# FILED August 17, 1998 Cecil Crowson, Jr. Appellate C ourt Clerk IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

JERRY W. RAGON and J ERRY ) 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, ) CHANCELL OR 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 I O N Franks, J.

In this breach of

contract act

ion for damages, the

jury ret urned special verdicts i n plaintiffs ’ favor, and the Chancel lor entered a j udgment for damages against defendant . Defendant has appealed.The issues on appeal r aised by defendants are:

I. Whether the C hancellor erred in not sustaining O ’Charley’s objection to de

fective verdict, or in t

he alternati

ve in not granti

ng a new trial, as the jury’s verdict w as inconsiste nt and con trary to the manifest weight

of the evidence?1 Plaintiffs subsequently entered into a written contrac t executed by the manager with the Dalton restaur

ant. 2 II. Whethe r in the alternativ e, the Chan cellor erred in refusing to suggest a remit

titur,as the jury ’s award of damages was excessive and contr

ary to the

manifest weight of t

he evidence? III. Whether the C hancellor erred in failing to grant O ’Charley’s motion in limi

ne, and/or for di

rected verdict

on the alleged Hixson contract. As the proof clearl y showed, the pl aintiff destroyed and r

escinded a copy of t

he alleged contr

act with the intent to r

elease O’Charley ’s from any obli gation it may

have had under the a lleged con tract? The focal point of thi s dispute is a contract for l

inen service ent

ered between plaint

iffs and defendant’s kit

chen manager, Jason Giacchi , at the Hixson r estaurant. Plaintiff had begun providing li

nen service to defe

ndant’s Dalton restaurant in 1993. The original cont

ract with the Dalt

on restaurant was an or al agreement 1 with the kitche n

mana ger to su pply linen s.

Plaintiff J

erry Ragon test

ified that he

first conta

cted the general

manager of the “Shallowford Drive” restaurant i

n Chattanooga, Jerr

y Madden, about providi ng linen service to O’Charley’ s restaurant s. Madden advised that he was under a contract with another servi

ce, but informed of t

he opening of the Dalton r estaurant. 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 Ey ed 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 hi

m to talk to Jas on Giacchi who was the kitchen manager and handled the linen for t

he restaurant . Plainti

ff spoke with Giacchi and di scussed the ty pe of3

service needed, and they negotiated a contract for linen servi

ce. Plainti

ff explained that he want ed a wri tten cont ract becau se the Hixs on restaur ant ne eded un ifor ms suppl ied,which p lai ntif

fs would have t

o purchase,

as wel l as t he inc reas ed vol

ume would require addition al equip ment to service that volu me.

A boiler plate cont

ract was furnished Gia

cchi who filled i

t 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 retai

ned the original

and Ragon the copy. Subseque ntly, plaintiff was ca

lled by Alan Goins at the

Shallowford restaur

ant, who advised that

his linen cont

ract was up with the other company , and plainti ff entered int

o an oral agreement t

o provide linen service for the Shallowford r estaurant. He explained that a wri tten 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 t

estified t hat on January 8,

1996, plainti

ffs went to the Hixson store on a regula

r service cal

l and was advised by t

he manager that he had a new li nen company, and that

“I needed to gather

my stuff and get out

of the store”. He denied that he had recei

ved any complaints about the quali ty of his s ervice 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 que ried as to whether

Giacchi had “apparent authority ” to execute the cont

ract. The jur

y responded affi

rmatively , 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 t hat defendant had ever a llowed a kitchen manage r to sign such contracts, there w as no evidence that kitche n managers had theretofore signed such contract s, and no proof was offered t hat plainti

ff had ever4

been told that

kitchen managers coul d sign such contract

s. These findings

are not inconsistent

, but contrast the dist

inction between act

ual and apparent aut

hority. Our Supreme Court gave this expl anation in O’Sh ea v. Fir st Fed. S avings , etc., 218 Tenn. 619-624 (1966), and sai d: It is furt her the sett

led law of this St

ate that a gener

al agent is aut

horized to act within t

he apparent scope of hi s authority , though this may be different f rom his ac tual powe rs; that is to say, an ag ent may bind his prin cipa ls by a cts w ithin the g ener al sc ope of h is ap pare nt au thor ity, notwithstandi

ng the use of powers in exces s 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 authori zed to set aside a jury ver dict if ther

e is no materia l eviden ce to su pport it. T .R.A.P . Rule 1 3(d).

In ad ditio n to t he fo rego ing, p laint iffs off ered the te stim ony o f 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 t

hat he had never heard of plaintiff when he went to work at the Hixson store, but wa s to ld by

Giac chi t

hat plaintiff wasproviding the linen s ervi ce. He further test

ified: Q. Did you at some point in time see writ

ten proof that Acti

on Linen Service would be the provi der of the linen s ervice there? A. Yes, I did. Q. What did you see? A. I saw a contract fr om Action Linen. Q. Did you have occasion t o look at the cont

ract and see who had signed it? A. I glanced at it

, but I was in the

process of fili

ng 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 fili ng2 There is material evidence that a ma nager had “actual” authority to enter such contracts.
5 warra nties, etc .? A. Wes Wilkerso n was the gene ral manager and h e had Shelly Perry and myself fil

ing all the warr

anties on the equi

pment in the kit chen that fal l in my domain

as be ing a fir st a ssi sta

nt, so we wer e fili ng 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 . . . refer red to. A. Yes. A good statement of what the plaintiff is required to show to establish the apparent aut

hority of t

he agent is set

forth in 3 Am.Jur. 2d Agency §80, p.587: In order to est

ablish that

an agent had the apparent authority

to do the act in question, it must be established ( 1) that the pr incipal has manifested his cons ent to the exercise of such authori ty or has kno win gly pe rmitt ed th e age nt to assu me th e exe rcise of su ch au thor ity, (2) that t he third person knew of t he facts and, act

ing in good faith,

had reason to believe, and did actual ly believe, that t

he agent possessed suc

h authority , and (3) that

the third person, rely

ing on such appearance of authority, has ch anged his position and will be injure d or suffe r loss if the act done or tr

ansaction execut

ed by the agent doe s not bind the principal. Accord : Rich Prin ting Co. v. M cKellar’s E state , 46 Ten n. 444, 478 -9 ( 195 9). We conclude there is mate rial evidence to support th is verdict. Th e trier of fact c ould reasonably i

nfer that the manager 2 had knowingly permit ted the agent t

o enter into t

he contract from the

foregoing evidence. Evidence that an agent who acts with the knowledge and approval of his pr incipal is circumstantial evidence of what the agent

was au thorized to do. Boillin-Harri son 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 ver

dict approved by

the Trial Judge was for $52,960.00 as6

liquidated da

mages for breach of the Hixson r estaurant cont

ract, and unli

quidated dama ges of $33,00 0.00 fo r the bre ach of the Da lton resta urant co ntract.

Defendant’s second iss

ue questions the

propriety

of the damages awarded, on two bases. I t asserts that the $33,000. 00 award of actual damages for t he breach of the Dalton cont ract “is cont

rary to t he manifest weight of t

he evidence” and that there i s no evidence to support the jury’ s finding of liquidated damages for t he 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 li quidated damage clause i n the Dalton contrac

t set damages at $44,798.20. The jury, i n answer to questions , concluded as to t his 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 cont ract, the j ury found that the damages calculat

ed by the liquidated da

mage clause was reasonable and not a penalty . It then found t hat the liquidated da

mage clause was enforceable , and set the l iquidated damages as heretofore noted.The provision for l iquidated damages i

n the Hixson and Dalton contracts st

ate: The parties agree

that in the e

vent of any ter

mination of servi

ce by the customer in breach o f this contrac t, the supplier sh all be entitled to liquidated da

mages in the amount equal t o forty (40%) perc ent of the average weekly fees

charged for services hereunder prior to the date of termination,

multiplied by

the number of weeks remaining i n the unexpired term of this c ontract. Said liquidation is n ot a penalty, but is intended to compensat

e 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 c ontr

act i s “gr ossl y in exces s of actual

damage s”. T

he Supr eme 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 appr opriate:7 The term “liquidat

ed damages” means a sum stipul ated and agreed upon by the parties at the time they enter th eir contract, to b e paid to compensate for injur

ies, should a br

each 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 stipulat

ed should be reasonabl

e in relati

on to the terms of t

he contract and the certainty with w hich damages c an be measured ; there must exist a re asonable relat ionship 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 est

imate of the damages t

hat would occur from a breach, then the provision i s normally c onstrued 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 est ablished. Plaintiff test

ified to inventory investment i n excess of $10,000.00, and i

ncluded 40% of the cost for equi pment, van, overhead,

including insurance, l

icense, rent

and anticipat

ed profits as el

ements of damages. He was of the opinion that hi s losses for br each of the contract

exceeded the sti

pulated liqui

dated damages. In his anal

ysis, he did the same cost s cenario for the Dal ton 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 plainti

ff was permitted to of

fer his opinion of

damages without objection, t

here is no materi al evidence to suppor t 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 est ablish that

plaintiff’ s opinion of his l osses is based on accurate analy sis derived fr om sound cost accounting pr inciples. Accordingly,we set aside the jur

y verdict on the amount of damages, and award a new tr ial on the is sue of actual d amag es for b reach o f these c ontracts .

Prior to tr

ial, defendant

had withdrawn its defens e 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 t

hat liquidat

ed damages were not the proper measure of damages under the contract

s. The Trial Judge a

greed to this

procedure after t

he parties agr

eed3 After withdraw ing the affirm

ative defense

, defendant essentially rais ed it again du

ring trial.
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 i ssue of actual damages.Because of the procedural tactics 3 of defendant and our diss atisfacti on with the suffici

ency of the evidence on the issue of actual damages, we remand for a new trial on the i ssue of actual damages, for the breach of both contra

cts. On remand, pla

intiff will

be entitled to offer proof of damages in the natur

e of reasonable expense s made in preparati on for performing these co ntracts. See 22 Am.Jur.2d Damages §596, and profits lost as a result of the breach of the contr

act. Plaint

iff will be requi

red to establ

ish his lost

profits to a reasonable degree of

certainty , but since pr

ospective profi

ts are to some ext

ent uncertain and probl

ematical, unce

rtainty as to the amount of profi ts that would have been realized,will not prevent a recovery. 22 Am.Jur.2d Damages §625, p. 686. Finally , defendant argues t hat it should have been granted a dir ected verdict on the Hixs on contract because the proof establ

ished that pl aintiff had destroyed and r

escinded the contr

act with the i

ntent of releasing defendant from any obligations

under the contract. We do not agree. Plai ntiff test ified 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 t

wo contracts with t

heir outlet

s. He further t

estified t hat the agent had indicated t

hat plainti

ff would lose the other

business if he at

tempted to enforce t

he Hixson contract. However, after that conversation,plaintiff a lso lost t he other contracts wit

hin a short ti

me. Under these circ

umstances, ther

e was material evidence to support the j ury’s fi

nding that ther

e 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,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.