Morrow v. Bank of America, N.A.

May 7 2014

DA 13-0241

IN THE SUPREME COURT OF THE STATE OF MONTANA

2014 MT 117

ABRAHAM B. MORROW and BETTY JEAN MORROW,

Plaintiffs and Appellants,

v.

BANK OF AMERICA, N.A., BAC HOME LOANS
SERVICING, LP, fka COUNTRYWIDE HOME
LOANS SERVICING, LP,

Defendants and Appellees.

APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. CDV 2011-491
Honorable Kathy Seeley, Presiding Judge

COUNSEL OF RECORD:

For Appellants:

David K. W. Wilson, Jr. (argued), Morrison, Sherwood, Wilson & Deola,
PLLP, Helena, Montana

John Heenan, Bishop and Heenan, Billings, Montana

For Appellees:

Kenneth K. Lay (argued), Christopher K. Oliveira, Crowley Fleck PLLP,
Helena, Montana

For Amicus Montana Legal Services Association:

Flint Murfitt, Robert Olsen, Lawson Konvalinka, Montana Legal Services
Association, Helena, Montana

For Amicus State of Montana Department of Justice:

Timothy C. Fox, Montana Attorney General, Chuck Munson, Assistant
Attorney General, Helena, Montana
 For Amicus Montana Bankers Association:

Doug James, Adam J. Tunning, Moulton Bellingham P.C.,
Billings, Montana

For Amicus National Association of Consumer Advocates:

James C. Sturdevant, The Sturdevant Law Firm, P.C.,
San Francisco, California

Jonathan McDonald, Dix, Hunt & McDonald, Helena, Montana

Argued and Submitted: November 13, 2013
Decided: May 7, 2014

Filed:

__________________________________________
Clerk

2
Chief Justice Mike McGrath delivered the Opinion of the Court.

¶1 Abraham B. Morrow and Betty Jean Morrow appeal from an order of the First

Judicial District Court, Lewis and Clark County, granting Defendant Bank of America’s

motion for summary judgment. We affirm in part, reverse in part, and remand.

¶2 The following issues are presented for review:

¶3 Issue One: Whether the District Court erred in finding the Morrows failed to
establish the existence of an oral contract for modification of their loan.

¶4 Issue Two: Whether the District Court erred in finding that Bank of America owed
no common law or fiduciary duty to the Morrows.

¶5 Issue Three: Whether the District Court erred in granting summary judgment to
Bank of America on the Morrows’ claim of negligent misrepresentation.

¶6 Issue Four: Whether the District Court erred in finding that the Statute of Frauds
precluded the Morrows’ claims of actual fraud, constructive fraud, and violations of the
Montana Consumer Protection Act.

¶7 Issue Five: Whether the District Court erred in granting summary judgment to
Bank of America on the Morrows’ claim of actual fraud.

¶8 Issue Six: Whether the District Court erred in granting summary judgment to Bank
of America on the Morrows’ claim of constructive fraud.

¶9 Issue Seven: Whether the District Court erred in granting summary judgment to
Bank of America on the Morrows’ claim under the Montana Consumer Protection Act.

PROCEDURAL AND FACTUAL BACKGROUND

¶10 Abraham B. Morrow and Betty Jean Morrow, husband and wife, are the owners of

a home on fifty acres of land outside White Sulphur Springs, Montana. The Morrows,

who are from South Carolina, built the home in 2006 and planned to spend their

retirement there. This case arises from the Morrows’ attempts to secure a modification of

3
their home loan, serviced by Bank of America, through the federal Home Affordable

Modification Program (HAMP).

¶11 HAMP is intended to help homeowners in default or at immediate risk of default

on their home loans by modifying their monthly payments to affordable levels. The

program requires participating loan servicers to execute a servicer participation

agreement and service eligible loans according to a uniform modification process. The

process begins with a Trial Period Plan, under which the homeowner makes reduced

payments for three months, while the loan servicer verifies income and other eligibility

information. At the end of the trial period, if the homeowner has successfully made the

trial payments and if eligibility has been verified, the modification is made permanent.

At the time relevant to the Morrows’ claims, only loans secured by the borrower’s

primary residence were eligible for HAMP.

¶12 The Morrows’ home was financed by Quicken Loans for $291,200.00, secured by

a deed of trust. The loan was to be repaid over a fifteen-year term at 4.99% interest, with

monthly payments of $2,301.28. The loan was subsequently sold to Countrywide. Bank

of America is the successor by merger to Countrywide and BAC Home Loans Servicing,

LP.

¶13 In 2009, the Morrows lost most of their anticipated retirement income when the

purchaser of two businesses they had owned in South Carolina defaulted on his

payments. The Morrows resumed control of one of the businesses and returned to South

Carolina to manage it until they could find a new buyer. From February 2009 until May

2012, they spent most of their time in South Carolina, returning to the Montana property
4
for only six to eight weeks of each year. The Morrows first contacted Bank of America

to discuss a modification of their loan in May 2009, beginning a process that would

continue for nearly two years.

¶14 The Morrows remained current on their payments until November 2009. They

claim that in October 2009, a Bank of America employee informed them they should

intentionally miss the following month’s payment to become eligible for a modification.

Bank of America denies its employees would instruct a borrower to intentionally default,

and argues that the Morrows defaulted because they could not afford their payments.

¶15 On December 8, 2009, the Morrows spoke with Sunil Kumar, a Bank of America

representative from Hyderabad, India, who identified himself as “Brian.” According to

the Morrows, Kumar told them they were “locked” for a modification with trial payments

of $1,239.99. Kumar explained to the Morrows they would be required to make the trial

payments for three to four months. At the end of that period, if the Morrows had

successfully made the trial payments, the modification would be made permanent. The

modification, according to the Morrows, extended the period of the loan from fifteen to

forty years and reduced the interest rate from 4.99% to 2%. The Morrows believed the

modification had been approved, subject to execution of the documents and completion

of the trial period. Bank of America claims the Morrows were informed during this

conversation that they were only applying for a modification and had not yet been

approved. Kumar has no specific recollection of his conversation with the Morrows, but

denies he would tell a customer over the phone that they were approved for a

modification.
5
¶16 The Morrows made their first trial payment of $1,239.99 in December 2009. They

also submitted financial documentation including their tax return, bank statement, and

employment verification. On February 16, 2010, Bank of America sent the Morrows a

notice of intent to accelerate indicating their loan was in default. Mr. Morrow claims he

called Bank of America on March 2, 2010 and spoke with an employee named “Ron,”

who instructed him to ignore the letter and continue making the reduced payments. Bank

of America records indicate that on March 2, 2010, an employee named Rohitash S.

Banerjee advised Mr. Morrow that the account was under review. Banerjee also noted

that the Morrows intended to pay the trial amount by the end of the month. The Morrows

continued to make monthly payments of $1,239.99 until February 2011.

¶17 On March 3, 2010, the day after Banerjee informed Mr. Morrow his account was

under review, Bank of America issued another notice of intent to accelerate. On March

16, 2010, Bank of America sent a letter to the Morrows acknowledging receipt of the

financial information they had submitted in December 2009. The letter, issued over

ninety days after the Morrows had sent their financial information to Bank of America,

also indicated that “receipt of your documentation starts the review process, which may

take up to 45 days to complete.”

¶18 On April 22, 2010, Bank of America sent a form letter to the Morrows inviting

them to apply for HAMP. The letter stated:

Once we receive all of your documents, we will validate your information
and check your eligibility. You can expect to hear back from us within 10
business days. If you qualify for the program, you will enter a three month
Trial Period Plan where you will make a monthly trial period payment for
three months. . . . You will receive a permanent modification if you
6
 successfully make all of your Trial Period Plan payments and you are
notified in writing that your modification has been approved.
. . .
As long as you comply with the terms of the Trial Period Plan, we will not
start foreclosure proceedings. If foreclosure proceedings have already
started, we will not conduct a foreclosure sale as long as you comply with
the terms of the Trial Period Plan.

According to the Morrows, by the time they received this letter, they had already been

making trial payments for at least four months.

¶19 On May 24, 2010, the Morrows filled out a Request for Modification and

Affidavit as required under HAMP. The Morrows certified that the property was

owner-occupied and they intended to reside there for the next twelve months. On May

26, 2010, Bank of America sent the Morrows a letter requesting additional

documentation. On July 8, 2010, Bank of America sent the Morrows another notice of

intent to accelerate. On August 6, 2010, the Morrows received another request for

additional documentation, and on August 31, 2010, they received another notice of intent

to accelerate. The Morrows claim each time they received a notice, they contacted Bank

of America, and each time, a Bank of America employee instructed them to ignore the

notice and continue making the modified payments.

¶20 In October 2010, the Morrows were informed their modification had been denied

due to missing or incomplete paperwork. Mr. Morrow filed a complaint with the Office

of the Comptroller of the Currency. Bank of America assigned a liaison, Luke Mai, to

handle the Morrows’ account. Mr. Morrow claims that in December 2010, Mai informed

him over the phone that the modification had been approved. Mai does not recall his

7
conversations with Mr. Morrow, but claims it is not his standard practice to verbally

approve a modification for clients.

¶21 On January 11, 2011, the Morrows received another letter indicating their

modification had been denied. In February 2011, Bank of America rejected the

Morrows’ payment of $1,239.99 and scheduled a trustee’s sale of the property. The

Morrows’ complaints to Bank of America were assigned to unit manager Jesse Vasquez.

On March 23, 2011, Vasquez explained that the modification had been denied because

the Morrows appeared to reside in South Carolina, and the Montana property was not

their primary residence.

¶22 The Morrows filed a complaint in the District Court of Lewis and Clark County on

May 6, 2011, which was later amended to state the following claims: oral contract

established and breached; negligence, negligent misrepresentation, and tortious breach of

the covenant of good faith and fair dealing; fraud; and violation of the Montana

Consumer Protection Act (MCPA). Both parties moved for summary judgment, and the

District Court granted summary judgment to Bank of America on April 3, 2013.

¶23 The District Court first concluded that the Morrows’ breach of contract claim was

barred by the Statute of Frauds, which requires certain contracts to be made in writing.

The District Court also rejected the Morrows’ claims of negligence, negligent

misrepresentation, and tortious breach of the covenant of good faith and fair dealing,

concluding Bank of America owed no duty to the Morrows. The District Court

concluded that the Morrows’ claims for fraud and violation of the MCPA were also

barred by the Statute of Frauds, because they presented alternative theories of
8
enforcement of the oral agreement to modify the loan. The Morrows appealed to this

Court, seeking reversal of the grant of summary judgment.

STANDARD OF REVIEW

¶24 We review a district court’s grant of summary judgment de novo, applying the

same criteria as the district court under M. R. Civ. P. 56(c). Turner v. Wells Fargo Bank,

N.A., 2012 MT 213, ¶ 11, 366 Mont. 285, 291 P.3d 1082. Summary judgment is

appropriate where no genuine issues of material fact exist and where the moving party is

entitled to judgment as a matter of law. Clark v. Eagle Sys., 279 Mont. 279, 283, 927

P.2d 995, 997 (1996). The moving party must establish there is no genuine factual issue

which would entitle the non-moving party to recover. Clark, 279 Mont. at 283, 927 P.2d

at 997. If the moving party meets this burden, the non-moving party must then present

evidence, in affidavits or other sworn testimony, demonstrating a genuine factual issue

exists. Yarbro, Ltd. v. Missoula Fed. Credit Union, 2002 MT 152, ¶¶ 9-10, 310 Mont.

346, 50 P.3d 158. All reasonable inferences from the factual record must be drawn in

favor of the non-moving party. Clark, 279 Mont. at 284, 927 P.2d at 998. Summary

judgment is an extreme remedy, which should never take the place of a trial. Clark, 279

Mont. at 283, 927 P.2d at 997.

DISCUSSION

¶25 Issue One: Whether the District Court erred in finding that the Morrows failed to
establish the existence of an oral contract for modification of their loan.

¶26 A promissory note is a written contract, and may be modified in writing or by an

executed oral agreement. Section 28-2-1602, MCA; Nimmick v. Hart, 248 Mont. 1, 14,

9
808 P.2d 481, 490 (1991). An executed oral agreement exists where the obligations of

both parties have been fully performed, and nothing remains to be done by either party.

Winkel v. Fam. Health Care, P.C., 205 Mont. 40, 45, 668 P.2d 208, 210 (1983); Hart v.

Billings Pub. Stockyards, 157 Mont. 345, 356-57, 486 P.2d 120, 126 (1971); Contl. Oil

Co. v. Bell, 94 Mont. 123, 134, 21 P.2d 65, 67 (1933). Performance by only one party is

not sufficient. See e.g. Contl. Oil Co., 94 Mont. at 134, 21 P.2d at 67.

¶27 The Morrows claim that Bank of America offered to modify their home loan by

reducing the interest rate and reamortizing the payments over forty years. The modified

terms were never reduced to writing. Therefore, the agreement is enforceable only if it

was fully executed, with nothing left to be done by either party. Section 28-2-1602,

MCA; Winkel, 205 Mont. at 45, 668 P.2d at 210. The oral agreement contemplated that

Bank of America would perform by finalizing the modification of the Morrows’ loan and

issuing documents reflecting their new repayment status. The Morrows were expected to

perform by repaying the loan obligation under the modified terms. Undisputedly, Bank

of America has not issued new documents reflecting the permanent modification, and the

Morrows have not satisfied their repayment obligation. The oral agreement was not fully

executed, and therefore the written contract was not validly modified. Section

28-2-1602, MCA.

¶28 Moreover, a mortgage or deed of trust “can be created, renewed, or extended only

by writing, with the formalities required in the case of a grant of real property.”

Section 71-1-203, MCA; § 71-1-305, MCA (deed of trust subject to all laws relating to

mortgages). An agreement to extend the time for repayment of a debt secured by a
10
mortgage or deed of trust is within the scope of § 71-1-203, MCA. See Register Life Ins.

Co. v. Kenniston, 99 Mont. 191, 193-96, 43 P.2d 251, 252-53 (1935); Hastings v. Wise,

89 Mont. 325, 337-40, 297 P. 482, 484-85 (1931); Vitt v. Rogers, 81 Mont. 120, 126-30,

262 P. 164, 165-67 (1927); O.M. Corwin Co. v. Brainard, 80 Mont. 318, 324-25, 260

P. 706, 708 (1927).

¶29 That section, unchanged since its adoption in 1895,

contemplates the making of a contract assented to by the parties: the
delivery by the mortgagor to the mortgagee of the mortgage, or renewal or
extension. In order that notice of the existence of the mortgage, or renewal,
or extension may be given to subsequent purchasers and mortgagees, the
instrument must be filed with the county clerk for record.

O.M. Corwin Co., 80 Mont. at 324, 260 P. at 708. This effects the historic purpose of the

Statute of Frauds and recording statutes, which serve to “‘give security and certainty to

titles.’” Hinebauch v. McRae, 2011 MT 270, ¶ 23, 362 Mont. 358, 264 P.3d 1098

(quoting Great Falls Waterworks Co. v. Great N. Ry., 21 Mont. 487, 500, 54 P. 963, 967

(1898)).

¶30 The Morrows’ original promissory note provided for a repayment period of fifteen

years. Mr. Morrow claims that Bank of America offered a modification which would

have reamortized the loan over a period of forty years. The Morrows’ deed of trust states

that it secures repayment of “all renewals, extensions, and modifications of the Note.” It

also states that the debt is to be paid in full by May 1, 2023. The purported oral

agreement extended the life of the security by twenty-five years, presumably to May 1,

2048. Such an extension must be made in writing, “with the formalities required in the

case of a grant of real property.” Section 71-1-203, MCA. The agreement to extend the
11
debt, and thereby the security for the debt, was neither written nor recorded, and its

enforcement would create substantial uncertainty in the land records. We affirm the

order of the District Court granting summary judgment to Bank of America on the

Morrows’ breach of contract claim.

¶31 The Morrows also claim that Bank of America tortiously breached the covenant of

good faith and fair dealing. Implied in every contract is a covenant of good faith, which

requires “honesty in fact and the observance of reasonable commercial standards of fair

dealing in the trade.” Section 28-1-211, MCA; Story v. Bozeman, 242 Mont. 436, 451,

791 P.2d 767, 776 (1990), overruled in part, Arrowhead Sch. Dist. No. 75 v. Klyap, 2003

MT 294, ¶ 54, 318 Mont. 103, 79 P.3d 250. A claim may be brought for tortious breach

of the covenant where a special relationship exists between the parties. Story, 242 Mont.

at 451, 791 P.2d at 776. The existence of a contract, however, is a prerequisite to a claim

for tortious breach of the covenant. Knucklehead Land Co. v. Accutitle, Inc., 2007 MT

301, ¶ 18, 340 Mont. 62, 172 P.3d 116. While an original contract existed between the

parties, the Morrows’ claim is not based on this contract, but on the breach of the alleged

oral contract to modify their loan. Therefore, we also affirm the order of the District

Court granting summary judgment to Bank of America on the Morrows’ claim for

tortious breach of the implied covenant of good faith and fair dealing.

¶32 Issue Two: Whether the District Court erred in finding that Bank of America owed
no common law or fiduciary duty to the Morrows.

¶33 We next address the Morrows’ claims of negligence. A plaintiff in an action for

negligence must offer proof of a duty, breach of that duty, causation, and damages.

12
Hatch v. Dept. of Hwys., 269 Mont. 188, 192, 887 P.2d 729, 732 (1994). The existence

of a duty is a question of law for determination by the court. Fisher v. Swift Transp. Co.,

2008 MT 105, ¶ 17, 342 Mont. 335, 181 P.3d 601. Once a duty has been established, the

breach of that duty is a question of fact to be resolved by a jury. Nelson v. Driscoll, 1999

MT 193, ¶ 40, 295 Mont. 363, 983 P.2d 972 (citing Smith v. Kerns, 281 Mont. 114, 117,

931 P.2d 717, 719 (1997)).

¶34 We recognize at the outset that a bank has no duty to modify or renegotiate a

defaulted loan. Mont. Bank, N.A. v. Ralph Meyers & Son, Inc., 236 Mont. 236, 244, 769

P.2d 1208, 1213 (1989). Furthermore, “[t]he relationship between a bank and its

customer is generally described as that of a debtor and creditor and as such does not give

rise to fiduciary responsibilities.” Deist v. Wachholz, 208 Mont. 207, 216, 678 P.2d 188,

193 (1984) (internal citation omitted). However, where a bank goes beyond the ordinary

role of a lender of money and actively advises customers in the conduct of their affairs,

the bank may owe a fiduciary duty. Deist, 208 Mont. at 216-17, 678 P.2d at 193.

¶35 The complexity of modern banking and credit transactions, in particular, may

“‘thrust a bank into the role of an advisor, thereby creating a relationship of trust and

confidence . . . .’” Deist, 208 Mont. at 216, 678 P.2d at 193 (quoting Tokarz v. Frontier

Fed. Sav. & Loan Assn., 656 P.2d 1089, 1092 (Wash. App. Div. 3 1982)). A bank owes a

fiduciary duty only when it gives advice “other than that common in the usual arms-

length debtor/creditor relationship.” Coles Dept. Store v. First Bank, N.A., 240 Mont.

226, 229, 783 P.2d 932, 934 (1989). We have found a fiduciary duty where the borrower

has relied on the bank’s advice in financial matters over the course of a long and
13
exclusive relationship. Deist, 208 Mont. at 217-18, 678 P.2d at 193-94 (finding fiduciary

relationship where widow had been advised by bank officer for over twenty years).

¶36 If the borrower has not been advised by the bank or has not relied on that advice,

no fiduciary relationship exists. Coles Dept. Store, 240 Mont. at 230, 783 P.2d at 934 (no

fiduciary duty where decisions about management of department store were made with

little, if any, input from bank); Simmons v. Jenkins, 230 Mont. 429, 433-34, 750 P.2d

1067, 1070 (1988) (no fiduciary duty where there was no evidence bank ever advised

plaintiffs); Pulse v. N. Am. Land Title Co., 218 Mont. 275, 283, 707 P.2d 1105, 1110

(1985) (no fiduciary duty where terms of sale were not a product of the bank’s advice).

No fiduciary duty arises if the borrower is also advised by others, such as legal counsel.

Simmons Oil Corp. v. Holly Corp., 258 Mont. 79, 85, 852 P.2d 523, 526 (1993). Even if

a fiduciary duty exists, a bank is not obligated to avoid foreclosure. Richland Natl. Bank

& Trust v. Swenson, 249 Mont. 410, 418, 816 P.2d 1045, 1050 (1991). A bank may also

refuse to modify or renegotiate a loan for “solid business reasons.” See Lachenmaier v.

First Bank Sys., 246 Mont. 26, 34, 803 P.2d 614, 619 (1990) (citing Tresch v. Norwest

Bank, 238 Mont. 511, 515, 778 P.2d 874, 876 (1989)).

¶37 The Morrows have alleged facts which, if proven, would establish that Bank of

America owed them a fiduciary duty.1 The Morrows claim Bank of America advised

them it would be in their best interests to deliberately miss a payment and default on their

1
To determine “a special relationship in cases where it normally does not exist—such as
between a bank and a customer—a court may be required to make a fact-intensive inquiry.”
Gliko v. Permann, 2006 MT 30, ¶ 24, 331 Mont. 112, 130 P.3d 155. However, the conclusion
drawn from the facts that a fiduciary duty exists is a question of law. Gliko, ¶ 24.
14
loan. The Morrows contend they relied on this advice when they intentionally defaulted

on their mortgage hoping to qualify for a modification. The Morrows were not advised

by any other parties when they made this decision. The pattern of active advising alleged

by the Morrows continued for over a year, with regular and frequent contacts between the

parties. Throughout this period, the Morrows claim Bank of America continued to advise

them to pay a reduced amount each month and ignore notices of default. Instructing a

borrower not to repay a loan, to pay less than the amount required by the loan documents,

or to ignore notices of impending foreclosure and avoid curing a default is not the type of

advice “common in the usual arms-length debtor/creditor relationship.” Coles Dept.

Store, 240 Mont. at 229, 783 P.2d at 934. While the Morrows stood at arm’s length to

their lender in negotiating the initial loan, once their loan was in default they had little

choice but to continue placing their trust in the bank. See Lachenmaier, 246 Mont. at 34,

803 P.2d at 619 (no fiduciary relationship where borrower could transfer loans

elsewhere). It is unrealistic to say Bank of America and the Morrows continued to hold

equal footing throughout the negotiations. See Stone v. Davis, 419 N.E.2d 1094, 1098

(Ohio 1981) (“while a bank and its customer may be said to stand at arm’s length in

negotiating the terms and conditions of a mortgage loan, it is unrealistic to believe that

this equality of position carries over into the area of loan processing . . . .”).

¶38 The recent foreclosure crisis has led to many cases alleging breaches of duty by

mortgage servicers, and these cases have not reached uniform results. Compare

Ansanelli v. JPMorgan Chase Bank, N.A., 2011 U.S. Dist. LEXIS 32350 at **21-22

(N.D. Cal. March 28, 2011) (No. C 10-03892 WHA), with Lueras v. BAC Home Loans
15
Servicing, LP, 163 Cal. Rptr. 3d 804, 820 (Cal. App. 4th Dist. 2013). Some courts have

held that a mortgage servicer actively engaging with a borrower, particularly in the

modification context, stands in a different relation to the borrower than does a traditional

“silent lender.” Ansanelli, 2011 U.S. Dist. LEXIS at **21-22. Those courts have found,

as we do today, that special circumstances, if proven, could support a fiduciary duty

where “Defendant went beyond its conventional role as a loan servicer by soliciting

Plaintiffs to apply for a loan modification and by engaging with them for several

months . . . .” Crilley v. Bank of Am., N.A., 2012 U.S. Dist. LEXIS 58469 at **27-29

(D. Haw. April 26, 2012) (Civil No. 12-00081 LEK-BMK); Ansanelli, 2011 U.S. Dist.

LEXIS at **21-22.

¶39 We repeat that the duty owed by Bank of America was not the duty to avoid

foreclosure or to grant a modification of the loan. Richland Natl. Bank & Trust, 249

Mont. at 418, 816 P.2d at 1050; Lachenmaier, 246 Mont. at 34, 803 P.2d at 619 (citing

Tresch, 238 Mont. at 515, 778 P.2d at 876). Under the facts alleged, Bank of America

owed a duty to manage the modification process in a manner that would not cause the

Morrows to suffer loss or injury by reason of its negligence. The Morrows allege that on

several occasions, Bank of America said their application would be processed under

HAMP. While HAMP does not provide a private right of action and does not itself create

a duty of care, reference to its provisions may provide evidence of a breach of an already

existing duty. Mackenzie v. Flagstar Bank, FSB, 738 F.3d 486, 495-96 (1st Cir. 2013).

Drawing all reasonable inferences in the Morrows’ favor, we conclude they may proceed

to trial on the theory that Bank of America owed them a fiduciary duty in the processing
16
of their application for a loan modification. Accordingly, we look to the federal

guidelines in effect when their loan was under consideration to further define the

standards to which Bank of America had to conform its conduct, if the evidence

establishes the basis for imposition of such a duty.2

¶40 Servicers participating in HAMP “should provide the borrower with information

designed to help them understand the modification terms that are being offered and the

modification process.” Introduction of the Home Affordable Modification Program,

Supp. Directive 09-01 at *13 (U.S. Treas. Dept., April 6, 2009). Communications with

the borrower should minimize potential confusion and reduce the risks associated with

the transaction. Supp. Directive 09-01 at *13. Servicers should respond to inquiries and

complaints with “timely and appropriate responses and resolution.” Supp. Directive

09-01 at *13. The trial payment period that comprises the first step of a HAMP

modification is “three months in duration,” during which the servicer must service the

loan “in the same manner as it would service a loan in forbearance.” Supp. Directive

09-01 at *17. The servicer is also responsible for determining the borrower’s eligibility.

Supp. Directive 09-01 at *15. If the servicer determines the borrower is not eligible, the

2
The Comptroller of the Currency of the United States examined Bank of America’s
residential foreclosure processes, as a result of which the Bank stipulated to the issuance of a
Consent Order. Though not determinative of this action, the Consent Order contains findings
consistent with the Morrows’ allegations. The Consent Order notes that Bank of America failed
to devote appropriate resources, oversight, and training to its foreclosure processes. The Consent
Order required the Bank to develop a plan to ensure compliance with federal servicing guides,
including those pertaining to HAMP. In re Bank of Am., N.A., Consent Order No.
AA-EC-11-12 (U.S. Office of the Comptroller of the Currency, April 13, 2011).
17
servicer must “promptly communicate” that information to the borrower. Supp. Directive

09-01 at *15.

¶41 The facts alleged by the Morrows, if proven, would demonstrate that Bank of

America failed to provide them with accurate information about the modification process;

failed to minimize the confusion and risk associated with the modification; and failed to

timely respond and resolve their inquiries and complaints. The Morrows also allege that

Bank of America placed the loan in default, rather than in forbearance; failed to

determine eligibility within the usual three-month period; and failed to promptly

communicate its eligibility decision. The Morrows claim Bank of America’s excessive

delays in processing the modification significantly increased the deficiency they owed,

making foreclosure all but inevitable.

¶42 Bank of America contests these factual allegations, claiming it accurately

explained to the Morrows the servicing status of their loan; did not initiate foreclosure

until after the application for modification had been denied; and was justified in taking

several months to process the application because the Morrows’ documentation raised

questions about their residency status. Bank of America also denies advising the

Morrows to miss a payment or ignore notices of default. It is evident there are genuine

issues of material fact regarding the Morrows’ claim for negligence. The District Court

erred by granting summary judgment to Bank of America, and we reverse.

18
¶43 Issue Three: Whether the District Court erred by granting summary judgment to
Bank of America on the Morrows’ claim of negligent misrepresentation.

¶44 In addition to allegations that Bank of America was negligent in its processing of

their application for modification, the Morrows allege Bank of America negligently

misrepresented the status of their loan. The District Court did not address the Morrows’

claim of negligent misrepresentation in its original Order. It then issued an Addendum to

that Order, in which it stated, “For the reasons set forth in the Court’s discussion of the

negligence and fraud counts, summary judgment is also granted to Defendants on the

claim of negligent misrepresentation.” The District Court failed to address the specific

elements of a negligent misrepresentation claim, as distinct from either negligence or

fraud. We address those elements here.

¶45 We have adopted the following definition of negligent misrepresentation:

One who, in the course of his business, profession or employment, or in any
other transaction in which he has a pecuniary interest, supplies false
information for the guidance of others in their business transactions, is
subject to liability for pecuniary loss caused to them by their justifiable
reliance upon the information, if he fails to exercise reasonable care or
competence in obtaining or communicating the information.

Restatement (Second) of Torts § 552 (1977); State Bank v. Maryann’s, 204 Mont. 21, 33,

664 P.2d 295, 301 (1983); Brown v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 197

Mont. 1, 12, 640 P.2d 453, 458-59 (1982). In Kitchen Krafters v. Eastside Bank, we

expanded upon this definition by adopting the following elements of negligent

misrepresentation:

a) the defendant made a representation as to a past or existing material fact;

b) the representation must have been untrue;

19
 c) regardless of its actual belief, the defendant must have made the
representations without any reasonable ground for believing it to be true;

d) the representation must have been made with the intent to induce the
plaintiff to rely on it;

e) the plaintiff must have been unaware of the falsity of the representation;
it must have acted in reliance upon the truth of the representation and it
must have been justified in relying upon the representation;

f) the plaintiff, as a result of its reliance, must sustain damage.

Kitchen Krafters v. Eastside Bank, 242 Mont. 155, 165, 789 P.2d 567, 573 (1990),

overruled in part, Busta v. Columbus Hosp., 276 Mont. 342, 370, 916 P.2d 122, 139

(1996). Since Kitchen Krafters was decided, we have continued to cite both the original

language of the Restatement and the Kitchen Krafters elements. Compare Kurtzenacker

v. Davis Surveying, Inc., 2012 MT 105, ¶ 25, 365 Mont. 71, 278 P.3d 1002 (citing

Kitchen Krafters elements), with W. Sec. Bank v. Eide Bailly LLP, 2010 MT 291, ¶ 35,

359 Mont. 34, 249 P.3d 35 (citing Restatement (Second) of Torts § 552), and Mattingly v.

First Bank, 285 Mont. 209, 215-16, 947 P.2d 66, 70 (1997) (citing both Kitchen Krafters,

242 Mont. at 165, 789 P.2d at 573, and Restatement (Second) of Torts § 552).

¶46 The Restatement definition tends to focus on business transactions. Restatement

(Second) of Torts § 552. We have recognized that negligent misrepresentations may

occur outside of this context. Jackson v. Dept. of Fam. Servs., 1998 MT 46, ¶ 36, 287

Mont. 473, 956 P.2d 35 (applying Kitchen Krafters elements of negligent

misrepresentation to claims by prospective parents about adoption process). At the same

time, we have continued to apply the Restatement definition, particularly in the context of

professional negligence. W. Sec. Bank, ¶ 35 (applying Restatement definition to

20
negligent misrepresentation claims against accountant). We are faced today with

defining the appropriate duty of care owed by a bank to its customers, and so we find it

necessary to resolve this disparity with respect to banking transactions. We hold that a

claim of negligent misrepresentation against a financial institution is governed by the

definition in the Restatement (Second) of Torts § 552, which we adopted in State Bank,

204 Mont. at 33, 664 P.2d at 301, and Brown, 197 Mont. at 12, 640 P.2d at 459-60.

¶47 The Morrows allege Bank of America made several false statements regarding the

servicing of their existing loan and the status of their application for modification: in

October 2009, Bank of America told the Morrows they should intentionally default on

their payments to be considered for a modification; in December 2009, Sunil Kumar said

they were approved for a HAMP modification, which would be finalized subject to the

trial payment period; in March 2010, Rohitash S. Banerjee told them to disregard notices

of default and impending foreclosure and continue making reduced payments; and in

December 2010, Luke Mai said their modification had been approved. Bank of America

claims these statements were never made, demonstrating the existence of genuine issues

of material fact. Bank of America also insists the Morrows’ modification was never

approved, and that instructing a borrower to default is contrary to its policies and

procedures.

¶48 The alleged statements were made in the course of Bank of America’s business as

a loan servicer for the guidance of the Morrows in their loan transaction. Bank of

America argues that the Morrows suffered no pecuniary loss because of its alleged

misconduct. The Morrows have asserted losses including lost time from Mr. Morrow’s
21
accounting work, travel expenses, loss of personal lines of credit, and increased costs due

to negative credit reporting. The Morrows cannot recover for losses related to credit

reporting, because state statutory causes of action premised on damages directly related

to a bank’s credit reporting duties are preempted by the Fair Credit Reporting Act.

15 U.S.C. § 1681t(b)(1)(F) (2006); Feller v. First Interstate Bancsystem, Inc., 2013 MT

90, ¶ 23, 369 Mont. 444, 299 P.3d 338. The validity of the Morrows’ remaining damages

is a question for determination by a finder of fact. See Rohrer v. Knudson, 2009 MT 35,

¶ 32, 349 Mont. 197, 203 P.3d 759.

¶49 Bank of America also argues the Morrows did not rely on the information it

supplied. Bank of America argues the Morrows’ continuing default was simply due to

their inability to afford the payments. The Morrows have offered testimony that at the

time Bank of America instructed them to default, they had the financial resources

available to continue making payments for the immediate future, and therefore defaulted

only at Bank of America’s direction. A genuine issue of material fact exists as to

whether the Morrows’ default was caused by their reliance on Bank of America’s alleged

misrepresentations.

¶50 Bank of America further argues that any reliance by the Morrows was not

justified, because they knew their modification had not been approved. The Morrows

have presented evidence of confusing and directly conflicting communications from

Bank of America. These communications informed the Morrows in one instance that

their modification was pending and in another that it was approved. They were told by

mail their loan was in default, but over the phone that they were in a modification status.
22
In essence, Bank of America claims the Morrows were entitled to rely on one set of

statements, but not the other. The conflicting communications issued by Bank of

America raise genuine questions of material fact regarding whether the Morrows’

reliance was justified.

¶51 Finally, the allegations by the Morrows raise questions of fact regarding whether

Bank of America “exercise[d] reasonable care or competence in obtaining or

communicating the information.” Restatement (Second) of Torts § 552. At the least, the

Morrows’ allegations that they received directly conflicting information from Bank of

America regarding the status of their loan indicates a lack of reasonable care in

communicating the information. The District Court erred in granting summary judgment

to Bank of America on the Morrows’ claim of negligent misrepresentation. We reverse.

¶52 Issue Four: Whether the District Court erred in finding that the Statute of Frauds
precluded the Morrows’ claims of actual fraud, constructive fraud, and violations of the
Montana Consumer Protection Act.

¶53 The District Court concluded that, because enforcement of the alleged oral

contract was precluded by the Statute of Frauds, the same was true of the Morrows’

fraud-related claims. We have held that “[t]he Statute of Frauds applies to liabilities

based on contract, and not to theories of liabilities based on fraud or negligent

misrepresentation.” Phil-Co Feeds v. First Natl. Bank, 238 Mont. 414, 421, 777 P.2d

1306, 1311 (1989). The Statute of Frauds is a bar to the enforcement of certain oral

contracts, but it is not a rule of evidence, and it does not preclude admission of evidence

of an oral agreement for other purposes. LaBarre v. Shepard, 84 F.3d 496, 500 (1st Cir.

1996); Restatement (Second) of Contracts § 143 (1981) (“The Statute of Frauds does not
23
make an unenforceable contract inadmissible in evidence for any purpose other than its

enforcement in violation of the statute.”).

¶54 As its name suggests, the Statute of Frauds is primarily concerned with the

prevention of fraud. Hinebauch, ¶ 23. The Statute of Frauds cannot “‘be used as a shield

or cloak to protect fraud, or as an instrument whereby to perpetrate a fraud, or as a

vehicle or means of culpable wrong, injustice, or oppression.’” State ex rel. Farm Credit

Bank v. Dist. Ct., 267 Mont. 1, 26-27, 881 P.2d 594, 609 (1994) (quoting 73 Am. Jur. 2d

Statute of Frauds § 562 (1974)). A claim of fraud is therefore not barred by the Statute

of Frauds, even if the claim relies on evidence of an oral agreement that would be

unenforceable in contract. See Phil-Co Feeds, 238 Mont. at 421, 777 P.2d at 1311; 37

Am. Jur. 2d Fraud and Deceit § 92 (“False representations of existing or current facts are

actionable even if combined with promises as to future events.”). Nevertheless, a claim

of fraud may not serve as an alternative means of enforcing an oral agreement within the

Statute of Frauds, because “‘the breach of a promise which the law does not regard as

binding is not a fraud.’” Austin v. Cash, 274 Mont. 54, 62, 906 P.2d 669, 674 (1995)

(quoting Schwedes v. Romain, 179 Mont. 466, 473, 587 P.2d 388, 392 (1978)).

¶55 The Morrows are not merely seeking to enforce an oral agreement. Independent

of their allegations that Bank of America promised to grant them a modified loan, they

also allege Bank of America misrepresented the status of their existing loan and serviced

that loan in an unfair and deceptive manner. The District Court erred in concluding that

the Statute of Frauds precluded the Morrows’ claims of actual fraud, constructive fraud,

and violations of the MCPA. We now address the merits of each of these claims in turn.
24
¶56 Issue Five: Whether the District Court erred in granting summary judgment to
Bank of America on the Morrows’ claim of actual fraud.

¶57 A party asserting a claim of actual fraud must establish the following elements:

(1) a representation; (2) the falsity of that representation; (3) the materiality
of the representation; (4) the speaker’s knowledge of the representation’s
falsity or ignorance of its truth; (5) the speaker’s intent that the
representation should be acted upon by the person and in the manner
reasonably contemplated; (6) the hearer’s ignorance of the representation’s
falsity; (7) the hearer’s reliance upon the truth of the representation; (8) the
hearer’s right to rely upon the representation; and (9) the hearer’s
consequent and proximate injury or damages caused by their reliance on the
representation.

Franks v. Kindsfather, 2005 MT 51, ¶ 17, 326 Mont. 192, 108 P.3d 487. Once a prima

facie case is established, “[a]ctual fraud is always a question of fact.” Franks, ¶ 18

(citing § 28-2-404, MCA).

¶58 The Morrows’ claim of fraud rests on the same factual allegations as their claim of

negligent misrepresentation. Supra ¶ 47. We have already noted in our discussion of

negligent misrepresentation that the Morrows’ allegations raise genuine issues of material

fact regarding whether Bank of America made false representations; whether the

Morrows knew of the falsity of the representations; whether the Morrows relied on those

representations; whether their reliance was justified; and whether they were damaged as a

result. Supra ¶¶ 47-50. As we also noted, it does not appear to be contested that the

statements, if made, were intended to guide the Morrows in repaying their loan. Supra

¶ 48. Under the facts alleged, it is clear the statements were material in that they led

directly to the Morrows’ default and subsequent foreclosure proceedings.

25
¶59 The Morrows must also show that Bank of America made the alleged statements

with knowledge of their falsity or ignorance of their truth. Franks, ¶ 17. The Dissent

argues that evidence of a fraudulent intent or intent to deceive is required to establish a

prima facie case of actual fraud. Dissent, ¶ 89. Fraud does not require knowledge of the

statement’s falsity. Franks, ¶ 17. The requisite knowledge may also be established

where the defendant is ignorant of whether the statement is true. Franks, ¶ 17. A

statement made with “reckless disregard for the truth” is sufficient. Brown, 197 Mont. at

11, 640 P.2d at 458. The “intent to deceive or dishonesty of purpose” to which our cases

have referred pertains to the “fifth element,” which is the defendant’s intent that its

statement be relied upon. Town of Geraldine v. Mont. Mun. Ins. Auth., 2008 MT 411,

¶ 28, 347 Mont. 267, 198 P.3d 796. Thus, the Morrows must establish that Bank of

America “made a representation with the ‘intent it be relied upon’ to satisfy the intent

element of a prima facie fraud claim.” W. Sec. Bank, ¶ 61 (citing Durbin v. Ross, 276

Mont. 463, 469, 916 P.2d 758, 762 (1996)).

¶60 The Morrows have produced evidence of a multitude of conflicting

communications from Bank of America regarding the status of both their existing loan

and their application for a modification. They have also produced evidence of

communications regarding Bank of America’s loan servicing policies, which Bank of

America says do not accurately represent its policies. This evidence raises genuine issues

of material fact regarding whether the representatives who allegedly made these

statements did so despite their ignorance of whether the statements were true. The

Morrows have stated a prima facie case of fraud, and the factual issues they have raised
26
should now be resolved by a jury. Franks, ¶ 18. We therefore reverse the order of the

District Court granting summary judgment to Bank of America on the Morrows’ claim of

actual fraud.

¶61 Issue Six: Whether the District Court erred in granting summary judgment to Bank
of America on the Morrows’ claim of constructive fraud.

¶62 Constructive fraud is a breach of duty which, without fraudulent intent, creates an

advantage for the breaching party by misleading another person to that person’s

prejudice. Section 28-2-406, MCA. The Dissent argues that constructive fraud, as

defined by statute, provides only grounds for rescinding a contract. Dissent, ¶ 95. We

find several cases allowing a plaintiff to seek damages for constructive fraud

independently of any action to rescind a contract. Mattingly, 285 Mont. at 218-20, 947

P.2d at 71-73 (recognizing claim for constructive fraud where no request for rescission

was brought); Lee v. Armstrong, 244 Mont. 289, 295, 798 P.2d 84, 88 (1990) (awarding

damages for actual and constructive fraud where defendant was not a party to the

contract; damages were therefore “clearly not rescission or breach of contract damages”);

McGregor v. Mommer, 220 Mont. 98, 108-09, 714 P.2d 536, 542-43 (1986) (question of

constructive fraud properly submitted to jury although remedy of rescission was barred

by laches). This precedent leads us to disagree with the conclusion of the Dissent that the

Morrows’ claim of constructive fraud must fail because they do not seek to rescind a

contract. Dissent, ¶ 95.

¶63 We have already determined that, based on the facts alleged, Bank of America

owed a fiduciary duty to the Morrows. Supra ¶ 37. If the facts establishing this duty are

27
not ultimately proven, however, we note that a fiduciary duty is not required to support a

claim of constructive fraud. Mattingly, 285 Mont. at 218, 947 P.2d at 72; McGregor, 220

Mont. at 109, 714 P.2d at 543 (“no fiduciary or confidential relationship need exist

between the parties to justify a finding of constructive fraud.”). Constructive fraud

“‘merely requires the establishment of a duty.’” Mattingly, 285 Mont. at 218, 947 P.2d

at 72 (quoting McJunkin v. Kaufman & Broad Home Sys., 229 Mont. 432, 439, 748 P.2d

910, 915 (1987)).

¶64 Even without a fiduciary duty, a duty of disclosure may arise in the following

circumstances: “‘one who speaks must say enough to prevent his words from misleading

the other party; one who has special knowledge of material facts to which the other party

does not have access may have a duty to disclose these facts to the other party . . . .’”

Deist, 208 Mont. at 216, 678 P.2d at 193 (quoting Tokarz, 656 P.2d at 1092). A duty

sufficient to support a finding of constructive fraud “may exist where one party has acted

to mislead the other in some way.” Mattingly, 285 Mont. at 219, 947 P.2d at 72. In

Lueras, the California Court of Appeal held “that a lender does owe a duty to a borrower

to not make material misrepresentations about the status of an application for a loan

modification . . . .” 163 Cal. Rptr. 3d at 821. We agree. Having provided the Morrows

with information about the repayment status of their existing loan, Bank of America had

a duty to ensure the information was not misleading. See Deist, 208 Mont. at 216, 678

P.2d at 193 (quoting Tokarz, 656 P.2d at 1092). Because Bank of America had access to

its servicing records that the Morrows did not, it also had a duty to disclose material

28
information about its servicing of the Morrows’ loan. See Deist, 208 Mont. at 216, 678

P.2d at 193 (quoting Tokarz, 656 P.2d at 1092).

¶65 As noted in our discussion of negligent misrepresentation, the Morrows have

alleged Bank of America made several misleading statements regarding the status of their

loan and their application for modification. Supra ¶ 47. The Morrows allege Bank of

America gained an advantage as a result of these statements, because the Morrows made

payments to the Bank for an additional fourteen months rather than immediately seeking

another lender or proceeding with a short sale or foreclosure. The Morrows allege these

statements also resulted in prejudice to them, because they defaulted on their loan and

allowed the default to grow for months in reliance on the Bank’s representations. Again,

Bank of America denies that its representatives made the allegedly misleading

statements. Genuine issues of material fact exist regarding the Morrows’ claim of

constructive fraud. The District Court erred in granting summary judgment to Bank of

America on this claim, and we reverse.

¶66 Issue Seven: Whether the District Court erred in granting summary judgment to
Bank of America on the Morrows’ claim under the Montana Consumer Protection Act.

¶67 The Montana Unfair Practices and MCPA of 1973 prohibits “[u]nfair methods of

competition and unfair or deceptive acts or practices in the conduct of any trade or

commerce.” Section 30-14-103, MCA. The MCPA applies to banks engaged in

consumer lending and the collection and servicing of loans. Baird v. Norwest Bank, 255

Mont. 317, 328, 843 P.2d 327, 334 (1992). A practice is unfair if it “offends established

public policy and . . . is either immoral, unethical, oppressive, unscrupulous or

29
substantially injurious to consumers.” Rohrer, ¶ 31. Specifically, it is an unfair or

deceptive practice when a party “states that a transaction involves rights, remedies or

obligations that it does not involve.” Admin. R. M. 23.19.101(1)(l). A consumer may

sue under the act if he or she has suffered “any ascertainable loss of money or property”

as the result of an unfair practice. Section 30-14-133, MCA.

¶68 The Morrows claim Bank of America instructed them to default on a loan and

make partial payments on that loan, while keeping them in a servicing status that required

them to make full payments on that loan. The Morrows claim they were not accurately

informed of their servicing status, because Bank of America told them both that they

remained in regular servicing and that they were in a modification program. These

conflicting representations sometimes occurred within a day or two of one another, only

for the cycle to be repeated again the following month. The Morrows were not granted a

decision on their modification until October 2010, ten months after they had allegedly

been told to make reduced payments. They were not informed of the reason for that

decision until five months later, in March 2011. The Morrows’ default grew for more

than a year, while Bank of America repeatedly told them to ignore it, and while the

Morrows made trial payments for fourteen months.

¶69 The allegations stated by the Morrows, if true, would constitute a practice

substantially injurious to consumers. See e.g. Wigod v. Wells Fargo Bank, N.A., 673 F.3d

547, 574-75 (7th Cir. 2012) (ineffectual implementation of HAMP sufficient to state

claim under Illinois Consumer Fraud and Deceptive Businesses Practice Act); Bosque v.

Wells Fargo Bank, N.A., 762 F. Supp. 2d 342, 353-54 (D. Mass. 2011) (deceptive
30
representations about eligibility for HAMP sufficient to state claim under Massachusetts

Consumer Protection Act). Notably, the Morrows offered an expert report from the

former Montana Commissioner of Financial Institutions, who concluded that the pattern

and practice of the Bank was unfair, irresponsible, and substandard practice. Bank of

America offered no competing expert testimony. The Bank denies it instructed the

Morrows to miss a payment or to ignore notices of default, demonstrating the existence

of genuine issues of material fact.

¶70 Bank of America also argues that the Morrows have failed to show “any

ascertainable loss of money or property” as required to state a claim under the MCPA.

Section 30-14-133, MCA. As we have already noted, the question of the Morrows’

damages should be resolved by a finder of fact. Supra ¶ 48. Therefore, we reverse the

order of the District Court granting summary judgment to Bank of America on the

Morrows’ claim for violations of the MCPA.

CONCLUSION

¶71 We affirm the District Court’s grant of summary judgment to Bank of America

regarding breach of contract and tortious breach of the implied covenant of good faith

and fair dealing. We reverse summary judgment on the Morrows’ claims of negligence,

negligent misrepresentation, actual fraud, constructive fraud, and violations of the

MCPA, and remand for further proceedings consistent with this Opinion.

/S/ MIKE McGRATH

31
We Concur:

/S/ MICHAEL E WHEAT
/S/ PATRICIA COTTER
/S/ BETH BAKER
/S/ GREGORY G. PINSKI
District Court Judge
sitting for former Justice Brian Morris

Justice Laurie McKinnon, concurring in part and dissenting in part.

¶72 At its inception, and throughout the proceedings in the District Court, this lawsuit

has been about two things: (1) enforcing a modified loan, and (2) obtaining damages for

alleged torts arising from the loan modification. What the Morrows primarily want is a

court decree that their original mortgage has been modified, pursuant to discussions with

Bank of America employees over the telephone, to have an extended term and a lower

interest rate. This is not possible, of course, because such agreements must be in writing.

Indeed, the Morrows’ attempt to enforce oral communications concerning a mortgage is

contrary to fundamental and longstanding principles of contract law, which mandate that

agreements relating to real property be in writing. Ducie v. Ford, 8 Mont. 233, 237, 19 P.

414, 415 (1888); Hinebauch v. McRae, 2011 MT 270, ¶ 23, 362 Mont. 358, 264 P.3d

1098. It is also contrary to the recording system, which is founded on the principle that

interests in real property must be written and duly recorded. Sections 70-21-301, -302,

MCA; Earl v. Pavex, Corp., 2013 MT 343, ¶¶ 17-18, 372 Mont. 476, 313 P.3d 154.

¶73 Hence, the Morrows are left with only the possibility of recovering tort damages

arising out of the manner in which Bank of America handled their request for a loan

32
modification. I agree with the Court that the Morrows have alleged facts which, if

proved, would establish that Bank of America owed them a fiduciary duty in managing

the loan-modification process. I also agree that the Morrows may pursue a claim of

negligent misrepresentation as defined in Restatement (Second) of Torts § 552 (1977).

Finally, I agree that the Morrows’ allegations regarding Bank of America’s conduct, if

true, would constitute a practice that violates the Montana Consumer Protection Act.

¶74 Beyond this, however, I do not agree with the Court’s analysis of the Morrows’

fraud claims. While I conclude, as does the Court, that the Morrows may proceed with a

claim of actual fraud, I believe our Opinion blurs the distinction between actual fraud and

negligent misrepresentation. In my view, it is important in this case that we clarify that

distinction. Furthermore, I do not agree with the Court that the Morrows have stated a

claim of constructive fraud. Thus, for these reasons, I concur in the Court’s resolution of

Issues One, Two, Three, Four, Five, and Seven, but write separately to discuss certain

facets of Issues Two, Four, and Five. I dissent as to Issue Six.

Issue Two – Negligence

¶75 I agree with the Court’s analysis and conclusion under Issue Two that the District

Court erred in granting Bank of America summary judgment on the Morrows’ negligence

claim. Since there are genuine issues of material fact regarding this claim, Opinion, ¶ 42,

I believe it is important to discuss how our decision in Gliko v. Permann, 2006 MT 30,

331 Mont. 112, 130 P.3d 155, applies in the present context.

¶76 The relationship between a bank and its customer is generally described as that of

debtor and creditor. Deist v. Wachholz, 208 Mont. 207, 216, 678 P.2d 188, 193 (1984).
33
As such, a financial institution generally owes no fiduciary duty to a borrower when the

institution’s involvement in the loan transaction does not exceed the scope of its

conventional role as a mere lender of money. Deist, 208 Mont. at 216, 678 P.2d at 193;

Lachenmaier v. First Bank Sys., Inc., 246 Mont. 26, 33, 803 P.2d 614, 618 (1990). A

limited exception to this general rule has been recognized where there is proof of “special

circumstances”—as, for example, where a bank is thrust beyond the role of a simple

creditor into the role of an advisor, thereby creating a relationship of trust and confidence.

Lachenmaier, 246 Mont. at 33, 803 P.2d at 618; Deist, 208 Mont. at 216-17, 678 P.2d at

193. To establish a fiduciary relationship, the bank must “act as a financial advisor in

some capacity, other than that common in the usual arms-length debtor/creditor

relationship.” Coles Dept. Store v. First Bank (N.A.)—Billings, 240 Mont. 226, 229, 783

P.2d 932, 934 (1989) (internal quotation marks omitted); accord First Sec. Bank v. Abel,

2008 MT 161, ¶ 34, 343 Mont. 313, 184 P.3d 318.

¶77 In Gliko, the parties disputed whether the existence of a “special relationship”

giving rise to a fiduciary duty between a bank and its customer is a question of fact or a

question of law. We noted that there were precedents supporting both approaches.

Gliko, ¶¶ 16-23. After discussing these precedents, we held that

whether a fiduciary duty exists between two parties is a question of law, not
fact, and it may be resolved on summary judgment when no genuine issues
of material fact remain. Likewise, whether a “special relationship” exists
between two parties such as would give rise to a fiduciary duty is a question
of law, not fact, for the relationship and the duty are two sides of the same
coin. To determine the existence or absence of a special relationship in
cases where it normally does not exist—such as between a bank and a
customer—a court may be required to make a fact-intensive inquiry. The
circumstances of the particular relationship are factual, and disputes over
34
 material facts will preclude summary judgment. However, the conclusion
drawn by a court from undisputed facts is one of law, not of fact.

Gliko, ¶ 24 (emphasis in original).

¶78 As clarified in Gliko, therefore, the existence of a special relationship is a question

of law that is determined by the court based on the facts of the case. Where the material

facts are undisputed, the existence of a special relationship may be resolved on summary

judgment. Gliko, ¶ 16 (citing cases standing for the proposition that, “in the absence of a

genuine issue of material fact, the question of the existence of a fiduciary relationship

could properly be resolved on summary judgment”). But, where there are genuine issues

of material fact relating to the existence of a special relationship, it becomes necessary

for a fact-finder to resolve the factual dispute one way or the other. If the fact-finder

resolves the factual dispute in favor of the customer, by finding the facts necessary to

establish a special relationship, then a fiduciary duty exists as a matter of law and the

issue then becomes whether the bank breached that duty and thereby caused the customer

damages. Conversely, if the fact-finder resolves the factual dispute in favor of the bank,

by finding facts that do not support a special relationship, then a fiduciary duty does not

exist and the customer’s negligence claim fails.

¶79 Importantly, then, in situations where the material facts are disputed, the existence

of a special relationship is still a question of law. Gliko, ¶ 24. If the court determines

that the facts alleged by the customer would not support a special relationship, even if

those facts were resolved by the fact-finder in the customer’s favor, then the customer’s

negligence claim necessarily fails and summary judgment for the bank is proper. On the

35
other hand, if the trial court determines that the facts alleged by the customer would

support a special relationship if they were resolved by the fact-finder in the customer’s

favor, then summary judgment is not proper. This latter scenario is what we have

determined exists here. Opinion, ¶ 37 (“The Morrows have alleged facts which, if

proven, would establish that Bank of America owed them a fiduciary duty.”).

¶80 Properly instructing the jury is critical to this scheme. On remand, the District

Court will need to identify the specific facts which, if proved by the Morrows, would

establish that Bank of America had a “special relationship” with them. The relevant facts

alleged by the Morrows are discussed at ¶¶ 37 and 41 of our Opinion. The District Court

also may draw from a long line of authority identifying what facts are essential to the

creation of a fiduciary duty between a bank and its customer. See e.g. Deist, 208 Mont. at

216-18, 678 P.2d at 193-94; Pulse v. N. Am. Land Title Co. of Mont., 218 Mont. 275,

283-84, 707 P.2d 1105, 1110 (1985); Simmons v. Jenkins, 230 Mont. 429, 433-34, 750

P.2d 1067, 1070 (1988); Shiplet v. First Sec. Bank of Livingston, Inc., 234 Mont. 166,

176, 762 P.2d 242, 248 (1988); Simmons Oil Corp. v. Holly Corp., 258 Mont. 79, 85-86,

852 P.2d 523, 526-27 (1993). The District Court will then need to instruct the jurors that

if they find these facts were proved by a preponderance of the evidence, then Bank of

America owed the Morrows a fiduciary duty and the jurors must proceed to the questions

of breach, causation, and damages. The jurors will need to be further instructed that if

they find these facts were not proved, then Bank of America owed the Morrows no duty

and there is nothing further to determine regarding the Morrows’ negligence claim.

36
¶81 I believe that instructing the jurors in this manner is necessary to maintain our

clarifications in Gliko. The facts, where there is a genuine dispute, are determined by a

fact-finder.1 But whether the facts, if resolved by the fact-finder in the plaintiff’s favor,

would be sufficient to establish a “special relationship” creating a fiduciary duty is

determined as a matter of law by the court. With these observations, I concur in the

Court’s resolution of Issue Two.

Issue Four – Statute of Frauds

¶82 The District Court agreed with Bank of America’s argument that the Morrows

cannot use fraud claims to enforce an alleged oral contract. In this respect, I believe the

District Court’s decision is correct. As we explain, “a claim of fraud may not serve as an

alternative means of enforcing an oral agreement within the Statute of Frauds, because

‘the breach of a promise which the law does not regard as binding is not a fraud.’”

Opinion, ¶ 54 (quoting Austin v. Cash, 274 Mont. 54, 62, 906 P.2d 669, 674 (1995)). To

hold Bank of America liable in fraud for failing to honor an unenforceable contract would

effectively nullify the Statute of Frauds.

¶83 In litigation of this nature, however, the parties and the court must recognize the

subtle distinctions between (1) a contract action where a party is trying to enforce or

rescind a contract and (2) a tort action where a party is alleging fraud surrounding an

alleged contract. For example, an action is permissible for fraudulent representations that

preceded a contract and allegedly induced the aggrieved party into signing the contract.

1
We noted in Gliko, ¶ 25, that although the existence of genuine issues of material fact is
not always easily ascertained, neither conclusory assertions nor mere disagreement about the
interpretation of a fact constitutes a genuine issue of material fact.
37
Such an action is in tort, independent of any contract action. State ex rel. Dimler v.

Eleventh Jud. Dist. Ct., 170 Mont. 77, 81-82, 550 P.2d 917, 919-20 (1976); see also Falls

Sand & Gravel Co. v. W. Concrete, Inc., 270 F. Supp. 495, 500 (D. Mont. 1967) (“‘[O]ne

who has been fraudulently induced into a contract may elect to stand by that contract and

sue for damages for the fraud.’” (quoting Bankers Trust Co. v. Pac. Employers Ins. Co.,

282 F.2d 106, 110 (9th Cir. 1960))). We have also stated that the Statute of Frauds does

not apply to liability based on fraud or negligent misrepresentation. Phil-Co Feeds, Inc.

v. First Natl. Bank in Havre, 238 Mont. 414, 421, 777 P.2d 1306, 1311 (1989).

¶84 I thus agree with the Court that an action in tort may be maintained independently

of an action in contract, given appropriate facts. Opinion, ¶ 54. Nevertheless, as Justice

Cotter noted in her dissent in Town of Geraldine v. Mont. Mun. Ins. Auth., 2008 MT 411,

347 Mont. 267, 198 P.3d 796, “the dividing line between breaches of contract and torts

often lies in a twilight zone, where it is difficult to determine whether the case applies

strictly to the one or to the other.” Town of Geraldine, ¶ 37 (Cotter & Leaphart, JJ.,

dissenting) (internal quotation marks omitted). I believe the dividing line in the present

case—between the contract claim to enforce an oral modification to a mortgage, and the

tort claims seeking damages based on the parties’ underlying communications—lies in

that “twilight zone.” Nevertheless, the Morrows have alleged that Bank of America

made material representations which turned out to be false, and that they were injured

due to their justified reliance on these representations. These allegations are independent

of the Morrows’ contract claim and sound in tort. I thus concur in the Court’s conclusion

38
that the District Court erred in granting summary judgment to Bank of America on the

Morrows’ non-contract claims, based on the Statute of Frauds. Opinion, ¶ 55.

Issue Five – Actual Fraud

¶85 According to the Court’s Opinion, the Morrows may establish claims of negligent

misrepresentation and actual fraud if they prove the following:

negligent misrepresentation: Bank of America, in the course of its business,
supplied false information for the guidance of the Morrows in their business
transaction; Bank of America failed to exercise reasonable care or competence in
obtaining or communicating this information; the Morrows justifiably relied upon
the information; and the Morrows suffered pecuniary loss as a result. Opinion,
¶¶ 45-46 (citing Restatement (Second) of Torts § 552).

actual fraud: Bank of America made a false representation to the Morrows; the
representation was material to their requested loan modification; Bank of America
knew the representation was false or was ignorant of its truth; Bank of America
intended the Morrows to act upon the representation in the manner reasonably
contemplated; and the Morrows were ignorant of the representation’s falsity,
justifiably relied upon its truth, and suffered damages as a result. Opinion, ¶ 57.

¶86 As articulated, these two causes of action appear essentially the same. Both are

satisfied if the Bank supplied false information for the Morrows’ use or guidance, the

Bank was ignorant (perhaps due to a lack of reasonable care) about the information’s

truth, and the Morrows justifiably relied on the information to their detriment. Indeed,

the Court states that “[t]he Morrows’ claim of fraud rests on the same factual allegations

as [their] claim of negligent misrepresentation.” Opinion, ¶ 58. In particular, the Bank

allegedly made several false statements regarding the servicing of the Morrows’ existing

loan and the status of their application for a loan modification; the statements were made

in the course of the Bank’s business and for the Morrows’ guidance; the Bank failed to

exercise reasonable care in obtaining the information and was ignorant of the statements’
39
truth or falsity; and the Morrows did not know of the statements’ falsity and suffered

damages due to their justifiable reliance on the statements. Opinion, ¶¶ 47-51, 58-60.

¶87 I believe we have lost sight of the distinction between actual fraud and negligent

misrepresentation. Initially, it is important to note that actual fraud may be based on

common law or statute. The statutory provision states:

Actual fraud, within the meaning of this part, 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 to the contract 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 the 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 28-2-405, MCA (emphasis added, paragraph breaks omitted). As reflected in the

italicized language, actual fraud involves an “intent to deceive . . . or to induce” another

party. A showing of actual fraud under this statute means that consent to a contract was

not given freely and the party is entitled to rescind the contract. See §§ 28-2-102(2),

-301(1), -302, -401(1)(c), -404, -405, -1711(1), MCA. Here, however, the Morrows do

not seek to rescind a contract. If anything, they seek to enforce one. Hence, the Morrows

are not asserting statutory actual fraud. Rather, they assert common law actual fraud.

¶88 The common law definition of actual fraud consists of the nine elements set forth

at ¶ 57 of today’s Opinion and in numerous prior cases, such as Franks v. Kindsfather,

2005 MT 51, ¶ 17, 326 Mont. 192, 108 P.3d 487, and Town of Geraldine, ¶ 28. These

elements can be traced back through our caselaw to Lee v. Stockmen’s Natl. Bank of

40
Hardin, 63 Mont. 262, 207 P. 623 (1922), where we adopted the definition of actual fraud

set forth in Corpus Juris:

In order to go to the jury the plaintiff must make out a prima facie
case embracing the elements of actual fraud, viz.: (1) A representation;
(2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity,
or ignorance of its truth; (5) his intent that it should be acted upon by the
person and in the manner reasonably contemplated; (6) the hearer’s
ignorance of its falsity; (7) his reliance upon its truth; (8) his right to rely
thereon; (9) and his consequent and proximate injury. (26 C.J. 1062.)

63 Mont. at 284, 207 P. at 630 (citing 26 C.J. Fraud § 6 (1921)). This rule presently may

be found at 37 C.J.S. Fraud § 12 (2008). A showing of actual fraud as a common law

tort entitles the person to damages. See e.g. Cartwright v. Eq. Life Assurance Socy. of the

U.S., 276 Mont. 1, 22-26, 914 P.2d 976, 990-91 (1996).

¶89 The Court opines that an “intent to deceive or injure” is not required to establish

actual fraud. Opinion, ¶ 59 (citing W. Sec. Bank v. Eide Bailly LLP, 2010 MT 291, ¶ 61,

359 Mont. 34, 249 P.3d 35). This is incorrect. As stated in the same authority from

which we adopted the nine-element definition of actual fraud, “a fraudulent intent, or an

intent to deceive, is an essential element of fraud.” 26 C.J. Fraud § 44 (footnotes

omitted); accord 37 C.J.S. Fraud § 4 (“Actual fraud is intentional fraud, with an intent to

deceive being an essential element thereof.”). Moreover, we have recognized in several

cases that common law actual fraud includes an “intent to deceive or dishonesty of

purpose.” State ex rel. State Compen. Mut. Ins. Fund v. Berg, 279 Mont. 161, 175-76,

927 P.2d 975, 983 (1996); accord Town of Geraldine, ¶ 28; Barrett v. Holland & Hart,

256 Mont. 101, 107, 845 P.2d 714, 717 (1992) (“intent to misrepresent”); see also e.g.

Durbin v. Ross, 276 Mont. 463, 470-71, 916 P.2d 758, 763 (1996) (posing a hypothetical
41
example of actual fraud in which real estate brokers “lied in order to sell a property”).2

Intent to deceive “means that the party charged [with actual fraud] was inspired by a

deliberate, fraudulent purpose to injure and deceive the party complaining. Actual fraud

implies deceit, artifice, and design, and imports the active operation of the mind.”

37 C.J.S. Fraud § 4 (footnote omitted). This mental state, “consisting in an intent to

deceive, manipulate, or defraud,” is known as scienter. Black’s Law Dictionary 1463

(Bryan A. Garner ed., 9th ed., Thomson Reuters 2009). The scienter requirement is a

critical distinction between actual fraud and negligent misrepresentation. Restatement

(Second) of Torts § 552 cmt. a (actual fraud involves “intent to deceive,” whereas

negligent misrepresentation involves “good faith coupled with negligence”); Falls Sand

& Gravel, 270 F. Supp. at 501 (“an action for negligent misrepresentation is quite

different from an action for intentional fraudulent and deceitful misrepresentation, since

there is no requirement of scienter”); Barrett, 256 Mont. at 107, 845 P.2d at 717

(“Negligent misrepresentation has a lesser standard of proof than [actual] fraud. Rather

than requiring an intent to misrepresent, it requires a showing of a failure to use

reasonable care or competence in obtaining or communicating the information.”).

2
Western Security Bank, upon which the Court relies for the contrary proposition (see
Opinion, ¶ 59), is not persuasive. There, the Court first faulted the district court for “cit[ing] no
authority” for the “intent to injure” standard, and then merely cited to the nine-element definition
of actual fraud as authority that “intent to injure” is not required. W. Sec. Bank, ¶¶ 60-62 (citing
Durbin, 276 Mont. at 469, 916 P.2d at 762, and May v. ERA Landmark Real Estate of Bozeman,
2000 MT 299, ¶ 21, 302 Mont. 326, 15 P.3d 1179). Neither Western Security Bank nor May,
however, contains any in-depth analysis of the nine-element definition. Neither opinion
addressed our statements in Berg, Town of Geraldine, and Barrett, or the principles stated in
Corpus Juris and the Restatement. Moreover, as just noted, our Durbin opinion includes a
discussion that is actually consistent with recognition of an “intent to deceive or injure” standard.
42
¶90 “Because an intent to defraud is generally not susceptible to direct proof, it

invariably must be proven by circumstantial evidence.” 37 C.J.S. Fraud § 42. Such

intent may be established “by inferences drawn from examining the scheme itself which

demonstrate that the scheme was reasonably calculated to deceive persons of ordinary

prudence and comprehension.” 37 C.J.S. Fraud § 42. An intent to deceive “cannot be

inferred merely from the falsity of a statement,” 26 C.J. Fraud § 44, or from “mere

carelessness” by the speaker, 37 C.J.S. Fraud § 42. But it may be inferred where the

speaker makes a statement “with knowledge of its falsity,” “in reckless ignorance,” or “in

positive terms importing a knowledge of which the speaker is consciously ignorant,” and

the speaker intends the statement to “be acted upon by a party reasonably within the

contemplation of the speaker.” 26 C.J. Fraud § 44. In other words, intending that a

statement be acted upon, while consciously ignorant of whether the statement is true,

suggests a fraudulent intent on the part of the speaker.

¶91 The Court posits that knowledge of the statement’s falsity is not required and that

“[t]he requisite knowledge may also be established where the defendant is ignorant of

whether the statement is true.” Opinion, ¶ 59. I agree that actual knowledge is not

required, but I do not agree that simple ignorance, by itself, is sufficient. Again, the

authority from which we adopted the nine-element definition of actual fraud explains that

“ignorance of [the representation’s] truth” means that the speaker “doubts the truth of his

representations,” speaks “with conscious ignorance or reckless indifference as to their

truth or falsity,” or makes “unqualified” assertions that “import[ ] a knowledge of which

the speaker is consciously ignorant.” 26 C.J. Fraud §§ 37, 39, 40, 44 (footnotes omitted).
43
Similarly, the Restatement sets forth three conditions under which a misrepresentation is

fraudulent: “A misrepresentation is fraudulent if the maker (a) knows or believes that the

matter is not as he represents it to be, (b) does not have the confidence in the accuracy of

his representation that he states or implies, or (c) knows that he does not have the basis

for his representation that he states or implies.” Restatement (Second) of Torts § 526.

“The fact that the misrepresentation is one that a [person] of ordinary care and

intelligence in the maker’s situation would have recognized as false is not enough to

impose liability” for fraudulent misrepresentation (actual fraud). Restatement (Second) of

Torts § 526 cmt. d. “Fraudulent” means that the speaker had “knowledge of the untrue

character of his representation.” Restatement (Second) of Torts § 526 cmt. a. This does

not mean the speaker must have had actual knowledge of the falsity. It is sufficient if the

speaker was conscious of a likelihood that the facts may not be as he represented them:

In order that a misrepresentation may be fraudulent it is not
necessary that the maker know the matter is not as represented. Indeed, it is
not necessary that he should even believe this to be so. It is enough that
being conscious that he has neither knowledge nor belief in the existence of
the matter he chooses to assert it as a fact. Indeed, since knowledge implies
a firm conviction, a misrepresentation of a fact so made as to assert that the
maker knows it, is fraudulent if he is conscious that he has merely a belief
in its existence and recognizes that there is a chance, more or less great, that
the fact may not be as it is represented.

Restatement (Second) of Torts § 526 cmt. e (emphasis added).

¶92 Thus, both the Restatement and Corpus Juris recognize that, at a minimum, a

“conscious” ignorance by the speaker about whether his or her statements are true is

necessary to establish actual fraud. Without evidence that the defendant at least

“recognize[d] that there is a chance, more or less great, that the fact may not be as it is
44
represented,” Restatement (Second) of Torts § 526 cmt. e, it is impossible to infer that the

defendant intended to deceive the plaintiff. As discussed, an intent to deceive,

manipulate, or defraud is an essential element of actual fraud and is the critical distinction

between actual fraud and negligent misrepresentation—the latter involving “good faith

coupled with negligence.” Restatement (Second) of Torts § 552 cmt. a. Accordingly, in

my view, the Court errs in suggesting that merely being unaware or oblivious about a

representation’s truth or falsity is sufficient. Opinion, ¶ 59.

¶93 Here, the Morrows did not expressly allege in their First Amended Complaint that

Bank of America had an intent to deceive, manipulate, or defraud them. And, frankly, I

question what Bank of America would have hoped to gain from such an effort. It seems

to me that what the Morrows’ allegations genuinely reflect is a classic claim of negligent

misrepresentation resulting from Bank of America’s left hand not knowing what its right

hand was doing. This view finds support in the Court’s footnote referring to the Consent

Order, which “notes that Bank of America failed to devote appropriate resources,

oversight, and training to its foreclosure processes.” Opinion, ¶ 39 n. 2.

¶94 Nevertheless, the Morrows did allege in their First Amended Complaint that Bank

of America “knew” its representations to the Morrows “were false.” The Morrows have

presented evidence of a multitude of conflicting communications from the Bank. A jury

could infer from the Morrows’ evidence that Bank employees were at least consciously

aware that the facts they communicated to the Morrows likely were not as represented.

Restatement (Second) of Torts § 526 cmt. e. I thus concur in the Court’s conclusion that

the District Court erred in granting summary judgment to Bank of America on the
45
Morrows’ actual fraud claim. I do so, however, with recognition that actual fraud does

not contemplate merely making statements about which the speaker is ignorant; it instead

contemplates that the speaker had some degree of “knowledge of the untrue character of

his representation,” Restatement (Second) of Torts § 526 cmt. a, and “was inspired by a

deliberate, fraudulent purpose to injure and deceive” the plaintiff, 37 C.J.S. Fraud § 4.3

Issue Six – Constructive Fraud

¶95 As a final matter, I disagree with the Court’s analysis of constructive fraud. Our

cases discussing constructive fraud have tied such claims to § 28-2-406, MCA, as the

Court does again today. See Opinion, ¶ 62; Harris v. St. Vincent Healthcare, 2013 MT

207, ¶ 30, 371 Mont. 133, 305 P.3d 852; In re Adoption of S.R.T., 2011 MT 219, ¶ 17,

362 Mont. 39, 260 P.3d 177; Lee v. Armstrong, 244 Mont. 289, 294, 798 P.2d 84, 87-88

(1990); McJunkin v. Kaufman & Broad Home Sys., Inc., 229 Mont. 432, 439, 748 P.2d

910, 914-15 (1987). This statute and the other provisions of Title 28, chapter 2, MCA,

pertain to contract formation, enforcement, modification, and extinction. Actual fraud

under § 28-2-405, MCA, and constructive fraud under § 28-2-406, MCA, are referred to

in the Code as “[t]he contract definitions of fraud,” not the tort definitions of fraud.

Section 27-1-221(4), MCA (emphasis added). Constructive fraud under § 28-2-406,

MCA, is a ground for rescinding a contract. See e.g. Gliko, ¶¶ 31, 36. Here, however,

3
Although a plaintiff may allege both actual fraud (intent to deceive) and negligent
misrepresentation (failure to exercise reasonable care) as to the same course of conduct, the
plaintiff “cannot recover under [both] theories” because “a defendant cannot be found to have
committed an act both intentionally and negligently.” Textron Fin. Corp. v. Nationwide Mut.
Ins. Co., 684 N.E.2d 1261, 1269 (Ohio App. 9th Dist. 1996). Thus, if the Morrows prevail on
their actual fraud claim, their negligent misrepresentation claim becomes moot, and vice versa.
46
the Morrows do not seek to rescind a contract. If anything, they seek to enforce one.

Hence, the Morrows are not asserting constructive fraud under § 28-2-406, MCA. As a

matter of fact, they do not cite or make any argument under this statute in their briefs, and

the statute thus does not apply. In my view, the Court errs by nevertheless applying

§ 28-2-406, MCA—a ground for rescinding a contract—when we have determined that

the alleged contract (a modified loan agreement) does not exist in the first place. Our

reasoning is unsound and will cause confusion in subsequent applications of the statute.

¶96 Perceiving that I have concluded that the Morrows’ constructive fraud claim must

fail “because they do not seek to rescind a contract,” the Court cites several cases for the

proposition that a plaintiff may seek damages for constructive fraud apart from any action

to rescind a contract. Opinion, ¶ 62 (citing Mattingly v. First Bank of Lincoln, 285 Mont.

209, 947 P.2d 66 (1997), Lee, 244 Mont. 289, 798 P.2d 84, and McGregor v. Mommer,

220 Mont. 98, 714 P.2d 536 (1986)). It appears the Court has misapprehended my point.

I agree that a plaintiff may seek damages for the tort of constructive fraud (assuming

such a tort has been recognized), independent of any contract action. But I disagree that

the tort of constructive fraud is defined by a statute (§ 28-2-406, MCA) that undeniably

sets forth a “contract definition[ ] of fraud.” Section 27-1-221(4), MCA (emphasis

added). The provisions of Title 28 were not intended to create causes of action sounding

in tort. Construing statutory language identical to § 28-2-406, MCA, the South Dakota

Supreme Court determined that constructive fraud under this statute will support an

action to avoid a contract, but not a tort action for damages. Schmidt v. Wildcat Cave,

Inc., 261 N.W.2d 114, 116-17 (S.D. 1977); Harding Co. v. Frithiof, 575 F.3d 767, 774
47
(8th Cir. 2009) (citing Schmidt). Here, the Morrows do not seek to avoid or rescind a

contract pursuant to § 28-2-406, MCA. Their constructive fraud claim is intended as a

tort claim, not a contract claim, and we err by perpetuating the erroneous use of a

contract statute for the purpose of defining the elements of a tort.

¶97 Unlike actual fraud—which is defined for contract purposes in § 28-2-405, MCA,

and for tort purposes in our nine-element definition discussed above—this Court has

never articulated a common law definition of constructive fraud. I question whether it is

necessary to do so, given our determination in Bottrell v. American Bank, 237 Mont. 1,

20-21, 773 P.2d 694, 706 (1989), that constructive fraud and negligent misrepresentation

are coextensive when based on the same misrepresentation and the breach of a legal

duty.4 But assuming, for the sake of discussion, that we should adopt a common law

cause of action for constructive fraud, whatever else such a claim might entail it would

include the requirement (also contained in § 28-2-406, MCA) that the defendant gained

an advantage from the alleged fraud. We have explained that “[c]ourts may invoke

constructive fraud as a matter of law to prevent a party from being unjustly enriched as a

result of false statements made, even if the false statement is not knowingly made.”

Durbin, 276 Mont. at 470, 916 P.2d at 762. It is said that “[c]onstructive fraud is a fraud
4
“Legal duty” in this context refers to a fiduciary relationship or a duty that arises from
“special circumstances.” Bottrell, 237 Mont. at 20-21, 773 P.2d at 706. In effect, we held in
Bottrell that constructive fraud is subsumed within negligent misrepresentation. We explained
that the fields of liability for constructive fraud and for negligent misrepresentation are
concentric circles with a common center and differing radii, where the liability in each theory is
based on misrepresented facts. The radius of the negligent misrepresentation circle is greater
than the radius of the constructive fraud circle because negligent misrepresentation may occur
both where there is a breach of a legal duty (like constructive fraud) and where there is merely a
failure to exercise reasonable care (unlike constructive fraud). Bottrell, 237 Mont. at 21, 773
P.2d at 706.
48
that arises by the operation of law from conduct, which if sanctioned by law, would

secure an unconscionable advantage [to the defendant], irrespective of the actual intent to

defraud.” 37 C.J.S. Fraud § 5 (footnote omitted); accord 37 Am. Jur. 2d Fraud and

Deceit § 33 (2013) (“[T]he primary difference between pleading a claim for constructive

fraud and one for breach of fiduciary duty is the constructive fraud requirement that the

defendant benefit himself or herself.”).

¶98 Here, I disagree with the Court’s assertion that the Morrows have alleged Bank of

America gained an advantage from making misleading statements regarding the status of

their loan and their application for modification. Opinion, ¶ 65. I see no such allegation

in the constructive fraud allegations of their First Amended Complaint, in their summary

judgment briefing, or in their briefs on appeal. Moreover, aside from failing to allege that

Bank of America gained an advantage from the allegedly misleading statements, the

Morrows also fail to identify what that supposed advantage was. The Court opines that

the Bank gained an advantage because the Morrows made payments to the Bank for an

additional 14 months rather than immediately seek another lender or proceed with a short

sale or foreclosure. Opinion, ¶ 65. Again, the Morrows made no such allegations.

Furthermore, the Morrows had a preexisting contractual obligation to the Bank to make

monthly mortgage payments of $2,301.28. The monthly payments the Morrows made

during the 14-month period ($1,239.99) were approximately half of what the Bank was

entitled to receive under the original mortgage. As the Court concedes, the Bank had no

obligation in the first place to avoid foreclosure or to grant a modification of the loan.

Opinion, ¶ 39. Thus, it could be argued that the Bank incurred a disadvantage from the
49
Morrows’ reduced payments. In short, there is no evidence, let alone allegations, that the

Bank was “unjustly enriched” as a result of conflicting statements about the servicing of

the Morrows’ existing loan and the status of their application for a modification. Durbin,

276 Mont. at 470, 916 P.2d at 762. For this reason, I believe the District Court correctly

granted summary judgment to Bank of America on the constructive fraud claim, and I

dissent from the Court’s contrary holding.

¶99 In conclusion, I dissent as to Issue Six and, except as otherwise stated above, I

concur as to all other issues.

/S/ LAURIE McKINNON

Justice Jim Rice joins the Concurrence and Dissent of Justice Laurie McKinnon.

/S/ JIM RICE

50