Autumn Grove Joint Venture v. Rachlin, 85-1633

Decision Date25 March 1987
Docket NumberNo. 85-1633,85-1633
Citation405 N.W.2d 759,138 Wis.2d 273
PartiesAUTUMN GROVE JOINT VENTURE, Plaintiff-Appellant, v. Joel RACHLIN, Dana's Deli, Inc. and Randall S. Kurtz, Defendants-Respondents.
CourtWisconsin Court of Appeals

David J. Cannon, of Michael, Best & Friedrich, Milwaukee, for plaintiff-appellant.

William H. Vettel, Milwaukee, for defendants-respondents.


SCOTT, Chief Judge.

This is a case where a counterclaim alleged tort and requested punitive damages. The trial court persuaded the claimant to change the allegation to one of breach of contract rather than tort, leaving the impression that punitive damages would still be allowed. The court was in error in two respects. First, it abused its discretion in instigating an amendment from tort to contract on the day of trial and then to a different contract theory at the close of trial because it prejudicially surprised the party defending against the counterclaim. Second, its actions prejudiced the claimant because punitive damages are not allowed for breach of contract. We reverse in the interests of justice and remand the cause for a new trial.

The only facts necessary to an understanding of the issues on appeal are: Randall S. Kurtz purchased the net assets of a restaurant business after obtaining oral consent from the landlord, Autumn Grove Joint Venture, to an assignment of the lease of the premises. Shortly after commencing operations, questions arose regarding payment for common area charges in the surrounding shopping center, heating bills, sewer odors and a fire protection system. Autumn Grove claimed that it never consented in writing to the assignment and therefore was not responsible for those items.

Thereafter, Kurtz decided to sell the business for about $95,000 and one Anthony Selensky was interested. Simultaneously, Autumn Grove attempted to terminate its lease with Kurtz and tentatively leased the business premises to a third party. Upon learning of Kurtz's difficulties, Selensky offered only $25,000.

The offer was eventually raised to $45,000, mostly payable by note, contingent upon Selensky's being able to negotiate a new lease with Autumn Grove. Kurtz agreed. Selensky and Autumn Grove signed a new lease at a greatly increased rental payment to Autumn Grove. Yet, Autumn Grove then refused to honor the new lease unless Kurtz paid $6500 for rent, the fire protection system and the common area charges it claimed were still in dispute. Subsequently, Selensky tried to sell, but his efforts faltered because of Autumn Grove's insistence on these payments before it would cooperate. As a result, Selensky stopped paying on the note due Kurtz.

Autumn Grove started the lawsuit, seeking termination of the lease and the rights of Kurtz and underlying third parties. Kurtz counterclaimed, alleging tortious interference of contract and sought both compensatory and punitive damages. Kurtz later amended his counterclaim, adding claims of unreasonable withholding of consent to the assignment of the lease and breach of various covenants.

In a summary judgment proceeding, the trial court apparently dismissed Autumn Grove's complaint, ruling that it failed to give proper notice of termination. This left only the counterclaim. 1

On the morning of trial, the court persuaded Kurtz to drop his claim that Autumn Grove tortiously interfered with the ongoing contractual negotiations between Selensky and him. The trial court also persuaded Kurtz to drop his allegation that Autumn Grove unreasonably withheld approval of the lease assignment and breached various covenants. Instead, the claim became one of improper termination of the lease by Autumn Grove. 2

At the close of evidence, the trial court sua sponte decided that the real question was whether Autumn Grove had unreasonably withheld its consent to assignment of the lease, the very issue it had earlier negotiated out of the case; it dropped the improper termination of the lease theory in favor of this and presented this question to the jury.

The jury found in the affirmative and assessed compensatory and punitive damages against Autumn Grove. Autumn Grove then brought this appeal, claiming prejudicial surprise in the eleventh hour amendments and also claiming that punitive damages cannot be collected for an underlying breach of contract action. We agree on both counts.

We acknowledge that the trial judge must be more than a referee, see Schultz v. State, 82 Wis.2d 737, 742, 264 N.W.2d 245, 248 (1978), if he or she is to successfully assist the jury in seeking the truth. See also SCR 60.01(9). We also acknowledge that a trial court may sua sponte amend pleadings to conform to the proof. Sec. 802.09(1) and (2), Stats.

The trial court's discretion is not unbridled, however. SCR 60.01(9) cautions a trial court not to act so as to "prevent the proper presentation of the case." Also, amendments and pleadings may not prejudice the objecting party. Sec. 802.09(2), Stats. Treading this fine line between proper management of the trial on the one hand and improperly usurping the functions of counsel on the other can sometimes be a hazardous exercise. It has resulted in a miscarriage of justice here.

Autumn Grove was prepared to try a tort case. Interference with contractual relations occurs where one who, without privilege to do so, induces or otherwise purposely causes a third party not to perform a contract. Pure Milk Prods. Coop. v. National Farmers Org., 64 Wis.2d 241, 258, 219 N.W.2d 564, 573 (1974). Proof of this allegation is altogether different than proof of improper termination of a lease, upon which the case was tried. Both also have different proofs than a claim of unreasonable withholding of consent to a lease assignment, the theory ultimately placed before the jury. We hold that the surprise to Autumn Grove prejudiced its defense of the case.

We also hold that the trial court's shifting of theories prejudiced Kurtz. It appears from the trial transcript and from our oral argument that the trial court induced Kurtz to operate under the impression that one can recover punitive damages when the underlying cause of action is one of contract, not tort. The trial court, in fact, stated that the "labels" as to whether the action was based upon a contract theory or tort theory were not important. 3

Wisconsin courts have consistently held that punitive damages are not available as a remedy in a breach of contract action. That proposition was first set forth in Gordon v. Brewster, 7 Wis. 309 (355) (1858), and has been followed in Entzminger v. Ford Motor Co., 47 Wis.2d 751, 177 N.W.2d 899 (1970), and more recently in Brown v. Maxey, 124 Wis.2d 426, 369 N.W.2d 677 (1985). In Entzminger, the court stated:

It is true there was a disregard for the plaintiff's right but this is true in every breach of contract. Ford's breach did not have those characteristics which constitute a tort. Punitive damages are not allowed for a mere breach of contract.... [Emphasis added.]

Entzminger, 47 Wis.2d at 757, 177 N.W.2d at 902-03. The phrase "mere breach of contract" and other language in recent cases appears to have caused some confusion for the bench and bar. Language in cases to the effect that "the availability of a punitive damage award is not dependent upon ... the underlying cause of action," Brown, 124 Wis.2d at 431, 369 N.W.2d at 680, and "[p]unitive damages rest upon allegations which, if proved, demonstrate a particular kind of conduct on the part of the wrongdoer, which has variously been characterized in our cases as malicious conduct or willful or wanton conduct in reckless disregard of rights or interests," Wangen v. Ford Motor Co., 97 Wis.2d 260, 267, 294 N.W.2d 437, 442 (1980), serve as the underpinning for the argument that punitive damages may be allowed in appropriate breach of contract cases. However, we conclude that, absent an explicit statement overruling Gordon and its numerous progeny, the supreme court has not by mere implication radically changed the common law of this state to allow punitive damages when the underlying cause of action is a breach of contract. 4

The common law has evolved to recognize differences between civil actions for breach of contract and for tort. Causes of action in contract and in tort have historically had different purposes and protected different interests. McDonald v. Century 21 Real Estate Corp., 132 Wis.2d 1, 7, 390 N.W.2d 68, 70 (Ct.App.1986). Where a contract is involved, in order for a claim in tort to exist, a duty must exist independently of the duty to perform under the terms of the contract. 5 Wisconsin does not recognize an inherent cause of action in tort for every negligent performance of a contractual obligation. 6 However, where a tort duty coincides...

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