Delzer v. United Bank of Bismarck

Supreme Court of North Dakota · 1997 · Contracts

ContractsFraud in the inducementDeceitDamagesPunitive damagesbreach of contractdeceitfraud in the inducement

Facts

Delzers alleged that in 1979 United Bank agreed to lend them a total of $300,000: $150,000 as an operating loan and an additional $150,000 to purchase cattle. In reliance on that promise, Delzers pledged all of their assets and their son's equipment as collateral and received only the initial $150,000 operating loan. The bank never advanced the cattle money, and Delzers claimed they could not service their debts without cattle, could not obtain cattle financing elsewhere because their collateral was tied up, and ultimately lost their ranch and other pledged assets. At retrial, the jury found both breach of the oral loan promise and willful deceit based on the bank's promise of cattle money made with no intention to perform.

Issue

Whether the bank's promise to lend additional money for cattle, if made without any intention of performing, could support an independent deceit claim and exemplary damages even though the same promise also supported a breach of contract claim. The court also considered whether there was sufficient evidence of damages, whether a new trial was warranted, whether the deceit-damages instruction and expert testimony were proper, and whether the trial court properly reduced exemplary damages.

Rule

Exemplary damages are not ordinarily recoverable for breach of contract, but they may be recovered when the breach is accompanied by an independent willful tort. A promise made without any intention of performing it is actionable fraud or deceit, and when that false promise induces entry into a contract, the promisor's lack of intent to perform is an additional, independent fact separate from the mere breach. For tort claims, damages include all detriment proximately caused, whether or not anticipated.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Fargo, Nora Kim negotiated with Prairie Gate Lending, a fictional finance company, for a warehouse expansion loan. The company issued an initial $200,000 draw, orally promised an additional $300,000 to complete the project, and required Nora to pledge all of her business equipment as collateral; internal messages later showed the company had already decided never to make the second advance when it obtained the collateral.

If Nora sues after the company refuses the second advance and her business collapses because she cannot borrow elsewhere, which is the strongest argument that she may recover tort and exemplary damages in addition to any contract remedy?

Explanation. A mere breach does not support tort liability. But a promise made without any intention of performing it is actionable deceit/fraud, and that lack of intent at the time of the promise is an additional independent fact separate from the breach itself. Because the tort exists independently of the breach, exemplary damages may be available if the other requirements are met. (Derived from Delzer v. United Bank of Bismarck (1997).)