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Southern States Ford, Inc. v. Proctor, 541 So. 2d 1081 | Casetext
541 So. 2d 1081 (Ala. 1989)
Southern States Ford, Inc.v.Proctor
Overruled by Ala. in 1997Foremost Ins. Co. v. Parham693 So. 2d 409 (Ala. 1997)
Supreme Court of AlabamaMar 10, 1989
…In Hickox, this Court, by a vote of five to three, adopted what has become known as the "justifiable reliance…
Real Estate Financing v. Resolution Trust
…See, e.g., Torres v. State Farm Fire Casualty Co., 438 So.2d 757, 758-59 (Ala. 1983). Chief Justice Hornsby…
stating that the justifiable reliance standard merely requires a plaintiff not to rely on "patently ridiculous representations" such as promises of the "moon"
Summary of this case from Foremost Ins. Co. v. Parham
Robert A. Huffaker of Rushton, Stakely, Johnston Garrett, Montgomery, for appellants.
Eugene W. Reese of Reese Addison, Montgomery, for appellee;
"Basic Delivered Price of Unit $11,966.00 "AMV 389.00 "Protection Pkg 495.00 __________ $12,850.00 "Air Condition 895.00 __________ $13,745.00"
Southern States submitted Proctor's credit application to Union Bank Trust Company, but Union Bank would not extend credit for the full amount and requested that an additional $1,500.00 of the purchase price be paid in cash rather than be financed. Southern States called Proctor and told her that she would have to pay an additional $1,500.00 in cash. She refused, and eventually Southern States agreed to guarantee to the financing institution $1,500.00 of the total amount financed.
Because of this problem with the financing, Southern States asked Proctor to come back to the dealership in order to execute a new set of contracts. Before she returned to the dealership, she had discussed the matter with an attorney friend, who counseled her not to sign any more papers. Nevertheless, on August 20, 1986, Proctor signed a new set of contracts. The new documents were apparently the same as those executed previously except that the name of the financing institution was changed from Union Bank to Ford Motor Credit Company.
The first set of contracts was not retained by either Proctor or Southern States.
The defendants argue that the trial court should have directed a verdict in their favor on the basis that Proctor's reliance on the misrepresentations of the salesman was unreasonable, as a matter of law. The scintilla rule, which was applicable in this case, requires that an issue in a civil case go to the jury if the evidence, or a reasonable inference therefrom, furnishes as much as a glimmer or trace in support of an issue. Alabama Farm Bureau Mut. Cas. Ins. Co. v. Haynes, 497 So.2d 82, 85 (Ala. 1986). This Court stated in National Security Fire Cas. Co. v. Vintson, 454 So.2d 942, 943-44 (Ala. 1984):
"A directed verdict is proper only when there is a complete absence of proof on a material issue or where there are no disputed questions of fact on which reasonable people could differ. Ritch v. Waldrop, 428 So.2d 1 (Ala. 1982). When a motion for directed verdict is requested, the entire evidence must be viewed in a light most favorable to the opposing party. Ott v. Fox, 362 So.2d 836 (Ala. 1978)."
Torres v. State Farm Fire Cas. Co., 438 So.2d 757, 758-59 (Ala. 1983).
Defendants rely heavily on the case of Traylor v. Bell, 518 So.2d 719 (Ala. 1987). In Traylor, the plaintiff alleged that an automobile dealer had defrauded him by adding the cost of a protective package to what the plaintiff understood the sale price to be. Plaintiff signed a "retail buyer's order" that contained the higher figure and that did not itemize the charge for the protective package. However, the charge for this protective package was contained in a dealer's "add-on" sticker that was on the car window. In that case, the plaintiff never read the sales documents before he signed them, because he was a poor reader and had poor eyesight. This Court held that there had been no reasonable reliance on the part of the plaintiff.
Plaintiff contends otherwise. She argues that the case of Village Toyota Co. v. Stewart, 433 So.2d 1150 (Ala. 1983), is more analogous to the present case than is the Traylor case. In Village Toyota, the facts were as follows:
433 So.2d at 1154-55.
"Q. What was the sticker price?
"A. Eleven, nine sixty-nine.
"Q. If the deal that you thought that you had finally made was, you were going to pay sticker price, plus AMV?
"Q. How much is AMV?
"A. Three hundred and eighty-nine dollars.
"Q. So you thought you were paying twelve thousand three hundred and fifty-five dollars for that car?
"A. That's the — that's the only charge that I thought was being added to the vehicle, other than the sticker price, and I only thought that was being added because it was a standard fee.
"Q. But you understood that the deal that you had made with Mr. Starcher, was that you were going to pay for this car, twelve thousand, three hundred fifty-five dollars?
"A. I felt — I knew I was going to pay the sticker price, plus the AMV.
"Q. You had looked at the sticker price before you even signed the worksheet?
"A. Uh-huh, I looked at it on the car out in the lot.
"Q. And you looked at it on the worksheet?
"A. Right. "Q. And you looked at the AMV price on the worksheet; is that correct?
"Q. So you expected to pay twelve thousand three hundred fifty-five dollars?
"A. I'm sure at that time I didn't add it up in my head, but I felt like that was the deal we had come to and I was going to pay that for the car.
"Q. Miss Proctor, tell the jury what you thought the deal [was] that you had on August 15th, and then again on August 20th, when you left? Tell me what you thought it was?
"A. The deal that I had, and I had from Mr. Starcher, which I trusted him as a salesman, was that I was not being charged for the Protection Package, or the air conditioner, and I was charged for AMV, which I was told, when I asked him, it was for a charge similar to taxes and title.
"Q. If you had known it was profit, would you have been willing to pay it?
"A. No, its sort of like the protection package. The way feel about it, — I mean, it was, there was no — no, it was just profit."
Defendants also argue that the evidence was insufficient to warrant the recovery of punitive damages. If the evidence establishes an intent to deceive or defraud, then punitive damages are recoverable. American Honda Motor Co. v. Boyd, 475 So.2d 835, 839 (Ala. 1985).
Editor's Note: This retail order and invoice is electronically none transferrable.
The tort of intentional fraud is unique. It is the lone intentional tort where a defendant is permitted to escape liability based on the plaintiff's "neglect." Outside the scope of this tort, it is generally well settled that where a defendant intentionally injures a plaintiff, the conduct of the plaintiff in bringing about the harm (i.e., his own acts or omissions) is not pertinent.
The term "neglect" is concededly used inartfully but serves well from the standpoint of convenience. Prosser and Keeton instruct: "Rather than contributory negligence, the matter seems to turn upon an individual standard of the plaintiff's own capacity and the knowledge which he has, or which may fairly be charged against him from the facts within his observation in the light of his individual case, and so comes closer to the rules which are associated with assumption of risk." Prosser Keeton on Torts § 108, p. 751 (5th ed. 1984); see also 2 Harper, James Gray, The Law of Torts § 7.12, p. 461-62 (2d ed. 1986).
In the context of intentional fraud, then, a defense based on the unjustifiable reliance — i.e., neglect — of the plaintiff is peculiar, if not an anomaly or aberration. This peculiarity is magnified when the question of damages arises. Generally speaking, punitive damages are awardable in all intentional tort cases; intentional fraud cases are no exception. E.g., Carnival Cruise Lines, Inc. v. Goodin, 535 So.2d 98 (Ala. 1988). As has been recited on countless occasions, punitive damages carry the purpose of punishing the defendant for his misconduct and deterring others from engaging in similar episodes of misconduct. The law punishes one who intentionally injures another and, in so doing, attempts to dissuade others from intentionally causing similar injuries.
"Because it is the policy of courts not only to discourage fraud but also to discourage negligence and inattention to one's own interests, the right of reliance comes with a concomitant duty on the part of the plaintiffs to exercise some measure of precaution to safeguard their interests. In order to recover for misrepresentation, the plaintiffs' reliance must, therefore, have been reasonable under the circumstances. If the circumstances are such that a reasonably prudent person who exercised ordinary care would have discovered the true facts, the plaintiffs should not recover. Bedwell Lumber Co. v. T T Corporation, 386 So.2d 413, 415 (Ala. 1980).
" 'If the purchaser blindly trusts, where he should not, and closes his eyes where ordinary diligence requires him to see, he is willingly deceived, and the maxim applies, "volunti non fit injuria." '
Torres v. State Farm Fire Cas. Co., 438 So.2d 757, 758-59 (Ala. 1983). By permitting the downtrodden to sue in tort for intentional fraud after "relying" on patently ridiculous representations advances two undesirable ends. First, large verdicts including punitive damages are simply unwarranted where one has "relied" on a promise that he will be furnished the moon. Second, plaintiffs would be encouraged to ignore the absurdity of "relying" on a promise to bring them the moon, knowing full well that, once the moon did not arrive, a large verdict awaited; Alabama courts should not serve as the means for advancing such "counter-schemes."
Somewhere between the deplorable "con job" and the promise to act in a manner beyond the realm of reality, a line for "reliance" must be drawn. At present, the line seems to be drawn at the "reasonableness" mark. See, e.g., Padgett v. Hughes, 535 So.2d 140 (Ala. 1988); Cahaba Valley Dev. Corp. v. Nuding, 512 So.2d 46 (Ala. 1987); Hughes v. Cloud, 504 So.2d 734 (Ala. 1987); and Bedwell Lumber Co. v. T T Corp., 386 So.2d 413 (Ala. 1980). For the proposition that the plaintiff's reliance must have been "reasonable," Bedwell Lumber relied on Mid-State Homes, Inc. v. Holt, 52 Ala. App. 415, 293 So.2d 476 (1974), which, in turn, relied on Nelson v. Shelby Mfg. Improv. Co., 96 Ala. 515, 11 So. 695 (1892). Curiously, the Nelson case made no such holding; rather, it merely questioned, in dicta, whether the plaintiff "had a right to rely [on the representation]." Nelson, 96 Ala. at 533, 11 So. at 702. Bedwell Lumber, then, provides the current undergirding of the "reasonable reliance" standard. Similarly, the above-quoted passage from Torres v. State Farm Fire Cas. Co. traces its roots to Bedwell Lumber. It is Bedwell Lumber, then, that has earned an overdue explanation.
In Bedwell Lumber, T T Corporation, a land developer, offered to purchase certain undeveloped land from Bedwell Lumber Company. Mr. Bedwell misrepresented that the "platted lots [made the basis of the purchase agreement] had been approved for septic tanks," Bedwell Lumber, supra, 386 So.2d at 414. In upholding a jury verdict for T T, this Court refused to hold "that T T Corporation, despite Mr. Bedwell's representation, was obligated, as a matter of law, to instigate an independent investigation which, if pursued, would have disclosed a public record . . . [revealing] that 5 of the purchased lots had been disapproved for septic tanks." Id. at 415. Nevertheless, the Court did recognize that "the representee's reliance must be reasonable under the circumstances; and, where a party has reason to doubt the truth of the representation or is informed of the truth before he acts, he has no right to act [or rely] thereon." Id. (emphasis added). It is this last quotation that spawned the current "reasonable reliance" standard; it is also this quotation that relied for its precedent on cases that did not truly or adequately support it.
If we accept the proposition that Bedwell Lumber, although correctly decided, incorrectly introduced the "reasonable reliance" standard, the question remains: What is the proper measure of reliance to support an action based on intentional fraud? According to current tort theory, the inquiry focuses not on whether the plaintiff's reliance was reasonable, nor on whether his conduct is free from neglect; rather, the focus is on whether the reliance is justifiable.
Holman v. Joe Steele Realty, Inc., 485 So.2d 1142 (Ala. 1986), exemplifies the confusion surrounding the element of reliance. Compare id. at 1144 ("There is no showing in the record of the plaintiffs justifiable reliance upon the alleged fraudulent representations of Clokey") (emphasis added) with id. at 1145 ("The actual or imputed knowledge of the Holmans . . . precludes any finding of a reasonable reliance upon the alleged representation of Clokey") (emphasis added).
The consideration of whether a given plaintiff's reliance is "justifiable" is not the same as the determination of whether it is "reasonable." The former is more subjective, see 2 Harper, James Gray, The Law of Torts § 7.12, pp. 462-63 (2d ed. 1986), the latter more objective. "Justifiability" places less emphasis on the "neglect" of the plaintiff, and more on the intentional misconduct of the tort-feasor.
" 'Contributory negligence is not a defense to an action for deceit. If the false statement is made by one who may be fairly assumed to know what he is talking about, it may be accepted as true, without question and without inquiry, although the means of correct information are easily within reach. . . . It would, indeed, be singular to hold a swindling deceiver exempt from liability because he has swindled only foolishly credulous and trusting persons, and more singular still to hold that such a swindler may successfully plead the incredibility of his falsehood and the folly of his victim's belief.' "
Id. at 585 (quoting King v. Livingston Mfg. Co., 180 Ala. 118, 127-28, 60 So. 143, 145-46 (1912)). See also Franklin v. Nunnelley, 242 Ala. 87, 5 So.2d 99 (1941); Barley v. Wright, 233 Ala. 283, 171 So. 247 (1936); and Wilks v. Wilks, 176 Ala. 151, 57 So. 776 (1912).
The state of the law has so remained to this day, except, apparently, in Alabama. The rule announced by Cooley is, however, subject to the "red flag" exception. A plaintiff has not justifiably relied on a misrepresentation if the statement was one "which any normal person would recognize at once as preposterous," Prosser Keeton on Torts § 108, p. 750 (5th ed. 1984), or "one so patently and obviously false that he must have closed his eyes to avoid the discovery of the truth." Id.; cf. 2 Harper, James Gray, supra, § 7.12, p. 461 ("patently preposterous"); id. at 465 ("patently false or silly").
"Red flag," in the intentional fraud scenario, is a phrase most recently appearing in Padgett v. Hughes, 535 So.2d 140 (Ala. 1988).
Lowering the watermark that drowns recovery from reasonable reliance to justifiable reliance also reflects "[t]he recognition of a new standard of business ethics [that] demand[s] [that] statements of fact be at least honestly and carefully made." Prosser Keeton, supra, § 108, p. 750. This is particularly true in the field of consumer transactions, where Congress in recent years has seen fit to enact a rash of consumer protection laws. On the state level, the Alabama legislature has demanded ethical and honest conduct of realtors, Code 1975, § 34-27-36(a); accountants, Code 1975, § 34-1-12; architects, Code 1975, § 34-2-34; attorneys, e.g., Code 1975, § 34-3-87; auctioneers, Code 1975, § 34-4-29; dentists, Code 1975, § 34-9-18; engineers, Code 1975, § 34-11-11; and the members of virtually every other professional occupation, as well.
Among the more prominent of such laws are the Securities Act of 1933 (currently 15 U.S.C. § 77a-77aa); the Securities Exchange Act of 1934 (currently 15 U.S.C. § 78a-78kk); the Magnuson-Moss Warranty Act (15 U.S.C. § 2301-2312); the Truth-in-Lending Act (15 U.S.C. § 1601-1677); and the Interstate Land Sales Full Disclosure Act (15 U.S.C. § 1701-1720) .
Likewise, the courts of this State have sought to ensure that the disparity in bargaining power between buyer and seller in a consumer transaction is not abused by the party with superior knowledge or expertise regarding the subject of the bargain. See, e.g., Ex parte Smith, 412 So.2d 1222, 1225 (Ala. 1982) (policy behind permitting punitive damages "is the protection of the public from oppressive practices, particularly in the sale of consumer goods"); see also East River S.S. Corp. Transamerica Delaval, 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986); Lloyd v. Service Corp. of Alabama, Inc., 453 So.2d 735 (Ala. 1984) (recognizing public policy of protecting consumers victimized by disparate bargaining power). Additionally, in Alabama we recognize that, in every transaction, the parties impliedly warrant that they are acting in good faith and are engaging in fair dealing. Barnes v. Atlantic Pac. Life Ins. Co., 295 Ala. 149, 325 So.2d 143 (1975).
One other short line of cases has also clouded the proper standard of adjudging reliance in consumer transactions. In Traylor v. Bell, 518 So.2d 719 (Ala. 1987), this Court quoted the following passage from Gonzales v. U-J Chevrolet Co., 451 So.2d 244, 247 (Ala. 1984):
" 'Fraud is deemed to have been discovered when the person either actually discovered, or when the person ought to or should have discovered, facts which would provoke inquiry by a person of ordinary prudence, and, by simple investigation of the facts, the fraud would have been discovered. Papastefan v. B L Construction Co., 385 So.2d 966 (Ala. 1980); Johnson v. Shenandoah Life Ins. Co., 291 Ala. 389, 281 So.2d 636 (1973).' "
Traylor, 518 So.2d at 720; see also Tribble v. Provident Life Acc. Ins. Co., 534 So.2d 1096 (Ala. 1988); Jarrard v. Nationwide Mut. Ins. Co., 495 So.2d 584 (Ala. 1986). This "gloss" does not accurately support the "reasonable reliance" standard. All three cases relied upon by the Court in Traylor — Gonzales v. U-J Chevrolet Co., Papastefan v. B L Construction Co. and Johnson v. Shenandoah Life Ins. Co. — involve statute of limitations issues. The focus in those cases was on the plaintiff's prudence in discovering his damage, not on whether his reliance on any representations was warranted.
"If the purchaser blindly trusts, where he should not, and closes his eyes where ordinary diligence requires him to see, he is willingly deceived, and the maxim applies, 'volunti non fit injuria.' "
" 'He who affirms either what he does not know to be true, or knows to be false, to another's prejudice and his own gain, is, both in morality and law, guilty of falsehood, and must answer in damages.' The concluding remark in the foregoing extract . . . we think is a very just and correct exposition of the rule of law."
Id. (quoting Adamson v. Jarvis, 4 Bing. 66, 73, 130 Eng.Rep. 693, 696 (C.P. 1827)) (emphasis in Munroe).
"Reliance" should be assessed by the following standard: A plaintiff, given the particular facts of his knowledge, understanding, and present ability to fully understand the nature of the subject transaction and its ramifications, has not justifiably relied on the defendant's representation if that representation is "one so patently and obviously false that he must have closed his eyes to avoid the discovery of the truth." Prosser Keeton, supra, § 108, at 750. This rule recognizes the vitality of the bar to recovery forged in Munroe v. Pritchett — where "the purchaser blindly trusts" — and balances it with the policy of punishing liars and deterring deceitful practices.
The people of Alabama should be able to presume that their neighbors are honest people; suspecting deceit is a duty that should not be borne, and a characteristic that should not be coveted. "The law protects even careless dupes from fraud. And this is true even though the investigation 'could be made without any considerable trouble or expense.' " Harper, James Gray, supra, § 7.12, at 456-58 (quoting Restatement (Second) of Torts § 540 comment a (1977)). Unless one's reliance is unjustifiable, based on a representation patently ridiculous on its face, the intentional fraud action should succeed, the defrauder should be punished, and other potential deceivers should be shown the light of the law.
Perhaps I feel more comfortable with the felicitous phrase "reasonable reliance" than the suggested phrase, which is equally felicitous, "justifiable reliance," only because the change of designation will be used to change the law as set out in the following portion of Torres v. State Farm Fire Casualty Co., 438 So.2d 757, 758-59 (Ala. 1983):
"Because it is the policy of courts not only to discourage fraud but also to discourage negligence and inattention to one's own interests, the right of reliance comes with a concomitant duty on the part of the plaintiffs to exercise some measure of precaution to safeguard their interests. In order to recover for misrepresentation, the plaintiffs' reliance must, therefore, have been reasonable under the circumstances. . . .
To be actionable, as "misrepresentation," there must be a misrepresentation of a material fact that is acted upon by the opposite party (Ala. Code 1975, § 6-5-101), and an action based on "deceit" requires a willful misrepresentation of a material fact that is made to induce another to act, and the opposite party must in fact act upon it to his injury (§ 6-5-103).
Should the policy of the courts not be to continue to discourage misrepresentation and deceit and to continue to discourage negligence and inattention to one's own interest?
Would not the ground or reason of the quoted portion of Torres, the ratio decidendi of that decision — and of Dickinson v. Moore, 468 So.2d 136 (Ala. 1985); Rich Crest Homes, Inc. v. Vaughn Place, Inc., 485 So.2d 1123 (Ala. 1986); Wilson v. Brown, 496 So.2d 756 (Ala. 1986); First National Bank of Mobile v. Horner, 494 So.2d 419 (Ala. 1986); Newman v. First National Bank of Mobile, 497 So.2d 106 (Ala. 1986); Hughes v. Cloud, 504 So.2d 734 (Ala. 1987); Webb v. Reese, 505 So.2d 321 (Ala. 1987); Turner v. Landmark Chevrolet, Inc., 514 So.2d 1337 (Ala. 1987); Hinson v. Center Court Productions, 514 So.2d 1374 (Ala. 1987); Southern Life Health Ins. Co. v. Smith, 518 So.2d 77 (Ala. 1987); MacKinnon v. St. Louis Southwestern Ry., 518 So.2d 89 (Ala. 1987); Syx v. Midfield Volkswagen, Inc., 518 So.2d 94 (Ala. 1987); Traylor v. Bell, 518 So.2d 719 (Ala. 1987); Boswell v. Coker, 519 So.2d 493 (Ala. 1987); Pranzo v. ITEC, Inc., 521 So.2d 983 (Ala. 1988); Cherokee Farms, Inc. v. Fireman's Fund Ins. Co., 526 So.2d 871 (Ala. 1988), which all follow Torres on this point — "hypothetically be consented to today by the conscience and the feeling of justice of the majority of all those whose obedience is required by [that] rule of law?" Laun, Stare Decisis, 25 Va.L.Rev. 12, 22 (1938). I believe that it would; therefore, I would follow the doctrine of stare decisis on the concept of reliance (that which is acted upon), rather than promulgate a new test for misrepresentation or deceit that would remove the element of reliance from these causes of action unless the representation was "patently ridiculous on its face." For a plaintiff to recover for misrepresentation or deceit, I believe that he must rely on the representation and that such reliance must be reasonable (justified) under the circumstances. It may be that a plaintiff has not the intellect or education to discern what would be "patently ridiculous on its face" to a reasonable man. Should not such a person have protection in the way of a cause of action for damages if he relies on those assuring him of the medicinal properties of snake oil or clear title to the Brooklyn Bridge? On the other hand, plaintiffs could be intelligent, well-educated individuals and it still be said of them:
"They have mouths, and speak not: eyes have they, and see not.
"They have ears, and hear not: noses have they, and smell not."
I see no compelling reason to depart from stare decisis and to encourage ostrichism in a free, democratic, upwardly mobile society. I am not attached to the phrase "reasonable reliance." It could be that it has become a lazy judge's catch word, such as Justice Oliver Wendell Holmes warned against in his Collected Legal Papers (1921) at 230-31:
I have authored opinions using the phrase "reasonable reliance": Wilson v. Brown, supra; First National Bank v. Horner, supra; Southern Life Insurance Co. v. Smith, supra; Syx v. Midfield Volkswagen, Inc., supra.
"It is not the first use, but rather the tiresome repetition of inadequate catch words, . . . phrases which originally were contributions, but which, by their very felicity, delay further analysis for fifty years."
This quote from Justice Holmes was first brought to my attention by an article written by Dr. Jim Vickrey, "The Power of Felicitous Phrasing — A Note on the Origin and Nature of the Right to Punitive Damages in Alabama Law," which is awaiting publication.