No. 13290
I N THE SUPREME COURT OF THE STATE OF M N A A
OTN
197 6
STATE EX REL. DIMLER ,
Petitioner,
THE DISTRICT COURT OF THE ELEVENTH
JUDICIAL DISTRICT O THE STATE O
F F
MONTANA, I N AND FOR THE C U T O
O NY F
FLATHFAD ANT) THE HON. ROBERT S KELLER,
a Judge t h e r e o f ,
.
Respondents.
ORIGINAL PROCEEDING:
Counsel o f Record:
For P e t i t i o n e r :
James D. Moore a r g u e d , K a l i s p e l l , Montana
F o r Respondents:
Warden, L J a l t e r s k i r c h e n and C h r i s t i a n s e n , K l i s p e l l ,
a
Montana
Submitted: March 1 7 , 1976
Mr. J u s t i c e Gene B. Daly d e l i v e r e d t h e Opinion of t h e C o u r t .
T h i s i s a n a p p l i c a t i o n f o r a w r i t of s u p e r v i s o r y 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 e l e v e n t h j u d i c i a l d i s t r i c t ,
F l a t h e a d 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 R o b e r t E.
D i m l e r and P a t t i D i m l e r and r e l a t e s t o t h a t c o u r t ' s o r d e r s t r i k -
i n g a p r a y e r f o r ' p u n i t i v e damages from a c o m p l a i n t s e e k i n g damages
from d e f e n d a n t s Ralph Edward James and Kathy Ann James f o r a l l e g e d
m i s r e p r e s e n t a t i o n as t o t h e f u n c t i o n a l c o n d i t i o n o f o n e bathroom
and plumbing e l s e w h e r e i n a home s o l d by d e f e n d a n t s t o p l a i n t i f f s .
T h i s C o u r t , upon h e a r i n g e x p a r t e a p p l i c a t i o n o f p l a i n t i f f s ,
g r a n t e d d e f e n d a n t s 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 reply. Briefs were
f i l e d and t h e c a s e s u b m i t t e d A p r i l 9, 1976.
The background g i v i n g 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 o f p l a i n t i f f s , i s : 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 p u r c h a s e and s a l e o f a home owned by d e f e n d a n t s n e a r
K a l i s p e l l , Montana. Defendants l i s t e d and r e p r e s e n t e d t h e home
t o c o n t a i n two bathrooms. P l a i n t i f f s i n i n s p e c t i n g t h e home, were
shown t h e "second bathroom" u p s t a i r s , which "bathroom" c o n t a i n e d
a b a t h t u b , a s i n k , and a t o i l e t , a l l a t t a c h e d t o t h e w a l l s and
f l o o r i n what a p p e a r e d t o be a normal f a s h i o n . 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, a s though t h e y might have been
r i n s e d and p l a c e d i n a hamper t h e r e i n . There was b l u e w a t e r i n
the toilet.
B e l i e v i n g t h e home t o b e a two-bathroom home, and r e l y -
i n g 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 d e f e n d -
a n t s under a c o n t r a c t f o r deed on o r a b o u t J u l y 2 7 , 1974.
The day f o l l o w i n g t h e p u r c h a s e , p l a i n t i f f s ' small c h i l d
had o c c a s i o n t o u s e t h e u p s t a i r s t o i l e t b u t was u n a b l e t o f l u s h
it. T h e r e a f t e r it was d i s c o v e r e d t h a t no plumbing w h a t s o e v e r 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.
~esiringto 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
c l a i m was i n c o n s i s t e n t w i t h t h e c l a i m 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 b r e a c h o f c o n t r a c t , and t h e r e f o r e
p u n i t i v e damages c o u l d n o t be awarded under s e c t i o n 17-208, R.C.M.
1947.
I n S t a t e ex r e l . Cashen p l a i n t i f f c l a i m e d f r a u d on t h e
p a r t of t h e i n s u r e r and i t s a g e n t i n s e t t l i n g a n a u t o c o l l i s i o n
i n s u r a n c e c l a i m and sued f o r b r e a c h o f c o n t r a c t , a s k i n g f o r
r e s c i s s i o n w i t h a c t u a l and p u n i t i v e damages. Once a g a i n , t h e
a c t i o n w a s f o r b r e a c h o f c o n t r a c t and s i n c e , c o n t r a r y t o p l a i n -
t i f f ' s c o n t e n t i o n , no p e n a l s e c t i o n o f Montana's I n s u r a n c e Code
w a s r e l e v a n t , p u n i t i v e damages c o u l d n o t be a l l o w e d u n d e r s e c -
t i o n 17-208.
Since a l l t h r e e c i t e d c a s e s involved a c t i o n s f o r breach
of c o n t r a c t , w i t h 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, t h o s e
c a s e s a r e d i s t i n g u i s h a b l e from t h e i n s t a n t case. Here, p l a i n t i f f s
c h o s e t o a f f i r m t h e c o n t r a c t and s u e f o r f r a u d u l e n t r e p r e s e n t a -
t i o n s p r e c e d i n g t h e c o n t r a c t , 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
a l l e g e d induced them t o s i g n t h e c o n t r a c t f o r p u r c h a s e o f d e f e n -
d a n t s ' home.
T h a t such a c o u r s e o f a c t i o n i s p e r m i s s i b l e and i n f a c t
i s n o t a c o n t r a c t a c t i o n h a s l o n g been r e c o g n i z e d 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
part:
"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
p e r s o n who h a s p a r t e d w i t h something of v a l u e
as a r e s u l t o f a c o n t r a c t o r t r a n s a c t i o n induced
by f r a u d i s t h a t h e may r e t a i n what he h a s re-
c e i v e d and b r i n g a n a c t i o n a t l a w t o r e c o v e r
t h e damages s u s t a i n e d . Thus, a p e r s o n who h a s
been i n j u r e d by t h e f r a u d o f a n o t h e r 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
n e g o t i a t i o n of a t r a n s a c t i o n , such t r a n s a c t i o n
usually but not necessarily involving business
o r commercial d e a l i n g s , may m a i n t a i n a n a c t i o n
a t l a w i n t o r t t o r e c o v e r damages f o r t h e i n j u r y
r e c e i v e d from t h e f r a u d and d e c e i t p e r p e t r a t e d
by s u c h o t h e r o r o t h e r s . The f o u n d a t i o n o f
the action is not contract, but t o r t . * * *"
( ~ m p h a s i ss u p p l i e d . )
37 Am J u r 2d, Fraud and D e c e i t , S 333, p. 4 4 2 , c o n t i n u e s t h e
discussion:
" I n accordance with t h e r i g h t t o b r i n g 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 h a s been induced
by t h e f r a u d o f t h e s e l l e r t o p u r c h a s e r e a l o r
p e r s o n a l p r o p e r t y may o r d i n a r i l y m a i n t a i n a n a c t i o n
f o r , o r i n t h e n a t u r e o f , d e c e i t , t o r e c o v e r dam-
a g e s r e s u l t i n g from t h e f r a u d . * . * * " (Emphasis
supplied.)
See a l s o : A s s o c i a t e d Hardware Supply Co. v. Big Wheel D i s t r i b u -
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 . A s s o c i a t e d C o n s t . Co.,
1 4 1 Conn. 49, 103 A.2d 529.
I n F a l l s Sand and G r a v e l Co. v . Western C o n c r e t e , I n c .
270 F.Supp. 495, 500, Judge Jameson s t a t e d :
" * * * I t i s c l e a r t h a t i n Montana, and g e n e r a l l y ,
a p a r t y may n o t p u r s u e b o t h a n 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 m i s r e p r e s e n t a t i o n . * * * I 1
Judge Jameson t h e n quoted a p p r o v i n g l y from Bankers T r u s t Co. v .
P a c i f i c Employers I n s u r a n c e Co., 282 F.2d 1 0 6 , 1 1 0 :
" ' * * * I t i s t h e l a w t h a t o n e who h a s 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 s t a n d by t h a t c o n t r a c t and s u e f o r damages
f o r the 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 c i r c u m s t a n c e s of t h e i n s t a n t c a s e . I n Horner, p u r c h a s e r s
b r o u g h t a n a c t i o n o f f r a u d a g a i n s t t h e s e l l e r s and a r e a l e s t a t e
f i r m f o r m i s r e p r e s e n t a t i o n s a l l e g e d l y made c o n c e r n i n g t e r m i t e
damage i n t h e house which t h e y p u r c h a s e d . Defendants contended
t h a t under t h e t e r m s o f t h e c o n t r a c t , p l a i n t i f f s ' o n l y remedy,
i n t h e e v e n t t e r m i t e damage was found, w a s t o r e s c i n d t h e con-
tract. By r e t a i n i n g t h e p r o p e r t y and b r i n g i n g a n a c t i o n f o r
damages, d e f e n d a n t s a l l e g e d p l a i n t i f f s w e r e s e e k i n g t o a f f i r m
t h a t p a r t o f 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 p r o p e r t y 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 f o u n d . 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 C o u r t 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 o f f r a u d and
d e c e i t i s n o t b a s e d upon t h e c o n t r a c t , b u t i s
i n d e p e n d e n t o f it. The a c t i o n i s n o t i n con-
t r a c t , b u t i n t o r t . The b r i n g i n g o f t h e a c t i o n
has t h e e f f e c t of affirming t h e contract, but
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 s e e k r e c o v e r y o f damages f o r t h e
alleged 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 misrepresentation on t h e p a r t of defendants, t h e s e
c o n c l u s i o n s c a n b e made a s t o p l a i n t i f f s ' c a u s e o f a c t i o n i n
t h e i n s t a n t case: The c a u s e o f 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 c l a i m i n d u c e d t h e e x e c u t i o n o f 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 a n 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 b e a " b r e a c h o f a n o b l i g a -
t i o n " a s c o n t e m p l a t e d by s e c t i o n 17-208. Additionally, a cause
o f a c t i o n f o r f r a u d u l e n t inducement c a n b e i n t o r t and t h u s i n -
d e p e n d e n t o f t h e c o n t r a c t and t h e r e f o r e a f f i r m a n c e o f t h e c o n t r a c t
does not automatically preclude s u i t i n t o r t f o r fraud. Since
p l a i n t i f f s ' c a u s e o f a c t i o n f o r f r a u d i s b a s e d 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, i s n o t c o n t r o l l i n g a n d p l a i n -
t i f f s c a n p r o p e r l y p r a y 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 C o u r t 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 eleventh 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 '
p r a y e r f o r p u n i t i v e damages,
therefor.
Justice
We concur:
judge, sitting in place of Mr.
"'ChiefJustice James T. Harrison.
Mr. J u s t i c e Wesley C a s t l e s d i s s e n t i n g ;
1 r e s p e c t f u l l y d i s s e n t t o t h e m a j o r i t y holding. The
11
i s s u e around which t h i s c a s e r e v o l v e s i s f r a u d u l e n t inducement"
t o e n t e r i n t o a c o n t r a c t , and t h e a c t i o n c l e a r l y a r i s e s out o f
t h e c o n t r a c t w i t h i n t h e meaning of s e c t i o n 17-208, R.C.M. 1947.
I n c o n s t r u i n g t h e c a s e s of W e s t f a l l , Ryan and Cashen, t h e
majority inaccurately s t a t e s :
"* ** a l l t h r e e c a s e s involved a c t i o n s f o r breach
of c o n t r a c t , w i t h r e s c i s s i o n a s p a r t of t h e r e l i e f
sought 9~ 9 : *. 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 f r a u d u l e n t representations ** 9;. l1
I n W e s t f a l l , p u n i t i v e damages were denied because of an
a l l e g a t i o n t h e i n s u r a n c e c a r r i e r had breached i t s c o n t r a c t w i t h
the insured. R e s c i s s i o n of t h a t u n d e r l y i n g o b l i g a t i o n , t h e
i n i t i a l i n s u r a n c e c o n t r a c t , was n o t prayed f o r . The f a c t t h a t
r e s c i s s i o n of t h e r e l e a s e agreement was r e q u e s t e d , was n o t
d e t e r m i n i t i v e of t h e c a s e . The c o n t i n u i n g e x i s t e n c e of t h e
underlying o b l i g a t i o n was t h e f a c t o r which caused t h e a p p l i c a t i o n
o f t h e s t a t u t e t o deny p u n i t i v e r e l i e f .
The f a c t s i n Ryan presented a "fraudulent inducement"
very s i m i l a r t o t h e i n s t a n t c a s e . The m a j o r i t y s t a t e s r e s c i s s i o n
of t h e purchase c o n t r a c t was sought, b u t t h e opinion c o n t a i n s
no language t o t h a t e f f e c t . Again, p u n i t i v e damages were d i s -
allowed i n l i g h t of t h e c o n t i n u i n g e x i s t e n c e of t h e c o n t r a c t , an
e x i s t e n c e which could only be denied by a prayer f o r r e s c i s s i o n .
I n Cashen, a n o t h e r insurance c o n t r a c t and r e l e a s e problem
i s presented. A f a i r r e a d i n g of t h a t c a s e f a i l s t o r e v e a l any
i n t e n t of t h e p l a i n t i f f t o deny t h e e x i s t e n c e of t h e o r i g i n a l
i n s u r a n c e agreement. Thus, p u n i t i v e damages were deemed inappro-
priate.
I n a c a s e n o t c i t e d by t h e m a j o r i t y , Paulson v. Kustom Enter-
p r i s e s I n c . , 157 Mont. 188, 483 P.2d 708, t h e r e l a t i o n s h i p between
t h e prayer f o r r e s c i s s i o n and t h e recovery of p u n i t i v e damages
i s made c l e a r . The problem i n Paulson was a l s o one o f f r a u d u l e n t
inducement. Yet, i n Paulson p u n i t i v e damages were allowed a s
r e s c i s s i o n o r c a n c e l l a t i o n of t h e underlying c o n t r a c t u a l o b l i g a -
t i o n was c l e a r l y sought. By denying t h e c o n t r a c t , t h e p l a i n t i f f s
became l e g a l l y e l i g i b l e t o seek p u n i t i v e damages, a s t h e a c t i o n
c l e a r l y sounded i n t o r t .
S e c t i o n 17-208, R.C.M. 1947, r e q u i r e s t h a t p l a i n t i f f e l e c t
one of two remedies: (1) a f f i r m t h e c o n t r a c t , r e c e i v e t h e b e n e f i t s
d e r i v e d t h e r e u n d e r , and s u e f o r a c t u a l damages, o r (2) d i s a f f i r m
through a p r a y e r f o r r e s c i s s i o n o r c a n c e l l a t i o n and s u e f o r both
a c t u a l and p u n i t i v e damages. Even i n t h e u n f o r t u n a t e circum-
s t a n c e s presented h e r e , t h e law does n o t permit both. The m a j o r i t y
by i t s h o l d i n g , o v e r r u l e s t h e f i r m l y e s t a b l i s h e d c a s e s c i t e d here-
t o f o r e , and a p p l i e s t h e d i r e c t converse of t h e c o r r e c t r u l e .
4 J uat i c e . i Q d
s , .
-
C