No. 81-139
IN THE SUPREME COURT OF THE STATE OF MONTANA
1981
NIGEL MENDS and CATHERINE J. MENDS,
Plaintiffs and Appellants,
WAYNE R. DYKSTRA, PATRICIA R. DYKSTRA,
and JERRY R. GOSSEL,
Defendants and Respondents.
Appeal from: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin.
Honorable W.W. Lessley, Judge presiding.
Counsel of Record:
For Appellants:
Berg, Coil, Stokes and Tollefsen, Bozeman, Montana
For Respondents:
Zion Law Firm, Helena, Montana
Submitted on briefs: July 30, 1981
Decided : November 25, 1.9 8 1
Filed:
Mr. J u s t i c e F r e d J . Weber d e l i v e r e d t h e O p i n i o n of t h e C o u r t .
P l a i n t i f f s s u e d f o r r e s c i s s i o n of a c o n t r a c t t o p u r c h a s e
d e f e n d a n t s ' d w e l l i n g , o r i n t h e a l t e r n a t i v e , f o r damages
because of d e f e c t s i n t h e dwelling. A judgment was e n t e r e d
f o r t h e defendants i n accordance with t h e jury v e r d i c t i n
t h e E i g h t e e n t h J u d i c i a l D i s t r i c t C o u r t , G a l l a t i n County. We
reverse t h e D i s t r i c t Court, holding t h a t it e r r e d i n r e f u s i n g
p l a i n t i f f s ' i n s t r u c t i o n s on c o n s t r u c t i v e f r a u d , and i n g i v i n g
a n a 1t e r n a t e f r a u d i n s t r u c t i o n .
I n May o f 1978, w h i l e v i e w i n g homes f o r s a l e i n t h e
B e l g r a d e a r e a w i t h t h e i r r e a l t o r , N i g e l and C a t h e r i n e Mends
n o t i c e d a " F o r S a l e " s i g n o u t s i d e t h e h o u s e owned by Wayne
a n d P a t r i c i a D y k s t r a , and s t o p p e d i n , unannounced, to meet
t h e owners and l o o k t h e h o u s e o v e r . Because t h e y l i k e d t h e
l o o k s o f t h e h o u s e , t h e v i e w , a n d t h e p r i c e o f $41,000, the
Mends made a n e a r n e s t money o f f e r o f $200 which was a c c e p t e d
by t h e D y k s t r a s . Between t h e end o f May a n d e a r l y August
when t h e Mends moved i n t o t h e h o u s e , t h e y v i s i t e d i t t h r e e
times. Each t i m e t h e y were p e r m i t t e d t o walk a r o u n d t h e
h o u s e and y a r d p r e t t y much a s t h e y p l e a s e d . During t h e
Mends' f i r s t , unannounced, v i s i t , M r s . Dykstra pointed o u t
t h a t t h e h o u s e had no c e n t r a l h e a t i n g , b u t was h e a t e d by a
f i r e p l a c e i n t h e d i n i n g room, a f i r e p l a c e i n t h e l i v i n g
room, and t h r e e e l e c t r i c s p a c e h e a t e r s . During t h e second
v i s i t , t h e D y k s t r a s t o l d t h e Mends t h a t M r . Dykstra i s a
c a r p e n t e r and t h a t h e b u i l t t h e h o u s e h i m s e l f f o r h i s
f a m i l y t o l i v e i n ; t h a t t h e D y k s t r a s and t h e i r young c h i l d r e n
had l i v e d c o m f o r t a b l y i n t h e h o u s e summer and w i n t e r ; a n d
t h a t t h e r e had been no p r o b l e m s w i t h p i p e s f r e e z i n g s i n c e
Dykstras closed i n t h e garage. Mr. Dykstra mentioned t h a t
t h e house was n o t e n t i r e l y completed -- t h e w e l l h o u s e
s h o u l d b e i n s u l a t e d , and a h a l f - b a t h r o o m and t h e f a m i l y room
made o f t h e c o v e r e d - o v e r g a r a g e needed f i n i s h i n g and i n s u l a t i n g .
On t h e t h i r d v i s i t i n m i d - J u l y , Mr. Dykstra explained
a g a i n t h a t t h e f a m i l y room and h a l f - b a t h needed f i n i s h i n g
and t h e w e l l h o u s e needed i n s u l a t i n g . Mr. Mends a s k e d M r .
D y k s t r a i f t h e r e w e r e any o t h e r p r o b l e m s w i t h t h e h o u s e h e
s h o u l d know a b o u t and M r . Dykstra responded t h a t he could
n o t t h i n k of a n y t h i n g e l s e .
The Mends w e r e u n a b l e t o o b t a i n c o n v e n t i o n a l f i n a n c i n g
f o r t h e purchase of t h e house u n l e s s they i n s t a l l e d c e n t r a l
h e a t i n g , s o t h e y a p p l i e d f o r a n F.H.A. i n s u r e d l o a n and
s i g n e d a second e a r n e s t money a g r e e m e n t , t h i s one i n d i c a t i n g
t h a t t h e amount due t h e D y k s t r a s would b e $42,800. The
s e c o n d a g r e e m e n t c o n t a i n e d t h e p h r a s e " c o n d i t i o n a l upon no
a d d i t i o n a l work t o b e r e q u i r e d by a p p r a i s a l " w r i t t e n i n by
Mrs. Dykstra. N e i t h e r p a r t y wanted t o have t o i n v e s t more
i n a l t e r a t i o n s t o t h e house. I t was u n d e r s t o o d and a g r e e d
t h a t i f t h e i n d e p e n d e n t a p p r a i s a l r e q u i r e d by t h e F.H.A.
indicated r e p a i r s o r a l t e r a t i o n s w e r e necessary before an
F.H.A. i n s u r e d l o a n c o u l d b e a p p r o v e d , t h e s a l e was o f f .
The a p p r a i s a l , c o n d u c t e d by a n i n d e p e n d e n t a p p r a i s e r a s
r e q u i r e d by t h e F.H.A., r e s u l t e d i n a p p r o v a l of a n F.H.A.
i n s u r e d l o a n t o t h e Mends, who t h e n p u r c h a s e d t h e D y k s t r a
house. The c l o s i n g was on August 8 , 1978. The D y k s t r a s had
g i v e n t h e Mends t h e house key d u r i n g t h e Mends' t h i r d v i s i t ,
i n mid-July; t h e Mends moved i n a t l e a s t a week b e f o r e
closing. They found t h e h o u s e p l e a s a n t and c o m f o r t a b l e
u n t i l September. They d i d n o t c a l l i n anybody t o i n s p e c t
t h e h o u s e i n t h e week o r more b e f o r e c l o s i n g .
I n l a t e September, w i t h c o o l e r w e a t h e r , t h e Mends t r i e d
t o h e a t t h e i r house. The f i r e p l a c e i n t h e d i n i n g room would
n o t draw and f i l l e d t h e house w i t h smoke. The c o n c r e t e
f i r e b o x i n t h e l i v i n g room f i r e p l a c e began t o c r a c k and
crumble w i t h t h e h e a t , l e a v i n g a h o l e a t t h e back of t h e
firebox. The f a l l r a i n s caused l e a k a g e around t h e d i n i n g
room chimney, which was surrounded a t t h e r o o f l e v e l by
a s b e s t o s b o a r d s h e l d i n by a s b e s t o s wadding and c h i p s i n s t e a d
of proper f l a s h i n g . There w e r e g a p s a t t h e chimney c o r n e r s
which p e r m i t t e d w a t e r t o r u n down o n t o t h e c e i l i n g and d r i p
i n t o t h e d i n i n g room. N i g e l Mends s e a l e d o f f t h e chimney
w i t h r o o f i n g compound and i n s t a l l e d a woodstove. The i n s t a l l a t i o n
uncovered a number of o t h e r d e f e c t s i n t h e c o n s t r u c t i o n of
t h e house, which were l a t e r confirmed by a Bozeman h o u s i n g
inspector. C e i l i n g j o i s t s were few and f a r between; t h e
s h e e t r o c k c e i l i n g was l a i d a c r o s s a n i m i t a t i o n beam made of
1 x 4's. I n some p l a c e s i t was j u s t b a l a n c e d on t h e "beam."
C e i l i n g j o i s t s b a l a n c e d a g a i n s t t h e 1 x 4 ' s o r were h e l d up
by t w i s t e d b a i l i n g w i r e " l i k e you would a f e n c e c o r n e r . "
Much of t h e c e i l i n g i n s u l a t i o n was u p s i d e down. An e l e c t r i c a l
j u n c t i o n box between t h e s h e e t r o c k and i n s u l a t i o n above t h e
l i v i n g room c e i l i n g was uncovered w i t h b a r e w i r e s exposed
and c o n n e c t i o n s d a n g l i n g . Roof r a f t e r s which were t o o s h o r t
w e r e p i e c e d t o g e t h e r " w i t h l i t t l e broken up p i e c e s " of 1 x
4's. The Mends' a t t e m p t s t o c o n t a c t D y k s t r a s w e r e u n s u c c e s s f u l ,
and t h e D y k s t r a s ' r e a l t o r informed N i g e l Mends t h a t t h e
Mends w e r e p i c k y and t h e s o - c a l l e d f l a w s were merely " d i f f e r e n c e
i n p e r c e p t i o n of d e t a i l . "
The Mends bundled up and made do w i t h t h e i r woodstove
a l t h o u g h t h e house was d r a f t y and c o l d and b e c a u s e t h e w a t e r
h e a t e r s were v e r y s m a l l t h e r e o f t e n was n o t enough h o t
water. I n m i d - ~ e c e m b e r , and a g a i n b e f o r e N e w Y e a r ' s Day,
the pipes froze. The second t i m e t h e y remained f r o z e n u n t i l
April. The pump i n t h e w e l l house f r o z e and b u r s t , a s d i d
t h e p i p e s under t h e bathroom. When a plumber w a s c a l l e d h e
was u n a b l e t o g e t u n d e r t h e house b e c a u s e t h e " c r a w l s p a c e "
was o n l y a few i n c h e s d e e p . During t h e w i n t e r , t h e Mends
made s e v e r a l more a t t e m p t s t o e s t a b l i s h communication w i t h
t h e D y k s t r a s , b u t t h e i r l e t t e r s w e r e n o t answered. They
a l s o c a l l e d i n a p r o f e s s i o n a l b u i l d i n g c o n t r a c t o r t o look a t
t h e house. H i s t e s t i m o n y r e v e a l s t h a t h e had l i v e d n e x t
d o o r t o t h e D y k s t r a s f o r two w i n t e r s , 1975-76 and 1976-77.
During t h a t t i m e t h e i r plumbing f r o z e " f i v e o r s i x t i m e s "
e a c h w i n t e r , and t h e D y k s t r a s came t o h i s home f o r w a t e r and
t o borrow a s p a c e h e a t e r . The cm-hramr t e s t i f i e d t h a t p i p e s
f r o z e i n b o t h t h e new and o l d s e c t i o n s o f t h e house. When
t h e Mends c a l l e d him o v e r t o check o u t t h e h o u s e , h e found
" a b o u t 85 p e r c e n t " o f t h e f l a w s l i s t e d below by b u i l d i n g
i n s p e c t o r B a r r i c k , and he a d v i s e d N i g e l Mends t o b u l l d o z e
t h e h o u s e down and s t a r t o v e r ; t h e c o s t o f c o r r e c t i n g t h e
d e f e c t s would b e a t l e a s t a s g r e a t a s s t a r t i n g from t h e
ground and b u i l d i n g a s a f e and s t a b l e new h o u s e . Finally,
on J u l y 3 , 1979, t h e Mends g o t Bozeman c i t y b u i l d i n g i n s p e c t o r ,
Don B a r r i c k , t o come o u t and l o o k f o r d e f e c t s i n t h e i r
house. H i s r e p o r t t o them, d a t e d J u l y 1 5 , 1979, a l a r m e d t h e
Mends enough t h a t t h e y moved o u t o f t h e h o u s e b e f o r e t h e end
of J u l y . B a r r i c k ' s testimony, besides affirming t h e e x i s t e n c e
of t h o s e flaws a l r e a d y d e s c r i b e d , i n d i c a t e s t h a t h i s i n s p e c t i o n
uncovered t h e f o l l o w i n g m a j o r d e f e c t s , among many o t h e r
d e f e c t s of less importance:
1) The c o n c r e t e f o o t i n g s f o r t h e h o u s e w e r e n o t s e t
i n t h e ground b u t p o u r e d o v e r t h e t o p o f t h e g r o u n d , l e a v i n g
t h e e n t i r e s t r u c t u r e s u b j e c t t o f r o s t heaves and d i f f e r e n t i a l
s e t t l e m e n t which would b r e a k t h e f o u n d a t i o n and c r a c k t h e
walls. Some c r a c k i n g i n t h e f o o t i n g s and i n t h e rockwork
above t h e f o u n d a t i o n was a l r e a d y e v i d e n t .
2) The e x t e r i o r s i d i n g was made o f C e l o t e x , a k i n d o f
f i b e r b o a r d which i s n o t i n t e n d e d f o r e x t e r i o r u s e , a s i t
a b s o r b s m o i s t u r e and w i l l e v e n t u a l l y d e t e r i o r a t e and f a l l
off. C e r t a i n p a r t s of t h e s i d i n g i n t h e Mends house were
a l r e a d y " v e r y n e a r t h e p o i n t of f a l l i n g o f f . "
3) Because of t h e u s e of d i s s i m i l a r w i r e s ( c o p p e r and
aluminum), s p l i c e s w i t h o u t j u n c t i o n boxes, and b r e a k e r boxes
w i t h h i g h e r amperage l e v e l t h a n t h e w i r e s , t h e e l e c t r i c a l
system posed a s e r i o u s f i r e h a z a r d .
4) Improper framing o v e r d o o r s and windows, under t h e
f l o o r s , and i n t h e r o o f had r e s u l t e d i n d r a g g i n g d o o r s ,
s p r i n g y f l o o r s , and a s a g i n t h e r o o f . In f a c t several
f l o o r j o i s t s were s u p p o r t e d by a r o c k s i t t i n g on t h e ground
under t h e house.
5) The f i r e b o x was c o n c r e t e i n s t e a d of f i r e b r i c k ; t h e
c o n c r e t e had c r a c k e d from t h e h e a t and a l l o w e d h e a t b u i l d u p
behind t h e f i r e b o x ; t h e a r e a behind t h e f i r e b o x was n o t
p r o t e c t e d and t h e r e was r e a l danger of a major f i r e .
6) The plumbing system was i n a d e q u a t e l y v e n t e d ; t h e
sewer g a s e s might back up, c r e a t i n g a s a n i t a t i o n problem.
7) The woodstove i n t h e f a m i l y room ( c l o s e d - i n g a r a g e )
was t o o c l o s e t o c o m b u s t i b l e m a t e r i a l s and posed a f i r e
hazard.
B a r r i c k t e s t i f i e d t h a t t h e home w a s n e i t h e r s a f e n o r
s t a b l e and t h a t r e p a i r s would be v e r y c o s t l y . H e stated
t h a t a person experienced i n construction p r a c t i c e s could
d i s c o v e r most of t h e d e f e c t s " j u s t by l o o k i n g a t them," b u t
t e s t i f i e d t h a t , i n o r d e r t o look a t many of them, i t would
be n e c e s s a r y t o s c r a t c h under t h e c o n c r e t e f o o t i n g s , c r a w l
around u n d e r n e a t h t h e house i f t h e r e - c r a w l s p a c e , remove
was
s h e e t r o c k w a l l s , remove p a n e l s o v e r w i r i n g , open e l e c t r i c a l
d i s t r i b u t i o n boxes, and go up i n t o t h e a t t i c .
N i g e l and C a t h e r i n e Mends f i l e d t h i s a c t i o n , i n i t i a l l y
f o r damages a l o n e , a g a i n s t Wayne and P a t r i c i a D y k s t r a , b o t h
r e a l t o r s i n v o l v e d i n t h e s a l e , and t h e i n d e p e n d e n t f e e
a p p r a i s e r , J e r r y G o s s e l , whose i n i t i a l a p p r a i s a l of t h e
house r e s u l t e d i n t h e a p p r o v a l of a n F.H.A. insured loan.
S u b s e q u e n t l y t h e c o m p l a i n t was amended t o a l l o w f o r r e s c i s s i o n
of t h e c o n t r a c t and a r e t u r n t o Mends of a l l moneys p a i d , a s
a n a l t e r n a t i v e t o damages. The a c t i o n w a s d i s m i s s e d a s t o
t h e two r e a l t o r s . On t h e morning t r i a l began, p l a i n t i f f s
Mends and d e f e n d a n t G o s s e l s t i p u l a t e d t h a t G o s s e l c o n s e n t e d
t o judgment a g a i n s t him i n t h e amount of $5,000.
T r i a l commenced on October 1 4 , 1980; and c o n t i n u e d f o r
f o u r days. The D i s t r i c t C o u r t r u l e d t h a t t h e r e was no
constructive fraud i n t h i s case, refused t o i n s t r u c t the
j u r y on c o n s t r u c t i v e f r a u d , and a d v i s e d c o u n s e l t h a t t h e y
were n o t t o t a l k a b o u t c o n s t r u c t i v e f r a u d i n t h e i r c l o s i n g
arguments. The j u r y r e t u r n e d a v e r d i c t a g a i n s t t h e p l a i n t i f f s .
The D i s t r i c t C o u r t d e n i e d p l a i n t i f f s ' motion f o r judgment
n o t w i t h s t a n d i n g t h e v e r d i c t and f o r a new t r i a l . The D i s t r i c t
C o u r t allowed d e f e n d a n t s ' d e p o s i t i o n c o s t s i n t h e amount of
$497.50. P l a i n t i f f s appeal.
P l a i n t i f f s maintain t h a t t h e D i s t r i c t Court e r r e d i n
refusing t o give p l a i n t i f f s ' i n s t r u c t i o n s No. 1 4 and No. 17,
and i n g i v i n g i t s own proposed i n s t r u c t i o n A. (Given a s
i n s t r u c t i o n No. 9. )
During t h e s e t t l i n g of j u r y i n s t r u c t i o n s p l a i n t i f f s
o b j e c t e d t o one of d e f e n d a n t s 1 i n s t r u c t i o n s b e c a u s e , although
it defined a c t u a l fraud, it f a i l e d t o d e f i n e c o n s t r u c t i v e
fraud. The f o l l o w i n g d i s c u s s i o n t h e n t o o k p l a c e :
"THE COURT: [ t o d e f e n s e c o u n s e l ] [I]s i t
your p o s i t i o n t h a t c o n s t r u c t i v e f r a u d can
be used i n t h i s case?
"MR. REYNOLDS: [ d e f e n s e c o u n s e l ] No.
"THE COURT: Is t h a t b e c a u s e o f t h e r e l a -
t i o n s h i p of t h e p a r t i e s ?
"MR. REYNOLDS: Because o f t h e r e l a t i o n s h i p
between t h e p a r t i e s and b e c a u s e o f t h e con-
t r a c t between t h e p a r t i e s .
"THE COURT: I so rule. I so rule. No
constructive fraud, sir.
". . . I ' v e r u l e d t h a t t h e r e i s n ' t any con-
s t r u c t i v e fraud. I ' m s u r e w e ' r e going t o
b e i n a p o s i t i o n where w e ' r e g o i n g t o h a v e
t o t a k e your arguments. B u t , I assume t h a t
y o u ' r e n o t g o i n g t o b e embarred [ s i c ] by
m e a d m o n i s h i n g e i t h e r o n e o f you. You're
not talking about constructive fraud. "
A s a r e s u l t of the trial court's ruling, plaintiffs1
p r o p o s e d i n s t r u c t i o n s 1 4 and 1 7 w e r e r e f u s e d . Instruction
17 states:
"The c o n s e n t o f t h e p a r t y o f a c o n t r a c t m u s t
b e f r e e . An a p p a r e n t c o n s e n t i s n o t r e a l o r
f r e e when o b t a i n e d t h r o u g h f r a u d o r m i s t a k e .
"Fraud i s e i t h e r a c t u a l o r c o n s t r u c t i v e .
". .
. [ s t a t u t o r y d e f i n i t i o n of a c t u a l f r a u d
omitted. I
"Constructive fraud consists in:
" 1 . Any b r e a c h of d u t y which, w i t h o u t a n
a c t u a l l y f r a u d u l e n t i n t e n t , g a i n s a n advan-
t a g e t o t h e p e r s o n i n f a u l t o r anyone c l a i m -
i n g u n d e r him by m i s l e a d i n g a n o t h e r t o h i s
p r e j u d i c e o r t o t h e p r e j u d i c e o f anyone
c l a i m i n g u n d e r him; o r
"2. Any s u c h a c t o r o m i s s i o n a s t h e law
s p e c i a l l y d e c l a r e s t o be fraudulent, without
respect t o a c t u a l fraud.
" M i s t a k e o f f a c t i s a m i s t a k e n o t c a u s e d by
t h e n e g l e c t o f a l e g a l d u t y on t h e p a r t of
t h e p e r s o n making t h e m i s t a k e and c o n s i s t i n g
i n a n unconscious ignorance o r f o r g e t f u l l n e s s
[ s i c ] of a f a c t , p a s t o r present, material t o
t h e c o n t r a c t . l1
The d e f i n i t i o n s i n c l u d e d i n t h i s i n s t r u c t i o n a r e v i r t u a l l y
i d e n t i c a l t o t h o s e s t a t u t o r y d e f i n i t i o n s of a c t u a l f r a u d ,
( S e c t i o n 28-2-405, MCA) , c o n s t r u c t i v e f r a u d ( S e c t i o n 28-2-
406, MCA) and m i s t a k e of f a c t ( S e c t i o n 28-2-409, MCA) . In-
struction 14 states:
"The p l a i n t i f f s have a l l e g e d t h a t t h e y w e r e
f r a u d u l e n t l y induced i n t o e n t e r i n g i n t o t h e
c o n t r a c t w i t h t h e d e f e n d a n t s . Fraud of t h e
n a t u r e involved i n t h e claim of f r a u d u l e n t
inducement i s d e f i n e d a s e i t h e r c o n s t r u c t i v e
fraud o r a c t u a l fraud.
" C o n s t r u c t i v e f r a u d o c c u r s when a p a r t y t o a
t r a n s a c t i o n c o n c e a l s from t h e o t h e r p a r t y
m a t e r i a l f a c t s a b o u t t h e n a t u r e of t h e t r a n s -
action.
" ... [common law d e f i n i t i o n o f a c t u a l f r a u d
omitted . I
" I f you f i n d t h a t t h e d e f e n d a n t s D y k s t r a
have committed e i t h e r c o n s t r u c t i v e o r a c t u a l
f r a u d , t h e n you may a l s o f i n d t h a t t h e y a r e
l i a b l e f o r damages a s a r e s u l t o f f r a u d i n
t h e inducement a s a g a i n s t t h e p l a i n t i f f s .
The t r i a l c o u r t i n s t r u c t e d t h e j u r y a s f o l l o w s :
"You a r e i n s t r u c t e d t h a t where m a t e r i a l f a c t s
a r e known t o o n e p a r t y and n o t t o t h e o t h e r ,
f a i l u r e t o d i s c l o s e them i s n o t a c t i o n a b l e
fraud. " ( I n s t r u c t i o n No. 9 . )
P l a i n t i f f s objected t o t h a t i n s t r u c t i o n a s n o t being a
c o m p l e t e s t a t e m e n t o f t h e law. P l a i n t i f f s maintain t h a t i n
L y l e v. Moore (19791, Mont. , 599 P.2d 336, 339, 36
S t . Rep. 1307, 1312, and i n B A J I 12:36 ( 4 t h Ed.), both c i t e d
by t h e t r i a l c o u r t a s s o u r c e s f o r t h e i n s t r u c t i o n , t h e law
a l l o w e d f o r e x c e p t i o n s when a d u t y t o d i s c l o s e would e x i s t .
I n L y l e v. Moore, s u p r a , t h e f i n d i n g o f a d u t y t o
d i s c l o s e t u r n e d on t h e e x i s t e n c e of a f i d u c i a r y r e l a t i o n s h i p
between s e l l e r and b u y e r . This Court's f u l l statement w a s :
"As w e have n o t e d , t h e r e a r e t i m e s when t h e
law imposes a d u t y upon a p a r t y t o speak
r a t h e r t h a n t o remain s i l e n t and t h e r e b y t o
d i s c l o s e information t o place t h e person with
whom he i s d e a l i n g on a n e q u a l f o o t i n g w i t h
him. The f a i l u r e t o speak i n s u c h a c a s e
amounts t o t h e s u p p r e s s i o n of a f a c t which
s h o u l d have been d i s c l o s e d and c o n s t i t u t e s
fraud. "
The B A J I c i t a t i o n was c o n s i d e r a b l y a b b r e v i a t e d by t h e
D i s t r i c t Court. The f u l l i n s t r u c t i o n i n t h e c u r r e n t volume
of B A J I f o l l o w s :
"Except a s you may o t h e r w i s e be i n s t r u c t e d ,
where m a t e r i a l f a c t s a r e known t o one p a r t y
and n o t t o t h e o t h e r , f a i l u r e t o d i s c l o s e
them i s n o t a c t i o n a b l e f r a u d u n l e s s t h e r e i s
some r e l a t i o n s h i p between t h e p a r t i e s which
g i v e s r i s e t o a d u t y t o d i s c l o s e such known
facts.
"A d u t y t o d i s c l o s e known f a c t s a r i s e s where
t h e p a r t y having knowledge of t h e f a c t s i s i n
a fiduciary or a confidential relationship
which imposes on him a d u t y of d i s c l o s u r e .
"A f i d u c i a r y o r a c o n f i d e n t i a l r e l a t i o n s h i p
e x i s t s whenever under t h e c i r c u m s t a n c e s t r u s t
and c o n f i d e n c e r e a s o n a b l y may be and i s
r e p o s e d by one p e r s o n i n t h e i n t e g r i t y and
f i d e l i t y of a n o t h e r .
"[A d u t y t o d i s c l o s e known f a c t s a r i s e s [in
t h e a b s e n c e of a f i d u c i a r v o r c o n f i d e n t i a l
r e l a t i o n s h i p ] where - p a r t y knows of
one
m a t e r i a l f a c t s -- knows -- f a c t s
and a l s o t h a t such
a r e n e i t h e r known nor r e a d i l y a c c e s s i b l e t o
the other. party. ] "
- . - ( B A J I , 6 t h Ed. ) (~mphasis
supplied.)
The p a r t i e s a g r e e t h a t an i n d i s p e n s a b l e e l e m e n t of
c o n s t r u c t i v e fraud i s a breach of duty t o d i s c l o s e m a t e r i a l
f a c t s , b u t d e f e n d a n t s a r g u e t h a t no such d u t y e x i s t e d h e r e
b e c a u s e no f i d u c i a r y r e l a t i o n s h i p o r c o n f i d e n t i a l r e l a t i o n s h i p
e x i s t e d between t h e p a r t i e s . Defendants a r g u e t h a t t h e
Mends and t h e D y k s t r a s w e r e n e i t h e r f r i e n d s nor a c q u a i n t a n c e s
b u t "opposite p a r t i e s t o an arms-length business t r a n s a c t i o n . "
F i n a l l y , d e f e n d a n t s concede t h a t i n a few c a s e s t h i s C o u r t
h a s found t h a t s p e c i a l c i r c u m s t a n c e s s u r r o u n d i n g t h e t r a n s a c t i o n
impose a d u t y upon t h e s e l l e r t o d i s c l o s e c e r t a i n i n f o r m a t i o n
t o t h e buyer.
I n M o s c h e l l e v. H u l s e ( 1 9 8 0 ) , Mont. 622 P.2d
1 5 5 , 159, 37 S t . Rep. 1506, 1510, " a p a t t e r n of r e p e a t e d
c o n c e a l m e n t s of t h e t r u e s t a t e of a f f a i r s c o n c e r n i n g t h e
c o n d i t i o n o f t h e p r e m i s e s and p r o b a b l e b u s i n e s s e a r n i n g s "
r e s u l t e d i n a f i n d i n g t h a t b r e a c h o f a d u t y t o d i s c l o s e was
Po'Llsen @
jP
constructive fraud. I n %mben v. T r e a s u r e S t a t e I n d u s t r i e s ,
Inc. (1981), Mont. , 626 P.2d 822, 829, 38 S t . Rep.
218, 226, t h i s C o u r t found c o n s t r u c t i v e f r a u d when s e l l e r s
f a i l e d t o d i s c l o s e t o buyers " s e r i o u s impairments t o t h e
p r o p e r t y which [ t h e b u y e r s ] had no r e a s o n t o s u s p e c t . " In
Poulson, 626 P.2d a t 828, 38 S t . Rep. a t 225, w e r e l i e d upon
R u s s e l l v . R u s s e l l ( 1 9 6 9 ) , 152 Mont. 461, 465-466, 452 P.2d
7 7 , 79-80, i n support of our f i n d i n g of c o n s t r u c t i v e fraud:
". . . f r a u d i s c o m p l e t e where a vendor knowingly s u p p r e s s e s
a s e r i o u s v i c e of h i s p r o p e r t y which t h e vendee had no
reason t o suspect."
D e f e n d a n t s a r g u e t h a t t h e r e was no c o n c e a l m e n t , no
s u p p r e s s i o n of d e f e c t s i n t h e b u i l d i n g . They p o i n t o u t t h a t
p l a i n t i f f s w e r e p e r m i t t e d t o l o o k t h e house o v e r whenever
t h e y v i s i t e d , t h a t a n i n d e p e n d e n t a p p r a i s e r had e v a l u a t e d
t h e b u i l d i n g , and t h a t p l a i n t i f f s had been p e r f e c t l y f r e e t o
c a l l i n p r o f e s s i o n a l s t o i n s p e c t t h e house i n t h e s e v e r a l
weeks b e f o r e c l o s i n g , a f ter t h e D y k s t r a s had v a c a t e d t h e
p r e m i s e s and t u r n e d t h e key o v e r t o t h e Mends. Defendants
m a i n t a i n t h a t i n s u p p o r t of t h e i r c l a i m s o f c o n s t r u c t i v e
f r a u d , p l a i n t i f f s r e l y s o l e l y upon Wayne D y k s t r a ' s s t a t e m e n t
t o N i g e l Mends t h a t t h e r e w e r e no o t h e r problems w i t h t h e
house t h a t he could t h i n k o f . T h i s i s n o t enough, a r g u e
d e f e n d a n t s , t o b r i n g t h i s d i s p u t e under t h e " s p e c i a l circum-
s t a n c e s " r u l e which imposes a d u t y t o d i s c l o s e upon t h e
seller.
P l a i n t i f f s argue t h a t the t r i a l c o u r t refused t o i n s t r u c t
t h e jury i n matters c r u c i a l t o t h e i r case, i . e . , m i s t a k e and
constructive fraud. I t i s t r u e i n s t r u c t i o n s Nos. 10-14
informed t h e j u r y t h a t i f t h e y found t h a t p l a i n t i f f s ' c o n s e n t
t o t h e c o n t r a c t was g i v e n by m i s t a k e o r o b t a i n e d by f r a u d o r
by a n u n l a w f u l a c t o r o m i s s i o n of d e f e n d a n t s , t h e y m i g h t
a l s o f i n d t h a t p l a i n t i f f s were e n t i t l e d t o r e s c i n d t h e
c o n t r a c t o r c o l l e c t damages. But t h e r e f e r e n c e t o f r a u d i s
q u a l i f i e d by t h e words " a s e x p l a i n e d t o y o u , " and t h e o n l y
e x p l a n a t i o n of f r a u d a l l o w e d i n t h e i n s t r u c t i o n s o r d u r i n g
c l o s i n g argument was t h e e x p l a n a t i o n of a c t u a l f r a u d .
F u r t h e r m o r e , t h e r e i s no i n s t r u c t i o n whatsoever e x p l a i n i n g
m i s t a k e of f a c t .
The D i s t r i c t C o u r t ' s r e f u s a l of p l a i n t i f f s ' i n s t r u c t i o n s
Nos. 1 4 and 17 and i t s i n c l u s i o n of t h e a b b r e v i a t e d B A J I
i n s t r u c t i o n on d u t y t o d i s c l o s e (No. 9 ) f o l l o w e d i t s r u l i n g
t h a t c o n s t r u c t i v e f r a u d was n o t a p r o p e r e l e m e n t of t h i s
case. The t r i a l c o u r t made no r u l i n g whatsoever on t h e
e x i s t e n c e o r a b s e n c e of m i s t a k e , and y e t , i n r e f u s i n g p l a i n t i f f s '
proposed i n s t r u c t i o n No. 1 7 , r e f u s e d t h e o n l y i n s t r u c t i o n
defining mistake. M i s t a k e of f a c t i s a b a s i s f o r t h e
r e s c i s s i o n of a c o n t r a c t and was a c r i t i c a l e l e m e n t of
plaintiffs' case. A s a r e s u l t of the t r i a l court's refusal
o f t h e i n s t r u c t i o n , t h e j u r y was n o t i n s t r u c t e d on t h e
e l e m e n t s of m i s t a k e of f a c t .
The t r i a l c o u r t r u l e d t h a t t h e r e was no c o n s t r u c t i v e
f r a u d i n t h i s c a s e b e c a u s e of t h e r e l a t i o n s h i p of t h e p a r t i e s
and b e c a u s e of t h e c o n t r a c t between t h e p a r t i e s . It is true
t h a t t h e r e was n o t a f i d u c i a r y r e l a t i o n s h i p o r a c o n f i d e n t i a l
r e l a t i o n s h i p between t h e p a r t i e s , b u t t h e r e may have been
s p e c i a l c i r c u m s t a n c e s which i n Montana c a n j u s t i f y t h e
f i n d i n g of c o n s t r u c t i v e fraud. See P o u l s o n v. T r e a s u r e
S t a t e Industries, Inc., s u p r a , where a s e l l e r was found t o
have committed c o n s t r u c t i v e f r a u d upon a b u y e r by f a i l i n g t o
d i s c l o s e s e r i o u s i m p a i r m e n t s t o t h e p r o p e r t y s o l d which t h e
buyer had no r e a s o n t o s u s p e c t . I n P o u l s o n , t h e r e was
n e i t h e r a f i d u c i a r y r e l a t i o n s h i p nor a c o n f i d e n t i a l r e l a t i o n -
s h i p between t h e p a r t i e s ; t h e r e was a c o n t r a c t . This Court
stated:
". . . d e f e n d a n t s had knowledge of p o l l u t i o n
violations a t the shale plant including the
hammermill, e l e v a t o r s , s p r a y tower and
s t o r a g e and t r u c k l o a d i n g f a c i l i t i e s . Further-
more, d e f e n d a n t s were aware o f t h e w a t e r
d r a i n a g e problem . . . The r e c o r d i s v o i d of
any a t t e m p t by d e f e n d a n t s t o d i s c l o s e t h i s
i n f o r m a t i o n t o p l a i n t i f f s . " P o u l s e n v.
Treasure S t a t e I n d u s t r i e s , Mont. a t I
626 P.2d a t 828-829, 38 St.Rep. a t 225-226.
Again, i n M o s c h e l l e v. H u l s e , s u p r a , w e found c o n s t r u c t i v e
f r a u d where t h e r e was n e i t h e r a f i d u c i a r y n o r a c o n f i d e n t i a l
r e l a t i o n s h i p and t h e p a r t i e s had e x e c u t e d a c o n t r a c t of
sale. There a r e s t r i k i n g , f a c t u a l , s i m i l a r i t i e s i n Moschelle
and t h e p r e s e n t c a s e . I n Moschelle, t h i s Court s t a t e d :
"Although t h e r e c o r d d o e s n o t c l e a r l y e s t a b l i s h
a c t u a l f r a u d u l e n t i n t e n t on t h e p a r t of t h e
d e f e n d a n t s , t h e r e c a n be no d o u b t t h a t t h e i r
r e p r e s e n t a t i o n s c o n c e r n i n g t h e s u b j e c t of t h e
s a l e amounted t o c o n s t r u c t i v e f r a u d . Several
of t h e i r s t a t e m e n t s w e r e m i s l e a d i n g on t h e i r
f a c e and t h u s r e q u i r e d f u r t h e r e l a b o r a t i o n s o
a s n o t t o g i v e t h e p l a i n t i f f s t h e wrong
impression. Helen Hulse t o l d t h e p l a i n t i f f s
t h a t t h e b u i l d i n g was i n good c o n d i t i o n , b u t
t h e d e f e c t s which p l a i n t i f f s l a t e r d i s c o v e r e d
showed t h a t f u r t h e r r e p a i r s w e r e needed t o
b r i n g t h e b u i l d i n g up t o s t a n d a r d . Guy Hulse
t o l d p l a i n t i f f B r e n t M o s c h e l l e t h a t he had
i n s t a l l e d new w i r i n g i n t h e b u i l d i n g . He
n e g l e c t e d t o t e l l him t h a t h e had done s o
more t h a n t h i r t y y e a r s b e f o r e . The c o s t t o
b r i n g t h i s w i r i n g up t o s t a n d a r d was e s t i m a t e d
a t $3,259.30. Helen Hulse t o l d p l a i n t i f f
B r e n t Moschelle t h a t t h e t a v e r n was c o n n e c t e d
t o t h e c i t y sewer system, b u t s h e n e g l e c t e d
t o t e l l him t h a t he would be r e s p o n s i b l e f o r
t h e maintenance of 200 f e e t of 100-year-old
p i p e which r a n between t h e t a v e r n and c i t y
line. . .
"The d e f e n d a n t s t s t a t e m e n t s c a n n o t be excused
s i m p l y b e c a u s e d e l i b e r a t e m i s s t a t e m e n t s may
n o t have been proven. The f a c t s i n d i c a t e a
p a t t e r n of r e p e a t e d concealments of t h e t r u e
s t a t e o f a f f a i r s c o n c e r n i n g t h e c o n d i t i o n of
t h e p r e m i s e s and p r o b a b l e b u s i n e s s e a r n i n g s .
Withholding r e l e v a n t f a c t s c o n c e r n i n g p u r c h a s e d
p r o p e r t y can be a f r a u d u l e n t a c t . See R u s s e l l
v . R u s s e l l ( 1 9 6 9 ) , 152 Mont. 461, 452 P.2d 77.
F u r t h e r m o r e , where a vendor by h i s c o n d u c t o r
words c r e a t e s a f a l s e i m p r e s s i o n c o n c e r n i n g
a m a t t e r of v i t a l importance t o t h e p u r c h a s e r ,
f u l l d i s c l o s u r e of r e l e v a n t f a c t s may be r e -
quired. See Twing v. S c h o t t ( 1 9 5 9 ) , 80 Wyo.
1 0 0 , 338 P.2d 839; 1 2 W i l l i s t o n on C o n t r a c t s
( 3 r d e d . ) , 81498, a t 387; R e s t a t e m e n t of
C o n t r a c t s , S472(1) ( b ) , Comment b.
"Under t h e f a c t s h e r e , t h e d e f e n d a n t s were
under a d u t y t o make such d i s c l o s u r e s a s would
e r a s e t h e f a l s e impressions c r e a t e d i n t h e
minds of t h e p l a i n t i f f s t h a t r e p a i r s t o t h e
p r e m i s e s w e r e n o t needed and t h a t w i n t e r e a r n -
i n g s were s u f f i c i e n t f o r t h e p l a i n t i f f s t n e e d s . "
Moschelle v. Hulse, Mont. a t + , 622
P.2d a t 158, 159, 37 St.Rep. a t 1-509-1510.
I n t h i s c a s e t h e p r e s e n c e of a c o n t r a c t and t h e a b s e n c e
of a s p e c i a l r e l a t i o n s h i p between t h e p a r t i e s i s n o t enough
t o preclude a finding of c o n s t r u c t i v e fraud. The r e c o r d
i n d i c a t e s t h a t , a p a r t from Wayne Dyks t r a ' s a s s u r a n c e t o
N i g e l Mends t h a t t h e r e was n o t h i n g more he needed t o know
a b o u t t h e house, a j u r y c o u l d have found numerous i n s t a n c e s
o f t h e D y k s t r a s g i v i n g m i s l e a d i n g i n f o r m a t i o n and t e l l i n g
h a l f t r u t h s which w e r e s u f f i c i e n t t o e s t a b l i s h a d u t y t o
disclose. A j u r y c o u l d have found t h a t 1) t h e D y k s t r a s t o l d
t h e Mends t h a t t h e r e had been no problems w i t h p i p e s f r e e z i n g
s i n c e t h e g a r a g e was c o v e r e d , b u t n e g l e c t e d t o t e l l them
-
t h a t t h e p i p e s had f r o z e n i n t h e o l d s e c t i o n of t h e house
which was u n a f f e c t e d by c o v e r i n g t h e g a r a g e ; 2 ) t h e Dykstras
s a i d t h a t t h e f i r e p l a c e s w e r e used t o h e a t t h e house, b u t
neglected t o mention t h a t t h e c o n c r e t e f i r e b o x i n t h e l i v i n g
room had a l r e a d y c r a c k e d and been f i l l e d i n and r e p a i n t e d ;
3 ) t h e D y k s t r a s showed t h e Mends t h a t t h e h o u s e was e l e c t r i c a l l y
l i g h t e d and p a r t i a l l y e l e c t r i c a l l y h e a t e d , b u t n e g l e c t e d t o
i n d i c a t e t h a t t h e e l e c t r i c a l s y s t e m was s o p o o r l y c o n s t r u c t e d
t h a t i t posed a s e r i o u s f i r e hazard; 4 ) t h e Dykstras a s s u r e d
t h e Mends t h a t t h e h o u s e was cozy and c o m f o r t a b l e i n summer
and w i n t e r , b u t d i d n o t m e n t i o n t h a t t h e y l i k e d t h e i r h o u s e
c o o l e r t h a n most houses. T h e r e a r e more i n s t a n c e s a l l e g e d
t h a n w e c a n h e r e r e c o u n t of s t a t e m e n t s by t h e D y k s t r a s
which, w h i l e n o t s t r i c t l y u n t r u e , w e r e s u f f i c i e n t l y misleading
t o create a duty t o disclose. T h a t t h e d u t y was n o t m e t i s
e v i d e n t i n t h e t e s t i m o n y o f Wayne D y k s t r a h i m s e l f . On
cross-examination, h e a d m i t t e d t o b e i n g a w a r e of t h e f l a w e d
f o u n d a t i o n , sub-standard framing and f l o o r i n g , p a r t i c l e -
b o a r d s i d i n g , and d a n g e r o u s f i r e p l a c e and w i r i n g ; y e t h e
t e s t i f i e d t h a t h e d i d n o t i n f o r m t h e Mends o f any o f t h e s e
defects .
Defendants argue t h a t because t h e d e f e c t s w e r e e v i d e n t ,
t h e r e was no c o n c e a l m e n t , r e l y i n g upon Lowe v . Root ( 1 9 7 5 ) ,
166 Mont. 1 5 0 , 1 5 6 , 531 P.2d 674, 677-678, wherein t h i s
Court s t a t e s :
" ... [ i f ] a p p e l l a n t ' s i n s p e c t i o n of t h e
p r e m i s e s r e v e a l e d o r would h a v e r e v e a l e d t h e
t r u e physical condition of t h e premises,
s h e would have no r i g h t t o r e l y upon any
c o n c e a l m e n t by r e s p o n d e n t s w i t h r e s p e c t t o
t h e p h y s i c a l c o n d i t i o n of t h e premises."
I n Lowe, however, t h e C o u r t found t h a t " a l l o f t h e a l l e g e d
d e f e c t s w e r e open a n d n o t o r i o u s . . .A superficial inspection
o f t h e b u i l d i n g would r e v e a l t h e s e d e f i c i e n c i e s . " Lowe v .
Root, 166 Mont. a t 1 5 6 , 531 P.2d a t 678. I n the case a t
b a r , a c c o r d i n g t o t h e t e s t i m o n y of Don B a r r i c k , t h e Bozeman
b u i l d i n g i n s p e c t o r , i n o r d e r t o l o o k a t many of t h e d e f e c t s
i n t h e D y k s t r a h o u s e , t h e Mends would have had t o c r a w l
u n d e r t h e h o u s e where p o s s i b l e , d i g u n d e r t h e f o u n d a t i o n ,
remove s h e e t r o c k p a n e l s , f l o o r i n g and i n s u l a t i o n , and u n c o v e r
plumbing and w i r i n g . S u r e l y t h e p r o s p e c t i v e buyer of a
house should n o t be r e q u i r e d t o t a k e t h e house a p a r t board
by b o a r d t o d e t e r m i n e i t s c o n d i t i o n . The e v i d e n c e i n d i c a t e s
t h a t many o f t h e d e f e c t s i n t h i s h o u s e w e r e n o t open and
n o t o r i o u s , and f a r more t h a n a s u p e r f i c i a l i n s p e c t i o n was
necessary t o determine t h e i r existence. See Moschelle v.
Hulse, Mont. a t , 622 P.2d a t 1 5 9 , 1 6 0 , 37 S t .
Rep. a t 1 5 1 0 , 1511.
I t i s e v i d e n t t o t h i s C o u r t t h a t c o n s t r u c t i v e f r a u d was
a c r u c i a l e l e m e n t , i f n o t - c r u c i a l e l e m e n t of t h i s c a s e .
the
F u r t h e r m o r e , t h e r e w e r e numerous f a c t s i n d i s p u t e . without
making f a c t u a l d e t e r m i n a t i o n s p r o p e r l y l e f t t o t h e j u r y t h e
is t r i c t C o u r t c o u l d n o t have d e c i d e d t h a t c o n s t r u c t i v e
f r a u d was n o t a n e l e m e n t o f t h i s c a s e . W e hold t h a t t h e
D i s t r i c t Court e r r e d i n refusing p l a i n t i f f s ' proposed i n s t r u c t i o n s
No. 1 4 a n d No. 1 7 , i n g i v i n g i t s own i n s t r u c t i o n No. 9 , and
i n r e f u s i n g t o a l l o w any m e n t i o n of c o n s t r u c t i v e f r a u d i n
c l o s i n g argument.
W e r e v e r s e and remand t h i s c a s e f o
W e concur: