Freeman & Mills, Inc. v. Belcher Oil Co. - 11 Cal. 4th 85, 44 Cal. Rptr. 2d 420, 900 P.2d 669 (1995)

Rule:

The applicable general rule precludes tort recovery for noninsurance contract breach, at least in the absence of violation of an independent duty arising from principles of tort law other than the bad faith denial of the existence of, or liability under, the breached contract. However, nothing prevents the Legislature from creating additional civil remedies for noninsurance contract breach, including such measures as providing litigation costs and attorney fees in certain aggravated cases, or assessing increased compensatory damages covering lost profits and other losses attributable to the breach.

Facts:

An oil company retained a law firm with an understanding that the company was to pay for costs the law firm incurred on the company's behalf, including fees for accountants. The law firm hired accountants to work on the company's case. The company eventually terminated the law firm and the accountants billed the law firm for its services and costs. When the law firm did not pay the bill, the accountants sought payment from the company. The company did not pay, and the accountants brought an action against it, alleging breach of contract, bad faith denial of contract, and quantum meruit. The trial court entered judgment for the accountants on the jury's special verdict, including the finding that the company had breached the contract and had acted in bad faith, and awarded punitive damages. The Court of Appeal reversed and remanded with directions.

Issue:

Did the Court of Appeal err reversing the trial court's judgment?

Answer:

No.

Conclusion:

The Supreme Court affirmed the judgment of the Court of Appeal reversing the trial court's judgment in plaintiff's favor and remanding the case for a retrial limited to the issue of damages under plaintiff's breach of contract cause of action, and for judgment in favor of defendant on plaintiff's bad faith denial of contract cause of action. The court held that the Court of Appeal properly reversed the judgment awarding plaintiffs tort damages for bad faith denial of a contract. It held that the former rule that a party to a contract may incur tort remedies when, in addition to breaching the contract, it seeks to shield itself from liability by denying, in bad faith and without probable cause, that a contract exists, is no longer viable and should be overruled. The presently applicable general rule, announced by the court, precludes tort recovery for noninsurance contract breach, at least in the absence of violation of an independent duty arising from principles of tort law other than the bad faith denial of the existence of, or liability under, the breached contract. However, the court made clear that nothing prevents the Legislature from creating additional civil remedies for noninsurance contract breach, including such measures as providing litigation costs and attorney fees in certain aggravated cases, assessing increased compensatory damages covering lost profits and other losses attributable to the breach, or restoring the overruled decision.