First Federal Sav. and Loan Ass'n of Indianapolis v. Mudgett

• Decision Date: 11 December 1979
• Docket Number: No. 1-1077A247,1-1077A247
• Citation: 397 N.E.2d 1002
• Parties: FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF INDIANAPOLIS, Defendant-Appellant, v. John S. MUDGETT and Barbara A. Mudgett, Plaintiffs-Appellees.
• Court: Indiana Appellate Court

Page 1002

397 N.E.2d 1002

FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF INDIANAPOLIS Defendant-Appellant, v. John S. MUDGETT and Barbara A. Mudgett, Plaintiffs-Appellees.

No. 1-1077A247.

Court of Appeals of Indiana, First District.

Dec. 11, 1979.

William M. Evans, and Theodore J. Nowacki, Bose & Evans, Indianapolis, Richard T. Lineback, Greenfield, for defendant-appellant.

Robert A. Spray, Indianapolis, Larry C. Gossett, Greenfield, for plaintiffs-appellees.

NEAL, Judge.

Defendant-appellant First Federal Savings and Loan Association of Indianapolis (First Federal) appeals from the entry of judgment upon a jury verdict awarding compensatory and punitive damages to plaintiffs-appellees John S. Mudgett and Barbara A. Mudgett (Mudgetts), upon their claim that First Federal breached a real estate purchase agreement by failing to make the repairs specified therein.

First Federal raises four issues for our review:

1) Whether the trial court erred in overruling First Federal's motion for judgment on the evidence, Ind. Rules of Procedure, Trial Rule 50, with respect to the Mudgetts' claim for punitive damages for breach of a contract to make certain repairs to a dwelling sold by First Federal to the Mudgetts;

2) Whether the verdict awarding $31,600 in punitive damages is contrary to law and not supported by sufficient evidence;

3) Whether the amount of punitive damages awarded is excessive; and

4) Whether the verdict awarding $7,800 in compensatory damages is excessive, contrary to law, and not supported by sufficient evidence.

We affirm in part and reverse in part, finding it necessary to discuss only the second and fourth issues raised by First Federal.

On December 14, 1972, appellant acquired title to a residence pursuant to a foreclosure sale. On January 12, 1973, appellees were shown the property by John Welch, a representative of appellant, and thereafter signed a standard proposition form prepared by Welch. It contained the following phrases:

"repairs N bathroom leak, leak in furnace room 2 toilet running water, missing Storms and Screens furnace and airconditioning-inspection approval" The proposition was accepted by appellant on January 15, 1973. An agreement was entered into on April 26, 1973, to supplement the January 12, 1973 agreement as follows:

"This will confirm our agreement that it is First Federal's responsibility to have performed at reasonable cost on a one-time basis those repairs to the home which you have purchased from us today, as set forth in the purchase agreement between First Federal Savings and Loan Association of Indianapolis and yourselves.

It is also understood that First Federal will undertake to complete the repairs not later than thirty days from the date hereof. We understand that if any complications should arise with respect to the completion of these repairs within the thirty-day period, our respective attorneys will make such different arrangements as may be appropriate."

There were negotiations between the parties relating to adjustment of the purchase price downward with the appellees then assuming the repairs provided for in the agreements, without any agreement being concluded. The sale was closed on April 26, 1973.

On the day of the sale appellees moved into the residence and discovered a leak in an upstairs water pipe. They called appellant who sent a plumber to repair the leak. Over the next several months appellant sent 25 repairmen to the residence and paid.$1,232.69 for plumbing, plastering, painting, installation of ceramic tile and drywall, inspection of air conditioning equipment, and installation of 17 new storm windows.

Appellees were not satisfied with appellant's performance of the repair agreement and sent letters to appellant, both personally and through their attorney, demanding further performance. Appellant's attitude was that they had done all they could do and could not satisfy the appellees. The situation degenerated and ultimately litigation was joined. The dispute over appellant's obligations centered primarily around two issues: 1) was the air conditioning system to be merely operable or sufficient to cool the house to a specified temperature, and 2) were the repairs to be done to the satisfaction of the appellees or to the satisfaction of a competent, independent third party. There was evidence that the air conditioner was undersized. However, the written agreement contained no references to capacity. The appellant had not built the home, but had acquired it by foreclosure.

Issue I: Punitive Damages

First Federal does not appeal from the jury's finding that they breached the contract with the Mudgetts. They argue, however, that punitive damages were inappropriate under the particular circumstances of this case, and that the verdict is contrary to law and not supported by sufficient evidence.

The law which governs the award of punitive damages in contract actions was definitively set out by our Supreme Court in Vernon Fire & Casualty Ins. Co. v. Sharp (1976) 264 Ind. 599, 349 N.E.2d 173, 179-181, and bears repeating here:

"The general rule, recognized in Indiana, Hibschman Pontiac, Inc. v. Batchelor (1976), Ind.App., 340 N.E.2d 377; Standard Land Corp. v. Bogardus (1972), 154 Ind.App. 283, 289 N.E.2d 803, and throughout the United States, 11 Williston on Contracts § 1340 (W. Jaeger, 3d ed. 1968), is that punitive damages are not recoverable in contract actions. In most contract situations, the rule is a fair one, considering the nature of the interest to be protected. As Dean Prosser notes:

'Contract actions are created to protect the interest in having promises performed. Contract obligations are imposed because of conduct of the parties manifesting consent, and are owed only to the specific individuals named in the contract. Even as to these individuals, the damages recoverable for a breach of the contract duty are limited to those reasonably within the contemplation of the defendant when the contract was made, while in a tort action a much broader measure of damages is applied.' Prosser, Law of Torts, 613 (4th ed. 1971).

The well-defined parameters of compensatory and consequential damages which may be assessed against a promisor who decides for whatever reason not to live up to his bargain lend a needed measure of stability and predictability to the free enterprise system. Thus, a promisor's motive for breaching his contract is generally regarded as irrelevant, Pirchio v. Noecker (1948), 226 Ind. 622, 82 N.E.2d 838, because the promisee will be compensated for all damages proximately resulting from the promisor's breach, Cincinnati & Chi Air Line R. R. v. Rodgers (1865), 24 Ind. 103. Where the facts surrounding the promisor's breach indicate sub-standard business conduct, the promisee may also enjoy a limited sense of requital in taking his business elsewhere in the future, but he is not entitled to mulct the promisor in punitive damages.

The general rule is not ironclad. Exceptions have developed where the conduct of the breaching party not only amounts to a breach of the contract, but also Independently establishes the elements of a common-law tort such as fraud. Murphy Auto Sales, Inc. v. Coomer (1953), 123 Ind.App. 709, 112 N.E.2d 589. The requirement that an Independent tort be found serves several purposes. First, it maintains the symmetry of the general rule of not allowing punitive damages in contract actions, because the punitive damages are awarded for the Tort, not on the contract. Secondly, the independent tort requirement facilitates judicial review of the evidence by limiting the scope of review to a search for the elements of the tort. Neither of these functions of the independence requirement is very compelling when it appears from the evidence as a whole that a serious wrong, tortious in nature, has been committed, but the wrong does not conveniently fit the confines of a pre-determined tort. The foregoing circumstances alone, however, will not sustain the award of punitive damages. It must also appear that the public interest will be served by the deterrent effect punitive damages will have upon future conduct of the wrongdoer and parties similarly situated. Only when these factors coalesce, will the independent tort requirement be abrogated, and the allowance of punitive damages be sustained. A careful review of the case law in this area leads to the conclusion expressed herein, that an independent tort need not always be established, and the same conclusion is reached in Corbin's treatise:

'It can be laid down as a general rule that punitive damages are not recoverable for breach of contract, although in certain classes of cases, there has been a tendency to instruct the jury that they may award damages in excess of compensation and by way of punishment. These cases, however, are cases that contain elements that enable the court to regard them as falling within the field of tort Or as closely analogous thereto.' 5 Corbin on Contracts § 1077 (1964) (emphasis added, footnotes omitted).

The standard for awarding punitive damages is necessarily a flexible one. Indiana case law follows Sedgwick's formulation which appears in Taber v. Hutson (1854), 5 Ind. 322, 324:

"(W)henever the elements of fraud, malice, gross negligence or oppression Mingle in the controversy, the law, instead of adhering to the system or even the language of compensation, adopts a wholly different rule. It permits the jury to give what it terms punitory, vindictive, or exemplary damages; in other words, it blends together the interest of society and of the aggrieved individual, and gives damages not only to recompense the suffer (sic), but to punish the offender.' (Emphasis added.)

Sedgwick's recognition that the lines between contract and tort often become blurred is aptly demonstrated by his choice of the word 'mingle' in describing the presence of tortious activity which accompanies the breach of contract. This formulation...