
Bennett’s repudiation would have been anticipatory
11
with respect to the remainder of the time he agreed to serve as
Sage’s president under the Agreement.
If Sage could not rely
upon Bennett’s repudiation, it could not begin its search for
his replacement until the day that Bennett simply failed to
show up for work and notified Sage that he would no longer
perform under the Agreement.
Because the Agreement required
continuous performance over a period of time, when Bennett
declared he would leave his position as president unless his
compensation was increased, Sage was entitled to rely on
Bennett’s repudiation and treat it as a breach.
Therefore, we hold that the circuit court did not err in
rejecting Bennett’s argument that he did not repudiate the
contract as a matter of law, because he continued to perform
his duties as he was attempting to negotiate his exit from the
company.
Based on the evidence presented, the jury was
entitled to conclude that Bennett’s refusal to consider any
alternative other than almost tripling his salary and his
demand that his post-termination non-compete obligations begin
running immediately constituted a repudiation by Bennett of his
future obligations under the one-year contract.
V. Variance Between Evidence and Allegations
Bennett contends that the circuit court abused its
discretion by allowing Sage to amend its defensive pleadings to
include a defense of repudiation.
12
We disagree.
In determining whether the circuit court erred by
permitting Sage to include a defense of repudiation in its
pleadings, the issue is whether Bennett was “prejudiced” by the
amendment.
Code § 8.01-377. 2
Furthermore, this Court has held:
[w]e adhere to the principle that a court may not
base a judgment or decree upon facts not alleged or
upon a right, however meritorious, that has not been
pleaded and claimed. Every litigant is entitled to
be told in plain and explicit language the
adversary’s ground of complaint. Like any other
rule, however, this principle must be reasonably
applied, keeping in mind that its purpose is to
prevent surprise.
In a case of variance, Code § 8.01-377 gives a
trial court the discretion to apply the foregoing
rule reasonably either by permitting amendment of the
pleadings (and possibly postponing the trial) or, in
lieu of amendment, by having the facts determined and
rendering judgment, but only on the condition that no
prejudice results. While the statute is remedial in
purpose and should be liberally construed, it should
not be interpreted in a manner inconsistent with its
plain language.
Syed, 280 Va. at 71, 694 S.E.2d at 632 (internal citations
omitted).
Sage moved to amend its answer to include the defense of
repudiation prior to the close of Bennett’s case-in-chief.
2
Code § 8.01-377, entitled “Remedy when variance appears
between evidence and allegations,” states in relevant part:
If, at the trial of any action, there appears to
be a variance between the evidence and the
allegations or recitals, the court, if it consider
that substantial justice will be promoted and that
the opposite party cannot be prejudiced thereby, may
allow the pleadings to be amended.
13
According to Sage, the evidence presented during Bennett’s
case-in-chief added support to its repudiation defense.
Specifically, Sage notes that Bennett testified that he had not
been involuntarily terminated by Sage, further evidencing that
he instituted the termination of the Agreement.
The court
granted Sage’s motion to amend, stating:
I think the facts were both known to both sides that
the argument is already pretty much laid out even
already the way we have been proceeding and has been
in the pleadings that I have seen. In light [of the
fact] that I don’t believe it is prejudicial I am
going to allow the amendment at this point, to allow
them to argue repudiation at this point.
Bennett’s own testimony, offered during his case-in-chief,
established facts which supported Sage’s repudiation defense.
Substantial justice was promoted by instructing the jury how to
properly frame the issues based on the evidence presented at
trial.
Bennett’s argument that he was prejudiced by the
amendment is without merit because the evidence supporting
Sage’s repudiation defense was not only known to Bennett, but
also offered by Bennett himself.
Therefore, we hold that the
circuit court did not abuse its discretion in allowing Sage to
amend its answer to include a repudiation defense.
VI. Clarifying Instruction
Bennett argues that the circuit court erred in refusing to
give the jury an instruction to clarify the definition of
repudiation.
We disagree.
14
As previously stated, although he objected to sending the
issue of repudiation to the jury, Bennett did not object to
Sage’s proposed jury instruction on repudiation.
Furthermore,
when the jury asked for clarification about the instruction
regarding repudiation, Bennett agreed that the circuit court
should simply instruct the jury to rely on the plain language
of the instruction.
Bennett waited until after the jury
returned to deliberate to ask the court for a clarifying
instruction regarding the definition of repudiation.
Under
these facts, when Bennett agreed to the jury instruction given
on repudiation, and only asked the court to issue a clarifying
instruction after the jury returned to deliberate, we hold that
the circuit court did not abuse its discretion in refusing to
issue Bennett’s proposed clarifying instruction.
See E.I.
DuPont De Nemours & Co. v. Snead, 124 Va. 177, 187, 97 S.E.
812, 815 (1919) (holding it is not error for a circuit court to
refuse an instruction after the jury has already been
sufficiently instructed on that issue).
VII. Conclusion
For the reasons stated, we hold that the circuit court did
not err in submitting the issue of repudiation to the jury, in
allowing Sage to amend its pleading to include the defense of
repudiation, in refusing to issue the jury a clarifying
instruction, and in refusing Bennett's motion to set aside the
15
verdict.
Accordingly, we will affirm the judgment of the
circuit court.
Affirmed.
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