No. 13290 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

19 7 6 

STATE EX REL. DIMLER , 

Petitioner, 

THE DISTRICT COURT OF THE ELEVENTH 

JUDICIAL DISTRICT OF THE STATE OF 

MONTANA, IN AND FOR THE COUNTY OF 

FLATHFAD ANT) THE HON. ROBERT S . KELLER, 

a Judge thereof, 

Respondents. 

ORIGINAL PROCEEDING: 

Counsel of Record: 

For Petitioner: 

James D. Moore argued, Kalispell, Montana 

For Respondents: 

Warden, LJalterskirchen and Chris tiansen, Ka lispell, 

Montana 

Submitted: March 17, 1976 
Mr. Justice Gene B. Daly delivered the Opinion of the Court. 

This is an application for a writ of supervisory control 

directed to the district court of the eleventh judicial district, 

Flathead County. The application is by plaintiffs Robert E. 

Dimler and Patti Dimler and relates to that court's order striking a prayer for'punitive damages from a complaint seeking damages 

from defendants Ralph Edward James and Kathy Ann James for alleged 

misrepresentation as to the functional condition of one bathroom 

and plumbing elsewhere in a home sold by defendants to plaintiffs. 

This Court, upon hearing ex parte application of plaintiffs, 

granted defendants until March 30, 1976 to respond in writing and 

granted plaintiffs ten days thereafter for reply. Briefs were 

filed and the case submitted April 9, 1976. 

The background giving rise to this application based solely 

upon allegations of plaintiffs, is: In July 1974, plaintiffs 

entered into negotiations with defendants, through certain realtors, 

for the purchase and sale of a home owned by defendants near 

Kalispell, Montana. Defendants listed and represented the home 

to contain two bathrooms. Plaintiffs in inspecting the home, were 

shown the "second bathroom" upstairs, which "bathroom" contained 

a bathtub, a sink, and a toilet, all attached to the walls and 

floor in what appeared to be a normal fashion. There were diapers 

or dirty clothes in the bathroom, as though they might have been 

rinsed and placed in a hamper therein. There was blue water in 

the toilet. 

Believing the home to be a two-bathroom home, and relying upon that belief, plaintiffs purchased the home from defendants under a contract for deed on or about July 27, 1974. 

The day following the purchase, plaintiffs' small child 

had occasion to use the upstairs toilet but was unable to flush 

it. Thereafter it was discovered that 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' contract 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 district 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' allegations 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 presumed, 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: Westfall 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 circumstances 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 properly installed and in working order. In addition, plaintiff 

alleged that said obligation arose from fraudulent oral representations made prior to the contract. This Court held the second 
claim was inconsistent with the claim under the contract, that 

the suit was in reality one for breach of contract, and therefore 

punitive damages could not be awarded under section 17-208, R.C.M. 

1947. 

In State ex rel. Cashen plaintiff claimed fraud on the 

part of the insurer and its agent in settling an auto collision 

insurance claim and sued for breach of contract, asking for 

rescission with actual and punitive damages. Once again, the 

action was for breach of contract and since, contrary to plaintiff's contention, no penal section of Montana's Insurance Code 

was relevant, punitive damages could not be allowed under section 17-208. 

Since all three cited cases involved actions for breach 

of contract, with rescission as part of the relief sought, those 

cases are distinguishable from the instant case. Here, plaintiffs 

chose to affirm the contract and sue for fraudulent representations preceding the contract, representations which plaintiffs 

alleged induced them to sign the contract for purchase of defendants' home. 

That such a course of action is permissible and in fact 

is not a contract action has long been recognized in the law. 

37 Am Jur 2d, Fraud and Deceit, B 332, p. 439, states in pertinent 

part : 

"A traditional remedy ordinarily available to a 

person who has parted with something of value 

as a result of a contract or transaction induced 

by fraud is that he may retain what he has received and bring an action at law to recover 

the damages sustained. Thus, a person who has 

been injured by the fraud of another or others, 

by either a party or parties to a transaction 

or a third party or third parties committing 

fraudulent acts involving or bringing about the 

negotiation of a transaction, such transaction 

usually but not necessarily involving business 

or commercial dealings, may maintain an action 

at law in tort to recover damages for the injury 

received from the fraud and deceit perpetrated 
by such other or others. The foundation of 

the action is not contract, but tort. * * *" 

(~mphasis supplied. ) 

37 Am Jur 2d, Fraud and Deceit, S 333, p. 442, continues the 

discussion: 

"In accordance with the right to bring an action 

for deceit generally, a buyer who has been induced 

by the fraud of the seller to purchase real or 

personal property may ordinarily maintain an action 

for, or in the nature of, deceit, to recover damages resulting from the fraud. *. * *" (Emphasis 

supplied.) 

See also: Associated Hardware Supply Co. v. Big Wheel Distributing Co. 355 F.2d 114; Rogers v. Toni Home Permanent Co., 167 

Ohio St. 244, 147 N.E.2d 612; Cole v. Associated Const. Co., 

141 Conn. 49, 103 A.2d 529. 

In Falls Sand and Gravel Co. v. Western Concrete, Inc. 

270 F.Supp. 495, 500, Judge Jameson stated: 

" * * * It is clear that in Montana, and generally, 

a party may not pursue both an action for recission 

and damages for deceit or misrepresentation. * * *I1 

Judge Jameson then quoted approvingly from Bankers Trust Co. v. 

Pacific Employers Insurance Co., 282 F.2d 106, 110: 

"' * * * It is the law that one who has been 

fraudulently induced into a contract may elect 

to stand by that contract and sue for damages 

for the fraud. * * *'" 

Horner v. Ahern, 207 Va. 860, 153 S.E.2d 216, 221, is similar 

to the circumstances of the instant case. In Horner, purchasers 

brought an action of fraud against the sellers and a real estate 

firm for misrepresentations allegedly made concerning termite 

damage in the house which they purchased. Defendants contended 

that under the terms of the contract, plaintiffs' only remedy, 

in the event termite damage was found, was to rescind the contract. By retaining the property and bringing an action for 

damages, defendants alleged plaintiffs were seeking to affirm 

that part of the contfact entitling them to the property and to 
disaffirm that part prescribing their sole remedy if termite 

damage was found. In answering this contention the Virginia 

Supreme Court said: 

"The other fallacy in the defendants' position 

is that the plaintiffs' action of fraud and 

deceit is not based upon the contract, but is 

independent of it. The action is not in contract, but in tort. The bringing of the action 

has the effect of affirming the contract, but 

that does not constitute a release or waiver of 

the right to seek recovery of damages for the 

alleged tort." 

Applying the authorities discussed to plaintiffs' allegations of misrepresentation on the part of defendants, these 

conclusions can be made as to plaintiffs' cause of action in 

the instant case: The cause of action arises from representations 

which plaintiffs claim induced the execution of the contract, 

section 13-308, R.C.M. 1947. Such representations necessarily 

contain an obligation to act in good faith. Such representations 

if knowingly false, as alleged, would be a "breach of an obligation" as contemplated by section 17-208. Additionally, a cause 

of action for fraudulent inducement can be i n t o r t and thus independent of the contract and therefore affirmance of the contract 

does not automatically preclude suit i n t o r t for fraud. Since 

plaintiffs' cause of action for fraud is based in tort, not contract, section 17-208, R.C.M. 1947, is not controlling and plaintiffs can properly pray for punitive damages. 

Let a writ issue from this Court directing the district 

court of the eleventh judicial district to reinstate plaintiffs' 

prayer for punitive damages, 

therefor. 

Justice 
We concur: 

judge, sitting in place of Mr. 

"'Chief Justice James T. Harrison. 
Mr. Justice Wesley Castles dissenting; 

1 respectfully dissent to the majority holding. The 

11 issue around which this case revolves is fraudulent inducement" 

to enter into a contract, and the action clearly arises out of 

the contract within the meaning of section 17-208, R.C.M. 1947. 

In construing the cases of Westfall, Ryan and Cashen, the 

majority inaccurately states : 

"* * * all three cases involved actions for breach 

of contract, with rescission as part of the relief 

sought 9~ 9: *. Here, plaintiffs chose to affirm the 

contract and sue for fraudulent representations * * 9;. l1 

In Westfall, punitive damages were denied because of an 

allegation the insurance carrier had breached its contract with 

the insured. Rescission of that underlying obligation, the 

initial insurance contract, was not prayed for. The fact that 

rescission of the release agreement was requested, was not 

determinitive of the case. The continuing existence of the 

underlying obligation was the factor which caused the application 

of the statute to deny punitive relief. 

The facts in Ryan presented a "fraudulent inducement" 

very similar to the instant case. The majority states rescission 

of the purchase contract was sought, but the opinion contains 

no language to that effect. Again, punitive damages were disallowed in light of the continuing existence of the contract, an 

existence which could only be denied by a prayer for rescission. 

In Cashen, another insurance contract and release problem 

is presented. A fair reading of that case fails to reveal any 

intent of the plaintiff to deny the existence of the original 

insurance agreement. Thus, punitive damages were deemed inappropriate. 

In a case not cited by the majority, Paulson v. Kustom Enterprises Inc., 157 Mont. 188, 483 P.2d 708, the relationship between 
the prayer for rescission and the recovery of punitive damages 

is made clear. The problem in Paulson was also one of fraudulent 

inducement. Yet, in Paulson punitive damages were allowed as 

rescission or cancellation of the underlying contractual obligation was clearly sought. By denying the contract, the plaintiffs 

became legally eligible to seek punitive damages, as the action 

clearly sounded in tort. 

Section 17-208, R.C.M. 1947, requires that plaintiff elect 

one of two remedies: (1) affirm the contract, receive the benefits 

derived thereunder, and sue for actual damages, or (2) disaffirm 

through a prayer for rescission or cancellation and sue for both 

actual and punitive damages. Even in the unfortunate circumstances presented here, the law does not permit both. The majority 

by its holding, overrules the firmly established cases cited heretofore, and applies the direct converse of the correct rule. 

4a,iQd Justice. .- 

C