Rosener v. Sears, Roebuck & Co.

*746Opinion

The present appeal is from judgments after jury trial in favor of respondents and against appellant Sears, Roebuck & Company aggregating $158,000 in compensatory and $10 million in punitive damages.

It is unnecessary to engage in an exhaustive analysis of the voluminous evidentiary record compiled during the 36-day trial. Viewing that record in a light favorable to the judgment below, the following salient facts are disclosed.

In June 1970, Sears, Roebuck actively promoted a national campaign called “Sears Add-A-Room,” using license agreements with improvement contractors under which Sears received payment based upon 10 percent of the gross contract price between the licensed contractor and the homeowner. United Remodeling Systems, Inc. (URS) was licensed by Sears to provide such services in California, utilizing the nationally recognized Sears logo, together with a performance bond guaranty under a collateral suretyship arrangement with Commercial Standard Insurance Company (CSI).

During 1972, United States Financial Corporation (USFC) initiated efforts to acquire URS, and, with Sears’ approval, assumed active management of its Add-A-Room program operations.

In January 1973, following USFC’s decision to abandon the acquisition plan, the undercapitalized and financially shakey URS operation failed, with some 200 outstanding improvement contracts, mainly in California, in various stages of completion. Thereafter, Sears, together with CSI, reluctantly undertook to complete the unfinished work under the contract terms including the written guarantees. Rejecting CSI’s adamant insistence that Sears bear equal if not full responsibility for costs of completion as a “de facto principal” on the surety bond, Sears initiated independent action by notifying program customers of URS’s “bankruptcy” and advising them to press their claims for full performance against CSI without mention of the latter’s liability disclaimer. Sears did, however, advise its customers that it would “cooperate in resolving this matter,” while directing customer inquiries to designated Sears’ executives.

*747By early spring, CSI had, with Sears’ knowledge, begun corrective and completion work on outstanding contracts in Northern California through Neway Construction, an independent entity organized by Robert Freeman, former manager of USR’s regional operations.

Evidence at trial established convincingly that respondents entered into Add-A-Room contracts principally in reliance on Sears’ national reputation, as well as past satisfactory relations with the company. In every instance, it appears, Sears’ promotional campaign, including its standard assurance of satisfactory service, was a factor in respondents’ decisions to enter into the program. Each respondent paid the full amount of the contract price immediately upon execution of the contract; six of the eight couples took out second mortgages on their residences in order to finance the improvements.

Respondents’ individual experiences with URS, Sears, CSI and Neway, though widely varied, reflected a pattern of nonfeasance, shoddy workmanship, inconvenience, unreasonable delay, utter indifference, and, ultimately, attempted avoidance of responsibility.

The damages inflicted by this callous and negligent course of conduct included physical and emotional distress, unconscionable invasions of privacy, property damage, financial disruption and attendant frustration and despair. The record is replete with saddening examples of the injuries thus inflicted, varying from the loss of a family Bible caused by leaks in an unrepaired roof, to the total loss of privacy suffered by an entire family forced to sleep in the same room when the interior walls of their home were left unrepaired. Justifiable refunds were sought and consistently refused, and promises were regularly made and broken.

Withal, it is no exaggeration to describe Sears’ treatment of respondents as arrogant, high-handed, and characterized by indifference to clear contractual obligations and an exclusive preoccupation with profits.1 It was on this general state of the evidence that punitive damages were assessed, as noted, in the amount of $10 million.

On appeal, Sears advances several arguments supporting reversal: (1) that the punitive damage award is improper and excessive; (2) that the *748compensatory damage awards were unsubstantiated and excessive; and (3) that certain procedural and instructional errors were committed.

I

Appellant challenges the $10 million punitive damage award on the grounds that it is not based upon sufficient evidence of fraud or malice, and that it is excessive as a matter of law. For reasons we now state, we conclude that the award is based upon substantial evidence, but find merit in appellant’s claim that the amount is excessive, and accordingly vacate the amount and remand with directions.

The jury returned special verdicts finding that Sears committed fraud by misrepresenting itself as a party to the Add-A-Room contracts, and by promising to guarantee performance of those contracts without intending to honor the promise.

Appellant correctly notes that a punitive damage award must be based upon a finding of malice as well as fraud. (Ebaugh v. Rabkin (1972) 22 Cal.App.3d 891, 894 [99 Cal.Rptr. 706].) Even without a showing of personal animus, however, “malice in fact” may be established. As explained in Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908 at page 922 [114 Cal.Rptr. 622, 523 P.2d 662]: “. . .‘intent,’ in the law of torts, denotes not only those results the actor desires, but also those consequences which he knows are substantially certain to result from his conduct. (Rest.2d Torts, § 8a; Prosser, Torts (4th ed. 1971) pp. 31-32.) The jury in the present case could reasonably infer that defendants acted in callous disregard of plaintiffs’ rights, knowing that their conduct was substantially certain to vex, annoy, and injure plaintiffs. Such behavior justifies the award of punitive damages. As stated in Toole v. Richardson-Merrell Inc. (1967) 251 Cal.App.2d 689, 713. . .: ‘malice in fact, sufficient to support an award of punitive damages.. . may be established by a showing that the defendant’s wrongful conduct was willful, intentional, and done in reckless disregard of its possible results.’ (Accord: Black v. Shearson, Hammill & Co. (1968) 266 Cal.App.2d 362, 369. . . .)” Further, “When there is express fraud there is evil motive [malice].” (Walton v. Anderson (1970) 6 Cal.App.3d 1003, 1010 [86 Cal.Rptr. 345].) And it is well established that a promise made without an intention of performing it constitutes actionable fraud. (Fowler v. Fowler (1964) 227 Cal.App.2d 741, 748 [39 Cal.Rptr. 101]; Shyvers v. Mitchell (1955) 133 Cal.App.2d 569, 574 [284 P.2d 826].) “. . .it has been re*749peatedly stated that ‘[without the consideration of other evidence, subsequent failure to perform [a promise] warrants the inference that [the promisor] did not intend to perform when [he] promised.’ [Citations.]” (Kuffel v. Seaside Oil Co. (1970) 11 Cal.App.3d 354, 360 [90 Cal.Rptr. 209].)

Appellant’s conduct both prior to and following the default of URS evidenced an unwillingness to act in accordance with its promises and representations, and belied its insistence that its conduct merely establishes the negligent performance of its remedial program, rather than an intent to ignore its promises at the time they were made. Sears’ contractual arrangements with URS and its bonding company, its entirely inadequate responses to legitimate customer complaints, its dilatory and evasive referral of those problems to URS and the bonding company, and its stubborn insistence that it had no remedial obligations, all support the conclusion that—contrary to its earlier representations—from the first Sears intended to divorce itself from responsibility for the Add-A-Room program.

We therefore conclude, in light of the entire record, that the findings of fraud and malice which justify imposition of punitive damages are supported by substantial evidence. (Beck v. State Farm Mut. Auto. Ins. Co. (1976) 54 Cal.App.3d 347, 354 [126 Cal.Rptr. 602].)

We agree with appellant, however, that even though the evidence justified some award of punitive damages, the amount fixed by the jury was excessive as a matter of law. In making this argument, appellant has primarily focused on the lack of relationship between the punitive and compensatory damages; the punitive damage award is 63 times greater than the total compensatory verdict. Our conclusion, however, is based only in part on the disproportion between compensatory and punitive damages: other factors support it as well.

We recognize that our review of punitive damage awards is guided by the “‘historically honored standard of reversing as excessive only those judgments which the entire record, when viewed most favorably to the judgment, indicates were rendered as the result of passion and prejudice. ...’ [Citation.]” (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 927 [148 Cal.Rptr. 389, 582 P.2d 980]; Bertero v. National General Corp. (1974) 13 Cal.3d 43, 65, fn. 12 [118 Cal.Rptr. 184, 529 P.2d 608, 65 A.L.R.3d 878].) We are also, however, “charged *750with the responsibility to act if it appears that ‘“the recovery is so grossly disproportionate as to raise a presumption that it is the result of passion or prejudice. .. (Zhadan v. Downtown L.A. Motors (1976) 66 Cal.App.3d 481; 496 [136 Cal.Rptr. 132]; see also Neal v. Farmers Ins. Exchange, supra, at p. 928.)

Moreover, we must be guided by the well-established principle that punitive damages are not favored in law. (Henderson v. Security Nat. Bank (1977) 72 Cal.App.3d 764, 771 [140 Cal.Rptr. 388]; Beck v. State Farm Mut. Auto. Ins. Co., supra, 54 Cal.App.3d 347, 355.) Such damages constitute a windfall, which, though supported by law in proper cases (Ferraro v. Pacific Fin. Corp. (1970) 8 Cal.App.3d 339, 355 [87 Cal.Rptr. 226]), creates the anomaly of excessive compensation which makes the remedy an unappealing one. (Cf. Wolfsen v. Hathaway (1948) 32 Cal.2d 632, 647 [198 P.2d 1].)

An examination of the entire record convinces us that the $10 million punitive damage award was so improperly excessive as to demonstrate that it resulted from passion and prejudice.

Since the principal purpose of punitive damages is to deter and punish, the wealth of the defendant is always a proper consideration. (See Roemer v. Retail Credit Co. (1975) 44 Cal.App.3d 926, 937 [119 Cal.Rptr. 82].) In Zhadan v. Downtown L.A. Motors, supra, 66 Cal.App.3d at page 496, the court explained: “Likewise applicable is the principle that, the purpose of punitive damages being to punish the defendant and make an example of him, ‘the wealthier the wrongdoing defendant, the larger the award of exemplary damages need be.... ”’ If, therefore, appellant’s wealth were the only guiding factor in this case, the $10 million award might be justified, for it represents less than one-fourth of 1 percent of Sears’ net assets, and only three and one-half days of its net income.2 However, additional factors ought to have been, and were not, given the weight due them.

In Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d 910 at page 928, the California Supreme Court delineated these applicable factors as follows: “In making the indicated assessment we are afforded guidance by *751certain established principles, all of which are grounded in the purpose and function of punitive damages. One factor is the particular nature of the defendant’s acts in light of the whole record; clearly, different acts may be of varying degrees of reprehensibility, and the more reprehensible the act, the greater the appropriate punishment, assuming all other factors are equal. (See Bertero v. National General Corp., supra, 13 Cal.3d 43, 65; Fletcher v. Western National Life Ins. Co., supra, 10 Cal.App.3d 376, 408-409 [89 Cal.Rptr. 78, 47 A.L.R.3d 286]; Ferraro v. Pacific Fin. Corp. (1970) 8 Cal.App.3d 339, 352-353. . . .) Another relevant yardstick is the amount of compensatory damages awarded; in general, even an act of considerable reprehensibility will not be seen to justify a proportionally high amount of punitive damages if the actual harm suffered thereby is small. (But cf. Finney v. Lockhart (1950) 35 Cal.2d 161, 164. . . .) Also to be considered is the wealth of the particular defendant; obviously, the function of deterrence.. . will not be served if the wealth of the defendant allows him to absorb the award with little or no discomfort. (See Bertero, supra, at p. 65; Roemer v. Retail Credit Co. (1975) 44 Cal.App.3d 926, 937. . .; Wetherbee v. United Ins. Co. of America (1971) 18 Cal.App.3d 266, 270-271. . .; Ferraro v. Pacific Fin. Corp., supra, 8 Cal.App.3d 339, 353; MacDonald v. Joslyn (1969) 275 Cal.App.2d 282, 293-294. . . .) By the same token, of course, the function of punitive damages is not served by an award which, in light of the defendant’s wealth and the gravity of the particular act, exceeds the level necessary to properly punish and deter.”

“A rigid formula is not involved [but] rather, a fluid process of adding or subtracting depending on the nature of the acts and the effect on the parties and the worth of the defendants.” (Walker v. Signal Companies, Inc. (1978) 84 Cal.App.3d 982, 998 [149 Cal.Rptr. 119].)

A legitimate and often-reiterated factor, according to our high court in Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d 910, is the principle that exemplary damages should bear a reasonable relation to actual damages, even though no fixed ratio exists to determine the proper proportion. (See Liodas v. Sahadi (1977) 19 Cal.3d 278, 284 [137 Cal.Rptr. 635, 562 P.2d 316]; Schroeder v. Auto Driveaway Co., supra, 11 Cal.3d 908, 922; Forte v. Nolfi (1972) 25 Cal.App.3d 656, 689 [102 Cal.Rptr. 455]; Kuffel v. Seaside Oil Co., supra, 11 Cal.App.3d 354, 367.) “A general limitation has been followed that ordinarily the punitive damages must be in some reasonable proportion to the actual damages suffered.” (Weisenburg v. Molina (1976) 58 Cal.App.3d 478, 490 [129 Cal.Rptr. 813].)

*752When the entire record of the instant proceedings is reviewed, the requisite reasonable relationship between compensatory and punitive damages is found to be absent. Such, indeed, was the finding made by the trial court in ruling upon appellant’s motion for new trial. The court, however, denied the motion for the somewhat gratuitous reason that, while perhaps excessive, the award might be allocated to the “unclass” of adversely affected Sears’ Add-A-Room customers not before the court.3 The trial court’s finding was proper, although its speculation was not.

The disproportionate relationship here is palpable: The ratio of punitive to compensatory damages, as noted, is approximately 63 to 1; the difference in the awards is $9.85 million. Such a grossly disproportionate recovery raises a presumption that it was the result of passion or prejudice. (Cunningham v. Simpson (1969) 1 Cal.3d 301, 308 [81 Cal.Rptr. 855, 461 P.2d 39].) Thus, in Little v. Stuyvesant Life Ins. Co. (1977) 67 Cal.App.3d 451 [136 Cal.Rptr. 653], where the court reduced a punitive damage award from $2.5 million to $250,000—based upon a compensatory verdict of $172,325, it was concluded that: "... although there is no fixed ratio by which to determine the propriety of a punitive damage award, punitive damages should bear a reasonable relationship to the compensatory damages awarded. (E.g., Wilkinson v. Singh, 93 Cal.App. 337, 344-345. . .; Forte v. Nolfi, supra, 25 Cal.App.3d at p. 689; see also Schroeder v. Auto Driveaway Co., supra, 11 Cal.3d at p. 922; Oakes v. McCarthy Co., 267 Cal.App.2d 231, 263. . .; 4 Witkin, Summary of Cal. Law (8th ed.) p. 3156.) Here, the ratio of punitive damages to compensatory damages is in excess of 14 to 1 and in dollar amount the punitive damage award exceeds the compensatory award by almost two and a third million dollars. [¶] We conclude that the punitive damage award is so excessive and grossly disproportionate to the wealth of defendant and to the compensatory damages awarded that it is suggestive of passion and prejudice.” (Id., at pp. 469-470.)

*753Similarly, in Allard v. Church of Scientology (1976) 58 Cal.App.3d 439 [129 Cal.Rptr. 797], the reasonable relationship rule was employed to modify an excessive award. The court held: “In our view the disparity between the compensatory damages ($50,000) and the punitive damages ($250,000) suggests that animosity was the deciding factor. Our reading of the decisional authority compels us to conclude that we should reduce the punitive damages. We find $50,000 to be a reasonable amount to which the punitive damages should be reduced. We perceive this duty, and have so modified the punitive damages award not with any belief that a reviewing court more ably may perform it. Simply stated the decisional authority seems to indicate that the reviewing court should examine punitive damages and where necessary modify the amount in order to do justice. (Cunningham v. Simpson, 1 Cal.3d 301. . .; Forte v. Nolfi, 25 Cal.App.3d 656. . .; Schroeder v. Auto Driveaway Company, 11 Cal.3d 908. . .; Livesey v. Stock, 208 Cal. 315, 322. . . .)” (Id., at p. 453.)

The likelihood that the instant award was the result of improper considerations is heightened by the trial court’s failure to submit the proposed instruction on the reasonable relationship test to which appellant was entitled. (See Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 463, fn. 4 [113 Cal.Rptr. 711, 521 P.2d 1103]; Wetherbee v. United Insurance Co. of America (1968) 265 Cal.App.2d 921, 934 [71 Cal.Rptr. 764].) In Wetherbee, supra, the court found that, “the disparity between the actual damages of $1,050 and the punitive damages of $500,000 is suggestive of passion or prejudice.” (Id., at p. 933.) On that basis, the punitive damage award was reversed and remanded for a new trial on that issue.

Without the reasonable relationship instruction, the discretion of the jury becomes simply limitless. (Wetherbee v. United Insurance Co. of America, supra, 265 Cal.App.2d at p. 934.)

Moreover, Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d 910, mandates close consideration of the nature and reprehensibility of the defendant’s act. While important public policy considerations are embodied in respondents’ claims—e.g., the protection of vulnerable and unwary consumers (Zhadan v. Downtown L.A. Motors, supra, 66 Cal.App.3d 481, 497; Wetherbee v. United Ins. Co. of America, supra, 18 Cal.App.3d 266, 271)—mitigating factors are likewise present. Some of the financial problems of Sears’ agent/contractor, URS, could not easi*754ly have been anticipated; neither could the delay and resistance of the bonding company in performing its obligations. Further, some of appellant’s actions were based upon the advice—however desultory—of counsel, and while such advice does not immunize appellant from liability, it is one factor in the overall assessment of the nature of Sears’ conduct. (Beck v. State Farm Mut. Auto. Ins. Co., supra, 54 Cal.App.3d 347, 355-356.) And, finally, the evidence indicates that appellant made some post-hoc (though feeble) efforts to rectify the situation.4 (Ferraro v. Pacific Fin. Corp., supra, 8 Cal.App.3d 339, 354; Luke v. Mercantile Acceptance Corp. (1952) 111 Cal.App.2d 431 [244 P.2d 764].)

“The object of exemplary damages is to make the example as well as the punishment fit the offense....” (Wetherbee v. United Ins. Co. of America (1971) 18 Cal.App.3d 266, 270 [95 Cal.Rptr. 678]; see also Browand v. Scott Lumber Co. (1954) 125 Cal.App.2d 68, 74 [269 P.2d 891].) The $10 million verdict against appellant does not comport with that statutory objective. It is clearly excessive, not reasonably related to either the compensatory damages or the nature of appellant’s conduct, and so grossly disproportionate as to be indicative of its being rooted in passion and prejudice. (Little v. Stuyvesant Life Ins. Co., supra, 67 Cal.App.3d 451, 470; Zhadan v. Downtown L.A. Motors, supra, 66 Cal.App.3d 481, 500; Merlo v. Standard Life & Acc. Ins. Co. (1976) 59 Cal.App.3d 5, 18 [130 Cal.Rptr. 416]; Allard v. Church of Scientology, supra, 58 Cal.App.3d 439, 453; Wetherbee v. United Insurance Co. of America, supra, 265 Cal.App.2d 921, 933.)

II

We proceed now to a consideration of appellant’s contention that the compensatory damages awarded to respondents were improper, excessive, and not supported by the evidence.

Respondents’ actions for fraud and breach of contract did not limit them to out-of-pocket or benefit-of-the-bargain losses. Pursuant to sec*755tion 3333 of the Civil Code, respondents’ tort claims entitled them to compensation for all detriment proximately caused by appellant’s breach of obligation. (Seaboard Music Co. v. Germano (1972) 24 Cal.App.3d 618, 622 [101 Cal.Rptr. 255].) Emotional distress and mental suffering were proper elements of the compensatory damage awards under this test, as appellant’s wrongdoing clearly contained elements of intentional malfeasance and bad faith. (Cf. Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566 [108 Cal.Rptr. 480, 510 P.2d 1032]; Quezada v. Hart (1977) 67 Cal.App.3d 754 [136 Cal.Rptr. 815]; Kendall Yacht Corp. v. United California Bank (1975) 50 Cal.App.3d 949 [123 Cal.Rptr. 848]; Jarchow v. Transamerica Title Ins. Co. (1975) 48 Cal.App.3d 917 [122 Cal.Rptr. 470]; Windeler v. Scheers Jewelers (1970) 8 Cal.App.3d 844 [88 Cal.Rptr. 39].)

The verdict awarding damages based upon a finding that appellant fraudulently represented and promised to correct deficiencies and satisfy its Add-A-Room customers was proper. As stated recently in Allen v. Jones (1980) 104 Cal.App.3d 207, 215 [163 Cal.Rptr. 445]: “[T]here is authority for the proposition that mental distress damages may be recovered in an action for deceit.” (See also Schroeder v. Auto Driveaway Co., supra, 11 Cal.3d 908, 921; Murphy v. Allstate Ins. Co. (1978) 83 Cal.App.3d 38, 51 [147 Cal.Rptr. 565].)

Here, the evidence of mental suffering and other compensable injury apart from strictly out-of-pocket losses is considerable, and convincing: the awards were based on proof that Sears’ conduct caused domestic disruption, frustration, anger and anxiety. The amount awarded by the jury, while substantial, does not “shock the conscience” of this court; it was well within the jury’s discretion and will not be disturbed on appeal. (Cf. Wilson v. Gilbert (1972) 25 Cal.App.3d 607, 611-612 [102 Cal.Rptr. 31]; Sherwood v. Rossini (1968) 264 Cal.App.2d 926, 931-932 [71 Cal.Rptr. 1]; Haskins v. Holmes (1967) 252 Cal.App.2d 580, 584 [60 Cal.Rptr. 659].)

III

Appellant’s remaining contentions focus upon claimed errors in certain evidentiary rulings and in other jury instructions.

The trial court’s refusal to allow testimony from expert witnesses regarding appellant’s reasons for securing performance by way of *756performance bonds was based upon Evidence Code section 352. It is the exclusive province of the trial court to determine whether the probative value of proffered evidence is outweighed by its possible prejudicial effect, or the undue consumption of time necessary to admit it. (People v. Demond (1976) 59 Cal.App.3d 574, 586 [130 Cal.Rptr. 590].) Clearly, the trial court did not abuse its discretion in excluding such expert testimony, which was only marginally relevant, and at best repetitive and unduly time consuming. The trial court committed no error in rejecting such testimony. (Hyatt v. Sierra Boat Co. (1978) 79 Cal.App.3d 325, 339 [