Bank of Sun Prairie v. Esser , 151 Wis. 2d 11 ( 1989 )

EICH, J.

The Bank of Sun Prairie sued Leah Esser on her guaranty of a loan taken out by her brother, Keith Johnson. Esser counterclaimed, charging that the bank had misrepresented the terms of the guaranty to her. The trial court denied the bank's motion for summary judgment on its claim, although it later directed a verdict in the bank's favor at the close of the trial. The case went to the jury on Esser's misrepresentation claim, and the jury found in her favor. The bank appeals from the judgment confirming the jury's verdict, and Esser cross-appeals from an order granting the bank's motion in limine prohibiting her from placing certain facts before the jury and also from the court's refusal to include a punitive damage question in the special verdict.

The parties raise a variety of overlapping issues in their briefs. We believe the dispositive issues are: (1) whether the trial court erred in denying the bank's motion for summary judgment on Esser's guaranty; (2) whether the verdict is supported by credible evidence; and (3) whether the court erred in refusing to submit Esser's claim for punitive damages to the jury.¹ We reverse the punitive damage ruling and remand for a new trial on this limited issue. In all other respects, we affirm the judgment.

The underlying facts are undisputed. Johnson wanted to borrow approximately $4,800 from the bank to purchase a truck. He was advised that the loan would be made only if Esser co-signed the note because, among other things, Johnson had gone through bankruptcy proceedings several weeks earlier, and one of the debts involved in those proceedings was a $27,500 "business note" he had given to the bank in connection with another transaction. Esser agreed to co-sign the note and accompanied Johnson to the bank to sign the truck loan papers.

Several documents were involved in the transaction. Esser co-signed Johnson's installment note and a security agreement, and also a "Continuing Guaranty (Unlimited)." She was given another form prepared by the bank entitled "Explanation of Personal Obligation," which she signed to acknowledge receipt. The document at issue in the case is the guaranty, which contained the following provisions:

[f]or value received, and to induce The Bank of Sun Prairie ... to extend credit to Keith M. Johnson, [Esser] . . . guarantee [s] payment ... to Bank when due ... all loans . . . notes and all other debts . . . arising out of credit previously granted, credit contemporaneously granted or . . . granted in the future by Bank to [Johnson] .... To the extent not prohibited by law, this Guaranty is valid and enforceable against the undersigned even though any Obligation is invalid and unenforceable against [Johnson]. [Emphasis added.]

Johnson eventually defaulted on the truck loan and the bank sued Esser on the guaranty, seeking to recover not only on the $4,800 truck loan, but also Johnson's earlier $27,500 business note. Answering the complaint, Esser claimed that the earlier debt was extinguished in Johnson's bankruptcy. The bank moved for summary judgment contending that, while the bankruptcy proceedings may have discharged Johnson's liability on the business note, the debt still existed and was subject to Esser's guaranty. The trial court, without elaboration or further explanation, denied the motion on grounds that "there are questions of fact involved in this matter. . .." Esser then filed a counterclaim alleging that the bank had fraudulently induced her to sign a guaranty covering debts in addition to those she thought she was guaranteeing.

A different judge was assigned to preside at the trial. At the close of the evidence, the court ruled that Johnson's bankruptcy did not bar recovery on the guaranty and granted the bank's motion for a directed verdict on Esser's liability for the two debts. The case went to the jury solely on Esser's counterclaim for misrepresentation. The jury found in Esser's favor and the appeal and cross-appeal followed. Other facts will be referred to in the body of the opinion.

I. SUMMARY JUDGMENT

The bank argues first that it was error for the trial court to deny its motion for summary judgment without stating precisely what material facts were in dispute. As evidence of the error, the bank points to the subsequent directed verdict on the same issues it raised in the earlier summary judgment motion.

Our review of summary judgments is de novo; we apply the same criteria as the trial court. Messner v. Briggs & Stratton Corp., 120 Wis. 2d 127, 131, 353 N.W.2d 363, 365 (Ct. App. 1984). Our own review of the affidavits and counteraffidavits submitted in connection with the bank's motion satisfies us that no material facts were in dispute, and that the motion should have been granted.

In support of its motion, the bank filed the affidavit of its vice president, Duane Manley, who obtained Esser's signature on the guaranty. The affidavit describes Johnson's default on his earlier $27,500 business note to the bank, Esser's execution of the guaranty covering all Johnson's prior debts, and Esser's refusal to honor the guaranty. In opposition, Esser filed her own affidavit, excerpts from an earlier deposition, and an affidavit from Johnson. However, none of Esser's proofs disputed the fact of Johnson's nonpayment of the prior debt, the terms of Esser's guaranty and her own refusal to pay. They went only to Johnson's bankruptcy proceedings.

At the time of the summary judgment motion, there were no claims of misrepresentation or fraud in the case. Esser's answer contained only a general denial and the affirmative defense that she could not be liable for Johnson's earlier debt because it was a listed obligation in the bankruptcy proceedings. She did not file her counterclaim until later.

As a result, the only facts material to the bank's motion for summary judgment on Esser's liability on the guaranty were the guaranty itself and Johnson's default on the prior debt. And Esser's proofs in opposition to the motion did not dispute or contradict any of these facts. As a result, the trial court's unexplained ruling that summary judgment was inappropriate because of the existence of disputed material facts was error. The motion presented only a legal question which, given the fact that the bank's pleadings and motion papers presented a prima facie case for judgment, should have been ruled upon by the trial court. Because we independently review grants — or denials — of summary judgment, we may consider that legal issue on appeal.

While the parties' trial briefs on the summary judgment motion are not part of the record, the transcript of counsel's argument at the hearing on the motion establishes that the primary issue was whether the bankruptcy judgment discharging Johnson from liability on the earlier business note also relieved Esser of liability for that note under the terms of her guaranty. The issue is not addressed by either party on appeal. As a result, we consider it conceded that the bankruptcy had no effect on Esser's liability. See Charolais Breeding Ranches v. FPC Securities, 90 Wis. 2d 97, 109, 279 N.W.2d 493, 499 (Ct. App. 1979).

Our conclusion that the trial court erred in not granting summary judgment to the bank on the guaranty does not, as the bank would have it, void all other proceedings in the trial court. Indeed, it does not even require reversal of any portion of the judgment, for the trial court properly directed a verdict on the issue at trial.²

We have previously noted that at the time the motion for summary judgment was decided, Esser had yet to file her counterclaim for misrepresentation. The bank contends that because of this, the entire action should have terminated with the granting of its motion for summary judgment and asks that we void all subsequent proceedings, including the trial on Esser's counterclaim. We decline to do so. The misrepresentation counterclaim was properly pled and tried to a jury. Both parties have appealed from that verdict as well as from certain rulings of the trial court, and both have briefed their arguments for and against affirmance of the judgment. These factors, together with the fact that Esser could have advanced her claims in an independent action against the bank, convince us that we should decide the appeal and cross-appeal, rather than void all proceedings following the summary judgment motion and send everyone back to square one for possible retrial of the same issues.

II. THE JURY VERDICT

The jury returned a verdict finding that Manley had induced Esser to sign the guaranty by misrepresenting to her that it covered only the truck loan. The bank claims not only that there is no evidence in the record to support that verdict, but that the trial court should have directed a verdict in its behalf on this issue. We are satisfied that there is evidence in the record to support the verdict.

Our review of jury verdicts is strictly confined to whether the record contains any credible evidence that under any reasonable view supports the verdict. Ford Motor Co. v. Lyons, 137 Wis. 2d 397, 442, 405 N.W.2d 354, 372 (Ct. App. 1987). And the scope of our review is even more limited where, as here, the verdict has the trial court's approval. Fehring v. Republic Ins. Co., 118 Wis. 2d 299, 305, 347 N.W.2d 595, 598 (1984). We search the record for evidence supporting the jury's verdict, not for evidence that would sustain a verdict the jury could have reached but did not. Id. at 306, 347 N.W.2d at 598. In addition, the task of assessing the credibility of the witnesses and the weight to be accorded to their testimony is one left solely to the jury, and where more than one reasonable inference may be drawn from the evidence, we must accept the inference drawn by the jury. Id. at 305-06, 347 N.W.2d at 598.

Here, the jury found: (1) that Manley misrepresented to Esser that the guaranty she signed related only to Johnson's truck loan; (2) that when he made the representation, Manley either knew it was untrue or made it recklessly, not caring whether it was true or not; (3) that the representation was made with the intent to induce Esser to act upon it; and (4) that Esser believed the representation and justifiably relied on it to her pecuniary damage.

The bank, while challenging the first finding, concedes in its brief that there was "conflicting testimony" on the point. As we have said, any conflicts in the testimony are to be resolved by the jury, not by this court.

The evidence of what occurred when Esser signed the guaranty and other loan papers is discussed at length in section III of this opinion. Suffice it to say that Mem-ley's testimony was that he explained the reunifications of the tremsaction in detail, specifically informing Esser that she was guaranteeing not only the "new" $4,700 truck loan, but also Johnson's prior $27,500 debt. Esser's emd Johnson's testimony was to the contrary. Johnson stated that there was little, if any, discussion emd that Manley simply pushed a group of papers over to Esser, telling her where to sign them. Esser "absolutely" denied that Manley ever mentioned the $27,500 debt and testified that he specificedly told her she was signing for only the "new" truck loan. The jury was free to adopt either version of the facts, and Esser's testimony provides adequate support for the jury's answer to the first special verdict question.

The questions inquiring whether Manley knowingly or recklessly misrepresented the documents, and whether he did so to deceive Esser and induce her to sign the documents, relate to his state of mind — his intent. Such questions naturally require the jury to draw inferences from the testimony, and as long as the inferences drawn are reasonable, we will not disturb the ultimate determination. In Matter of Estate of Dejmal, 95 Wis. 2d 141, 151-52, 289 N.W.2d 813, 818 (1980). Questions of "intent" and "knowledge" are for the jury to ascertain "based on the totality of the circumstances, including what [Manley] said or did . . . and any objective evidence which is available." State v. Lossman, 118 Wis. 2d 526, 542-43, 348 N.W.2d 159, 167 (1984).

Manley acknowledged that he knew that Johnson was "uncollectible" and that Esser "was good for [the $27,500 debt]" because "she had owned a lot of real estate in Cottage Grove." Considered along with the other evidence of the bank's past dealings with Johnson and Esser, the jury could reasonably infer from this testimony that, given Manley's motivation to recoup the bank's loss on Johnson's business note, he may have been willing to go to some lengths to induce Esser to cover the debt. While this is not the only inference that can be drawn, it is a reasonable one and, under the standards governing our review of jury verdicts, we are bound to accept it.

Finally, the bank argues that because Esser acknowledged that she did not read the guaranty in its entirety, she must be held negligent as a matter of law and that such negligence, also as a matter of law, absolutely bars any claim of justifiable reliance. In the alternative, the bank contends that the jury could not properly find that Esser "justifiably relied" upon Manley's misrepresentation on the evidence before it.

The bank's argument is based almost entirely on Ritchie v. Clappier, 109 Wis. 2d 399, 404, 326 N.W.2d 131, 134 (Ct. App. 1982), where we considered the issue of "justifiable" reliance and stated that "[generally, a person is negligent if he or she signs a contract without ascertaining its contents and is not prevented from doing so, even if induced to sign by fraudulent misrepresentations." Id. at 404-05, 326 N.W.2d at 134. The rule is not absolute, however, for we also noted in Ritchie that:

The fact that a false representation is made in respect to the paper is not necessarily sufficient to excuse such person for affixing his [or her] signature [to it] in ignorance of its contents, unless under all the circumstances, in view of [the] duty to give reasonable attention to the protection of his [or her] own interests, the false representation was still reasonably calculated to and did induce him [or her] not to make the investigation which he [or she] otherwise would have made. Id. at 405, 326 N.W.2d at 134, quoting Standard Mfg. Co. v. Slot, 121 Wis. 14, 23-24, 98 N.W. 923, 926 (1904).

The "intelligence and experience of the misled individual" and "the relationship between the parties" are important considerations in determining whether a person's negligence in failing to read a document before signing it may be excused. Ritchie, 109 Wis. 2d at 405-06, 326 N.W.2d at 134, quoting Williams v. Rank & Son Buick, Inc., 44 Wis. 2d 239, 246, 170 N.W.2d 807, 810-11 (1969). In Ritchie, for example, the party seeking protection was a licensed real estate broker confronted with a document entitled "QUIT CLAIM DEED." Ritchie, 109 Wis. 2d at 406, 326 N.W.2d at 134-35. Based upon the broker's experience and knowledge, as well as his admission that he "did not trust defendants," we were unwilling to absolve him from his responsibility to read the document he signed. We concluded that, given those facts, he could not "justifiably rely" upon the defendants' misrepresentation. Id. In this case, Esser had no such special experience or knowledge.

Finally, Ritchie was a trial to the court on undisputed facts. Because the facts were undisputed, we treated the question whether the broker was justified in relying on the other party's representations as one of law. Id., 109 Wis. 2d at 406, 326 N.W.2d at 134. Here, however, the facts were in sharp dispute, and the reasonableness of Esser's reliance on Manley's representations (a mixed question of fact and law) was properly left to the jury.

We conclude, therefore, that Ritchie does not automatically bar a person who fails to read all of the terms of a note or similar paper from claiming that he or she was induced to sign the document by reason of another's fraudulent misrepresentations. We believe that the quotation from Standard Mfg. Co. v. Slot, which we have set forth above, and which was also quoted in Ritchie, states the proper rule. See also Farmer City State Bank v. Guingrich, 487 N.E.2d 758, 765 (Ill. App. Ct. 1985) ("action or statements of the person making a misrepresentation may inhibit the other person's inquiries or lull him [or her] into a false sense of security, thereby blocking investigation into the truth of the representation").³

We also believe the jury could conclude on this record that Esser's reliance was reasonable. Esser testified that she trusted Manley, that she had co-signed other loans for Johnson, that she was not familiar with banks' security practices, that she knew Johnson had been discharged in bankruptcy, and that Manley repeatedly told her the documents applied to the "new loan." The bank has not persuaded us that the jury's verdict lacks support in the evidence.

III. PUNITIVE DAMAGES

Esser requested that the trial court instruct the jury on punitive damages and include a punitive damages question in the special verdict. The court refused.

Punitive damages are appropriate in cases where the plaintiff can prove by clear and convincing evidence that the conduct complained of was "willful or wanton, in a reckless disregard of [another's] rights or interests." Brown v. Maxey, 124 Wis. 2d 426, 433, 369 N.W.2d 677, 681 (1985). "Outrageous" is another word sometimes used to describe the type of conduct that will subject a defendant to punitive damages. Id. The trial court decides in the first instance "whether the evidence establishes a proper case for the allowance of punitive damages and whether the issue should be submitted to the jury." Maskrey v. Volkswagenwerk Aktiengesellschaft, 125 Wis. 2d 145, 161, 370 N.W.2d 815, 823 (Ct. App. 1985) (footnote omitted). To answer that question in the affirmative, there must be "evidence . . . show[ing] that the defendant acted maliciously or in willful or reckless disregard of the plaintiffs rights . . .." Id. (footnote omitted).

Here, Manley acknowledged that he had known Esser for several years and that in that time she would have come to trust him. He also acknowledged that the guaranty she signed had no figures on it, and that one of the other documents, an "Explanation of Personal Obligations" given to her at the time showed her obligation to the bank only in the amount of the $4,800 truck loan. Manley knew that Esser had co-signed loans before, but did not know whether she had ever signed a guaranty. He stated that he carefully explained everything to Esser and Johnson before the documents were executed, at one point sending both of them out into the lobby with instructions to give the matter more consideration because of the significant financial obligations Esser would be assuming in the transaction. He said he was certain that he explained everything to Esser — particularly the fact that the guaranty would make her liable for the full amount of both of Johnson's loans, the old debt of $27,500, as well as the "new" $4,800 loan.

Johnson testified that Manley did not explain the documents at all, but simply "slid the papers" across the table, telling Esser " 'you sign here.' " According to Johnson, the entire transaction took less than two minutes. He stated that Manley had never told him the bank needed Esser's guaranty of other debts in order to make the truck loan, but only her co-signature on the truck loan documents. He also testified that Manley never suggested that he and Esser go to another room to discuss the matter, and that that event occurred in the context of another loan transaction at another date and time. Finally, when Johnson was asked whether it was true that Manley "[explained] to you and your sister in detail the obligations that you were undertaking," he responded: "He did not. We were signing loan papers on the truck, there was nothing else."

Esser agreed with Johnson that the loan transaction took only a few minutes, and that "[t]here wasn't a great deal of conversation." According to Esser, Manley simply handed her the papers, saying "these are the papers for the new loan," and asked her to sign them. When asked whether Manley told her why she was being asked to sign the loan documents, she responded: "It was kind of a routine thing, I was there to sign the loan paper, yes, because [Johnson] did need a co-signer. . . [f]or the new loan." And, when asked whether Manley had ever advised her that she was also signing a guaranty for the $27,500 debt, she stated: "Absolutely not. . . [if I knew I was guaranteeing that loan], I would not have signed it . . . [because it] was an uncollectible debt.... I knew it [and] I am sure that [Manley] knew that." Esser also stated that Manley handed her the guaranty along with several other papers, and that while she did not read it line-by-line, she noticed that it did not contain any figures.

Finally, Esser testified that she had known Manley for at least five years before signing the guaranty, that she had dealt with him on several occasions, and that she "relied on him" and "had confidence in him." Because of her "faith" in bankers in general, and in Manley in particular — and given his representations to her — she stated that she "had no reason to doubt when signing these papers . . . that it was only for the new loan."

We believe these facts warrant the conclusion that a question on punitive damages should have been submitted to the jury.

This is not a case where the bank officer simply failed to disclose the terms of a document. It is one in which there was evidence of active misrepresentation. The jury could believe from the credible evidence in this case — and obviously did, as its answers to the misrepresentation questions indicate — that Manley, knowing that Esser trusted and relied on him, and knowing that she had assets adequate to cover her brother's earlier uncollectible debt, and knowing also that she had not read the documents thoroughly, made certain representations to her that reasonably led her to believe that she was signing papers that would make her liable only for some $4,800, rather than for an amount in excess of $33,000, as the papers actually provided. From that evidence, a jury could determine that Manley's actions were undertaken in willful or reckless disregard of Esser's rights. It follows that Esser's request for a jury question and instructions on punitive damages should have been granted by the trial court and that a new trial, limited to that issue, is warranted.

We therefore reverse the judgment insofar as it denied Esser's motion for a new trial on the issue of punitive damages and we remand for a new trial on that limited issue. In all other respects, we affirm the judgment.⁴

By the Court. — Judgment affirmed in part, reversed in part and cause remanded for further proceedings consistent with this opinion. No costs to either party.

1 Esser's argument that the trial court erred in granting the bank's motion in limine is undeveloped. In essence, Esser claims that she should have been allowed to put before the jury information that Keith Johnson had been discharged in bankruptcy, and that one of his debts the bank claimed was covered by her guaranty was one listed in the bankruptcy petition. The trial court ruled that use of the word "bankruptcy" could carry prejudicial overtones and restricted the parties to instead use the word "uncollectible" in references to the debt.

The trial court made a lengthy ruling on the motion, and Esser does not indicate how the court abused its discretion in deciding this evidentiary issue. We do not consider arguments raised, but never really argued, by the parties. Reiman Associates v. R/A Advertising, 102 Wis. 2d 305, 306 n. 1, 306 N.W.2d 292, 294 (Ct. App. 1981).

2 As indicated, the trial court, after denying the motion for summary judgment, eventually granted the bank's motion for directed verdict on its complaint against Esser. She claims that this was error because the evidence of Manley's misrepresentations — which the jury believed — indicates that there was no "meeting of the minds" on the "real" terms of the guaranty. We see no need to address the issue, however. The parties stipulated prior to trial that, should the jury find for Esser on her counterclaim for misrepresentation, her "damages [would] be limited to the amount of money awarded to the [bank], upon its complaint, so that if the jury's verdict [is] favorable to [Esser], the same would vitiate and make the [bank's] judgment upon its complaint null and void," except for an agreed-to judgment for attorney fees. The jury, of course, found for Esser and we have affirmed its findings.

Thus, any way one looks at the case, it is a "wash." Should Esser prevail on her claim that the guaranty is unenforceable because its terms were never agreed to, she could not have been damaged by whatever representations Manley may have made that led her to sign it. It would serve no purpose to pursue the argument further.

3 The bank relies upon Prudential Ins. Co. v. Miller Brewing Co., 789 F.2d 1269 (7th Cir. 1986), to support its position that failure to read a document absolutely bars a party from seeking refuge in the "justifiable reliance" doctrine. However, in Prudential, the court, in refusing to excuse Miller from performing its obligations under an insurance contract with Prudential on grounds of mutual mistake, stated: "A court. . . will not excuse a party's negligence in failing to read the contract where a corporation, such as Miller, was aided by a professional insurance consulting agency in reviewing the contract and in negotiating the type of coverage that Miller was to receive . . .." Id. at 1278 (footnote omitted). Prudential is readily distinguishable from the facts of the case before us, for here Esser was unskilled in business transactions and was acting wholly without independent professional advice. ,

4 The dissenting opinion constructs its own straw-man version of our decision in this case in order, we assume, to be better able to tear it down with such authority and finality. The dissent characterizes the decision as doing a variety of things — from "overrul[ing]" a supreme court case to creating a "new tort." It does none of those things. We disagree with each and every one of the dissent's characterizations of the majority opinion.