Wedeman v. City Chevrolet Co.

• Decision Date: 26 November 1976
• Docket Number: No. 42,42
• Parties: Ella WEDEMAN v. The CITY CHEVROLET COMPANY.
• Court: Maryland Court of Appeals

Page 524

278 Md. 524

366 A.2d 7

Ella WEDEMAN v. The CITY CHEVROLET COMPANY.

No. 42.

Court of Appeals of Maryland.

Nov. 26, 1976.

Jeffrey I. Goldman and J. F. McCadden, Baltimore (Walker & McCadden, Baltimore, on the brief), for appellant.

Thomas F. McConough, Towson (E. Harrison Stone and Royston, Mueller & McLean, Towson, on the brief), for appellee.

Argued before MURPHY, C. J., and SINGLEY, SMITH, DIGGES, LEVINE and ELDRIDGE, JJ.

LEVINE, Judge.

We granted certiorari here to decide whether punitive damages may be recovered without proof of actual malice in an action for fraud. In City Chevrolet v. Wedeman, 30 Md.App. 637, 354 A.2d 185 (1976), the Court of Special Appeals held that in this case they were not recoverable, since the fraud was a tort arising out of a contractual relationship. Accordingly, proof of actual malice was required but not met. In so holding, the court reversed a punitive damage award of $6,000 returned by a jury in the Superior Court of Baltimore City (Perrott, J.). We think the Court of Special Appeals erred.

The evidence presented by appellant established a prima facie case of fraud. The fraudulent misrepresentation occurred in August 1970 when appellant visited City Chevrolet to purchase a new automobile. She had previously dealt there and returned on this occasion because '(she) had confidence in them and they had treated (her) right in the past. They had been honest with (her).' After some discussion with a salesman, she decided to purchase a 1970 Impala Sport Coupe that was being used as a demonstrator. Before doing so, however, she made explicit inquiry concerning the condition of the automobile and was assured that it had 'never been involved in an accident or damaged in any way.' Given this assurance, she agreed to pay $4,247.50, funded by a cash payment, a trade-in allowance on her 1968 chevrolet, and a financing arrangement with Maryland National Bank, which purchased her conditional sales agreement from the dealer. The sale included a new-car warranty.

Approximately one week following the purchase, the automobile, while parked near appellant's residence, was struck by another vehicle and sustained damage to the right quarter panel, that is, the right rear fender. She then took the car to a shop specializing in automobile body repairs where she was informed by the owner, a man of 35 years' experience in the trade, that the very same part of the car had been previously damaged and repaired. He described the earlier damage as consisting of an area some 12 to 14 inches in length. The prior damage was identifiable because of the plastic filler which had been used in its repair. He termed it an 'after market filler,' not found on the assembly line, which meant that the repairs had been made after the car left the factory. Although he was certain there had been prior repairs, he was unable to ascertain the extent of the earlier damage without completely removing the filler. Because appellant had taken delivery only several days before, the body repair expert recommended that she return to the dealer with some of the filler particles, which he gave her in an envelope. Called as an expert witness, he testified that 'an average person' would have been incapable of detecting the damage, thereby corroborating appellant's testimony that she had not noticed it.

Armed with the advice and the envelope of filler particles, appellant returned to the dealer where she confronted her salesman and two other employees with the disclosure of the prior damage. Because that damage had occurred in the same general area of the car, she requested that the dealer make the repairs required by the recent accident. She was advised that the dealer would do so only if she were to retract her statement that the car had been previously damaged. Otherwise, she would be required to pay for the repairs. ¹ The dealer, however, did acknowledge to her that the car had been damaged during shipment. Initially appellant balked at the condition which appellee sought to impose, but then offered to pay for the repairs. Apparently they were not made during the several weeks consumed by their discussions. Ultimately, appellant called for her car and found that it had been repossessed by Maryland National whom she had refused to pay during this period. The complete repairs, if made by the dealer, would have cost $500 as opposed to the sum of $250 estimated by the body repair shop.

In the face of testimony on behalf of appellee disclaiming any knowledge of the prior repairs, the trial judge submitted to the jury, together with carefully considered instructions, the question whether appellee had committed fraud. In addition to the matter of compensatory damages, the court also, over appellee's vigorous objection, thoroughly instructed the jury on punitive damages. ² The substance of these instructions was that malice, either actual or its legal equivalent, was essential to an award of punitive damages. The jury responded by awardilng appellant compensatory damages in the sum of $500, the difference between the purchase price of the automobile and its value on the date of sale-furnished by expert testlimony-and punitive damages of $6,000.

In holding that the trial judge erred by submitting the issue of punitive damages to the jury, the Court of Special Appeals relied on our recent decision in H & R Block, Inc. v. Testerman, 275 Md. 36, 47, 338 A.2d 48 (1975), for its conclusion that since the tort committed here, fraud, arose out of a contractual relationship, proof of actual malice was required to recover punitive damages. Accordingly, since no such malice had been established, punitive damages would not lie. Appellee adopts that position in this Court. ³ We think that both the Court of Special Appeals and appellee have misconceived Testerman, and we shall therefore reverse.

We said in H & R Block, Inc. v. Testerman, supra, 275 Md. at 47, 338 A.2d 48, a case involving negligent preparation of income tax returns, that actual malice is a prerequisite to the recovery of punitive damages where, as occurred in that case, the tort arises out of a contractual relationship. We there held that actual malice, 'the performance of an act without legal justification or excuse, but with an evil or rancorous motive influenced by hate, the purpose being to deliberately and willfully injure the plaintiff,' id. at 43, 338 A.2d at 52, had not been proved. Id. at 47, 338 A.2d 48. In short, the plaintiffs had merely established simple negligence. We applied the same rule in a companion case, Food Fair Stores v. Hevey, 275 Md. 50, 54, 338 A.2d 43 (1975) (conversion arising from wrongful refusal to pay retirement plan benefits); cf. Henderson v. Maryland Nat'l Bank, 278 Md. 514, 366 A.2d 1 (1976) (Decided November 26, 1976) (actual malice held present in conversion arising out of wrongful repossession of automobile). automobile).

In applying Testerman to this case, the Court of Special Appeals did not exposit its reason for concluding that the fraud perpetrated upon appellant was a tort arising out of a contractual relationship. Rather, it seems to have accepted appellee's bald assertion to that effect. In adopting the view that the fraud arose out of a contractual relationship as the premise for its holding, the Court of Special Appeals erred.

What we meant in Testerman by a tort arising out of a contractual relationship is exemplified not only by the factual situation there, but also in the several cases on which we primarily relied there for our holding. See, e. g., Siegman v. Equitable Trust Co., 267 Md. 309, 314, 297 A.2d 758 (1972) (conversion of checking account funds); Daugherty v Kessler, 264 Md. 281, 284, 286 A.2d 95 (1972) (tortious interference with contract); St. Paul at Chase v. Mfrs. Life Insur., 262 Md. 192, 236-39, 278 A.2d 12, cert. denied, 404 U.S. 857, 92 S.Ct. 104, 30 L.Ed.2d 98 (1971) (breach of contract and negligent performance of contractual obligation); Damazo v. Wahby, 259 Md. 627, 638-39, 270 A.2d 814 (1970) (tortious interference with contract); Knickerbocker Co. v. Gardiner Co., 107 Md. 556, 569-70, 69 A. 405 (1908) (tortious interference with contract); cf. Rinaldi v. Tana, 252 Md. 544, 250 A.2d 533 (1969) (tortious interference with contradt). Those cases, together with Food Fair Stores v. Hevey and Henderson v. Maryland Nat'l Bank, both supra, had in common one salient fact: the contractual relationship preexisted the tortious conduct. Thus, the tort found its source in the contract without which the wrong would not have been committed. It was in this contect that we spoke in Testerman of a 'tort arising out of a contractual relationship,' and to which our holding there is applicable. Thus, when one may be induced by fraud to enter into a contract, the tort in that instance cannot be said to arise out of the contractual relationship. It is the tortious conduct which conversely induces the innocent party to enter into the contractual relationship.

We perceive the distinction made here as one of substance, not merely of degree. Torts arising out of contractual relationships, as we have suggested, frequently bear close resemblance to actions for pure breach of contract, see Henderson v. Maryland Nat'l Bank, supra, 278 Md. at 519, 366 A.2d at 4, in which punitive damages are not recoverable, Food Fair Stores v. Hevey, supra, 275 Md. at 57, 338 A.2d 43; St. Paul at Chase v. Mfrs. Life Insur., supra, 262 Md. at 236, 278 A.2d 12. concededly, the tort now labeled as 'fraud' finds its origin in the ancient action of deceit, affording relief in earlier cases which today, we would say sounded in contract. For almost two centuries, however, it has been recognized as purely a tort action. So regarded, it does not require the existence of a contract. W. Prosser, Law of Torts § 105 (4th ed. 1971).

Accordingly, since the fraud committed here did not arise out of a contractual relationship, but instead...