Title: Mid-State Homes, Inc. v. Johnson

State: alabama

Issuer: Alabama Supreme Court

Document:

311 So. 2d 312 (1975)
MID-STATE HOMES, INC., a corporation
v.
Robert L. JOHNSON.
SC 992.

Supreme Court of Alabama.
April 3, 1975.
Rehearing Denied May 1, 1975.
*313 R. A. Norred, Birmingham, for appellant.
James H. Tompkins, N. Pride Tompkins, Murray W. Beasley, Tuscumbia, for appellee.
EMBRY, Justice.
This appeal is from a judgment for $12,500 damages on a jury verdict. The action was submitted to the jury as one seeking damages owing to false representations and for money had and received. Code of Ala., Tit. 7, § 108; Form 11, Rule 84, ARCP.
The twenty-three assignments of error complain of: rulings admitting or excluding evidence; failure of the court to direct a verdict in favor of defendant; errors in the oral charge to the jury, error for failing to give written jury instructions requested by defendant, and a judgment contrary to the evidence and law, as well as excessive. The substantive question presented for review is, in fact, only one. Does the recognized principle of law: One who has been defrauded may either rescind *314 the transaction or affirm and sue at law, but may not do both, preclude recovery of considerations paid and other damages (including those punitive in nature), after "dissaffirmance" of the transaction? The circumstances of this particular case dictate an answer in the negative.
Plaintiff, Johnson, sold his farm in Florida in late 1971 and requested his sister Louise Jackson to locate property in Alabama for purchase by him. Several weeks later she located a residence, situated on four acres of land, known as the McClurg property. On the property was a "for sale" sign displaying a telephone number. Calling that number put her in touch with one Jerry Williams. She later met with Jerry Williams at the office of Jim Walter Homes in Muscle Shoals, Alabama. At a second meeting with Williams she gave him the Florida telephone number of her brother, Johnson. She remained in the presence of Williams while he read a sales contract to Johnson over the telephone. During that conversation the alleged misrepresentation was made:
It is apparent from the evidence concerning that conversation with Williams and with his sister, Johnson expected the right to immediate possession of the McClurg property. Obviously he relied on that statement when he instructed his sister to give Williams the money for the down payment or deposit. At the time Johnson did not know that on an earlier date one Harold Savage had purchased the McClurg property after its sale for unpaid taxes.[1] Savage went into possession following that purchase and made certain repairs to the dwelling house. At trial, in February 1974, Savage claimed continuous possession of the McClurg property from and after his purchase. A certificate of redemption from the tax sale was in evidence. On the face of that instrument it appeared that defendant Mid-State had redeemed the McClurg property almost one and onehalf years after Johnson filed suit against Mid-State. By the date of redemption Johnson had purchased other property for his place of residence.
Subsequent to making the down payment for Johnson Mrs. Jackson visited the McClurg property several times. She visited the property twice in the company of Johnson. After Johnson had returned to Florida, Mrs. Jackson was informed by their older brother (who lived near the McClurg property) that Savage disapproved of her coming onto the McClurg property. She passed this information on to Johnson. He returned from Florida and made efforts to communicate with Mid-State or Jim Walter Homes.[2] Ultimately he succeeded in talking with representatives of Jim Walter Homes. He was informed that as far as they were concerned he, Johnson, had possession of the McClurg property. He was told he could "move in." After Johnson purchased another residence, in which he was dwelling, he was visited by Savage. Savage stated that he, Savage, owned the McClurg property and was in possession.
*315 In its challenge to the sufficiency of the evidence to support the verdict and judgment Mid-State contends that Johnson had the burden to establish lack of possession by Mid-State. It asserts that Johnson failed to meet this burden.
Johnson says that representation was made to him, upon which he relied, of his right to immediate possession; that the tax sale prior to the representation belied the truth of such representation. Knowledge of the falsity of the representation, he says, is patent from the fact the delinquent taxes were owed by the mortgagor against whom Mid-State foreclosed, and obtained title, only by which it could give Johnson the right to immediate possession.
The evidence was sufficient to authorize the jury to find that the representation was made; was false, known to be false or recklessly made without knowledge; acted on by Johnson; and was of a material fact.
We are not here dealing with competing claims of title, rather a representation regarding right to possession. With this in mind the admissibility of the statement of Mrs. Jackson in response to a question asked her by Mid-State becomes evident.
Note, this question was not asked and response made in a situation where contested claims of title were being considered. In that circumstance, e.g., an action in ejectment to quiet title, the declaration of a party as to the source of his title would not be admissible. Neither would declarations about past transactions or contracts relating to such be relevant. Weston v. Weston, 269 Ala. 595, 114 So. 2d 898.
The fact that the words were spoken, not the truth of them, make the declaration admissible on the issue of colorable claim of possession by Savage which put Johnson on notice that his attempt to gain possession would be in the teeth of an asserted adverse claim of Savage. It was the obligation of Mid-State to place him in possession through its actions. That it made no attempt to do so, the jury could consider in determining whether the representation was false and known to be so, or recklessly made without knowledge.
Great latitude is allowed in admitting evidence on the issue of alleged fraud. May v. Strickland, 235 Ala. 482, 180 So. 93; National Surety Co. v. Julian, 227 Ala. 472, 150 So. 474. Most often the perpetrator of fraud is the sole possessor of actual knowledge of such fraud. Undue restriction should not be placed on the introduction of evidence which has probative value, however slight, on this issue. Weight is for the jury. The trial judge did not err when he failed to exclude the response of Mrs. Jackson to the question. Neither was it error to admit testimony of Savage relating to his purchase of the property at tax sale. That evidence was relevant to show the existence of his claim of possession adverse to that of Johnson.
Now to the prime question. Affirm and sue for damagesrescind and seek restoration, not both ?
During trial of this action several illuminating events occurred. Exposition of them may facilitate understanding of this *316 portion of our opinion. In opening statement, Johnson's attorney informed the jury that Johnson was asking for damages. Attorney for Mid-State objected:
This objection was overruled.
During its oral charge the court instructed the jury:
On the question of damages, the court charged:
The jury found for Johnson under those instructions by the court. Implicit in the finding was the determination that he had rescinded the contract. Recovery for money had and received (aggregate of monies paid under the contract) was thereby limited to some $715. The verdict was for $12,500, thus it is clear the additional $11,785 was punitive damages. Loch Ridge Construction Co., Inc. v. Barra, 291 Ala. 312, 280 So. 2d 745.
The central issue determinative of the prime question is whether the award of punitive damages was proper. It was. Ringer v. First National Bank of Stevenson, *317 291 Ala. 364, 281 So. 2d 261; quoting Pihakis v. Cottrell, 286 Ala. 579, 243 So. 2d 685, which in turn quoted Alabama Great Southern Railway Co. v. Sellers, 93 Ala. 9, 9 So. 375 stated:
To support an award of punitive damages it must be shown that Johnson suffered, at least, nominal damage; also the actions of Mid-State meet the criteria set out, supra.
Purists may argue that restitutionary recovery upon rescission is not recovery of damages. We are not deterred in making decision to the contrary by such sophistic argument:
Recovery by Johnson of payments made under the contract are "damages" in legal contemplation.
From the testimony of Savage, Johnson and employees of Mid-State, the jury could reasonably conclude that the actions of Mid-State met the criteria. Undoubtedly the jury concluded that the representation was made either maliciously or wantonly, with reckless disregard of the rights of Johnson. That being true the award of punitive damages was justified.
We realize that no Alabama case has held precisely as we hold today. However we do find authority from another jurisdiction which supports the reasoning of this opinion. The California Supreme Court, speaking through Justice Traynor in Ward v. Taggart, 51 Cal. 2d 736, 336 P.2d 534, held that judgment for plaintiff for $1000 per acre of $5000 per acre payments made in purchase of real estate plus $36,000 punitive damages, in an action tried on a fraud theory, was proper:
We agree with this reasoning. Punitive damages are for punishment and prevention. To allow them when a contract is affirmed, and not when there is a rescission, is illogical when the purposes of punitive damages are considered. The punitive and deterrent force of the law should be present in both types of cases since both arise from perpetration of fraud.
We hold today that where one rescinds a contract induced by fraud and recovers even nominal damages, then in an appropriate case he may also recover punitive damages. We hold that under the facts of this case, and the instructions given to the jury by the trial court, Glass v. Cook, 257 Ala. 141, 57 So. 2d 505, does not preclude recovery of punitive damages in a suit for damages whether the contract is affirmed or rescinded.
For the reasons stated, assignments of error complaining of: admission or exclusion of evidence; failure to direct a verdict in favor of defendant; errors in the oral charge to the jury; error for failing to give written jury instructions requested by defendant; that the judgment and verdict are contrary to the evidence and law, and the verdict is excessive are not well taken.
Affirmed.
FAULKNER and ALMON, JJ., concur.
BLOODWORTH, J., with whom JONES, J., joins, concurs specially.
BLOODWORTH, Justice (concurring specially).
I concur in so much of the opinion authored for the Court by Justice Embry which holds that one who rescinds a contract induced by fraud (if the fraud was malicious, oppressive, or gross, the representations being made with knowledge of their falsity, or made so recklessly as to amount to the same thing, and with the purpose of injuring the plaintiff) may recover punitive damages if he is entitled to recover actual damages, although the latter may be merely nominal. I do not agree that "restitutionary damages" constitute "actual damages." Caffey v. Alabama Machinery & Supply Co., 19 Ala.App. 189, 96 So. 454, cert. den. 209 Ala. 466, 96 So. 459 (1922); See also Alabama Machinery & Supply Co. v. Caffey, 213 Ala. 260, 104 So. 509 (1925); Pihakis v. Cottrell, 286 Ala. 579, 243 So. 2d 685 (1971); Loch Ridge Construction Company, Inc. v. Barra, 291 Ala. 312, 280 So. 2d 745 (1973); § 389 Fraud and Deceit, 37 Am.Jur.2d, p. 527.
The general rule is stated in Glass v. Cook, 257 Ala. 141, 57 So. 2d 505 (1952) to be that one defrauded has an election either to affirm the contract and sue for damages for the deceit or disaffirm and sue for his money back but that he may not do both. Although a number of cases express the rule in the same or slightly different, language [see Fraud, Vol. 10A, Alabama Digest, 31], a better statement of it is found in Kennedy v. Collins, 250 Ala. 503, 35 So. 2d 92 (1948). Justice Stakeley qualified this general statement of the rule by pre-fixing the word "ordinarily." This is the key to the rule. While "ordinarily," one must, of course, give up the property and restore the benefits he has received if he rescinds or disaffirms and then sue for his money backthis does not preclude an action for damages for the *319 fraud practiced by the other party in procuring the contract. (In the present case, there was no restoration by plaintiff of possession or benefits because he received neither.)
The doctrine of the two Caffey cases, supra, clearly permits, upon disaffirmance, a suit for recovery of the money paid under the contract and the recovery of punitive damages, if the pleading and proof justify it. This is an exception to, or perhaps further refinement of, the general rule and does not conflict with it. The Caffey cases have never been overruled and have been cited as recently as 1973 in the Loch Ridge case, supra.
JONES, J., concurs.
[1]  Only the two acres on which the dwelling house was situated was sold for taxes. The other two acres of the four which Johnson contracted to purchase had previously been purchased by defendant Mid-State Homes, Inc. to gain access to the property from a public road.
[2]  Mid-State Homes, Inc. is a mortgage holder and financing organization for Jim Walter Homes.