Mid-Continent Refrigerator Co. v. Straka

• Decision Date: 01 July 1970
• Docket Number: MID-CONTINENT,No. 287,287
• Citation: 178 N.W.2d 28,47 Wis.2d 739
• Parties: REFRIGERATOR CO., a foreign corp., Respondent, v. James STRAKA, d/b/a Plain Produce and Locker, Appellant.
• Court: Wisconsin Supreme Court

Page 28

178 N.W.2d 28

47 Wis.2d 739

MID-CONTINENT REFRIGERATOR CO., a foreign corp., Respondent, v. James STRAKA, d/b/a Plain Produce and Locker, Appellant.

No. 287.

Supreme Court of Wisconsin.

July 1, 1970.

This action was commenced by the plaintiff, Mid-Continent Refrigerator Company, to recover the agreed rental payments for use of a commercial display freezer unit leased to the defendant, James Straka, August 10, 1967. The defendant answered the complaint and filed a counterclaim alleging fraud and malicious deceit on the part of the plaintiff in inducing the contract through a false representation that the freezer was an automatic defrosting unit, when it was actually a manually defrosting unit.

Defendant, James Straka, was engaged in the business of operating a small grocery and locker plant in the village of Plain, in Sauk county. In response to an inquiry by Straka concerning a display freezer, a salesman, Leo Curran of the plaintiff corporation, called on him in August, 1967. On the first visit Mr. Straka examined the sales representative's entire catalog of freezer models and then asked him to return the next day. The catalog indicated the freezer which Straka selected was not an automatic defrosting model.

The defendant testified he asked the salesman twice if the freezer in which he was interested was an automatic defrosting model:

'Q. Now referring to this particular freezer, did you ask Mr. Curran at any time prior to signing the contract if that model was an automatic defrosting model?

'A. I asked him twice. I asked him the first time when we were going through the catalog, 'are all these models automatic defrosting' and he said yes. And I asked one more time before signing the contract, 'And are these the automatic defrost models?' and he said yes.'

Subsequently a lease was signed August 10, 1967, and delivery effected within three to four weeks. The contract called for monthly rental payments of $55 for a period of thirty-six months, for a total of $1,980 plus interest on any unpaid payments. After approximately two months of use Straka discovered the unit did not defrost automatically. Accompanying his December, 1967, and January, 1968, payments Straka indicated his dissatisfaction with the freezer and requested the sales representative to return. On February 5, 1968, Straka advised Mid-Continent that he was going to make no further payments and requested it to come and 'pick up' the freezer, which it did not do. Straka made seven $55 payments for a total of $385. He continued to use the freezer until early in 1969.

Following the defendant's failure to make payments the plaintiff mailed the following carbon copy letter to him addressed to Attorney James H. Hill, Sr., who the defendant knew had been deceased for several years:

'February 29, 1968

'Mr. James H. Hill, Sr.

Hill, Miller & Quale

111 1/2 Third Street

Baraboo, Wisconsin

RE: James Straka

Plain Produce & Locker

Plain, Wisconsin

Lease #A1489/26415

1968 Model MAV--8 Frozen, Food Mdsr.

PAST DUE: 2/5/68 $55.00

Dear Mr. Hill:

We leased the above refrigerator to the above customer. Previously, we sent you all the information including a copy of the lease. If we fail to receive the above payment from the above customer by Thursday, March 7, we will wire you to proceed to get a judgment against our customer so that you can have the local sheriff auction everything in the business to pay our judgment including attorney fees for which our lease provides.

Very truly yours,

MID CONTINENT REFRIGERATOR COMPANY

M. Albert, President'

MA/rh

On June 19, 1968, Mid-Continent commenced suit for the balance due on the contract. Through his present counsel, Straka, in his counterclaim, demanded punitive as well as compensatory damages. His alleged compensatory damages were $385. The counterclaim was tried to a jury. The trial court refused to submit the defendant's requested special verdict questions on punitive damages. The jury found that the plaintiff, by its sales agent, fraudulently represented the freezer was an automatic defrosting model. The jury also found Straka was damaged in the amount of $750. The court, on motions after verdict, reduced this compensatory award to $90 and entered judgment for the plaintiff in the amount of $1,560, which was the balance due plus interest on the lease agreement less the $90 damage sustained by Straka. In its order for judgment the circuit court allowed the defendant to tax statutory costs and denied costs to the plaintiff.

The defendants, Straka, moved for a new trial on the sole ground that the circuit court erred in not submitting the requested special verdict. That motion was denied in an order dated August 17, 1969.

Defendant, James Straka, appeals.

Plaintiff, Mid-Continent Refrigerator Company, has filed a motion to review the circuit court's order denying costs to plaintiff and awarding them to the defendant.

Hill, Miller, Quale & Hartmann, Baraboo, for appellant.

Cross, Langer & Krainik, Baraboo, for respondent.

BEILFUSS, Justice.

Three issues have been presented by the parties:

1. Did the trial court err in not submitting a question in the verdict as to punitive damages?

2. Did the trial court err in restricting the testimony of the defendant Straka as to the damages he sustained?

3. Did the trial court abuse its discretion in refusing to award costs to plaintiff and in awarding them to the defendant?

The plaintiff, Mid-Continent, accepts the jury finding in the circuit court that its sales representative fraudulently represented to Straka that the display freezer he was leasing was an automatic defrosting unit which in fact it was not. On that finding the defendant asserts he should have been allowed a special verdict question on punitive damages. It is his claim that he was fraudulently and maliciously deceived by the plaintiff's misrepresentations in entering into the contract. Straka argues his counterclaim on this matter stated a cause of action in tort and cites the following passage from Prosser, Law of Torts (hornbook series, 3d ed.), p. 705, sec. 100:

'Where the defense is set up by way of recoupment, or by way of affirmative counterclaim, it in no way operates in avoidance of the transaction, but seeks relief analogous to that afforded by a tort action of deceit, and therefore should be governed by the requirements of that action.' ¹

There is no question that a proper fraud claim has been stated; the only issue is whether punitive damages should be recoverable on the defendant's tort claim.

In the very early case of Barber v. Kilbourn (1863), 16 Wis. 511 (*485), this court was presented with a sale of corporate stock in which the value of the corporate assets was fraudlently represted and punitive damages were sought. The Barber Case is the only occasion in which this court has considered the applicability of punitive damages to a claim for fraudulent inducement to enter a contract. It was determined in that case that the action was in part barred by the running of the statute of limitations, but the propriety of allowing punitive damages for false representation as an inducement to entering into a contract was seriously questioned. The court stated, at p. 515 (*489):

'If the plaintiff was guilty of a suppression of the truth upon a matter material to the contract, and about which he was bound to make a full disclosure, and did this with intent to deceive and defraud, the defendant has a good defense to the note to the extent of the damage which he has sustained by the fraud. Whether the jury would be authorized in a case of this character to give vindictive damages over and above the actual damages sustained by the defendant, is a proposition about which I have considerable doubt. It is undoubtedly a well established principle of the common law, and one recognized by this court, that in a certain class of actions a jury may inflict what are called punitive or vindictive damages, by way of punishment of the defendant for his wanton and lawless conduct. This rule of damages is frequently acted on in actions of trespass to the person, slander, libel, crim. con., etc. But I doubt much its application to a case like this, even where it appears that the defendant has sustained something more than nominal damages by the false representation.'

The only contract cases in which this court has allowed punitive damages for fraud in the inducement to contract or for breach of contract have been actions for breach of promise to marry. Luther v. Shaw (1914), 157 Wis. 231, 147 N.W. 17; Leavitt v. Cutler (1875), 37 Wis. 46; and Simpson v. Black (1870), 27 Wis. 206. A governing principle of these cases in allowing punitive damages has been the presence of 'circumstances of aggravation' in the tortious injury. See Luther, supra, 157 Wis. p. 233, 147 N.W. 17.

The general rule indicating the situations in which punitive damages will be allowed is stated in McCormick, Damages (hornbook series), p. 280, sec. 79:

'To subject a wrongdoer to liability for exemplary damages, it must be found that he acted with actual malice, ill will, or conscious disregard of consequences to others. Almost universally the decisions hold that mere 'implied malice,' which is attributed to any actionable conduct, does not suffice, nor does mere negligence.' ²

The very nature of punitive damages is that they are 'awarded against a person to punish him for his outrageous conduct.' 4 Restatement, Torts, p. 554, sec. 908. The goal to be achieved in that punishment was stated in Kink v. Combs (1965), 28 Wis.2d 65, 81, 135 N.W.2d 789, 798:

'This court takes the position that punitive damages do serve as a deterrent. As we said recently in Malco v. Midwest Aluminum Sales (1961), 14 Wis. (2d) 57, 66, 109 N.W. (2d) 516:

"Punitive damage is given on the basis of punishment * * * to deter others from like conduct.'

'Referring to punitive damages, this court many years ago said:

"It tends to elevate the jury as a...