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Delzer v. United Bank of Bismarck

Supreme Court of North Dakota
559 N.W.2d 531 (1997)
ELI5:

Rule of Law:

A promise made without any intention of performing it constitutes an independent tort of deceit, separate from a claim for breach of contract, which can support an award of tort and exemplary damages.


Facts:

  • In 1979, Ray and Betty Jean Delzer, who were ranchers, entered into a loan agreement with United Bank.
  • The Delzers alleged United Bank orally agreed to lend them a total of $300,000, consisting of a $150,000 operating loan followed by an additional $150,000 to purchase cattle.
  • In reliance on this comprehensive agreement, the Delzers pledged all their personal assets and their son's equipment as collateral.
  • United Bank advanced the initial $150,000 for operating costs.
  • United Bank subsequently refused to advance the additional $150,000 for the purchase of cattle.
  • Unable to generate sufficient income without the cattle, the Delzers defaulted on their other debts.
  • Consequently, the holder of the first mortgage foreclosed on their ranch, and the Delzers lost all the assets they had pledged as collateral to United Bank.

Procedural Posture:

  • Ray and Betty Jean Delzer sued United Bank in a North Dakota state trial court.
  • The trial court granted summary judgment for United Bank, which the Supreme Court of North Dakota reversed and remanded for trial (Delzer I).
  • The trial court again granted summary judgment for United Bank, and the Supreme Court again reversed and remanded (Delzer II).
  • After a bifurcated trial on liability, a jury found for the Bank on the contract claim but for the Delzers on the deceit claim. The trial court granted the Bank's motion for judgment notwithstanding the verdict (JNOV).
  • The Supreme Court reversed the JNOV and remanded for a new trial on both claims (Delzer III).
  • Following a new trial, a jury found for the Delzers on both breach of contract (awarding $0) and deceit (awarding $538,000 in compensatory damages and $3,000,000 in exemplary damages).
  • The trial court granted United Bank's motion for judgment as a matter of law, dismissing the deceit and exemplary damages claims.
  • The Delzers, as appellants, appealed the dismissal to the Supreme Court of North Dakota.

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Issue:

Does a claim for deceit, based on a promise made without the intention of performing it, constitute an independent tort that can exist alongside a breach of contract claim arising from the same promise, thereby allowing for tort and exemplary damages?


Opinions:

Majority - Meschke, Justice

Yes. A claim for deceit based on a fraudulent promise is an independent tort, distinct from a breach of contract claim, and can support tort damages. The court distinguished this case from precedent requiring a tort to be independent of the breach of contract. Here, the tortious conduct was not the failure to perform (the breach), but the fraudulent intent at the time the promise was made—the false representation of an existing intention to perform. This fraudulent inducement is an "additional, independent fact" that supports a tort claim separate from the contract claim. The court noted testimony from the Bank's CEO that the Bank did not intend to provide the cattle money when the Delzers executed the loan documents, which supports the finding of deceit. Therefore, the trial court erred in granting judgment as a matter of law dismissing the deceit and exemplary damages claims.



Analysis:

This decision clarifies the 'independent tort' doctrine within contract law, establishing that fraudulent inducement is not merely a feature of a contract breach but a distinct legal wrong. It affirms that a plaintiff can simultaneously sue for breach of contract and the tort of deceit based on the same promise, provided they can prove the promisor had no intention of performing at the time of contracting. This precedent is significant because it allows plaintiffs in such cases to seek broader tort remedies, including exemplary (punitive) damages, which are generally unavailable in contract actions, thus creating a stronger deterrent against fraudulent business practices.

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