Hinkle v. Rockville Motor Co.

Barnes, J., delivered the opinion of the Court. The appellant, Donald Hinkle (Hinkle), purchased a 1969 Ford Galaxie automobile from the appellee, Rock-ville Motor Company, Inc. (Rockville), in January of 1970. In a declaration filed on May 7, 1970, in the Circuit Court for Montgomery County, Hinkle alleged that Rockville fraudulently represented to him at the time of sale that the 1969 Galaxie was a new car when, in fact, it had over 2,000 miles on the speedometer and had been involved in an accident in the State of Tennessee. Hinkle discovered the mileage recorded on the speedometer while driving home on the day of the sale.

He brought this to the attention of Rockville and an adjustment was made whereby he was compensated in the amount of $109.86, the amount of his first payment, in exchange for a release from any further claims except for those falling within his standard new car warranty. The adjustment for mileage was made on January 27, 1970. Hinkle maintains that it was not until April, 1970, that he learned the automobile had been involved in an accident in Tennessee in July of 1969. It is alleged in the declaration that the front and rear portions of the automobile had been welded together after having been severed in the accident.

Hinkle alleged that Rockville had knowledge of ⁵⁰⁴ the accident but that it “willfully concealed the true circumstances” and “willfully, maliciously and fraudulently misrepresented the quality and condition of the aforesaid Ford vehicle” and that he relied on these misrepresentations to his detriment. Damages were claimed in the amount of $100,000. At the close of Hinkle’s case, Rockville moved for a directed verdict. In granting the directed verdict, the trial court (Shearih, J.) only found it necessary to consider Rockville’s argument that Hinkle’s failure to produce evidence in regard to the automobile’s actual value at the time of sale deprived the jury of the only permissible standard by which the jury could determine the existence or amount of damages.

The trial court determined this to be a correct statement of the law and directed a verdict in favor of Rockville notwithstanding the fact that Hinkle had produced expert testimony that the effects of the accident could be remedied and the car returned to new car condition by the expenditure of $800 for repairs. For the purposes of this appeal, we will consider only this question of law ruled on by the trial court. Since the case is before us on directed verdict, all inferences in regard to the existence of actionable fraud and inadequacy of the release will be considered in favor of Hinkle. A review of the Maryland cases indicates some confusion in regard to the measure of damages allowable in this State in cases of fraud and deceit.

Once past the universally accepted, standard that a plaintiff may “recover such damage as the jury may find to have been sustained as the direct consequence of the alleged false representation,” the difficulty begins. Buschman v. Codd, 52 Md. 202 (1879); Robertson v. Parks, 76 Md. 118 , 24 A. 411 (1892) and Weaver v. Shriver, 79 Md. 530 , 30 A. 189 (1894). A majority of States will allow the plaintiffs to recover the “benefit of his bargain” if sufficiently proved. The theory is to compensate the plaintiff as though the ⁵⁰⁵ transaction had been carried out as represented. 37 Am.Jur.2d Fraud & Deceit § 353 (1968) ; 37 C.J.S. Fraud § 143 b.

(2) (1943); Note, Measure Of Damages For Fraud And Deceit, 47 Va.L.Rev. 1209 (1961). Other States restrict the plaintiff to his “out of pocket” losses. The classic formula is the value of the object as represented less its actual value at the time of sale. The theory is to return the plaintiff economically to the position he was in prior to the fraudulent transaction thus allowing him recoupment of actual losses but not expected gain.

This rigid limitation on the nature of recovery is often explained as being required because the action is one of tort rather than contract and that it has always been recognized that tort remedies are designed to compensate for actual harm suffered. 37 Am.Jur.2d Fraud & Deceit § 355 (1968) ; 37 C.J.S. Fraud § 143 b. (3) (1943). A review of the Maryland cases rather indicates that Maryland is one of those States which has not adopted a rigid stand as far as adopting one of the above theories to the exclusion of the other. Both theories have been used and approved in Maryland.

Because of the confusion and dicta in several Maryland cases seeming to indicate that Maryland is a State that exclusively employs the “out of pocket” remedy, we will review the prior Maryland cases in this area. In Pendergast v. Reed, 29 Md. 398, 404-05 (1868), the defendant offered to sell the plaintiff an interest in his boat for Vs of its purchase price which he represented as being $34,000. The actual purcase price was $25,500. The plaintiff, having paid Vs of the fraudulently misrepresented price, sued for damages.

It can be seen that this is an instance where the plaintiff paid the represented value so that the damage would be the same using either the “out of pocket” or “benefit of bargain” formula. The Court did, however, sanction the “benefit of bargain” remedy when it stated: “He had the right to all the profits of his purchase and contract as he made it, ⁵⁰⁶ and it is no answer to his action to say, that though the representation was false, yet the actual value of the thing sold is equal to what false representations induced him to pay for it.” The Court later stated the following “benefit of bargain” formula for the measure of damages : “The measure of damages may therefore be stated to be either the difference between one-eighth of the actual, and one-eighth of the represented cost rate, or one-eighth of the difference between the actual and represented cost rate of the entire vessel.” This latter formulation was given an instruction to the jury at the request of the plaintiff below and challenged on appeal by the defendant in that it could mislead the jury into awarding the whole rather than one-eighth of the difference. In affirming the judgment, this Court held that the instruction was correct. In McAleer v. Horsey, 35 Md. 439 (1872), the defendant and appellant, had been granted an “out of pocket” instruction below and there was no cross-appeal by the plaintiff-appellee bringing this question before the Court on appeal.

In Buschman v. Codd, 52 Md. 202 (1879), the trial court gave a general instruction to the effect that the plaintiff was entitled to damages that were a direct result of the fraudulent misrepresentation. This Court citing McAleer upheld the instruction over the defendant-appellant’s challenge, saying that it was tantamount to the “out of pocket” instruction considered proper in Mc-Aleer. The Court did state the “out of pocket” formula as the rule for measuring damages in these cases when the property sold has a marketable value. The posture of the case, however, was such that the Court was only required to approve the use of the “out of pocket” measure used below and not to set it forth as the exclusive or only measure of damages.

Such a holding would only be required if an otherwise permissible measure of damages were rejected because of the exclusivity of the “out of pocket” measure of damages. ⁵⁰⁷ Robertson v. Parks, 76 Md. 118 , 24 A. 411 (1892) which has sometimes been cited as support for the “out of pocket” theory of damages did not really deal with that issue at all. Robertson held that the defendant’s representations that the stock he sold the plaintiff would pay 20% dividends, did not furnish a ground for recovery because the defendant was only stating his opinion and not representing a fact upon which the plaintiff was entitled to rely. In Weaver v. Shriver, 79 Md. 530 , 30 A. 189 (1894), the trial court had directed a verdict against the plaintiff on the ground that he could not bring his tort action for fraud and deceit when he had not paid the full consideration provided in the contract of sale. This Court reversed the trial court, holding that the plaintiff could bring the action in this situation.

The Court went on to state the general rule of damages for fraud and deceit, namely, “that plaintiff is entitled to recover such damage as the jury may find he has sustained as the direct consequence of the alleged false representations.” The defendant had represented certain stock as being worth $100 per share and had stated that this was the price paid by other stockholders when in fact the other stockholders had paid $50 per share. At the time of the action, plaintiff had only paid $50 of his promised $100 per share. The Court stated that he would not be entitled to recover the $50 per share paid because at this point prior to paying the other $50 per share he had not suffered from the deceit. In Cook v. Gill, 83 Md. 177 , 34 A. 248 (1896), this Court upheld the verdict for the plaintiff over the defendant’s contentions that the plaintiff had failed to prove the alleged false representations, his reliance on them, or that the stock in question at the time of sale was worth less than what he had paid for it.

The trial court had used the “out of pocket” formula for damages but the question of whether or not this was the only allow ⁵⁰⁸ able measure was not before the Court as there was no objection by the plaintiff. Again, in Standard Motor Co. v. Peltzer, 147 Md. 509 , 128 A. 451 (1925), the plaintiff-appellee had requested and received the “out of pocket” measure of damages below. The plaintiff had purchased from the defendant a 1917 model truck that the defendant had represented as a 1920 model truck with a Continental Engine. At trial the plaintiff only requested the difference between the actual value of the 1917 model truck and the price he paid.

When the defendant attacked this measure of damages as being inappropriate, this Court simply held that