Erickson v. Brown , 2008 N.D. LEXIS 58 ( 2008 )

CROTHERS, Justice,

concurring in part and dissenting in part.

[¶59] I concur with that part of the majority opinion remanding the case for consideration of Dregseth’s deceit and equitable claims. I also concur with Parts IV and V of the majority opinion regarding jury instructions and admissibility of evidence. I respectfully dissent from those portions of the majority opinion affirming dismissal of Ramsey’s deceit and equitable claims and affirming dismissal of the action against Capital Harvest.

FRAUD OR DECEIT

[¶ 60] Many of the problems in this case arise because of a legal error that treats fraud and deceit as the same. They are not. Nor are these claims “substantially identical.” Unfortunately, the error of law has been developing over time and now appears to have adversely affected this case.

[¶ 61] This case proceeded below on the mistaken notion fraud and deceit claims are identical means of recovering money damages save the requirement that fraud applies to parties to a contract and deceit does not. I agree with the majority that, absent an objection on appeal, we must accept this posture as law of the case. See Majority opinion at ¶ 27. However, fraud and deceit are very different legal theories with very different results in litigation. I therefore write separately to invite an appeal by a party who has not acquiesced in treating fraud and deceit as the same, so that this Court can have a vehicle for restoring some clarity and certainty to this area of the law.

[¶ 62] Fraud is a claim arising in contract and relates to the lack of consent. One asserting fraud seeks to avoid a contract by showing consent is lacking due to misrepresentation. Fraud, and its remedy of rescission, requires placement of the parties back to their original positions. In fraud, a plaintiff may sue to recover what he has parted with or for its value. Conversely, deceit sounds in tort and allows recovery of damages upon proof of an affirmative representation or suppression of material facts. A deceit claim can be brought within a contractual relationship by a person who ratifies a contract after learning of the fraud of another or can be brought by parties who have no contractual relationship. In deceit, a plaintiff may sue to recover any damages proximately caused by reliance on the misrepresentation.

[¶ 63] “In this state there is no common law in any case in which the law is declared by the code.” N.D.C.C. § 1-01-06. Because the Legislature has spoken through the Code, actions for fraud and deceit are controlled by the statutory distinctions between the claims. Understanding and appreciating the differences between fraud and deceit starts with consideration of the applicable statutes, the statutory framework, and the structure of the Century Code.

[¶ 64] As to fraud, the Code provides:

Title 9: CONTRACTS AND OBLIGATIONS

CHAPTER 9-01: GENERAL PROVISIONS

Section 9-01-02. Requisites of contract. It is essential to the existence of a contract that there should be:

1. Parties capable of contracting;

2. The consent of the parties;

3. A lawful object; and

4. Sufficient cause or consideration.

(Emphasis added.)

CHAPTER 9-03: CONSENT

Section 9-03-01. Requisites of consent. The consent of the parties to a contract must be:

1. Free;

2. Mutual; and

3. Communicated by each to the other.

(Emphasis added.)

Section 9-03-02. Absence of free consent — Effect. A consent which is not free is not absolutely void, but may be rescinded by the parties in the manner prescribed by chapter 9-09.

(Emphasis added.)

Section 9-03-03. What renders apparent consent not free. An apparent consent is not real or free when obtained through:

1. Duress;

2. Menace;

3. Fraud;

4. Undue influence; or

5. Mistake.

(Emphasis added.)

Section 9-03-04. When consent deemed voidable. Consent is deemed to have been obtained through duress, menace, fraud, undue influence, or mistake only when it would not have been given except for one or more of them.

(Emphasis added.)

Section 9-03-07. Fraud classified. Fraud is either actual or constructive. Section 9-03-08. Actual fraud defined. Actual fraud within the meaning of this title consists in any of the following acts committed by a party to the contract, or with the party’s connivance, with intent to deceive another party thereto or to induce the other party to enter into the contract:

1. The suggestion as a fact of that which is not true by one who does not believe it to be true;

2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though that person believes it to be true;

3. The suppression of that which is true by one having knowledge or belief of the fact;

4. A promise made without any intention of performing it; or

5. Any other act fitted to deceive.

Section 9-03-09. Constructive fraud defined. Constructive fraud consists:

1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under that person, by misleading another to the other’s prejudice or to the prejudice of anyone claiming under the other; or

2. In any such act or omission as the law specially declares to be fraudulent without respect to actual fraud.

Section 9-03-24. Ratification as consent. A contract which is voidable solely for want of due consent may be ratified by a subsequent consent.

Section 9-03-25. Acceptance of benefit equivalent to consent. A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it so far as the facts are known or ought to be known to the person accepting.

CHAPTER 9-09: EXTINCTION, RESCISSION, ALTERATION, AND CANCELLATION

Section 9-09-01. Extinction of contracts. A contract may be extinguished in like manner with any other obligation and also by rescission, alteration, or cancellation to the extent and in the manner provided by this title.

Section 9-09-02. Rescission — When permitted. A party to a contract may rescind the same in the following cases only:

1.If the consent of the party rescinding or of any party jointly contracting with the party rescinding was given by mistake or obtained through duress, menace, fraud, or undue influence exercised by or with the connivance of the party as to whom the party rescinding rescinds or of any other party to the contract jointly interested with such party; ...

(Emphasis added.)

[¶ 65] Pursuant to these sections, fraud relates to whether consent to a contract was freely given. N.D.C.C. §§ 9-03-01 and 9-03-03. Where consent is not free, the Legislature has provided rescission as the remedy after prompt restoration of everything of value. N.D.C.C. § 9-03-02.

[¶ 66] Overt affirmation of the contract, failure to seasonably restore to the other party everything of value, or conduct inconsistent with rescission is an election to ratify the contract. N.D.C.C. §§ 9-03-24 and 9-03-25. Upon ratification, the opportunity to avoid the contract is waived, an action for fraud is no longer available, and a beguiled party seeking redress must proceed in tort to recover for deceit. Upon ratification of a contract where fraud previously prevented full or free consent, or where there is an actionable misrepresentation but no contract, the following portions of the Code apply:

CHAPTER 9-10: OBLIGATIONS IMPOSED BY LAW

Section 9-10-02. Deceit — Definition. A deceit within the meaning of section 9-10-03 is:

1. The suggestion as a fact of that which is not true by one who does not believe it to be true;

2. The assertion as a fact of that which is not true by one who has no reasonable ground for believing it to be true;

3. The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or

4. A promise made without any intention of performing.

Section 9-10-03. Damages for deceit. One who willfully deceives another with intent to induce that person to alter that person’s position to that person’s injury or risk is liable for any damage which that person thereby suffers.

[¶ 67] Our law governing actions for fraud or deceit has been codified since prior to statehood. See Bourgois v. Montana-Dakota Utilities Co., 466 N.W.2d 813, 817-18 (N.D.1991). Soon thereafter, this Court was faced with consideration of the difference between the two claims. In Beare v. Wright, 14 N.D. 26, 103 N.W. 632 (1905), this Court stated:

“And fraud, actual or constructive, renders a contract voidable for the same reason that mistake, undue influence, duress, etc., have the same effect. Sections 3941, 3942, Rev.Codes 1899 [now N.D.C.C. §§ 9-10-02 and 9-10-03], merely declare that actual fraud is a tort for which the guilty party is liable to the injured party if any damage has been suffered by the latter. In other words, actual fraud, with damage, is a good cause of action, and constitutes actionable deceit.”

Beare, 14 N.D. at 32, 103 N.W. at 634.

[¶ 68] In Sonnesyn v. Akin, 14 N.D. 248, 104 N.W. 1026 (1905), this Court further explained the fraud-deceit distinction and their respective remedies:

“If one is actually defrauded by a false statement which induced him to enter into a contract, he has his remedy for the injury. The contract thus procured is not void, but voidable. He may either rescind the contract and recover any sums paid upon it or property delivered pursuant to it, or he may affirm the contract, take such benefits as are obtainable under it, and recover damages for the injuries sustained by reason of the false statement. These alternative remedies, it will be seen, are inconsistent, and are not available in the same action; for one is based upon a rescission of the contract and the other upon an affirmance of it — one upon a contract implied by law obligating the wrongdoer to restore whatever of value he has received; the other in tort for damages for the injury done by the false statement. When the person injured elects the latter remedy, i.e., to sue for the tort, he affirms the contract, thus continuing it as a binding obligation. And ‘it is the rule that the defrauded party to a contract has but one election to rescind, that he must exercise that election with reasonable promptitude after the discovery of the fraud, and that, when he once elects, he must abide by his decision.’ ”

Id. at 256-57, 104 N.W. at 1029 (citations omitted) (emphasis added).

[¶ 69] The Court in Gunderson v. Havana-Clyde Mining Co., 22 N.D. 329, 133 N.W. 554 (1911), further explained:

“This is an action for deceit, not for rescission. There is a vast difference between the actions, and this difference must be constantly kept in mind in considering this case. When the plaintiff had reached the conclusion that he had been defrauded, he had his election of two remedies: First, he could rescind upon the grounds that his assent to the contract had never been freely given, and return his stock and recover the money paid by him; or, second, he could ratify the sale, accept his stock with its consequential profits or losses, and maintain an action for damages against his deceivers. In the second case he refuses to rescind, in effect, and demands that the representations of the sellers be made good in damages. He, the purchaser, assumes all of the risks of the speculation, as he has in effect affirmed the contract of sale. Therefore his damages for the deceit must not include damages occasioned by the failure of the speculation. In this case Gunderson, having elected to ratify the sale instead of repudiating it as he might, assumed the speculation, and would be the winner if the mine made good, and the loser, if the mine failed. His damages would be the difference between what his stock would have been worth at the time of the sale if as represented, and what it was actually worth at that time. Or stated a little differently, he can compel the sellers to make good their representations by paying damages for those things they have misrepresented. We must go back to the day the stock was sold, and determine how much more plaintiffs stock would have been worth had the statements made to him been true. At such time both the buyer and seller believed, or at least hoped, that the mine would be a success. How much less would the plaintiff have been obliged to pay for the stock had he known the truth.... It may be said that, had the plaintiff knoum that the ore was of such little value, he would not have bought the stock. The complete answer to that proposition is that the plaintiff by bringing an action for deceit elected to ratify the contract, and did, in effect, buy the stock after he knew the value of the ore. ... If it seems a hardship upon the buyers of the stock, we can only reply that they had a chance to repudiate the sales if fraudulent, and recover back their money. This they refused to do, but, on the contrary, kept their stock until further developments proved it worthless, and then demanded that the defendants pay them six times the amount plaintiffs had paid for it. They wished to keep the stock and take all the chances there were of the mine paying out, and then, in case of failure, compel the defendants to make good Canan’s representation that the stock was worth par. Only their modesty, probably, prevented them from demanding that they all be ‘made independent’ according to the promise of Canan. The purchasers’ losses were occasioned by sticking to a bad bargain after they knew they had been deceived. For this poor judgment the defendants are not liable. Neither are they liable for the unkindness of nature in placing the mother vein outside of the defendants’ property.”

Gunderson, 22 N.D. at 332-35, 133 N.W. at 555-56 (emphasis added).

[¶ 70] The distinction between fraud and deceit claims was further explained in Guild v. More, 32 N.D. 432, 155 N.W. 44 (1915):

“A contract thus entered into is voidable and does not become binding on the defrauded party until his free consent thereto is given. In other words it does not become a valid contract or binding upon the defrauded party unless with knowledge of the fraud he ratifies or affirms it. The law naturally does not protect the wrongdoer, or give him any benefit or advantage by reason of the fraud he has perpetrated. And therefore, on discovery of the fraud, the defrauded party is given the option of rescinding or affirming the transaction. In case of rescission, he is required to act promptly on discovery of the fraud. In such case, the contract ceases to exist for any purpose, and the parties stand in the same position as though it had never been made, and hence it is necessary that they be placed in the same position in which they were before the transaction took place. Therefore the party defrauded, in such case, is entitled to recover back whatever consideration he parted with, but he must, also, return or offer to return to the other party whatever he received. In case of affirmance, he retains what he received, and is entitled to be compensated for the damages he sustained by reason of the false representation. That is, the wrongdoer will be compelled to pay damages equal to the difference in value between what he gave and what he represented he would give.

“The transaction may be affirmed either expressly or by implication. And a person who retains as his own the property which he received in the transaction will necessarily be deemed the owner thereof. And having elected to assume the position of owner, will be compelled to abide by the selection made, and to be, not only invested with the rights and prerogatives, but also burdened with the duties and liabilities incident to such ownership. Hence, in such case, the measure of damages for the fraud and deceit practiced upon him is very properly predicated upon the basis that the defrauded party is the owner of the property, and therefore his damage is equal to the difference in value between the property he received and what he would have received, if the representations had been true.”

Guild, 32 N.D. at 454-55, 155 N.W. at 49 (citations omitted) (emphasis added). See also Coman v. Williams, 65 N.W.2d 377, 379-80 (N.D.1954) (damages in a deceit action are determined as of the date of the transaction itself, since plaintiff retained goods); Lanz v. Naddy, 82 N.W.2d 809, 814 (N.D.1957) (plaintiff had right to rescind contract or affirm and sue for damages).

[¶ 71] In Holcomb v. Zinke, 365 N.W.2d 507, 511 (N.D.1985), this Court affirmed rescission of a real estate contract based on constructive fraud. The Holcomb Court considered and applied N.D.C.C. § 9-03-09 regarding constructive fraud and had no problem arriving at the appropriate remedy, noting: “The right to rescind a contract on the ground of fraud is granted by North Dakota Century Code § 9-09-02(1).” Holcomb, at 510 (footnote omitted).

[¶ 72] In Heilman v. Thiele, 413 N.W.2d 321, 325-26 (N.D.1987), the Court noted the plaintiffs were confused about whether their claim was fraud or deceit. While plaintiffs were arguing actual fraud, the Court correctly concluded the claim was one for “a tort of deceit” under sections 9-10-02 through 9-10-04 of the North Dakota Century Code. Hellman, at 326. The distinction between a contract-based fraud claim and a tort-based deceit claim was preserved in Ostlund Chemical Co. v. Norwest Bank, 417 N.W.2d 833, 835-36 (N.D.1988). Similarly, in Olson v. Fraase, 421 N.W.2d 820, 827 n. 3 (N.D.1988), the Court recognized that fraud and deceit had “similar” definitions, but were distinguished by whether the action arose out of contract or of tort.

[¶ 73] But this Court has not always heeded Justice Burke’s admonition in Gunderson to constantly keep in mind the “vast difference” between fraud and deceit. In Asleson v. West Branch Land Co., 311 N.W.2d 533, 535 (N.D.1981), plaintiffs claimed money damages relating to the purchase of unimproved land. Remarkably, the Court expressed surprise that “North Dakota has not specifically stated what the rule is for damages for constructive fraud.” Id. at 543. Even more remarkably, the Asleson Court cited Gun-derson where this Court made a clear distinction between the tort of deceit which allows recovery of damages and the claim of fraud for avoiding a contract. Asleson, at 543. See also Benefiet v. Hoiby, 370 N.W.2d 513, 515 (N.D.1985) (question of fact whether “actual fraud” warranted recovery of damages in real estate purchase).

[¶ 74] The “vast differences” between fraud and deceit continued to blur in West v. Carlson, 454 N.W.2d 307 (N.D.1990), and in Dewey v. Lutz, 462 N.W.2d 435 (N.D.1990). In West, the Court correctly stated that “[a] person who has been fraudulently induced to enter into a contract may either rescind the contract, or retain the benefits of the contract and obtain damages for injuries from the fraud.” 454 N.W.2d at 309. However, the Court failed to recognize that “damages for injuries from the fraud” require ratification of the contract and a suit for deceit. See N.D.C.C. § 9-10-02. As a result, the Court in West departed from nearly one hundred years of precedent and concluded that analysis under the “actual fraud” statute was appropriate, notwithstanding the lack of rescission and the impossibility of restoration of the status quo ante. Id. at 310 n. 1. The Court wrote:

“The statutory definitions of actual fraud and deceit are similar. Compare NDCC 9-03-08; 9-10-02 and 9-10-03. We have recently said that a fraud action brought under NDCC 9-03-08 applies to misrepresentations between parties to a contract, while deceit under NDCC 9-10-02 applies where there is no contract between the parties. Hellman v. Thiele, 413 N.W.2d 321 (N.D.1987); see Olson v. Fraase, 421 N.W.2d 820, 827 n. 3 (N.D.1988). Because this case involves a contract, our analysis is under the actual fraud statute.”

West, at 310 n. 1. Interestingly, the Court in West cited Heilman for the proposition that fraud actions under N.D.C.C. § 9-03-08 apply to parties to a contract. West, at 310 n. 1. That citation and statement is correct insofar as fraud describes a lack of a misled party’s consent to a contract due to the wrongdoer’s misrepresentation or suppression of material facts. N.D.C.C. § 9-03-08. Up to that point, the dispute between parties to a contract is analyzed as fraud rather than as the tort of deceit. See N.D.C.C. § 9-10-02. However, when free consent is subsequently provided, the contract is ratified and any damages must be recovered in an action for deceit. These are the lessons from Beare, Gunder-son, and Guild, which apparently were forgotten by the Court in West when it wrote: “Because this case involves a contract, our analysis is under the actual fraud statute.” 454 N.W.2d at 310 n. 1.

[¶ 75] The lessons from our older cases were not only forgotten, but apparently abandoned, in the subsequent case of Dewey, 462 N.W.2d at 439, where the Court wrote:

“We have recognized that fraud and deceit are similar concepts. Olson v. Fraase, 421 N.W.2d 820, 827 n. 3 (N.D.1988). Technically, fraud under NDCC 9-03 applies only when there is a contract between the parties; deceit under NDCC 9-10 applies when there is no contract between the parties. Hellman v. Thiele, 413 N.W.2d 321, 326 (N.D.1987); Ostlund Chemical Co. v. Norwest Bank, 417 N.W.2d 833, 835-836 (N.D.1988). Nevertheless, as pointed out long ago in Beare v. Wright, 14 N.D. 26, 103 N.W. 632, 634 (1905), conduct can be both fraudulent and deceitful.”

[¶ 76] The Dewey Court was wrong on this point because the difference between fraud and deceit is much more than “a technicality.” The Legislature has specified, and this Court’s earliest cases explained, that fraud and deceit are distinctly separate claims. And while Beare did say conduct can be both fraudulent and deceitful, that Court also held the claims were mutually exclusive. 14 N.D. at 32, 103 N.W. at 634.

[¶ 77] The Dewey case is also notable for a seeming innocuous statement about fraud and deceit in the context of punitive damages:

“Curtis asserts that, because punitive damages can only be awarded under NDCC 32-03-07 ‘when the defendant has been guilty of oppression, fraud, or malice, actual or presumed,’ and the jury found only that he committed deceit, punitive damages were improperly assessed against him. We disagree.

“The only significant distinction between the torts of fraud and deceit is whether the wrongdoer happens to be a party to a contract. See Olson v. Fraase, supra. The conduct prohibited under the separate statutory definitions of fraud and deceit is substantially identical. See 37 Am.Jur.2d Fraud and Deceit § 1, p. 20 (1968). We conclude that, for purposes of the punitive damages statute, fraud and deceit are synonymous.”

Dewey, 462 N.W.2d at 442. As will be shown, the statement that fraud and deceit are “substantially identical” turned out to be anything but innocuous to this rule of law.

[¶ 78] Steps down the mistaken path started in West were continued in Bourgois, 466 N.W.2d 813. There, the Court initially, and correctly, concluded the plaintiff could not rescind a contract because he had completed performance and had been paid. Id. at 816. Plaintiff could not rescind his performance and therefore was deemed to have elected his remedy of damages in a tort action. Id. Nevertheless, the Court characterized Bourgois’ claim as one for “actual fraud” rather than for deceit. Id. So too, in State Bank of Kenmare v. Lindberg, 471 N.W.2d 470, 474 (N.D.1991), the Court mixed the claims and remedies for fraud and deceit. In both cases, the Court focused on the status of the plaintiff and the defendant as parties (or not parties) to a contract, rather than on the parties’ election between rescission or damages.

[¶ 79] The erroneous application of law was extended in Dvorak v. American Family Mut. Ins. Co., 508 N.W.2d 329 (N.D.1993) where the Court stated:

“The only significant distinction between the torts of fraud and deceit is whether the wrongdoer happens to be a party to a contract. Dewey v. Lutz, 462 N.W.2d 435 (N.D.1990). Technically, fraud under Section 9-03-08, N.D.C.C., applies to misrepresentations between parties to a contract, while deceit under Section 9-10-02, N.D.C.C., applies when there is no contract between the parties. West v. Carlson, 454 N.W.2d 307 (N.D.1990). However, the conduct prohibited under the separate statutory definitions of fraud and deceit is substantially identical. Dewey v. Lutz, 462 N.W.2d 435 (N.D.1990).”

Dvorak, at 332.

[¶ 80] First, the Dewey decision was flawed because real and important differences exist between deceit and fraud in addition to whether litigants are parties to a contract. Second, even accepting at face value the incomplete statements of law in Dewey and West, those cases do not support the conclusions drawn by the Court in Dvorak. Rather, the Court in West stated the incomplete thought that the only difference between fraud and deceit was “technical” based on whether litigants were parties to a contract. The Court in Dewey used the “substantially identical” language to conclude the term “fraud” as used in North Dakota law which allows punitive damages was the same as “deceit.” Dewey, 462 N.W.2d at 442. Of course, this result was required in Dewey because punitive damages were not available in actions arising from contract. Id. The jury awarded Dewey damages for the tort of deceit. The Court in Dewey correctly stated, “for purposes of the punitive damages statute, fraud and deceit are synonymous” due to the statute which permitted recovery upon proof of “oppression, fraud, or malice.” Id. (emphasis added). However, that conclusion in Dewey cannot be carried over as it was in Dvorak to state no difference exists between a contract-based fraud claim for rescission under North Dakota Century Code chapter 9-03 and a tort-based deceit claim for damages under chapter 9-10. Third, the Dvorak Court was just wrong when it stated the same conduct is prohibited under fraud and deceit.

[¶ 81] The statutory definition of “actual fraud” is similar to the statutory definition of “deceit.” However, important differences exist. Subsections 1 and 4 of N.D.C.C. §§ 9-03-08 and 9-10-02 are identical: “The suggestion as a fact of that which is not true by one who does not believe it to be true” and “A promise made without any intention of performing.” However, subsection 2 is different. Actual fraud is defined as “[t]he positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though that person believes it to be true.” N.D.C.C. § 9-03-08(2). Deceit is defined as “[t]he assertion as a fact of that which is not true by one who has no reasonable ground for believing it to be true.” N.D.C.C. § 9-10-02(2).

[¶ 82] This difference was explained in Nodak Oil Co. v. Mobil Oil Corp., where the same law was applied:

“The subsection 2 definitions are different. The import of the difference is that a plaintiff has a greater burden in a tort action based on an allegation of fraud than he has in the contract action for rescission, also based on an allegation of fraud. In the tort action, plaintiff must prove under subsection 2 that the assertion of fact was made by one who had no reasonable grounds for believing it to be true, whereas under the contract definition subsection 2, the plaintiff need only prove the assertion was made in a manner not warranted by the information of the person making it.”

391 F.Supp. 276, 281 (D.N.D.1975), rev’d on other grounds, 533 F.2d 401 (8th Cir. 1976).

[¶ 83] Subsection 3 of 9-03-08 defines actual fraud as “[t]he suppression of that which is true by one having knowledge or belief of the fact.” Subsection 3 of 9-10-02 defines deceit as “[t]he suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact.” Again, the important difference is that a plaintiff has a greater burden in a tort action based on an allegation of deceit than in a contract action where a lack of consent is claimed.

[¶ 84] The final important difference is that subsection 5 for actual fraud is “[a]ny other act fitted to deceive.” N.D.C.C. § 9-03-08(5). Deceit has no comparable provision. Therefore, the elements of fraud and deceit are different, and the distinction between the two claims is meaningful.

[¶ 85] Recently, this Court has given diverse application to the fraud and deceit statutes. Below is an extensive but not exhaustive overview of cases from the last ten years where this Court has applied fraud, deceit, and their respective remedies in anything but a consistent manner.

[¶ 86] On a number of occasions, the Court highlighted the clear distinction between fraud and deceit, discussed the required election of remedies, or specified the remedy of money damages in a deceit case or the need for rescission in a fraud case. See Heart River Partners v. Goetzfried, 2005 ND 149, ¶ 21, 703 N.W.2d 330 (“fraud perpetrated to induce a party to enter into the agreement is a ground for rescission, but is not a ground for reformation”); Murphy v. Murphy, 1999 ND 118, ¶¶ 12-16, 595 N.W.2d 571 (district court did not err finding plaintiff was not entitled to rescind transaction based on fraudulent inducement); Barker v. Ness, 1998 ND 223, ¶ 8, 587 N.W.2d 183 (fraudulent inducement victim must elect to affirm contract and sue for damages or rescind); Albrecht v. Walter, 1997 ND 238, ¶¶ 17-18, 572 N.W.2d 809 (“fraudulent inducement” appropriately raised as defense to collection action considered under fraud statutes); Earthworks, Inc. v. Sehn, 553 N.W.2d 490, 495 (N.D.1996) (“fraudulent inducement” claim properly dismissed where party did not seek rescission).

[¶ 87] Other cases have plainly continued down the wrong path with West, Dewey, and Bourgois by mixing the claims and their attendant remedies. See Grandbois, Inc. v. City of Watford City, 2004 ND 162, ¶¶ 19-20, 685 N.W.2d 129. In one case, the district court was wrongly chastised for correctly applying deceit, instead of fraud, in a damages case. See WFND, LLC v. Fargo Marc, LLC, 2007 ND 67, ¶¶ 25-26, 730 N.W.2d 841 (“The court should have used the term ‘fraud,’ which applies when there is a contract between the parties, rather than the term ‘deceit,’ which applies when there is no contract between the parties.”); First State Bank v. Moen Enterprises, 529 N.W.2d 887, 891 n. 3 (N.D.1995) (distinction between fraud and deceit “is immaterial”).

[¶ 88] Still other recent opinions have implicitly mixed claims for fraud and deceit or have not used the appropriate remedy for the stated claim. See Ziegelmann v. DaimlerChrysler Corp., 2002 ND 134, ¶¶ 7, 17, 649 N.W.2d 556 (affirming dismissal because plaintiff could not prove damages as necessary elements of “torts of negligence, fraud and deceit”); Schneider v. Schaaf, 1999 ND 235, ¶ 21, 603 N.W.2d 869 (concluding district court did not err dismissing plaintiffs “fraud and deceit claim” because of failure to prove damages); Fargo Foods, Inc. v. Bernabucci, 1999 ND 120, ¶¶ 19-20, 596 N.W.2d 38 (holding that counter-claimants for money damages failed to prove “actual or tacit fraud”); Kary v. Prudential Ins. Co. of America, 541 N.W.2d 703, 705 (N.D.1996) (considering claim for money damages under actual fraud statute).

[¶ 89] Finally, before turning to disposition of this case, I anticipate someone arguing that allowing a beguiled party to affirm a fraud and maintain a breach of contract claim in the same action as a deceit claim is tantamount to allowing recovery for tortious breach of contract. The answer is an emphatic “no” for the reasons stated in Pioneer Fuels, Inc. v. Montana-Dakota Utilities, Co., 474 N.W.2d 706 (N.D.1991), and Delzer v. United Bank of Bismarck, 527 N.W.2d 650 (N.D.1995).

[¶ 90] The plaintiff in Pioneer Fuels sued for breach of contract and deceit, and sought recovery of punitive damages. 474 N.W.2d at 707-08. The jury returned a verdict in plaintiffs favor, awarding damages for breach of contract and deceit, and awarding punitive damages. Id. at 708. On appeal, this Court considered whether evidence supporting a breach of contract was sufficient to find deceit and to support the award of punitive damages. We stated:

“Tortious conduct must exist independently of the breach of contract and there must be proof of actual damages resulting from the independent tort. ‘The independent tort must be separate and distinct from the breach of the contract. While the intentional tort may occur at the time of and in connection with the breach, or may arise out of the same transaction, it is not committed merely by breaching the contract, even if such act is intentional.’ ”

Id. at 710 (quoting 22 Am.Jur.2d Damages § 752 (1988)). “A breach of contract even if intentional, malicious, or in bad faith, is not enough to convert a contract action into a tort action.” Pioneer Fuels, at 710 (citation omitted).

[¶ 91] The holding and rationale in Pioneer Fuels make clear that the same evidence will not support a finding of breach of contract and of deceit. Rather, the plaintiff must come forward with clear and convincing evidence of tortious conduct, independent of the breach. Id. In most eases, that evidence will not be of the breach itself, but of the wrongdoer’s misrepresentations that induced the plaintiff into contracting in the first instance.

[¶ 92] The holding in Pioneer Fuels was discussed in Delzer, 527 N.W.2d at 653-54 as follows:

“Delzers argue that the tort of deceit may exist independently of the contract claim and that, under the trial court’s instructions on contract and deceit, the verdict is not inconsistent. United responds that the jury’s verdict is inconsistent and that the trial court properly granted judgment as a matter of law on the deceit claim, because there was no evidence of deceit independent of the contract claim and there were no damages under Delzers’ over-collateralization theory of deceit.

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“Pioneer Fuels stands for the principle that, where there is a breach of contract, there must be some additional, independent facts not connected to the manner of the breach of contract to support tort and exemplary damage claims. See 22 Am.Jur.2d, Damages § 752 (1988) (exemplary damages ordinarily not recoverable in action for breach of contract, unless breach amounts to an independent, willful tort). However, when the parties’ actions do not meet the requirements for a contract, Pioneer Fuels does not preclude tort recovery for deceit, if the elements of deceit under Chapter 9-10, N.D.C.C., are established. See Dewey v. Lutz, supra (even if some defendants were not parties to contract, there was sufficient evidence to support jury’s alternative findings of deceit by those defendants); State Bank of Kenmare v. Lindberg, 471 N.W.2d 470 (N.D.1991) (allegations of extra-contractual statements by lender which induced borrower to alter position sounds in tort).”

Delzer, at 653-54. While the Court in Delzer failed to distinguish between fraud as a contract action and deceit as a tort, in the context of the deceit claim appealed in that case, the Court did follow the holding in Pioneer Fuels to confirm that proof of tortious conduct must exist independent of a breach of contract. From this, it follows that affirmation of consent following fraud, and pursuit of a deceit claim, require proof separate and apart from the breach of contract. It further follows that recognition of a deceit claim arising out of a contractual relationship is not explicit or implicit recognition of a claim for tortious breach of contract.

[¶ 93] Returning to the case at bar, the complaint shows plaintiffs Erickson, Ramsey, and Dregseth sued for both fraud and deceit. Plaintiffs’ requested remedy under both claims was specific performance of the contract or an award of money damages. No plaintiff sought to avoid the deal due to lack of consent. According to the law and the well-reasoned early cases from this Court applying that law, plaintiffs therefore affirmed their contracts and elected to sue in tort for recovery of damages. Thus, plaintiffs’ viable claim was for deceit — not fraud — regardless of the existence of a contract.

RAMSEY

[¶ 94] As to Ramsey, he had no contract with Brown or Capital Harvest to earn an interest in Capital Harvest. From this the majority follows WFND, Grand-bois, Delzer and other decisions to conclude Ramsey’s claim is for deceit because he is not party to a contract. Majority opinion at ¶ 30. As I have explained, those cases contain incomplete analysis and we instead should look to whether the plaintiff is seeking to avoid a contract or to recover damages for being mislead. While the majority and I come to our respective conclusions differently, in this instance it is distinction without a difference because Ramsey had no contract with Brown or Capital Harvest so there was no consent to affirm and no contract to ratify. Ramsey had nothing to rescind, and claiming fraud was not an option. Therefore, I concur with the majority that the district court committed legal error dismissing Ramsey’s deceit claim. Majority opinion at ¶ 30. However, I cannot concur with the majority that Ramsey was not prejudiced by the error.

[¶ 95] The district court only concluded there was no allegation Brown made willful misrepresentations to Ramsey. Under deceit and N.D.C.C. §§ 9-10-02 and 9-10-03, this examination is too narrow and ignores direct and circumstantial evidence outside the contractual relationship between Brown and Erickson. That evidence could support a conclusion that Brown either suppressed information from Ramsey or that the information given to Ramsey by Brown or by Capital Harvest through Erickson was false, and that Ramsey was mislead to his detriment. I would reverse dismissal of Ramsey’s deceit claim and remand for new trial.

[¶ 96] The majority concludes Ramsey’s equitable claims were improperly dismissed, but it nevertheless affirms dismissal “[fjor the same reasons as our disposition of Ramsey’s deceit claims.” Majority opinion at ¶¶ 37, 41. Because I believe Ramsey’s deceit claim was erroneously dismissed to Ramsey’s prejudice, I would reverse and remand Ramsey’s equitable claims for further proceedings as well.

DREGSETH

[¶ 97] The majority next concludes Dregseth was not harmed by the district court’s dismissal of his deceit claim for the same reason Ramsey was not prejudiced by dismissal of his deceit claim. Majority opinion at ¶ 32. Under the law of the case, I am compelled to agree with this result. However, the majority is unclear how its fraud-deceit analysis applies to both Ramsey and Dregseth under its application of the law because Ramsey had no contract with Brown, but Dregseth did claim to have a contract. In fact, Dregseth’s breach of contract claim was submitted to the jury and it found no contract existed. I submit the lack of clarity in the majority’s analysis is rooted in the confused state of law about which I have written above.

[¶ 98] By calling a claim one of “fraud” because litigants are parties to a contract, one is set adrift with no guiding law when, as in Dregseth’s case, the defending party claims no contract existed. Following the majority’s logic, apparently it was proper to submit this case to the jury as a “fraud” case because Dregseth claimed to have a contract with Brown. But after the jury returned a verdict agreeing with Brown that no contract existed between he and Dregseth, “deceit” law should have applied instead. This appears to be the legal contortion now employed by the majority to reverse dismissal of Dregseth’s deceit claim. See Majority opinion at ¶ 33 (“[T]he jury’s rejection of Erickson’s fraud claim is not dispositive of Dregseth’s deceit claim because the jury instruction for the fraud claim required a contract....”).

[¶ 99] Under my construction, neither Dregseth nor Ramsey had a fraud claim against Brown or Capital Harvest. But both Dregseth and Ramsey had deceit claims when they brought this action. Had the argument been made, they still would have had deceit claims after the jury found no contract existed between Brown and Dregseth. This is because both Ramsey and Dregseth allege Brown either affirmatively misled them or suppressed material information, all of which caused them damages.

CAPITAL HARVEST

[¶ 100] I also respectfully dissent from that portion of the majority opinion affirming dismissal of claims against Capital Harvest because “any liability imposed upon Capital Harvest is imputed” to Brown. Majority opinion at ¶ 20. The majority simply concludes plaintiffs have failed to show the dismissal of Capital Harvest prejudiced them. However, absent a jury instruction requiring, or even allowing, Capital Harvest’s liability to plaintiffs be imputed to Brown, we cannot know whether the jury’s inability to find Capital Harvest liable was, or was not, prejudicial. Moreover, the majority’s citation to Dewey is unavailing because there the jury awarded damages against the principal even in the absence of a jury instruction imputing liability to him. See Majority opinion at ¶ 20. Here, plaintiffs received neither an instruction nor a favorable jury finding, and this Court should be chary to conclude there has been a lack of prejudice.

UNJUST ENRICHMENT

[¶ 101] Finally, plaintiffs’ unjust enrichment claims against Brown were dismissed before trial. Plaintiffs, therefore, were never given an opportunity to have the district court examine the equitable claims after the jury determined the plaintiffs had no remedy at law. In view of the other issues remanded, I would remand the unjust enrichment claims for timely consideration under our law. See Majority opinion at ¶¶ 48-44.

[¶ 102] DANIEL J. CROTHERS.