Case Title: STATE EX REL DIMLER v DISTRICT COU

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1976-05-25T00:00:00Z

Document:
No. 13290 I N THE SUPREME C O U R T OF THE STATE O F M O N T A N A 19 7 6 STATE EX REL. DIMLER , P e t i t i o n e r , THE DISTRICT C O U R T OF THE ELEVENTH JUDICIAL DISTRICT O F THE STATE O F M O N T A N A , I N AND F O R THE C O U N T Y O F FLATHFAD ANT) T H E HON. ROBERT S . KELLER, a Judge thereof, Respondents. ORIGINAL PROCEEDING: Counsel of Record: For P e t i t i o n e r : James D. Moore argued, K a l i s p e l l , Montana For Respondents: Warden, LJalterskirchen and Chris tiansen, K a l i s p e l l , Montana Submitted: March 17, 1976 M r . J u s t i c e Gene B. Daly delivered t h e Opinion of t h e Court. This i s an a p p l i c a t i o n f o r a w r i t of supervisory c o n t r o l d i r e c t e d t o t h e d i s t r i c t c o u r t of t h e eleventh j u d i c i a l d i s t r i c t , Flathead County. The a p p l i c a t i o n i s by p l a i n t i f f s Robert E. D i m l e r and P a t t i D i m l e r and relates t o t h a t c o u r t ' s order s t r i k - ing a prayer f o r ' p u n i t i v e damages from a complaint seeking damages from defendants Ralph Edward James and Kathy Ann James f o r a l l e g e d misrepresentation as t o t h e f u n c t i o n a l condition of one bathroom and plumbing elsewhere i n a home sold by defendants t o p l a i n t i f f s . This Court, upon hearing ex p a r t e a p p l i c a t i o n of p l a i n t i f f s , granted defendants u n t i l March 3 0 , 1976 t o respond i n w r i t i n g and granted p l a i n t i f f s t e n days t h e r e a f t e r f o r r e p l y . B r i e f s w e r e f i l e d and t h e c a s e submitted April 9, 1976. The background giving r i s e t o t h i s a p p l i c a t i o n based s o l e l y upon a l l e g a t i o n s of p l a i n t i f f s , is: I n J u l y 1974, p l a i n t i f f s entered i n t o n e g o t i a t i o n s with defendants, through c e r t a i n r e a l t o r s , f o r t h e purchase and s a l e of a home owned by defendants near K a l i s p e l l , Montana. Defendants l i s t e d and represented t h e home t o contain two bathrooms. P l a i n t i f f s i n inspecting t h e home, were shown t h e "second bathroom" u p s t a i r s , which "bathroom" contained a bathtub, a sink, and a t o i l e t , a l l attached t o t h e w a l l s and f l o o r i n what appeared t o be a normal fashion. There were d i a p e r s o r d i r t y c l o t h e s i n t h e bathroom, as though they might have been r i n s e d and placed i n a hamper t h e r e i n . There was blue water i n t h e t o i l e t . Believing t h e home t o be a two-bathroom home, and r e l y - ing upon t h a t b e l i e f , p l a i n t i f f s purchased t h e home from defend- a n t s under a c o n t r a c t f o r deed on o r about J u l y 27, 1974. The day following t h e purchase, p l a i n t i f f s ' small c h i l d had occasion t o use t h e u p s t a i r s t o i l e t b u t was unable t o f l u s h it. Thereafter it was discovered t h a t no plumbing whatsoever had been placed in the "upstairs bathroom", nor was there any plumbing anywhere leading to the upstairs portion of the home. The bathroom was in fact not usable. Subsequently, plaintiffs had additional misfortune when the main sewer line in the basement burst. Inspection of the line revealed that faulty installation and inadequate materials had caused the rupture. ~esiring to keep the home, plaintiffs chose to affirm the real estate sales contract and sue for damages. In December 1974 a complaint was filed in Flathead County district court alleging willful and wanton fraud on the part of defendants as to the "upstairs bathroom" and the sewer line. Plaintiffs sought actual and punitive damages. Defendants filed a motion to strike plaintiffs' prayer for punitive damages contending the only obligations alleged to have been breached were those which arose from the parties' con- tract and therefore under section 17-208, R.C.M. 1947, punitive damages were not recoverable. On January 30, 1976, the district court issued an order granting defendants' motion to strike the prayer for punitive damages. Plaintiffs seek a writ of supervisory control to annul and set aside the January 30 order of the district court. The sole issue presented for review is whether the dis- trict court acted properly in striking the prayer for punitive damages as a matter of law. First, where a motion seeks to eliminate a claim for relief upon grounds the claim is improper as a matter of law, the allegations of the complaint must be viewed in the light most favorable to the plaintiffs for purposes of reviewing the propriety of the district court's action. Board of Equal. v. Farmers Union Grain Terminal Association, 140 Mont. 523, 374 P.2d 231. Therefore, all subsequent discussion of law in this opinion will be based on the assumption the plaintiffs' alle- gations in this action are true. The essential question in resolving the issue is whether plaintiffs in the instant case are basing their action upon contract. Section 17-208, R.C.M. 1947, which authorizes the recovery of punitive damages provides: "Exemplary damages--in what cases allowed. In any action for a breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, actual or pre- sumed, the jury, in addition to the actual damages, may give damages for the sake of example, and by way of punishing the defendant." Defendants, in support of their contention that the only obligation existing between the parties is contractual in nature and section 17-208 precludes recovery of punitive damages, cite several Montana cases where punitive damages were denied: West- fall v. Motors Insurance Corp., 140 Mont. 564, 374 P.2d 96; Ryan v. Ald, Inc., 146 Mont. 299, 406 P.2d 373; State ex rel. Cashen v. District Court, 157 Mont. 40, 482 P.2d 567. In Westfall the plaintiff claimed the defendant insurance adjuster had fraudulently procured his signature on a release form and sought to void such release, suing for actual and punitive damages. This Court held that such an insurance release was a contract and therefore was entitled to rescission under the cir- cumstances of that case but punitive damages could not be allowed in light of section 17-208, R.C.M. 1947. In Ryan plaintiff sought actual and punitive damages from the defendant as the result of the sale of defective laundromat equipment. Plaintiff attempted to show the defendant had an obligation under the contract to see that the machines were prop- erly installed and in working order. In addition, plaintiff alleged that said obligation arose from fraudulent oral represen- tations made prior to the contract. This Court held the second claim was inconsistent with t h e claim under t h e c o n t r a c t , t h a t t h e s u i t w a s i n r e a l i t y one f o r breach of c o n t r a c t , and t h e r e f o r e punitive damages could not be awarded under s e c t i o n 17-208, R.C.M. 1947. I n S t a t e ex rel. Cashen p l a i n t i f f claimed fraud on t h e p a r t of t h e insurer and i t s agent i n s e t t l i n g an auto c o l l i s i o n insurance claim and sued f o r breach of c o n t r a c t , asking f o r r e s c i s s i o n with a c t u a l and punitive damages. Once again, t h e a c t i o n w a s f o r breach of c o n t r a c t and since, contrary t o plain- t i f f ' s contention, no penal section of Montana's Insurance Code w a s relevant, punitive damages could not be allowed under sec- t i o n 17-208. Since a l l t h r e e c i t e d cases involved a c t i o n s f o r breach of c o n t r a c t , with r e s c i s s i o n as p a r t of t h e r e l i e f sought, those cases are distinguishable from t h e i n s t a n t case. Here, p l a i n t i f f s chose t o a f f i r m t h e c o n t r a c t and sue f o r fraudulent representa- t i o n s preceding t h e c o n t r a c t , representations which p l a i n t i f f s alleged induced them t o sign t h e c o n t r a c t f o r purchase of defen- dants' home. That such a course of a c t i o n is permissible and i n f a c t i s not a c o n t r a c t a c t i o n has long been recognized i n t h e l a w . 37 Am J u r 2d, Fraud and Deceit, B 332, p. 439, s t a t e s i n p e r t i n e n t p a r t : "A t r a d i t i o n a l remedy o r d i n a r i l y a v a i l a b l e t o a person who has parted with something of value as a r e s u l t of a c o n t r a c t o r t r a n s a c t i o n induced by fraud is t h a t he may r e t a i n what he has re- ceived and bring an a c t i o n a t l a w t o recover t h e damages sustained. Thus, a person who has been injured by t h e fraud of another o r o t h e r s , by e i t h e r a p a r t y o r p a r t i e s t o a t r a n s a c t i o n o r a t h i r d p a r t y o r t h i r d p a r t i e s committing fraudulent acts involving o r bringing about t h e negotiation of a transaction, such transaction usually but not necessarily involving business o r commercial dealings, may maintain an a c t i o n a t l a w i n t o r t t o recover damages f o r t h e i n j u r y received from t h e fraud and d e c e i t perpetrated by such o t h e r o r o t h e r s . The foundation of t h e a c t i o n is not c o n t r a c t , b u t t o r t . * * *" ( ~ m p h a s i s supplied. ) 37 Am J u r 2d, Fraud and Deceit, S 333, p. 4 4 2 , continues t h e discussion: "In accordance with t h e r i g h t t o bring an a c t i o n f o r d e c e i t g e n e r a l l y , a buyer who has been induced by t h e fraud of t h e s e l l e r t o purchase r e a l o r personal property may o r d i n a r i l y maintain an a c t i o n f o r , o r i n t h e nature o f , d e c e i t , t o recover dam- ages r e s u l t i n g from t h e fraud. *. * *" (Emphasis supplied.) See a l s o : Associated Hardware Supply Co. v. Big Wheel Distribu- t i n g Co. 355 F.2d 1 1 4 ; Rogers v. Toni Home Permanent Co., 167 Ohio S t . 244, 147 N.E.2d 612; Cole v. Associated Const. Co., 1 4 1 Conn. 49, 103 A.2d 529. I n F a l l s Sand and Gravel Co. v. Western Concrete, Inc. 270 F.Supp. 495, 500, Judge Jameson s t a t e d : " * * * It i s c l e a r t h a t i n Montana, and generally, a p a r t y may not pursue both an a c t i o n f o r r e c i s s i o n and damages f o r d e c e i t o r misrepresentation. * * * I 1 Judge Jameson then quoted approvingly from Bankers T r u s t Co. v. P a c i f i c Employers Insurance Co., 282 F.2d 106, 1 1 0 : " ' * * * It i s t h e l a w t h a t one who has been f r a u d u l e n t l y induced i n t o a c o n t r a c t may e l e c t t o stand by t h a t c o n t r a c t and sue f o r damages f o r t h e fraud. * * * ' " Horner v. Ahern, 207 Va. 860, 153 S.E.2d 216, 221, i s s i m i l a r t o t h e circumstances of t h e i n s t a n t case. I n Horner, purchasers brought an a c t i o n of fraud a g a i n s t t h e s e l l e r s and a real estate firm f o r misrepresentations a l l e g e d l y made concerning t e r m i t e damage i n t h e house which they purchased. Defendants contended t h a t under t h e terms of t h e c o n t r a c t , p l a i n t i f f s ' only remedy, i n t h e event t e r m i t e damage was found, w a s t o rescind t h e con- t r a c t . By r e t a i n i n g t h e property and bringing an a c t i o n f o r damages, defendants a l l e g e d p l a i n t i f f s w e r e seeking t o a f f i r m t h a t p a r t of t h e c o n t f a c t e n t i t l i n g them t o t h e property and t o d i s a f f i r m t h a t p a r t p r e s c r i b i n g t h e i r s o l e remedy i f t e r m i t e damage w a s found. I n answering t h i s c o n t e n t i o n t h e V i r g i n i a Supreme Court s a i d : "The o t h e r f a l l a c y i n t h e d e f e n d a n t s ' p o s i t i o n i s t h a t t h e p l a i n t i f f s ' a c t i o n of f r a u d and d e c e i t is n o t based upon t h e c o n t r a c t , b u t is independent of it. The a c t i o n is n o t i n con- tract, b u t i n t o r t . The bringing of t h e a c t i o n has t h e e f f e c t of a f f i r m i n g t h e c o n t r a c t , b u t t h a t does n o t c o n s t i t u t e a r e l e a s e o r waiver of t h e r i g h t t o seek recovery of damages f o r t h e a l l e g e d t o r t . " Applying t h e a u t h o r i t i e s d i s c u s s e d t o p l a i n t i f f s ' a l l e - g a t i o n s of m i s r e p r e s e n t a t i o n on t h e p a r t of defendants, t h e s e conclusions can be made a s t o p l a i n t i f f s ' cause of a c t i o n i n t h e i n s t a n t case: The cause of a c t i o n a r i s e s from r e p r e s e n t a t i o n s which p l a i n t i f f s claim induced t h e execution of t h e c o n t r a c t , s e c t i o n 13-308, R.C.M. 1947. Such r e p r e s e n t a t i o n s n e c e s s a r i l y c o n t a i n an o b l i g a t i o n t o a c t i n good f a i t h . Such r e p r e s e n t a t i o n s i f knowingly f a l s e , a s a l l e g e d , would be a "breach of an o b l i g a - t i o n " a s contemplated by s e c t i o n 17-208. A d d i t i o n a l l y , a cause of a c t i o n f o r f r a u d u l e n t inducement can be i n t o r t and t h u s in- dependent of t h e c o n t r a c t and t h e r e f o r e affirmance of t h e c o n t r a c t does n o t a u t o m a t i c a l l y preclude s u i t i n t o r t f o r f r a u d . Since p l a i n t i f f s ' cause of a c t i o n f o r f r a u d i s based i n t o r t , n o t con- t r a c t , s e c t i o n 17-208, R.C.M. 1947, is n o t c o n t r o l l i n g and p l a i n - t i f f s can properly pray f o r p u n i t i v e damages. L e t a w r i t i s s u e from t h i s Court d i r e c t i n g t h e d i s t r i c t c o u r t of t h e e l e v e n t h j u d i c i a l d i s t r i c t t o r e i n s t a t e p l a i n t i f f s ' prayer f o r p u n i t i v e damages, t h e r e f o r . J u s t i c e We concur: judge, sitting in place of Mr. "'Chief Justice James T. Harrison. M r . J u s t i c e Wesley Castles dissenting; 1 respectfully dissent t o the majority holding. The 11 issue around which t h i s case revolves i s fraudulent inducement" t o enter i n t o a contract, and the action c l e a r l y a r i s e s out of t h e contract within the meaning of section 17-208, R.C.M. 1947. In construing the cases of Westfall, Ryan and Cashen, the majority inaccurately s t a t e s : "* * * a l l three cases involved actions f o r breach of contract, with rescission a s part of the r e l i e f sought 9~ 9 : *. Here, p l a i n t i f f s chose t o affirm the contract and sue f o r fraudulent representations * * 9;. l1 In Westfall, punitive damages were denied because of an allegation the insurance c a r r i e r had breached i t s contract with the insured. Rescission of that underlying obligation, the i n i t i a l insurance contract, was not prayed for. The f a c t t h a t rescission of the release agreement was requested, was not determinitive of t h e case. The continuing existence of the underlying obligation was the factor which caused the application of the s t a t u t e t o deny punitive r e l i e f . The f a c t s i n Ryan presented a "fraudulent inducement" very similar t o the i n s t a n t case. The majority s t a t e s rescission of the purchase contract was sought, but the opinion contains no language t o t h a t e f f e c t . Again, punitive damages were dis- allowed i n l i g h t of the continuing existence of the contract, an existence which could only be denied by a prayer f o r rescission. In Cashen, another insurance contract and release problem i s presented. A f a i r reading of t h a t case f a i l s t o reveal any i n t e n t of the p l a i n t i f f t o deny the existence of the o r i g i n a l insurance agreement. Thus, punitive damages were deemed inappro- priate. In a case not c i t e d by the majority, Paulson v. Kustom Enter- prises Inc., 157 Mont. 188, 483 P.2d 708, the relationship between t h e prayer f o r rescission and the recovery of punitive damages i s made clear. The problem i n Paulson was a l s o one of fraudulent inducement. Yet, i n Paulson punitive damages were allowed a s rescission o r cancellation of the underlying contractual obliga- t i o n was c l e a r l y sought. By denying the contract, the p l a i n t i f f s became legally e l i g i b l e t o seek punitive damages, a s the action c l e a r l y sounded i n t o r t . Section 17-208, R.C.M. 1947, requires t h a t p l a i n t i f f e l e c t one of two remedies: (1) affirm the contract, receive the benefits derived thereunder, and sue f o r a c t u a l damages, o r (2) disaffirm through a prayer f o r rescission o r cancellation and sue f o r both a c t u a l and punitive damages. Even i n the unfortunate circum- stances presented here, the law does not permit both. The majority by i t s holding, overrules the firmly established cases c i t e d here- tofore, and applies the d i r e c t converse of the correct r u l e . 4 a , i Q d Justice. . - C