On certification to the Superior Court, Appellate Division, whose opinion is reported at 189 N.J. Super. 347 (1983).
For reversal in part, affirmance in part -- Justices Clifford, Schreiber, Handler, O'Hern and Garibaldi. The opinion of the Court was delivered by Schreiber, J. O'Hern, J., concurring. O'Hern, J., concurring in the result.
[97 NJ Page 41] The primary issue raised by this case is whether a cause of action for legal fraud exists in the absence of compensatory damages.*fn1 A related issue is whether punitive damages may be
awarded in the absence of a compensatory damage award in an action for legal fraud. These issues arose when the jury awarded plaintiff $2 as nominal damages against the defendant Richard Bonello for fraud in each of two transactions and $50,000 in punitive damages for both frauds, without an allocation of the punitive award to either matter. These claims arose from two separate transactions -- one involving plaintiff's loan to furnish a model apartment for a high-rise condominium project, and the other, plaintiff's purchase of an interest in an office building.
The Appellate Division reversed these judgments. It held that compensatory damages are a requisite element of a cause of action for legal fraud, that nominal damages were impermissible, and that punitive damages could not lie in the absence of compensatory damages. It dismissed the claim of fraud in the office building purchase because plaintiff failed, among other things, to prove actual damages. It remanded for a new trial plaintiff's claim of fraud regarding the high-rise condominium loan on the issues of liability, compensatory damages, and punitive damages, holding that the jury could award compensatory damages for loss of interest, contrary to the trial court's instruction, if the jury found that plaintiff was fraudulently induced to make a loan that was interest-free over an extended period of time. 189 N.J. Super. 347, 358-60 (1983). Moreover,
the Appellate Division held that the punitive damage determination could not stand because the jury had not allocated the punitive damage award between the two transactions. Id. at 357.
We granted plaintiff's petition and defendants' cross-petition for certification, 95 N.J. 200 (1983), limited to the following two questions:
A. Is compensable damage a requisite element of legal fraud or may nominal and punitive damages be awarded in the absence of compensatory damages?
B. Does the seller of real property have a duty to disclose to the buyer the existence of "sweetheart" leases?
After considering and examining the record in detail and the oral arguments of counsel, we are satisfied that there existed sharply disputed factual contentions concerning the existence of "sweetheart" leases. That being so, we are of the opinion that certification of the question of "sweetheart" leases was improvidently granted and hereby vacate certification of that issue. We need consider only the high-rise condominium loan.
The jury could reasonably have made the following factual findings on the basis of the evidence adduced at the trial. In May, 1973 plaintiff tentatively agreed to loan Avenel Boulevard, Inc. (Avenel) $200,000 to build and furnish a model condominium for a high-rise apartment complex Avenel was building in Monmouth Beach. Defendant Bonello, the attorney for Avenel and trustee for the disbursement of the construction mortgage funds, told plaintiff that in exchange for the $200,000 loan for the model apartment, plaintiff would receive ten percent of the profits from the entire project. He stated that projected profits were $1,800,000. Bonello had a personal interest in ensuring that his client obtain the loan because a successful completion of the enterprise would have enhanced the value of his right to purchase two of the condominium units at cost.
In June, 1973 plaintiff entered into two written agreements providing that he would loan Avenel $200,000 in exchange for
ten percent of the net profits from the condominium complex. Neither agreement expressly restricted Avenel's use of the $200,000.
Prior to the loan closing, plaintiff had advanced $75,000 to Avenel after its principals represented that Avenel needed that amount for the model apartment's furnishings, which were being delivered C.O.D. Plaintiff's check for $75,000 was not deposited in Avenel's account, but instead was deposited in the account of Driftwood, Inc. (Driftwood), a corporation controlled by Avenel's principals.
Bonello deposited plaintiff's check for the remaining $125,000 of the loan in the trust account of Bonello's law firm, defendant Anschelewitz, Barr, Ansell & Bonello. Within the next two days, Bonello issued five checks disbursing $128,250, including $3,250 previously deposited in the account, in the following manner: $69,500 to a principal of Avenel individually; $50,000 to an unsecured creditor of Avenel; $8,000 in two checks to Molly Company, a theatrical venture; and $750 to his law firm for legal fees. None of the money was used to build and furnish a model apartment.
Plaintiff apparently learned shortly afterwards that construction of the model apartment had stopped because of lack of funds. Plaintiff did not learn of the diversion of his loan until November, 1973. Plaintiff failed to show any loss of profits due to diversion of his $200,000 loan to purposes other than the model apartment or the high-rise project.
The trial court charged the jury that if it found that there was actionable fraud*fn2 and the plaintiff sustained damages that were not computable, the jury should award nominal damages, such as a dollar. The trial court also charged that if the jury decided to award compensatory or nominal damages, it could
then consider punitive damages. The trial court submitted interrogatories to the jury. In its answers, the jury found that defendant Bonello had committed an actionable fraud with respect to the high-rise condominium investment loan and that plaintiff was entitled to nominal damages of $1. In response to the final interrogatory, the jury made a single award of $50,000 in punitive damages for the frauds in the high-rise condominium loan and the office building sale.
The initial question to be considered is whether compensatory damages are an essential element of legal fraud. If compensatory damages are an essential element of the cause of action, the claim must be dismissed despite the fact that the plaintiff has proved all the other elements. On the other hand, if the cause of action is deemed effective even though the plaintiff had not proved his entitlement to compensatory damages, the viability of the cause of action may be the basis of an award of punitive damages. This is because punitive damages may lie provided there is a valid underlying cause of action.
Compensatory damages historically have been considered an essential element of some torts, but not others. It is well established that the plaintiff must show a breach of duty and resulting damage to prevail in a negligence action. See Stanley Co. of Am. v. Hercules Powder Co., 16 N.J. 295, 315 (1954); Ochs v. Public Serv. Ry., 81 N.J.L. 661, 662 (E. & A. 1911); Muller Fuel Oil Co. v. Insurance Co. of N. Am., 95 N.J. Super. 564, 579 (App.Div.1967). On the other hand, some torts are actionable without proof of a compensable injury. Thus a trespass on property, whether real or personal, is actionable, irrespective of any appreciable injury. Spiegel v. Evergreen Cemetery Co., 117 N.J.L. 90, 93-94 (Sup.Ct.1936); Wartman v. Swindell, 54 N.J.L. 589, 590 (E. & A. 1892). The general rule is that whenever there is a breach of contract, see cases cited in G. Harris, Pleading and Practice in New Jersey
316 n. 33 (rev. ed. 1939), or an invasion of a legal right, the law ordinarily infers that damage ensued, and, in the absence of actual damages, the law vindicates the right by awarding nominal damages. Spiegel v. Evergreen Cemetery Co., supra, 117 N.J.L. at 93.
The difference in the treatment of these torts is attributable to the historical distinction between the common-law writs of trespass and trespass on the case. In early English common law, both writs were available to redress tortious harm. Trespass, as distinguished from trespass on the case, was considered quasi-criminal in nature and was the remedy for forcible, direct, and immediate injuries to persons or property. It had a basic criminal character since it was directed at breaches of the King's peace and it was on this ground that the royal courts assumed jurisdiction. Damages were first awarded to the injured plaintiff as an incidental aspect of the criminal proceeding. 1 F. Harper & F. James, The Law of Torts § 1.3, at 7-8 (1956); W. Prosser, Handbook on the Law of Torts § 7, at 28-29 (4th ed. 1971). Proof of actual damage was not required because invasion of the plaintiff's rights was regarded as the tort in itself. W. Prosser, supra, § 7, at 29.
Trespass on the case, on the other hand, developed as a supplement to trespass to afford a remedy for injury resulting indirectly. The classic illustration of the difference involves that of a log thrown onto a highway. If a person were struck by the log, trespass would lie. If he fell over the log as it lay on the road, the action would be on the case. Leame v. Bray, 102 Eng.Rep. 724, 726 (1803); Reynolds v. Clarke, 92 Eng.Rep. 410, 413 (1725). The distinction was not between intentional and negligent conduct, but was based instead on the causal sequence and the directness of the harm. In trespass on the case there could ordinarily be no liability unless actual damage was proven. 2 W. Wait, Actions and Defenses 99-102 (1877); see also W. Prosser, supra, § 7, at 28-30.
For the most part, these procedural distinctions between trespass and trespass on the case have disappeared. However, a vestige of the distinction between the two has remained with respect to the requirement of proving actual damage. As Dean Prosser has observed: "[W]hether such damage is essential to the existence of a cause of action for a particular tort may depend very largely upon its ancestry in terms of the old procedure." W. Prosser, supra, § 7, at 30; see 1 F. Harper & F. James, supra, § 1.3, at 7-11. Some "case" actions that have continued to require proof of actual damage are slander of title, disparagement of goods, and slander that is not per se. C. McCormick, Handbook on the Law of Damages § 22, at 89 (1935). However, in other actions on the case, courts have not adhered to the common-law distinction and have sustained actions in the absence of proof of compensatory damage. These include libel, slander per se, nuisance, and malicious prosecution. Id. at 90.
We have not hesitated to modify the common law when it is no longer fair and equitable or does not serve a useful purpose. Justice Jacobs, in striking down a common-law rule requiring unanimity of arbitrators' awards, stated in La Stella v. Garcia Estates, 66 N.J. 297, 305 (1975):
Whatever validity the common law rule may originally have had, it is clear to us that it has no proper place in current times. This Court has not hesitated to reject common law doctrines which have outlived their usefulness and which no longer serve justice or the interests of society. See Collopy v. Newark Eye and Ear Infirmary, 27 N.J. 29 (1958); Smith v. Brennan, 31 N.J. 353 (1960); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358 (1960); France v. A.P.A. Transport Corp., 56 N.J. 500 (1970).
See also Canino v. New York News, Inc., 96 N.J. 189, 192 (1984); Kearny PBA Local # 21 v. Town of ...