Opinion ID: 1118080
Heading Depth: 1
Heading Rank: 5

Heading: Edwards's Breach-of-Contract Counterclaim

Text: Edwards presented testimony concerning two categories of revenues she alleged Allied owed her. First, Edwards's accountant testified that, over the life of the agreement, Allied underpaid Edwards approximately $215,000 (excluding interest) on transactions that were reported, processed, and accounting entries made using Allied's administrative procedures for the agreement (the accounting errors). Edwards's accountant calculated this $215,000 by comparing settlement statements and other records related to loan closings that Edwards reported with records of payments she received from Allied. Second, Edwards also proffered evidence indicating that Allied retained the branch-account closing balance (i.e., $125,300). Immediately after Allied sued Edwards, the trial court issued a temporary restraining order directing Edwards to deliver to Allied all the checks on hand. Edwards complied with that directive and surrendered checks totaling approximately $141,000. After Allied deposited those checks and made entries in the branch account, the closing balance in that account was $125,300. [19] Allied argues that we should affirm the trial court's judgment against Edwards on her breach-of-contract counterclaim for two reasons. First, Allied contends, Edwards failed to present substantial evidence indicating that she did not waive Allied's purported breach. [20] Waiver is the intentional relinquishment of a known right. O'Neal v. O'Neal, 284 Ala. 661, 663, 227 So.2d 430, 431 (1969). [I]ntentional relinquishment must be shown in an unequivocal manner. Putman Constr. & Realty Co. v. Byrd, 632 So.2d 961, 965 (Ala.1992). A party's intent to waive a right may be found from conduct that is inconsistent with the assertion of that right. Givens v. General Motors Acceptance Co., 56 Ala.App. 561, 324 So.2d 277, 279 (1975). Allied argues that Edwards waived her breach-of-contract counterclaim by accepting the benefits of the agreement after she learned of Allied's purported breach. Allied notes that, as late as 2002, Edwards acknowledged that the agreement was still effective. Allied also proved that Edwards did not possess any documents (whether in paper or electronic form) concerning her complaints about Allied's alleged nonperformance under the agreement. Based on these facts, Allied posits that a reasonable juror could only find from Edwards's conduct that she waived her breach-of-contract counterclaim against Allied. Whether a party has intentionally waived a known right is normally a jury question. See Putman Construction, 632 So.2d at 965. Although Allied presented considerable evidence on its waiver defense, we view the evidence in the light most favorable to Edwards when reviewing the JML entered against her. Edwards testified that, during the term of the agreement, she orally complained on dozens of occasions to different representatives of Allied about its mismanagement of the branch account. According to Edwards, those complaints concerned delays in paying (or failure to pay) branch-operating expenses, erroneous accounting entries, failure to remit commissions, and failure to furnish a written accounting after she made multiple requests. Although Allied proved the absence of documentary evidence concerning these oral complaints, it did not present any witness to rebut Edwards's testimony that she had indeed made them. Under these facts, Edwards presented substantial evidence to rebut Allied's defense that she had waived Allied's breach of the agreement. Because a jury question existed as to whether Edwards intentionally relinquished her breach-of-contract counterclaim, Allied was not entitled to a JML on the basis of its waiver defense. In the alternative, Allied argues that the faithless-servant doctrine should bar Edwards's claim for additional compensation from Allied under the agreement. After Edwards rested her case, the trial court invoked that doctrine and ruled that Edwards had forfeited any right to recover the $141,000 in checks on hand that funded the branch-account closing balance. We apply a de novo standard in reviewing that conclusion of law. BT Sec. Corp., 891 So.2d at 312. The faithless-servant doctrine precludes an employee from receiving compensation for conduct that is disloyal to the employer or in violation of the employee's employment contract. The Restatement (Second) of the Law of Agency § 469 (1958) describes the doctrine: An agent is entitled to no compensation for conduct which is disobedient or which is a breach of his duty of loyalty; if such conduct constitutes a wilful and deliberate breach of his contract of service, he is not entitled to compensation even for properly performed services for which no compensation is apportioned.  (Emphasis supplied.) This longstanding doctrine remains effective today. It was first recognized in McGar v. Adams, 65 Ala. 106 (1880). In that case, an agent had been employed to find a purchaser for property belonging to his principal. The agent, who was to receive a commission upon the sale of that property, located a purchaser to whom the principal transferred the property. Before that transaction closed and unbeknownst to the principal, however, the purchaser asked the agent  a banker  for a loan to fund the purchase. In lieu of making that loan, the agent and purchaser entered into an agreement pursuant to which the agent could buy a one-half interest in the property. The purchaser conveyed that one-half interest to the agent and split the sales commission the principal had paid the agent. After learning of the agent's actions, the principal sued the agent to recover the commission. Considering these facts, the McGar Court stated: An agent who, for a reward, is employed in the transaction of business, will justly forfeit all right to compensation if he is guilty of bad faith to the principal. . . .  65 Ala. at 109. The bad faith principle in McGar was reaffirmed in Dudley v. Colonial Lumber Co., 223 Ala. 533, 137 So. 429 (1931): It is unquestionably the law that it is the duty of an agent to act in matters touching the agency, with due regard to the interest of the principal. In accepting the agency he impliedly undertakes to give his principal his best care and judgment, and to use the powers conferred upon him for the sole benefit of his principal consistent with the purposes of the agency. . . . And `an agent who, for a reward, is employed in the transaction of business, will justly forfeit all right to compensation, if he is guilty of bad faith to the principal.' . . .  223 Ala. at 536, 137 So. at 431. [21] As noted above, the trial court applied the faithless-servant doctrine when it ruled that Edwards could not claim the $141,000 in checks on hand she delivered to Allied after the agreement was terminated. Allied argues that Edwards's conduct in concealing many loan closings and retaining closing checks is the bad faith toward the principal on which the doctrine is based. Because of that deceitful conduct, Allied argues, Edwards should forfeit all rights to the $141,000 of checks on hand or any other compensation from Allied. The facts support the application of the faithless-servant doctrine in this case. In the late 1990s, Edwards began depositing checks payable to Allied into her personal accounts. Even though Allied had an interest in those funds, Edwards did not calculate, deduct from the funds, and send Allied its corporate fee from the associated loan closings that generated those checks. Further, she did not disclose numerous loan closings that she helped close through the Huntsville branch office and did not forward to Allied records of those transactions. Edwards defends her conduct on the basis that that Allied did not perform its obligations under the agreement. Edwards's self-help accounting practices were unjustified, however, because she had a duty as an employee to disclose loan closings, the checks, and the related transactions to Allied. Moreover, even if Allied's management of the branch account was deficient, Edwards was not justified in concealing those transactions. The inefficient conduct of business by an employer does not excuse an employee's breach of duties of loyalty and fidelity to his employer. [22] Despite the soundness of the faithless-servant doctrine and the substantial evidence of Edwards's unfaithful conduct, that doctrine does not preclude all of Edwards's claims for compensation in this case. Allied agreed to pay commissions to Edwards if she was terminated for any reason. Paragraph 3.4 of the agreement states: 3.4 Upon termination of employment, for any reason, Employee shall be paid, less any repayable advances or other monies owed to Employer, for all loans actively solicited, originated, and processed by Employee which are approved prior to the Employee's termination date if and only if actually funded within thirty (30) days of termination. With regard to such loans at time of termination, Employee will be paid a commission of one-half (0.50%) percent of the loan amount only if the loan is actually funded within thirty (30) days. Said payment to Employee [is] to be paid only after any funds that may be owed by Employee to Employer are paid by Employee to Employer or at Employer's option, after the deduction by Employer of any such amounts still due the Employer by Employee. Employer may deduct such amounts from any payment due to Employee which payments shall be made as soon as Employer can reasonably reconcile the accounts of Employer and Employee. (Emphasis supplied.) Only in limited circumstances will this Court not enforce an agreement willingly entered into by contracting parties. This Court discussed this principle in Ex parte Thicklin, 824 So.2d 723, 732 (Ala. 2002): This Court has limited authority to deal with the enforceability of contract terms. It can nullify or reform a contract on the basis of fraud; it can also nullify or reform a contract to eliminate any unconscionable provisions or terms that violate public policy. As previously noted, a contract provision that violates public policy can be subsumed under the theory of substantive unconscionability. . . . However, § 43 of the Constitution of Alabama of 1901 mandates the separation of judicial power from legislative power and condemns the usurpation of the power of one branch of government by the other. The authority to declare public policy is reserved to the Legislature, subject to limits imposed by the Constitution. . . .  (Footnote omitted.) The agreement here, which was bargained for at arm's length between persons who were experienced in the mortgage-loan business, is not unconscionable. Allied certainly was free not to insert language in its agreement that allowed the payment of commissions to Edwards even in the event of her faithless service. Instead, Allied agreed to pay Edwards commissions upon her being terminated for any reason (which includes faithless service), and we are duty bound to enforce the plain meaning of paragraph 3.4. Because Allied agreed to pay Edwards commissions if she was terminated for any reason, and in light of our discussion above on Allied's waiver defense, we reverse the JML entered against Edwards on her breach-of-contract counterclaim and order that a new trial be held on her breach-of-contract counterclaim. Subject to the jury's resolution of Allied's waiver defense and its other defenses, on retrial Edwards may assert any claims for commissions that are covered under paragraph 3.4 of the agreement. [23]