Head & Seemann, Inc. v. Gregg, 80-1572

• Decision Date: 02 September 1981
• Docket Number: No. 80-1572,80-1572
• Citation: 311 N.W.2d 667,104 Wis.2d 156
• Parties: HEAD & SEEMANN, INC., a Wisconsin corporation, Plaintiff-Appellant, v. Bettye J. GREGG, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

Page 667

311 N.W.2d 667

104 Wis.2d 156

HEAD & SEEMANN, INC., a Wisconsin corporation, Plaintiff-Appellant, v. Bettye J. GREGG, Defendant-Respondent.

No. 80-1572.

Court of Appeals of Wisconsin.

Submitted on Briefs July 27, 1981.

Opinion Released Sept. 2, 1981.

Opinion Filed Sept. 2, 1981.

Timothy J. Aiken and Mark A. Swartz of Samster, Aiken, Peckerman, Swartz & Mawicke, S. C., Milwaukee, for plaintiff-appellant.

George W. Love of Love, Brown, Love, Phillips & Davis, Waukesha, for defendant-respondent.

Before DECKER, C. J., VOSS, P. J., and SCOTT, J.

VOSS, Presiding Judge.

Bettye Gregg fraudulently induced Head & Seemann, Inc. to sell her a home in Brookfield. She occupied the home for five months but was subsequently ejected by a court order. In the action on the claim from which this appeal comes, Head & Seemann sought damages for the five months lost use of the property. At issue was whether a defrauded party who obtains rescission and restitution of real estate may also recover rental value and out-of-pocket expenses for the period of lost possession. The trial court held that the election of remedies doctrine barred an additional action for rental value and out-of-pocket expenses. Because we do not believe that rescission and an action for damages are inconsistent remedies, we reverse.

Defendant Bettye J. Gregg offered to buy a Brookfield home from plaintiff corporation. She represented, verbally and in writing, that she had $15,000 to $20,000 of equity in another home and would pay this amount to plaintiff after selling the other home. She knew, however, that she had no such equity. Relying on these intentionally fraudulent representations, plaintiff accepted defendant's offer to buy, and the parties entered into a land contract. After taking occupancy, defendant failed to make any of the contract payments. Plaintiff's investigation then revealed the fraud.

Plaintiff commenced this action seeking one of two alternative forms of relief. Based on the fraud, plaintiff sought rescission, ejectment and recovery for five months of lost use of the property and out-of-pocket expenses. Alternatively, based on defendant's breach of contract, plaintiff sought rescission, foreclosure and ejectment.

The trial court granted partial summary judgment for plaintiff, rescinding the contract for fraud. The court ordered ejectment but stayed the order for two weeks pending defendant's voluntary removal. The court also obtained plaintiff's stipulation that, if defendant removed herself within the two weeks, the plaintiff's claim for damages would be dismissed. Defendant failed to vacate the property, and the court entered an interlocutory judgment of ejectment.

Defendant later sought dismissal of the damages claim based on the election of remedies doctrine. The court determined that the judgment for ejectment was an election of remedies barring recovery of damages and, therefore, dismissed the cause of action based on fraud. On appeal, this court certified this case to the Wisconsin Supreme Court to resolve the conflict in case law. The certification was denied.

Plaintiff contends that it is entitled to recover for the lost use of the property and out-of-pocket expenses during defendant's possession of the property. It contends that recovery for these items, in addition to the rescission and return of the real estate, is necessary to restore plaintiff to his status before the fraud and execution of the contract. Since these "damages" would only restore plaintiff to its previous position and would not give plaintiff the purchase price or the benefit of the bargain, plaintiff argues that the remedies are not inconsistent, and the doctrine of election of remedies should not be applied. We agree.

The election of remedies doctrine is an equitable principle barring one from maintaining inconsistent theories or forms of relief. Bank of Commerce v. Paine, Webber, Jackson & Curtis, 39 Wis.2d 30 36-39, 158 N.W.2d 350, 352-53 (1968). Its underlying purpose is to prevent double recovery for the same wrong. Id. at 36, 158 N.W.2d at 352; D. Dobbs, Handbook on the Law of Remedies § 1.5, at 14 (1973). The label "election of remedies" is frequently used as a cloak for an estoppel or ratification where, for example, it bars a suit for rescission of a contract subsequent to some act of affirmance of the contract. See, e. g., Beers v. Atlas Assurance Co., 231 Wis. 361, 285 N.W. 794 (1939). Wisconsin courts have been attempting to restrict the doctrine to reduce its harsh effects. Bank of Commerce v. Paine, Webber, Jackson & Curtis, 39 Wis.2d at 40-42, 158 N.W.2d at 354-55; 5-M Ltd. v. Dede, 86 Wis.2d 287, 289, 272 N.W.2d 110, 111 (Ct.App.1978).

The classic application of the election of remedies doctrine is that a defrauded party has the election of either rescission or affirming the contract and seeking damages. First National Bank & Trust Co. v. Notte, 97 Wis.2d 207, 225, 293 N.W.2d 530, 539 (1980). The choice is forced with respect to alternative theories in a single lawsuit because of inconsistency of both rescinding and affirming the contract. See Seidling v. Unichem, Inc., 52 Wis.2d 552, 557, 191 N.W.2d 205, 208 (1971).

Thus, it superficially appears that if a claimant chooses to seek rescission, he may not sue for damages. But the word "damages," like the label "election of remedies," impedes rather than aids the inquiry into the types of relief appropriate in a given case. Rescission is always coupled with restitution: the parties return the money, property or other benefits so as to restore each other to the position they were in prior to the transaction. In the case of fraud or misrepresentation, the victim has the priority of restoration, and if a loss must be borne, the wrongdoer bears it. See First National Bank & Trust Co. v. Notte, 97 Wis.2d at 225-26, 293 N.W.2d at 539.

This case presents a crucial question dealing with the nature of restitution. At issue is whether restitution to a rescinding fraud victim includes everything he has reasonably paid out or given up in the transaction or only includes what the other party has actually received. ¹ Two Wisconsin cases provide contradictory answers.

In Carpenter v. Mason, 181 Wis. 114, 193 N.W. 973 (1923), plaintiff entered into a land contract in reliance on defendant's fraudulent statements. The trial court entered judgment of rescission and ordered recovery of the money paid toward the purchase plus $140 for plaintiff's costs in moving from another state as a result of the fraud. The Wisconsin Supreme Court disallowed the moving costs. The court stated that placing the parties in statu quo "does not mean that the parties are to be restored to the situation which existed previous to their entering into the contract." Id. at 116, 193 N.W. at 974. It means, the court indicated, only that each party must return what he has actually received. Defendants did not receive plaintiff's expenditures for moving. "To require them to restore more than they received would be to permit the plaintiff to recover damages for breach of the contract. The plaintiff does not affirm the contract but disaffirms it and seeks rescission. He may not do both." Id. (emphasis added).

Interestingly, a later case contradicting Carpenter also involved moving expenses incurred in reliance on misrepresentations and the resulting bargain. In Schnuth v. Harrison, 44 Wis.2d 326, 171 N.W.2d 370 (1969), plaintiff was fraudulently induced to buy into and to operate a business and to take a lease. In granting rescission and restitution, the trial court included awards for travel expenses, moving expenses (over $1,700) and salary the plaintiff never received. This time, the supreme court affirmed. "All these items were aimed at making the plaintiff whole and were properly awarded as items of damage needed to place him in the same position he was in before the contract." Id. at 339, 171 N.W.2d at 377-78.

Thus, the two cases give different answers to whether restitution is measured by the victim's actual loss or by what the wrongdoer actually received (whenever the two measures are not the same). Schnuth did not cite Carpenter, and no other Wisconsin case has criticized Carpenter. The instant plaintiff seeks "damages" of the restitutionary nature involved in the two conflicting cases. Under Carpenter, plaintiff would be barred from part or all of the monetary award he seeks on the theory that defendant received only the land or perhaps only the land and its use but not other expenses, while Schnuth would apparently permit the entire award.

Two possible theories can reconcile the disparities in the two cases. The first is that Wisconsin, in the Schnuth case, rejected the election of remedies doctrine. The other theory is that actions for rescission and restorative damages are not inconsistent.

THE ABANDONMENT OF ELECTION OF REMEDIES DOCTRINE

One method of reconciling the Carpenter case and the Schnuth case is by concluding that Wisconsin has abandoned the election of remedies doctrine. Carpenter v. Mason has become a somewhat infamous horror story cited as a good reason why the election of remedies doctrine ought to be abolished:

The best example that I can recall to show the need for the fraud statute (abolishing election of remedies in fraud cases in New York) is a case decided in Wisconsin during an earlier boom period.... The trial court allowed all three items, but the Supreme Court of Wisconsin sternly rejected the claim for moving expenses, not on the ground that they were not proximate damages resulting from the defendant's wrong, but on the ground that the plaintiff had elected to disaffirm the contract and therefore could not recover damages for deceit.

What substantial reason can be given for such a decision? Did not the defendants' wrong proximately cause the plaintiff all of the losses that he sustained? Did not the plaintiff allege and prove all of the facts necessary to entitle...