Welborn v. Dixon , 70 S.C. 108 ( 1904 )

By reference to the complaint it will be seen that the plaintiff sets up two separate causes of action. The defendant demurred to the complaint as to each cause of action separately, on the ground that it failed to state facts sufficient to constitute a cause of action. The Circuit Court overruled the demurrer, and the defendant appeals.

In the first cause of action, the plaintiff alleges his conveyance of a tract of land to defendant as security for a loan of $385, the written agreement of the defendant to reconvey on payment of the debt by November 1, 1902, the understanding that the two papers should constitute a mortgage, the defendant's conveyance of the land to another before November 1, 1902, in wilful and fraudulent breach of his contract and violation of plaintiff's rights, tender of plaintiff's debt before maturity, defendant's refusal to reconvey, accompanied by a declaration that he would spend a thousand dollars rather than let plaintiff have anything out of the transaction. On these facts the plaintiff alleges and claims $2,000 damages.

In his second cause of action, the plaintiff sets out the same facts as in the first, and alleges in addition that the defendant under the contract became a trustee of the property; that his sale to another was for the consideration of $600, which he converted to his own use, refusing to account to the plaintiff for any part of it; and that this sale was made with the deliberate and wilful purpose of defrauding the plaintiff, to his damage two thousand dollars.

It will be observed, the essential difference between the two causes of action is that in the second a breach of trust is alleged and the amount realized for the land is mentioned, while in the first the fraudulent breach of contract to reconvey is set up without mention of a trust and without any intimation of the value of the land. Manifestly, therefore, the plaintiff in stating his two causes of action, meant in the first to complain of the fraudulent breach of contract to reconvey the land, disregarding the breach of trust and leaving that for the gravamen of his second cause of action. It is also clear that the first cause of action is intended to be for punitive as distinguished from compensatory damages, because no value is set on the land which the defendant had agreed to reconvey to the plaintiff; nor is it alleged to be of value greater than the debt for which it was pledged, and without such excess of value there could be no actual damage. The first cause of action should, therefore, be regarded, as the pleader clearly intended it, distinctly for punitive damages based on a fraudulent breach of contract. Even if there were doubt as to whether the plaintiff meant to sue for the tort or for breach of the contract, every intendment is in favor of regarding the action ex contractu. 4 Ency. P. P., 915.

I consider first the question raised by the demurrer to the first cause of action, whether punitive damages are recoverable for a fraudulent breach of contract. This question was answered in the negative by this Court inMcClendon v. Wells, 20 S.C. 520, and the views there expressed are in accord with those of other courts and of textwriters. Wood's Mayne on Damages, sections 45 and 46; note to Spellman v. R.R. Co., 28 Am. St. Rep., 874; 12 A. E. Ency. Law, 20; 3 Parsons on Contracts, 179; 2 Sutherland on Damages (3d ed.), sec. 390; 13 Cyc., 113; Hurxthal v. Boom Co., 97 Am. St. Rep., 968. Citation of the numerous cases referred to in these authorities is omitted. The only generally recognized exception to the rule is an action for breach of a marriage contract.

In accordance with this view, where one who has contracted to convey land fraudulently refuses to convey, or by his own act fraudulently puts it out of his power to convey, the measure of damages is the value of the land at the time the contract should have been performed, less the contract price. Smith v. Bolles, 132 U.S. 125, 33 L. ed., 279; 52 L.R.A., 242, note; Foley v. McKeegan, 66 Am. Dec., 107, and note. Though the precise question here under discussion was not involved, the difference in damages arising from tort and breach of contract is recognized in Devereux v. Champion Cotton Press Co., 17 S.C. 73, and Colvin v. Oil Co., 66 S.C. 66, 44 S.E., 380.

In Sedgwick on Damages, the statement is made that South Carolina is out of line with other jurisdictions on this subject, and Rose v. Beattie, 2 N. McC., 538, is cited as establishing the doctrine in this State that punitive damages may be recovered for fraudulent breach of contract. In this the learned author has fallen into error. Rose v. Beattie was an action of assumpsit to recover damages upon a sale of water-packed cotton made by defendant to plaintiffs in Charleston. The plaintiffs shipped the cotton to Liverpool and sold it, and upon discovery of the fraud it was returned to their Liverpool correspondent, and resold at public auction as damaged cotton at considerable loss. "The presiding Judge instructed the jury that the defendant was liable, and that they might give a verdict for the whole amount of damage that the plaintiffs had sustained, which was the difference between the two sales in Liverpool, with interest." As to the damages, the sole question involved in the appeal was whether the defendant was liable for the price paid to him in Charleston or for the difference between the two sales made in Liverpool. The Court sustained the Circuit Judge in adopting the difference between the two sales in Liverpool as the only just and true measure of damages. The Court says: "It cannot be seriously contended that the seller should merely refund the money which he had received and leave the purchaser to pay the costs of transportation across the Atlantic, and all the incidental expenses. The expenses of exportation and original purchase money ought not to be the rule, because a depression of price in the foreign market might reduce the actual loss, by reason of the fraud, below those expenses, and the seller ought not to be answerable for a loss to which he had not contributed. Upon the principle of reciprocity, as well as of good faith, the parties ought to be placed upon the same footing they would have been if there had been no deception; and that is the effect of this verdict." It will be borne in mind that when this case was decided practically all cotton was shipped out of the State, and the seller would be regarded as having in view the export cost of transportation and resale to be incurred by the buyer when he made the sale. The damages allowed were, therefore, well within the rule of Hadley v. Baxendale. The Court undertook to do nothing more than place the plaintiffs in the same financial condition they would have occupied if the fraud had not been committed. Punitive damages were not claimed or allowed, and the case, therefore, could not involve the question here under discussion. It is true, Judge Nott, in the course of his decree, does intimate an opinion that vindictive damages, or, as he curiously calls them in one place, imaginary damages, may be allowed in an action of assumpsit, but no such question was involved in the case, or in Farrand v. Bouchell, Harper, 83, where the same Judge again refers to the subject. Thesedicta are entitled to great consideration as the views of an eminent judge, but they are not binding, and should not be allowed to overthrow a doctrine so long established by the overwhelming weight of authority and reason.

In giving compensation for breaches of contract, the utmost that the law undertakes is to place the parties in the financial condition they would have been in if the breach had not occurred. It is true, fraud always merits punishment, but the courts regard it unwise and impracticable to attempt to punish a fraudulent breach of contract by requiring the defaulter to pay to the other party more than he has lost by the breach. The advantage of punishing the fraud would be more than counterbalanced by the disastrous uncertainty in the administration of the law of contracts which would surely result. If the plaintiff in this case is allowed to recover punitive damages for the defendant's wilful and fraudulent failure and refusal to keep his promise to reconvey, then the defendant would have been entitled to punitive damages if the plaintiff had wilfully and fraudulently refused to repay the money borrowed, and this would hardly be contended for. I think the demurrer to the first cause of action should be sustained.

As we have seen, the second cause of action stands on different ground. Here the gravamen is violation of the trust relation which grew out of the contract, in that the defendant sold the land conveyed to him as a security. The allegations here present an action for tort founded upon contract. We now consider whether punitive damages may be recovered under this cause of action. "The damages in actions of tort founded upon contract must be estimated in the same way as they are estimated in breach of contract; for a man cannot, by merely changing the form of his action, put himself in a better condition." Moak's Underhill on Torts, 102; Wood's Mayne on Damages, 70, note. This rule has no application to common carriers of passengers and some others charged with public duties. but we are not now concerned with this exception.

Even in actions on the case for deceit, based on false representations as to existing facts inducing one to enter into a business contract to his prejudice, the measure of damages is usually the resulting pecuniary loss, when such loss can be readily ascertained. To allow more than this as vindictive damages, as said by the Supreme Court of Michigan, would be "to abandon a certain rule which would do complete justice for an uncertain one that can hardly fail to do injustice" (Warren v. Cole, 15 Mich., 273). Parker v. Walker, 12 Rich., 138, was an action for deceit, the deceit consisting in selling to plaintiff a tract of land when the defendant knew he had no title to fifty-six acres of the one hundred and twenty which he undertook to sell. The plaintiff, subsequent to the sale and before the action was commenced, perfected his title to all but ten acres by obtaining a grant from the State at a cost of ten dollars. Under the instruction of the Court, the jury found a verdict for the pro rata value of all the land to which defendant had no title. Judge O'Neall, delivering the opinion of the Court of Appeals, held that the allegation of deceit was sustained by the proof, and in the absence of any other measure of plaintiff's loss, the pro rata value of the fifty-six acres to which defendant had no title would have been the true measure of damages; but, inasmuch as the plaintiff had perfected his title to all but ten acres at an expense of ten dollars, he could only recover that sum and the pro rata value of the ten acres actually lost. The same doctrine is stated with force in Durfee v. Newkirk, 47 N.W., 351 (Mich.).

It is important to observe, therefore, that whether we have regard to the first cause of action for the breach of contract, or to the second cause of action for the tort growing out of the breach of contract, in this case the damages are capable of actual, definite ascertainment. They depend entirely on the value of the land. The loss of the land is the sole element of damage, and the value of the land less the debt is the obvious and only damage which plaintiff has suffered.

In this State, punitive damages are regarded as made up of two elements, punishment of wrong, and vindication of private right by requiring payment for outrage, oppression or indignity, which it is felt should be atoned for by compensation, but which cannot be expressed by computation. This Court has recently held in a number of cases that such damages are founded on the right of the party injured and not on the discretion of the jury. Beaudrot v. Ry., 69 S.C. 160. Under the facts alleged here, if punitive damages are allowed, the court would award them to the plaintiff altogether as punishment of the defendant; for the injury to plaintiff is entirely pecuniary, and actual damages would fully vindicate his rights. The plaintiff has no right to punishment of the defendant, when he may be fully compensated for the wrong done to himself without such punishment.

I have endeavored to show that punitive damages are not recoverable under the facts alleged here, either for the breach of contract, which is the gravamen of the first cause of action, or for the violation of the trust relation which grew out of the contract, which is the gravamen of the second cause of action. In the second cause of action, however, plaintiff alleges the defendant sold for $600 the land pledged to him for a debt of $385, and refused to pay over or account to him for the purchase money. This fact, coupled with the others alleged, is manifestly a sufficient statement of actual damage, and for this reason the demurrer to the second cause of action cannot be sustained. This cause of action being ex delicto, it may be that, though no punitive damages could be recovered, yet as they are claimed, actual damages could be recovered under the act of 1898 without any allegation of actual damage. As actual damages are alleged, however, this question under the act of 1898 does not arise.

The defendant's objection, that the agreement to reconvey set out in the complaint is void under the statute of frauds, because it does not identify the property, cannot be sustained. The agreement was to "deed back to J. W. Welborn said piece of land, containing twenty-seven acres, more or less." This was equivalent to saying that the contract related to the same tract of twenty-seven acres of land conveyed by the plaintiff to defendant, and the complaint alleges that the land is fully described in the deed.

In my opinion, the demurrer to the first cause of action should be sustained, with leave to the plaintiff to move to amend as he may be advised, and the demurrer to the second cause of action should be overruled.