No. 90-031
IN THE SUPREME COURT OF THE STATE OF MONTANA
JOHN HAROLD LEE, JR., and SALLY
JEAN LEE,
Plaintiffs and Respondents,
JANE C. ARMSTRONG, a/k/a CLARA JANE
ARMSTRONG, a/k/a JANE ARMSTRONG DUNN, ,..
a
VICTORIA KAY PIEDALUE, r ,-
,
Gj
Defendants and Appellants.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable Jack L. Green, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Hugh G. Kidder, Missoula, Montana
For Respondent:
William R. Baldassin, Sullivan & Baldassin,
Missoula, Montana
Submitted on Briefs: May 16, 1990
Decided: July 30, 1990
Filed:
Justice John C. Sheehy delivered the Opinion of the Court.
Jane C. Armstrong appeals from the determination of the
District Court, Fourth Judicial District, Missoula County, that
Armstrongus failure to convey real property to respondents
constituted actual and constructive fraud entitling respondents to
$17,838.50 in actual damages, $5,000 in punitive damages, $8,818.89
in attorney fees and costs. We affirm.
Appellant has raised numerous issues, several of which are not
material to our determination whether to affirm the case. We
therefore limit the issues raised by Armstrong to the following:
1. Whether the District Court erred in concluding that
Armstrong's acts and representations constituted actual fraud.
2. Whether the District Court erred in concluding that
Armstrong's acts concealed the true state of affairs concerning the
property, constituting constructive fraud.
3. Whether the District Court erred in awarding Leeusactual
and punitive damages.
Jeanne A. Roth sold real property to Cunninghams in December,
1976. Cunninghams sold 20.1 acres of this property to Stiner in
January, 1979. Stiner divided her property in two and sold 10
acres to Sheppard in May of 1979. Sheppard divided his property
in two and sold 5 acres to appellant Clara Jane Armstrong and her
husband, Byron John Armstrong, by contract for deed in May, 1979.
Armstrongs acquired their interest as tenants in common.
Byron John Armstrong died in August, 1983. Prior to her
husband's death, Jane C. Armstrong, by certificate of survey,
attempted to divide the parcel in two, as 1.25 acre and 3.75 acre
plots. This certificate was not signed by the other owner, Byron
John Armstrong, and was not signed by Jane C. Armstrong in the name
in which she acquired her interest. No instrument of record was
ever filed with the Missoula County Clerk and Recorder terminating
the interest of Byron John Armstrong. After the death of her
husband, Jane Armstrong again attempted to divide the property by
certificate of survey, dividing the 3.75 acre portion into three
1.25 acre parcels. This second attempted division was deficient
for the same reasons as the first.
Jane Armstrong attempted to transfer her interest in the 1.25
acre parcel at issue to her daughter, Victoria Kay Piedalue. No
document transferring the interest of Jane Armstrong to Victoria
Piedalue was ever recorded.
On or about August 1, 1984, respondents, John Harold Lee and
Sally Jean Lee, entered into a contract for deed to purchase the
property at issue from Victoria Kay Piedalue. All discussions and
negotiations regarding the contract for deed occurred between the
Lees and Jane Armstrong, acting as Piedaluels attorney in fact.
Piedalue had no involvement with the transaction.
The underlying Sheppard to Armstrong contract provided that
"Grantees expressly understand that the property described herein
is unrecordable in the Office of the Missoula County Clerk and
Recorder until Grantor can qualify for an occasional sale exemption
within the terms of the Montana Subdivision and Platting Act."
Jane Armstrong failed to include a similar provision in the
Armstrong-Lee contract which she personally drafted.
Jane Armstrong also failed to include the following language
mandated under 5 76-3-303(5), MCA, to be included in all contracts
for deed: "The real property which is the subject hereof has not
been finally platted, and until a final plat identifying the
property has been filed with the county clerk and recorder, title
to the property cannot be transferred in any manner." Nor did the
contract provide that the payments by Lees were not to be
distributed by the escrow agent to Piedalue or Armstrong until the
final plat was filed, and that if the plat was not filed within two
years of preliminary approval, all payments were to be refunded.
The contract for deed contained a covenant that Piedalue had
marketable title to the property when, in fact, she had no
recordable interest in the property whatsoever.
The contract was subject to underlying obligations, and states
that Lees were purchasing the property subject to those
obligations. However, the Lees were not permitted to review the
underlying Sheppard-Armstrong contract despite repeated requests.
Jane Armstrong had represented that Lees could prepay the entire
remaining balance at any time upon two weeks' advance notice. No
restrictions are noted in either the contract or the escrow
agreement. However, had Lees been able to review the Sheppard-
Armstrong contract, they would have seen that Jane Armstrong could
not freely prepay all consideration due under the underlying
contract until the year 1997.
Jane Armstrong indicated that she had filed the final
certificate of survey, when in fact she had not done so. It was
not filed until after this suit commenced. Armstrong also
represented she would record the notice of purchasers interest, and
took $50 from Lees for that purpose. That notice was not recorded.
On December 4, 1985, the Lees, through counsel, notified
Armstrong and Piedalue of their default under the contract for
failure to file the certificate of survey or notice of purchaser's
interest. In the letter, Armstrong and Piedalue were urged to take
all curative measures. In follow-up correspondence dated May 9,
1986, counsel for Lees informed Piedalue and Armstrong that in
light of their failure to act, the escrow agent had been instructed
to hold all funds until status of the title had been resolved.
On August 1, 1986, Lees filed suit, alleging fraud,
constructive fraud, deceptive practices, and breach of contract.
Default was entered against Piedalue on June 3, 1987.
On November 17, 1987, Lees notified Armstrong's attorney by
certified mail that Lees were willing and able to pay the remaining
balance on the contract, and stated that Armstrong had 10 days to
provide proof of clear and unencumbered title to the property in
order to forestall litigation. Armstrong failed to comply.
The case proceeded to a bench trial on July 17, 1989. The
District Court found for the Lees on all issues. This appeal
resulted.
Jane Armstrong contends that the District Court erred in
attributing fraud to her acts. Specifically, Armstrong states that
her representations that Piedalue could and would convey title to
the Lees and that there was a legally established parcel were not
acts constituting actual fraud.
The unrefuted facts of this case are that Jane Armstrong
represented that Piedalue had good and merchantable title at the
time of the contract, when Piedalue neither had title nor any
recorded interest in the property whatsoever. Armstrong's argument
is that since she was not obligated to produce title until the
entire contract price was paid, the fact that she could not produce
good title at the beginning of the contract does not constitute
fraud. This argument has no merit in this case. One of the bases
for fraud was that Jane Armstrong represented that the seller had
good and merchantable title when she did not. In addition,
Armstrong failed to inform Lees that her late husband's interest
in the property had not been terminated. Armstrong told Lees that
they could prepay the balance due at any time, and that the final
certificate of survey relating to the property had been filed.
These representations were false.
This Court has previously stated the nine requisite elements
of fraud, in Van Ettinqer v. Pappin (1978), 180 Mont. 1, 588 P.2d
988, 994:
1. A representation;
2. Falsity of the representation;
3. Materiality of the representation;
4. Speaker's knowledge of the falsity of the representation
or ignorance of its truth;
5. Speaker's intent it should be relied upon;
6. The hearer's ignorance of the falsity of the
representation;
7. The hearer's reliance on the representation;
8. The hearer's right to rely on the representation;
9. Consequent and proximate injury caused by the reliance on
the representation.
The trial court specifically found Armstrong's above-stated
representations to be false, and the materiality thereof. The
court further found that Armstrong knew or should have known of
their falsity, that Lees were unaware of the falsity and rightfully
relied upon the representations. This Court will not set aside the
lower court's findings absent clear error. Rule 52(a), M.R.Civ.P.
The evidence will be viewed in the light most favorable to the
prevailing party, and credibility of witnesses and the weight
accorded their testimony is for the District Court's determination
in non-jury settings. Bauer Ranch, Inc. v. Mountain West Farm
Bureau Mutual Insurance Co. (1985), 215 Mont. 153, 695 P.2d 1307.
Jane Armstrong next contends that the lower court erred in its
findings of constructive fraud. Specifically, Armstrong states
that no constructive fraud was perpetrated upon the Lees regarding
the true state of affairs of the property, as Lees had ample time
and the duty to discover all pertinent facts.
However, the record is clear that Lees were persistent in
their requests to view the underlying contract between Armstrong
and her seller. Armstrong prevented Lees from viewing that
contract, thereby denying Lees the opportunity to discover the
defects in the title. Without viewing the underlying contract,
Lees had no means of detecting the falsity of Armstrong's
assertions that Lees could prepay the amount due on their contract.
Also clear from the record is that Armstrong represented that
Piedalue had an interest in the property, Armstrong having conveyed
her interest to Piedalue. This representation was false, as no
transfer of that interest was ever recorded and Armstrong was
unable, as one of two tenants in common, to effect such a transfer.
Further, Armstrong repeatedly assured Lees that a final
certificate of survey would be filed. Nonetheless, the final
certificate was not filed until after Lees were compelled to file
suit.
Section 28-2-406, MCA, describes constructive fraud:
What constitutes constructive fraud. Constructive fraud
consists in: (1) any breach of duty which, without an
actually fraudulent intent, gains an advantage to the
person in fault or anyone claiming under him by
misleading another to his prejudice or to the prejudice
of anyone claiming under him; or (2) any such act or
omission as the law especially declares to be fraudulent,
without respect to actual fraud.
In Moschelle v. Hulse (1980), 190 Mont. 532, 622 P.2d 155, 158,
this Court, in construing 5 28-2-406, MCA, stated:
Dishonesty of purpose or intent to deceive is not a
requirement under this statute. Other jurisdictions hold
that constructive fraud is invoked as a matter of law to
prevent a party from being unjustly enriched as a result
of false statements made, even if the deception is not
knowingly made. (Cites omitted.)
Withholding relevant facts concerning purchased property
can be a fraudulent act. (Cite omitted.) Furthermore,
where a vendor by his conduct or words creates a false
impression concerning a matter of vital importance to the
purchaser, full disclosure of relevant facts may be
required.
This Court further stated in Jenkins v. Hillard (1982), 199
Mont. 1, 647 P.2d 354, 357, that:
. [Wlhere a contract is induced by false
representations as to material existent facts, which are
made with the intent to deceive, and upon which the
plaintiff relied, it is no defense, to an action for
recission or for damages arising out of the deceit, that
the party to whom the representations were made might,
with due diligence, have discovered their falsity, and
that he made no searching inquiry into the facts . . .
(Citing authority.)
The District Court here found that Jane Armstrong had a duty
to disclose the facts regarding the title and the underlying
contract. Armstrong did not fully disclose all pertinent facts,
which the lower court found constituted constructive fraud.
Armstrong next contends that the District Court erred in
granting Lees damages under recission of contract, rather than
damages for breach of contract.
Armstrong misconstrues the damages awarded Lees. The court
awarded the Lees $17,838.50 in actual damages resulting from
Armstrong's fraud and misrepresentation. This amount consisted of
Lee's down payment and monthly payments, property improvements and
moving expenses. These were out-of-pocket expenses incurred by the
Lees that the court found recoverable due to Armstrong's actual or
constructive fraud. These are clearly not recission or breach of
contract damages, as Armstrong was not a party to the contract.
Armstrong argues that, at the least, the $7,965 in monthly payments
(of $135 per month) should not be recoverable, but should be
considered as rent. We disagree. Lees rightfully assumed at the
time they entered the contract that their $135 per month payments
would entitle them to use the property and to build equity in it.
Because of Armstrong's fraud, Lees built up no equity, and
Armstrong should not prosper by her misrepresentation. The court's
actual damages award was proper.
Armstrong also takes issue with the court's award of $5,000
in punitive damages, citing 5 27-1-220, MCA, which prohibits
8
punitive damages arising from a contract. However, 5 27-1-220 was
enacted in 1987, while this suit was filed in 1986. Compiler's
Comments to the Annotations state that § 27-1-220 affects only
those claims arising after the effective date of the Act. The
statute in effect at the time suit was filed was 5 27-1-221, MCA
(1985), which read:
When exemplary damages allowed. (1) Subject to
subsection (2), in any action for a breach of an
obligation not arising from contract where the defendant
has been guilty of oppression, fraud, or malice, actual
or presumed, the jury, in addition to the actual damages,
may give damages for the sake of example and by way of
punishing the defendant.
This Court has determined that if the conduct of a particular
defendant is found to be fraudulent, under 5 27-1-221, MCA,
punitive damages may be awarded and an underlying contract does not
defeat such an award. Purcell v. Automatic Gas Distributors, Inc.
(1983), 207 Mont. 223, 673 P.2d 1246. The amount of punitive
damages awarded is within the sound discretion of the trier of
fact, Castillo v. Franks (1984), 213 Mont. 232, 690 P.2d 425, and
where the District Court sits as trier of fact, it may award
punitive damages. Shors v. Branch (1986), 221 Mont. 390, 720 P.2d
239.
Jane Armstrong raises the issue of whether the lower court
erred in its determination that she is not entitled to attorney
fees under 5 28-3-704, MCA, and its provision for reciprocal
contract rights to such fees. However, as Armstrong has been
unsuccessful in both her suit and appeal, the application of the
statute affords her no relief for attorneys fees.
a a. w
Affirmed.
Justice
We Concur: A