Opinion ID: 2064916
Heading Depth: 1
Heading Rank: 2

Heading: In this action for breach of contract should the issues of punitive damages have been submitted to the jury?

Text: Fullerton asserts that as a matter of law and pleading, punitive damages do not belong in this case and should not have been submitted to the jury. It argues breach of contract does not give rise to punitive damages without proof of independent tortious conduct. Fullerton also contends Pogges were required to plead malice as required by Iowa R.Civ.P. 96. Pogges argue that not only was there fraud in the performance of the contract, but also there was such a high-handed disregard of duty on the part of Fullerton that this case is a classic example of the type of contractual breach for which the additional deterrent of punitive damages is deemed necessary under the law. Pogges rely on testimony of a former Fullerton employee that the floor joists and other substitutions of materials were made at the direction of a former yard manager and such substitutions had occurred in other projects. Trial court submitted punitive damages to the jury. Instruction 18 provided in part: You are instructed that the law of this State permits but does not require a jury to allow exemplary damages in certain cases if it is found by the jury that the act of the Defendant causing the injury complained of is intentional or is wanton and reckless. By wanton and reckless, as these terms are used in this case, is meant something more than negligence, but is meant that an act is done in such a manner and under such circumstances as to show heedlessness and an utter disregard and abandon as to what result may flow from the doing of an act or from the manner in which it is done. Fullerton objected to this instruction on the ground that the evidence disclosed only a breach of contract, which is always an intentional act by nature, and . . . does not give rise to punitive damages. The breach must be a separate, independent tort, and the allegations of the Plaintiffs' Petition do not conform nor comply with the requirements of Rule 96 . . . . Fullerton objected to the use and definition of wanton and reckless when no such allegations appeared in the petition. Trial court overruled Fullerton's objections, stating [T]he punitive damage element was tried throughout the trial . . . , and granted Pogges leave to amend to conform their petition to the proof. No amendment appears in the record. A. As a general rule, exemplary damages are not a remedy for breach of contract. Restatement of Contracts § 342 (1932); 5 A. Corbin, Corbin on Contracts § 1077, at 438 (1964); 11 S. Williston, Treatise on the Law of Contracts § 1340 (3d ed. W. Jaeger 1968); 22 Am.Jur.2d Damages § 245 (1965); 25 C.J.S. Damages § 120 (1966). Some courts have stated this to be the rule regardless of motives prompting breach. Roger Lee, Inc. v. Trend Mills, Inc., 410 F.2d 928, 929 (5th Cir. 1969) (Florida law); Otto v. Imperial Casualty & Indemnity Co., 277 F.2d 889, 893-94 (8th Cir. 1960) (Missouri law); Minick v. Associates Investment Co., 71 App.D.C. 367, 110 F.2d 267 (1940); Wood v. Home Insurance Co., 305 F.Supp. 937, 938 (C.D.Cal.1969) (California law). Several basic concepts lend support to this rule. It has been pointed out that extending the doctrine of punitive damages to the commercial field would introduce uncertainty and confusion into business transactions, and that substituted performance in the form of compensatory damages is an adequate remedy for the aggrieved party to a contract. Simpson, Punitive Damages for Breach of Contract, 20 Ohio St.L.J. 284, 284 (1959); Owen, Punitive Damages in Products Liability Litigation, 74 Mich.L.Rev. 1257, 1274 (1976). Considerable logic supports Justice Holmes' observation that [i]f a contract is broken, the measure of damages generally is the same, whatever the cause of the breach. Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540, 544, 23 S.Ct. 754, 755, 47 L.Ed. 1171, 1173 (1903). Our system . . . is not directed at compulsion of promisors to prevent breach; rather it is aimed at relief to promisees to redress breach. . . . Perhaps it is more seemly for a system of free enterprise to promote the use of contract by encouraging promisees to rely on the promises of others, rather than by compelling promisors to perform their promises out of fear that the law will punish their breaches. In any event, this at least adds to the celebrated freedom to make contracts, a considerable freedom to break them as well. Farnsworth, Legal Remedies for Breach of Contract, 70 Colum.L.Rev. 1145, 1147 (1970) (emphasis in original). Nonetheless, it has been recognized that in contract actions punitive damages may be awarded upon proof of the requisite wantonness of behavior in the following types of cases: fraud; breach of promise of marriage; breach of contract of service by a public utility or common carrier; wrongful failure by a bank to honor a depositor's check; breach of contract of employment; breach of fiduciary duty; . . . and breach of contract amounting to or accompanied by an independent tort. Owen, supra, at 1272. See Sullivan, Punitive Damages in the Law of Contract: The Reality and the Illusion of Legal Change, 61 Minn.L.Rev. 207, 220-40 (1977); 5 A. Corbin, supra, at 440-46. Even those courts linked above with the general prohibitory rule recognize exceptions when certain types of tortious conduct also are involved. Compare Otto with Wallick v. First State Bank, 532 S.W.2d 520, 524 (Mo.Ct.App. 1976); Wood with Miller v. National American Life Insurance Co., 54 Cal.App.3d 331, 336, 126 Cal.Rptr. 731, 733 (1976); Roger Lee with Singleton v. Foreman, 435 F.2d 962, 971 (5th Cir. 1970) (Florida law). Narrowing our focus to Iowa, this jurisdiction early ruled punitive damages were not recoverable for breach of contract. Lacey v. Straughan, 11 Iowa 258 (1860). Although by implication or by dicta we have indicated exceptions may exist in breach of warranty or contract cases, Jacobson v. Benson Motors, Inc., 216 N.W.2d 396, 405 (Iowa 1974), Engel v. Vernon, 215 N.W.2d 506, 516-17 (Iowa 1974), our most definitive statement is found in Kuiken v. Garrett, 243 Iowa 785, 800, 51 N.W.2d 149, 158 (1952), where, quoting 15 Am.Jur.Damages § 273 (1938), the court noted: This rule [no punitive damages for breach of contract] does not obtain, however, in those exceptional cases where the breach amounts to an independent, wilful tort, in which event exemplary damages may be recovered under proper allegations of malice, wantonness, or oppression. . . . In some states they are recoverable for breach of contract where there has been some intentional wrong, insult, abuse, harshness, or such gross neglect of duty as to evince reckless indifference of the rights of others or where, and only where, the breach is accompanied with a fraudulent act. In Meyer v. Nottger, 241 N.W.2d 911 (Iowa 1976), we recognized the viability of a prayer for punitive damages in a count claiming damages for mental distress arising out of an alleged breach of contract for burial services for plaintiff's father. The same facts supported a tort claim in another count. The Meyer court, following Amos v. Prom, Inc., 115 F.Supp. 127, 136-37 (N.D. Iowa 1953), and Syester v. Banta, 257 Iowa 613, 628-29, 133 N.W.2d 666, 676 (1965), in exploring the dimensions of conduct invoking an award for punitive damages, held such an award was permissible where defendant was guilty of malice, fraud, gross negligence, or an illegal act. It is not an essential element of malice that defendant's actual spite or wicked intent be demonstrated: An issue may be made by evidence of legal malice, which may be established by showing wrongful or illegal conduct committed or continued with a willful or reckless disregard of another's rights. See White v. Citizens National Bank, 262 N.W.2d 812, 817 (Iowa 1978); Northrup v. Miles Homes, Inc., 204 N.W.2d 850, 859 (Iowa 1973). From the above cases there emerge these guiding principles: (1) Punitive damages cannot be recovered for breach of contract; (2) Punitive damages may be recovered when the breach also constitutes an intentional tort, or other illegal or wrongful act, if committed maliciously; (3) It is sufficient if the malice is only legal malice, that is, committed or continued with a willful or reckless disregard of another's rights; (4) The intentional tort or other illegal or wrongful act may occur at the time of and in connection with the breach; but (5) A wrongful act in this context is not committed merely by breaching a contract, even if such act is intentional. B. Returning now to the case before us, we have serious reservations whether Pogges' petition alleged anything other than an intentional breach. Of course, it is not fatal that they failed to use the word malice. In our view, Iowa R.Civ.P. 96 (A party intending to prove malice to affect damages, must aver the same.) was not intended to make malice a talismanic sine qua non for a punitive damage claim. Rather, allegations of fact which if proven would show malice will suffice. Compare Iowa R.Civ.P. 96 with Gensburg v. Field & Co., 104 Iowa 599, 605, 74 N.W. 3, 5 (1898). We are aware, of course, that upon remand Pogges may be allowed to amend their petition. See Iowa R.Civ.P. 88, 89; Gookin v. Norris, 261 N.W.2d 692, 694 (Iowa 1978); Pease v. Citizens State Bank, 210 Iowa 331, 340, 228 N.W. 83, 87 (1930); Fed. R.Civ.P. 15(c). If so, upon retrial sufficient evidence may be adduced on the issue of exemplary damages to warrant its submission. Trial court's instructions should follow the guidelines provided in this opinion.