NO. 79-68
I N THE SUPREME COURT O THE STATE O M N A A
F F OTN
1981
H R L POULSEN, K R INGEBRIGHTON,
AOD AL
D I C K OLSON and EMERY MATSKO, J R . ,
P l a i n t i f f and Respondent,
TREASURE STATE INDUSTRIES, I N C . ,
A Montana C o r p o r a t i o n ;
and
KENNETH K . KNIGHT,
Defendant and A p p e l l a n t .
Appeal from: D i s t r i c t Court o f t h e E i g h t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e County o f Cascade.
Honorable J o e l G. Roth, J u d g e p r e s i d i n g .
Counsel o f Record:
For A p p e l l a n t :
R o b e r t Emrnons a r g u e d , G r e a t F a l l s , Montana
G r a y b i l l , O s t r e m , Warner and C r o t t y , Great F a l l s ,
Montana
Donald O s t r e m a r g u e d , G r e a t F a l l s , Montana
F o r Respondent :
Cure and Borer, G r e a t F a l l s , Montana
Edward W. Borer a r g u e d , G r e a t F a l l s , Montana
Submitted: January 1 6 , 1981
Decided :
FEB 1 8 1981
Filed: I 8 1EISI
Mr. J u s t i c e Gene B. D a l y 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 brought t h i s a c t i o n i n t h e D i s t r i c t Court of
t h e E i g h t h J u d i c i a l D i s t r i c t of t h e S t a t e o f Montana, i n and
f o r t h e County o f C a s c a d e , a g a i n s t T r e a s u r e S t a t e I n d u s t r i e s
( T S I ) and i t s f o r m e r p r e s i d e n t , K e n n e t h K n i g h t , c l a i m i n g
d e f e n d a n t s were g u i l t y o f f r a u d i n t h e e x e c u t i o n o f a
c o n t r a c t f o r deed. D e f e n d a n t TSI f i l e d a c r o s s - c l a i m
a g a i n s t K n i g h t , s e e k i n g i n d e m n i t y , and K n i g h t a l s o c r o s s -
c l a i m e d a g a i n s t TSI. Following a t r i a l t o t h e c o u r t s i t t i n g
without a jury, t h e t r i a l c o u r t e n t e r e d judgment i n f a v o r o f
p l a i n t i f f s i n t h e amount o f $ 3 0 2 , 1 2 9 . 6 5 , a d j u d g e d TSI
e n t i t l e d t o i n d e m n i t y f r o m K n i g h t , and d e n i e d K n i g h t ' s
cross-claim. Defendants appeal.
On A u g u s t 1 9 , 1 9 7 4 , d e f e n d a n t s s o l d t o p l a i n t i f f s a
s h a l e and c o n c r e t e b l o c k p l a n t , l o c a t e d n o r t h o f G r e a t
F a l l s , Montana, a l o n g w i t h s u p p o r t i n g e q u i p m e n t . This case
i n v o l v e s t h e n e g o t i a t i o n s , r e p r e s e n t a t i o n s and i n s p e c t i o n s
which t o o k p l a c e p r i o r t o t h e s a l e .
I t i s u n d i s p u t e d t h a t t h e s u b j e c t s h a l e and b l o c k p l a n t
had b e e n f o r s a l e a t l e a s t s i n c e e a r l y 1972. R o b e r t Mager
was a t a l l t i m e s d u r i n g t h e s e q u e n c e o f e v e n t s l e a d i n g up t o
t h e e x e c u t i o n o f t h e c o n t r a c t f o r d e e d t h e p l a n t manager o f
d e f e n d a n t TSI and was d e s i g n a t e d a s t h e p r o m o t e r o f t h e s a l e
i n c h a r g e o f showing p r o s p e c t i v e p u r c h a s e r s a r o u n d t h e
plant. I n t h e e a r l y s p r i n g of 1974, p l a i n t i f f s
I n g e b r i g t s o n , O l s o n and P o u l s e n became i n t e r e s t e d i n t h e
p l a n t and d e c i d e d t o i n v e s t i g a t e t h e p u r c h a s e o f t h e TSI
plant.
During t h e c o u r s e of i n s p e c t i n g t h e s h a l e p l a n t , p l a i n -
t i f f s n o t i c e d s c a f f o l d i n g around t h e s t a c k of t h e r o t a r y
kiln. I t i s t h e r e p r e s e n t a t i o n s made r e g a r d i n g t h e s c a f -
f o l d i n g which p r e s e n t t h e main bone o f c o n t e n t i o n .
P l a i n t i f f s t e s t i f i e d t h e y a s k e d Mager t h e r e a s o n f o r t h e
s c a f f o l d i n g and w e r e a d v i s e d t h a t t h e Board o f H e a l t h had
r e q u e s t e d t h e s t a c k be e x t e n d e d t o t a k e c a r e o f a p o l l u t i o n
problem. Mager was f u r t h e r a s k e d i f t h i s s o l v e d t h e a i r
p o l l u t i o n p r o b l e m s t o which h e r e p l i e d t h a t i t had.
P l a i n t i f f s a l s o t e s t i f i e d t h a t a p p r o x i m a t e l y o n e month
b e f o r e t h e d e a l became f i n a l , t h e y a d v i s e d K n i g h t t h a t Mager
had t o l d them t h a t t h e s c a f f o l d i n g had b e e n u s e d t o e x t e n d
t h e s t a c k t o a l l e v i a t e an a i r p o l l u t i o n problem. K n i g h t was
a s k e d i f t h e p o l l u t i o n p r o b l e m was c u r e d , and he c o n f i r m e d
t h a t it was.
Mager and K n i g h t t e s t i f i e d t h a t t h e s c a f f o l d i n g had b e e n
d i s c u s s e d b u t c o n t e n d t h e y s i m p l y t o l d p l a i n t i f f s t h a t TSI
had made a l t e r a t i o n s a s r e q u e s t e d by t h e a i r p o l l u t i o n
p e o p l e and t h a t Mager s a i d h e t h o u g h t , and K n i g h t c o n c u r r e d ,
t h a t it ( T S I ) m i g h t h a v e s a t i s f i e d t h e Board o f H e a l t h
b e c a u s e it had n o t h e a r d f r o m t h e Board f o r some t i m e .
N e g o t i a t i o n s b e t w e e n p l a i n t i f f s and TSI w e r e c o n c l u d e d
i n t h e summer o f 1974 and on A u g u s t 1 9 , 1 9 7 4 , t h e p a r t i e s
e n t e r e d i n t o a c o n t r a c t f o r deed f o r t h e p u r c h a s e of t h e
s h a l e and b l o c k p l a n t .
I n S e p t e m b e r 1 9 7 4 , p l a i n t i f f I n g e b r i g t s o n was i n f o r m e d
by t h e d i r e c t o r o f t h e C a s c a d e County A i r P o l l u t i o n C o n t r o l
P r o g r a m , Sam K a l a f a t , t h a t t h e e m i s s i o n s from t h e s t a c k o f
t h e r o t a r y k i l n were s u b s t a n t i a l l y i n e x c e s s o f t h a t
p e r m i t t e d by t h e a i r p o l l u t i o n p r o g r a m , t h a t n o t i c e o f
v i o l a t i o n would be f o r t h c o m i n g , and t h a t , i f corrective
a c t i o n was n o t t a k e n , t h e s h a l e p l a n t c o u l d n o t be o p e r a t e d .
On March 5 , 1 9 7 5 , an o f f i c i a l n o t i c e o f v i o l a t i o n and o r d e r
t o take corrective action t o repair the aggregate dryer
s t a c k ( r o t a r y k i l n ) was r e c e i v e d .
P l a i n t i f f s were s u c c e s s f u l i n o b t a i n i n g a v a r i a n c e t o
o p e r a t e t h e p l a n t e n a b l i n g them t o i n v e s t i g a t e t h e p r o b l e m
and d e t e r m i n e what c o r r e c t i v e a c t i o n m i g h t be t a k e n . A
s t u d y was u n d e r t a k e n which r e v e a l e d t h a t i n s t a l l a t i o n o f a
bag h o u s e a t a c o s t o f a p p r o x i m a t e l y $ 6 0 , 0 0 0 would e l i m i n a t e
the violation. P l a i n t i f f s s u b s e q u e n t l y a p p l i e d f o r and
r e c e i v e d a p e r m i t f o r c o n s t r u c t i o n o f t h e bag h o u s e on
J a n u a r y 9 , 1976. Included i n t h e l e t t e r approving t h e
p e r m i t was a r e q u e s t t o a l l e v i a t e p o l l u t i o n from f i v e o t h e r
a r e a s of t h e p l a n t . R a t h e r t h a n c o n s t r u c t t h e bag h o u s e and
a l l e v i a t e o n l y p a r t of t h e problem, p l a i n t i f f s h i r e d
e n g i n e e r C h a r l e s Lush t o p r e p a r e a s t u d y o f t h e p o s s i b l e
s o l u t i o n s and c o s t s t o remedy t h e p o l l u t i o n . According t o
L u s h ' s r e p o r t t h e c o s t of b r i n g i n g t h e p l a n t i n t o compliance
w i t h r e g u l a t i o n s would be $ 2 7 9 , 8 7 1 . Plaintiffs failed to
o b t a i n a n e x t e n s i o n on t h e i r v a r i a n c e , and t h e p l a n t s t o p p e d
o p e r a t i o n sometime t h e r e a f t e r . This s u i t followed.
I n a d d i t i o n t o t h e a i r p o l l u t i o n problem, i n t h e s p r i n g
o f t h e y e a r w a t e r from t h e p l a n t would d r a i n i n t o t h e
a d j a c e n t l a n d of R o b e rt B a l l a r d , d e p o s i t i n g s h a l e p a r t i c l e s
and a d v e r s e l y a f f e c t i n g p r o d u c t i v i t y . Under t h r e a t o f a
l a w s u i t , p l a i n t i f f s b u i l t a d i v e r s i o n dam a t a c o s t o f
$ 1 9 , 0 2 8 t o remedy t h e p r o b l e m . Plaintiffs allege that
d e f e n d a n t s ' f a i l u r e t o d i s c l o s e t h e d r a i n a g e p r o b l e m was
c o n s t r u c t i v e f r a u d and t h a t t h e y a r e e n t i t l e d t o t h e amount
e x p e n d e d t o c o n s t r u c t t h e dam.
The i s s u e s p r e s e n t e d on a p p e a l a r e :
1. Whether t h e t r i a l c o u r t e r r e d i n d e t e r m i n i n g t h a t i n
n e g o t i a t i n g t h e c o n t r a c t f o r deed T r e a s u r e S t a t e I n d u s t r i e s ,
Inc., and K e n n e t h K. K n i g h t were g u i l t y o f a c t u a l f r a u d o r
i n the a l t e r n a t i v e constructive fraud with regard t o t h e
a l l e g e d a i r p o l l u t i o n problems?
2. Whether t h e t r i a l c o u r t e r r e d i n d e t e r m i n i n g t h e
d e f e n d a n t s were g u i l t y o f c o n s t r u c t i v e f r a u d i n f a i l i n g t o
r e v e a l an a l l e g e d problem w i t h r e g a r d t o water d r a i n a g e ?
3. Whether t h e t r i a l c o u r t e r r e d i n i t s d e t e r m i n a t i o n
t h a t d e f e n d a n t Kenneth K. Knight should be r e q u i r e d t o
indemnify defendant Treasure S t a t e I n d u s t r i e s , I n c . , for a l l
damages awarded t o p l a i n t i f f s a g a i n s t d e f e n d a n t s ?
4. Whether t h e t r i a l c o u r t e r r e d i n i t s d e t e r m i n a t i o n
o f damages by a p p l i c a t i o n o f an i n c o r r e c t m e a s u r e o f
damages?
Defendants contend t h e r e is i n s u b s t a n t i a l evidence t o
s u p p o r t a f i n d i n g of 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 f r a u d i n
the contract negotiations. On a p p e a l , o u r f u n c t i o n i s t o
d e t e r m i n e w h e t h e r t h e r e is s u b s t a n t i a l e v i d e n c e t o s u p p o r t
t h e f i n d i n g s of t h e t r i a l c o u r t . This Court w i l l not
r e v e r s e t h e f i n d i n g s o f t h e t r i a l c o u r t u n l e s s t h e r e i s no
s u b s t a n t i a l evidence t o support such findings.
I n Lee v . S t o c k m e n ' s N a t . Bank ( 1 9 2 2 ) , 6 3 Mont. 2 6 2 ,
284, 207 P. 623, t h i s C o u r t s e t down t h e e l e m e n t s w h i c h a
p l a i n t i f f m u s t p r o v e t o make o u t a p r i m a f a c i e c a s e o f
a c t u a l fraud: (1) a r e p r e s e n t a t i o n ; ( 2 ) its f a l s i t y ; ( 3 ) its
materiality; ( 4 ) t h e s p e a k e r ' s knowledge o f i t s f a l s i t y o r
i g n o r a n c e of i t s t r u t h ; ( 5 ) h i s i n t e n t t h a t i t s h o u l d be
a c t e d upon by t h e p e r s o n and i n t h e manner r e a s o n a b l y
contemplated; ( 6 ) t h e h e a r e r ' s ignorance of i t s f a l s i t y ; (7)
h i s r e l i a n c e upon i t s t r u t h ; ( 8 ) h i s r i g h t t o rely thereon;
and ( 9 ) h i s c o n s e q u e n t and p r o x i m a t e i n j u r y .
Actual f r a u d is always a q u e s t i o n of f a c t . Section
28-2-404, MCA. F r a u d c a n n e v e r b e p r e s u m e d b u t m u s t be
p r o v e d by a p r e p o n d e r a n c e o f t h e e v i d e n c e . Good f a i t h w i l l
a l w a y s be presumed and m e r e s u s p i c i o n o f f r a u d i s n o t s u f f i -
cient. R e i l l y v . Maw ( 1 9 6 5 ) , 1 4 6 Mont. 1 4 5 , 1 5 3 , 405 P.2d
440, 442.
The a l l e g e d a c t u a l f r a u d upon w h i c h t h e D i s t r i c t C o u r t
made i t s f i n d i n g t h a t p l a i n t i f f s w e r e e n t i t l e d t o damages
was t h e r e p r e s e n t a t i o n s made by R o b e r t Mager and K e n n e t h
K n i g h t t h a t t h e e x t e n s i o n o f t h e r o t a r y k i l n s t a c k had
s a t i s f a c t o r i l y remedied t h e a i r p o l l u t i o n problem. Although
t h e D i s t r i c t C o u r t ' s f i n d i n g s do n o t s p e c i f i c a l l y s e t f o r t h
e a c h e l e m e n t of a c t u a l f r a u d , a r e v i e w o f t h e r e c o r d
i n d i c a t e s e v i d e n c e t o s u p p o r t a f i n d i n g o f f r a u d and
s u s e q u e n t damages.
P l a i n t i f f s P o u l s e n , I n g e b r i g t s o n and O l s o n t e s t i f i e d
t h a t i n t h e course of i n s p e c t i n g t h e s h a l e p l a n t Robert
Mager, t h e p l a n t m a n a g e r , s t a t e d t h a t t h e s t a c k e x t e n s i o n on
t h e r o t a r y k i l n had r e m e d i e d t h e a i r p o l l u t i o n p r o b l e m .
A l s o , on J u n e 28, 1 9 7 4 , T S I 1 s f o r m e r p r e s i d e n t , K e n n e t h
K n i g h t , t o l d p l a i n t i f f s t h e i n f o r m a t i o n g i v e n them b y Mager
was c o r r e c t . Of c o u r s e , t h e t e s t i m o n y o f Mager and K n i g h t
is s l i g h t l y d i f f e r e n t i n t h a t t h e y t e s t i f i e d they thought
t h e r e p a i r s s a t i s f i e d t h e p o l l u t i o n p e o p l e and i n f o r m e d
p l a i n t i f f s only t o t h a t extent.
A s e v i d e n c e d by t h e " N o t i c e o f V i o l a t i o n and O r d e r t o
Take C o r r e c t i v e A c t i o n " d a t e d March 5 , 1 9 7 5 , t h e e m i s s i o n s
from t h e a g g r e g a t e d r y e r s t a c k ( r o t a r y k i l n ) were i n
v i o l a t i o n of s t a t e and c o u n t y p o l l u t i o n r e g u l a t i o n s and t h e
e x t e n s i o n p u t t h e r e o n d i d n o t i n f a c t remedy t h e p o l l u t i o n
problem. Furthermore, i n response t o a q u e s t i o n regarding
T S I ' s a t t e m p t s t o a l l e v i a t e t h e p o l l u t i o n p r o b l e m , Sam
K a l a f a t , t h e d i r e c t o r of Environmental H e a l t h S e r v i c e s f o r
t h e City-County H e a l t h Department, s t a t e d : "The e f f o r t s by
T r e a s u r e S t a t e I n d u s t r i e s w e r e t o t a l l y u n a p p r o v e d by o u r
agency. W a d v i s e d them t h a t b e f o r e t h e y p r o c e e d , t h a t
e
n e c e s s a r y a p p l i c a t i o n s and p e r m i t s be f i l e d . And I t h i n k
t h e r e c o r d s p e a k s f o r i t s e l f t h a t t h e y were n o t . And I f e e l
t h a t t h e e f f o r t s were n o t r e a l l y s u b s t a n t i a l , n o . "
I n l i g h t of t h e n o n o p e r a t i v e c o n d i t i o n o f t h e s h a l e
p l a n t due t o p o l l u t i o n v i o l a t i o n s and t h e c o s t of b r i n g i n g
t h e p l a n t i n t o c o m p l i a n c e w i t h r e g u l a t i o n s , it is beyond
s e r i o u s a r g u m e n t t h a t t h e r e p r e s e n t a t i o n s made by d e f e n d a n t s
t o p l a i n t i f f s were m a t e r i a l t o t h e c o n t r a c t .
On May 2 3 , 1 9 7 2 , TSI r e c e i v e d a " N o t i c e o f V i o l a t i o n and
O r d e r t o Take C o r r e c t i v e A c t i o n " t o a l l e v i a t e t h e p o l l u t i o n
p r o b l e m s c a u s e d by t h e a g g r e g a t e d r y e r and d u s t c o l l e c t o r .
On A p r i l 1 6 , 1 9 7 3 , d e f e n d a n t K n i g h t r e c e i v e d a l e t t e r
from t h e C a s c a d e County A i r P o l l u t i o n C o n t r o l Program
a d v i s i n g him t h a t t h e p l a n t was n o t i n c o m p l i a n c e w i t h t h e
s t a t e and c o u n t y r e g u l a t i o n s and t h a t c e r t a i n s t e p s n e e d e d
t o be t a k e n b e f o r e o p e r a t i o n s c o u l d resume.
On A p r i l 1 9 , 1 9 7 3 , Dan L i n c o l n and C l e v e E. J o h n s o n ,
employees of t h e c o u n t y p o l l u t i o n program, v i s i t e d t h e p l a n t
and d i s c u s s e d i t s d u s t p r o b l e m s w i t h R o b e r t Mager. The
a r e a s d i s c u s s e d were t h e hammermill, e l e v a t o r s , s p r a y t o w e r,
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 .
F i n a l l y , from March 1974 u n t i l t h e t i m e o f s a l e , t h e TSI
o f f i c e manager and c o s t a c c o u n t a n t , C h e r r i e A n t h o n y , o v e r -
h e a r d numerous c o n v e r s a t i o n s b e t w e e n TSI p l a n t m a n a g e r s , Bob
Mager, A 1 G e h r k e , Mr. F o r z l e y and G l e n M o r t e n s o n , r e g a r d i n g
t h e p o l l u t i o n p r o b l e m and p o s s i b l e s o l u t i o n s . A t t r i a l she
was a s k e d t h e s u b s t a n c e o f c o n v e r s a t i o n s s h e had w i t h
F o r z l e y and M o r t e n s o n r e g a r d i n g t h e p o l l u t i o n p r o b l e m and
answered:
"We w e r e t o l d t h a t w e w e r e j u s t g o i n g t o s h e l v e t h e
problem. I was t o l d t h a t ' s w h a t t h e y w e r e g o i n g t o
d o , was j u s t s h e l v e t h e p r o b l e m . W w e r e i n t h e
e
p r o c e s s of t r y i n g t o s e l l t h e p l a n t . T h e r e had
been s e v e r a l buyers i n t e r e s t e d . Super-Lite [ t h e
p l a i n t i f f s ] was o n e o f them, and t h a t f o r t h e
c u r r e n t t i m e t h e r e w e r e more i m p o r t a n t t h i n g s t o
worry about than t h e problems a t t h e s h a l e p l a n t . "
The 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 n e g o t i a t i o n s and s a l e
o f t h e p l a n t a r e s u f f i c i e n t t o show t h a t Mager and K n i g h t
i n t e n d e d t h e i r r e p r e s e n t a t i o n s b e r e l i e d and a c t e d upon t o
consummate t h e s a l e . S e e Cowan v . W e s t l a n d R e a l t y Co.
( 1 9 7 3 ) , 1 6 2 Mont. 3 7 9 , 512 P.2d 714; Lee v . S t o c k m e n ' s N a t .
Bank ( 1 9 2 2 ) , 63 Mont. 262, 207 P. 623; D u n l a p v . N e l s o n
( 1 9 7 4 ) , 1 6 5 Mont. 2 9 1 , 529 P.2d 1 3 9 4 . The f a c t t h a t f r o m
t h e moment o f i t s p r o c u r e m e n t t h e p l a n t was f o r s a l e
i n d i c a t e s TSI p u r c h a s e d t h e p l a n t f o r i n v e s t m e n t p u r p o s e s .
One o f M a g e r ' s p r i m a r y d u t i e s a s p l a n t manager was t o
p r o m o t e t h e s a l e and s e c u r e a w i l l i n g p u r c h a s e r . I t is
fundamental t h a t a p l a n t i n compliance w i t h p o l l u t i o n
c o n t r o l r e g u l a t i o n s is more s a l e a b l e t h a n o n e i n n e e d o f
substantial pollution control devices.
Defendants contend t h a t p l a i n t i f f s were knowledgeable
b u s i n e s s m e n and s h o u l d h a v e known t h e p l a n t had p o l l u t i o n
problems. T h i s argument is n o t o n l y an admission b u t is
a l s o w i t h o u t m e r i t when o n e t a k e s i n t o c o n s i d e r a t i o n t h e
h i g h l y t e c h n i c a l f i e l d of environmental s c i e n c e . A t no t i m e
p r i o r t o t h e n o t i c e o f v i o l a t i o n on March 5 , 1 9 7 5 , d i d
p l a i n t i f f s b e l i e v e t h e p l a n t was n o t i n c o m p l i a n c e w i t h
pollution regulations.
One of d e f e n d a n t s ' p r i n c i p a l a l l e g a t i o n s i s t h a t
p l a i n t i f f s had no r i g h t t o r e l y , and i n f a c t d i d n o t r e l y ,
upon t h e a l l e g e d m i s r e p r e s e n t a t i o n s . The b a s i s f o r t h i s
c o n t e n t i o n i s t h e a b s e n c e o f any f i n d i n g o f f a c t by t h e
D i s t r i c t Court regarding r e l i a n c e . Defendants argue t h e
r e l i a n c e i s a n e s s e n t i a l e l e m e n t o f f r a u d and i n t h e a b s e n c e
o f a s p e c i f i c f i n d i n g on t h a t e l e m e n t , t h e r e i s a f a t a l
f a i l u r e of proof.
I n c o n c l u d i n g t h a t d e f e n d a n t s committed f r a u d , t h e
D i s t r i c t C o u r t s p e c i f i c a l l y made f i n d i n g s a s t o t h e e l e m e n t s
of a r e p r e s e n t a t i o n , its f a l s i t y , its m a t e r i a l i t y , t h e
s p e a k e r ' s knowledge o f i t s f a l s i t y , h i s i n t e n t t h a t i t be
a c t e d u p o n , t h e h e a r e r ' s i g n o r a n c e and t h e c o n s e q u e n t
injury. Defendants argue t h a t t h e District C o u r t ' s f a i l u r e
t o make a s p e c i f i c f i n d i n g a s t o r e l i a n c e i s s u f f i c i e n t
grounds f o r r e v e r s a l . W do n o t a g r e e .
e
On r e v i e w , t h e t r i a l c o u r t ' s judgment i s presumed
c o r r e c t , and t h i s C o u r t w i l l draw e v e r y l e g i t i m a t e i n f e r e n c e
t o support t h a t presumption. R u l e 5 2 , M.R.Civ.P.; Havre
I r r i g a t i o n Co. v. M a j e r u s ( 1 9 5 7 ) , 1 3 2 Mont. 410, 414, 318
P.2d 1 0 7 6 , 1 0 7 8 ; Madison F o r k Ranch v . L & B Lodge P o l e
Timber P r o d u c t s ( 1 9 8 0 ) , Mont . , 615 P.2d 9 0 0 , 37
St.Rep. 1468. The Supreme C o u r t a d h e r e s t o t h e d o c t r i n e o f
i m p l i e d f i n d i n g s which s t a t e s t h a t where a c o u r t ' s f i n d i n g s
a r e g e n e r a l i n t e r m s , any f i n d i n g s n o t s p e c i f i c a l l y made,
b u t n e c e s s a r y t o t h e j u d g m e n t , a r e deemed t o h a v e b e e n
i m p l i e d , i f s u p p o r t e d by t h e e v i d e n c e . B a l l e n g e r v. T i l l m a n
( 1 9 5 8 ) , 1 3 3 Mont. 369, 324 P.2d 1045. I n s u p p o r t of t h e
t r i a l c o u r t , t h i s C o u r t w i l l engage i n t h e d o c t r i n e of
i m p l i e d f i n d i n g s s o l o n g a s t h o s e f i n d i n g s a r e n o t incon-
s i s t e n t w i t h e x p r e s s f i n d i n g s made. C r i s s y v. S t a t e Highway
Commission ( 1 9 6 6 ) , 1 4 7 Mont. 374, 413 P.2d 308.
The Supreme C o u r t o f t h e S t a t e o f C a l i f o r n i a i n f e r r e d a n
i n t e n t t o d e c e i v e i n t h e f r a u d c a s e o f Boas v. Bank o f
APP.
America N a t . T r u s t & S a v i n g s A s s ' n ( 1 9 4 2 ) , 5 1 ~ a l l \ . 2 d5 9 2 ,
1 2 5 P.2d 620. In t h a t case the court stated:
"On a p p e a l a r e v i e w i n g c o u r t i s e n t i t l e d t o draw
n e c e s s a r y i n f e r e n c e s from t h e t r i a l c o u r t ' s e x p r e s s
f i n d i n g s i n o r d e r t o s u p p o r t a judgment [ c i t a t i o n s
o m i t t e d ] ; t h a t i s t o s a y , where f r o m t h e f a c t s
found and t h e judgment o r d e r e d i t is e v i d e n t i n t h e
l i g h t of t h e e n t i r e r e c o r d t h a t i f more c o m p l e t e
f i n d i n g s had been made t h e y would h a v e b e e n a d v e r s e
t o t h e c o n t e n t i o n o f t h e a p p e l l a n t , i t w i l l be
deemed t h a t s u c h i n f e r e n c e h a s b e e n drawn by a
t r i a l c o u r t , and i n t h o s e c i r c u m s t a n c e s t h e f a i l u r e
so t o f i n d is n o t a ground f o r t h e r e v e r s a l of t h e
judgment. [ C i t a t i o n s o m i t t e d . ] H e r e f r a u d was
c h a r g e d ; one o f t h e l e g a l g r o u n d s upon which t h e
t r i a l c o u r t f o u n d e d i t s judgment t h a t t h e a g r e e m e n t
was v o i d was t h a t i t was o b t a i n e d by f a l s e p r e -
t e n s e s ; and t h e e v i d e n c e shows and t h e t r i a l c o u r t
e x p r e s s l y found t h a t t h e f a l s e r e p r e s e n t a t i o n s were
a t a l l t i m e s known t o t h e p l a i n t i f f t o be f a l s e .
I t f o l l o w s n e c e s s a r i l y t h a t i f t h e t r i a l c o u r t had
made a f i n d i n g c o v e r i n g t h e e l e m e n t o f i n t e n t t o
d e c e i v e t h e f i n d i n g would h a v e b e e n a d v e r s e t o
appellants. T h e r e f o r e , t h e absence of a s p e c i f i c
f i n d i n g t o t h a t e f f e c t does n o t s e r v e a s grounds
for reversal.
". . . The i s s u e of f r a u d c o n s t i t u t e d o n e o f t h e
p r i n c i p a l i s s u e s t h e t r i a l c o u r t was c a l l e d upon t o
d e c i d e , and a g r e a t d e a l o f e v i d e n c e was i n t r o d u c e d
on t h a t i s s u e . I t m u s t be a s s u m e d , t h e r e f o r e , t h a t
if the t r i a l court did not believe that appellants
made t h e f a l s e r e p r e s e n t a t i o n s w i t h i n t e n t t o
d e c e i v e i t would h a v e s o f o u n d . A s s a i d i n
P h i l l i p s v . Hooper, 43 Cal.App.2d 467, 111 P.2d 2 2 ,
t h e f i n d i n g s o f f a c t m u s t be t a k e n a s embodying t h e
c o n c l u s i o n s o f t h e t r i a l c o u r t on a l l q u e s t i o n s o f
f a c t s u b m i t t e d t o it f o r d e c i s i o n ; a n d no a n t e -
c e d e n t e x p r e s s i o n s o f t h e t r i a l j u d g e c a n i n any
way r e s t r i c t h i s power t o d e c l a r e h i s f i n a l
c o n c l u s i o n i n t h e o n l y manner a u t h o r i z e d by l a w ,
t h a t i s , by f i l i n g h i s d e c i s i o n c o n t a i n i n g h i s
f i n d i n g s of f a c t and c o n c l u s i o n s o f law a s p r o v i d e d
i n s e c t i o n s 632 a n d 633 o f t h e Code o f C i v i l P r o c e -
dure (citing several cases)." 1 2 5 P.2d a t 623-624.
J ? , e l i a n c e h a s been d e f i n e d a s a b e l i e f which m o t i v a t e s a n
act. M a r t i n v . K e n n e l 1 ( 1 9 6 9 ) , 169 C o l o . 1 2 2 , 453 P.2d 797.
An i n f e r e n c e of r e l i a n c e upon f r a u d u l e n t r e p r e s e n t a t i o n s may
L
be drawn from 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
which h a v e been p r o v e n . P e i n e v. Murphy ( 1 9 6 2 ) , 46 Haw.
233, 377 P.2d 708; H u n t e r v . McKenzie ( C a l . 1 9 2 5 ) , 239 P.
1 0 9 0 ; D a v i s v. Re-Frac M a n u f a c t u r i n g C o r p o r a t i o n ( 1 9 6 7 ) , 276
Minn. 1 1 6 , 1 4 9 N.W.2d 37. Although c i r c u m s t a n t i a l evidence
may be u s e d t o draw an i n f e r e n c e o f r e l i a n c e , p l a i n t i f f i s
n o t confined t o c i r c u m s t a n t i a l proof o r presumption of
r e l i a n c e b u t may t e s t i f y a s t o w h e t h e r h e r e l i e d upon t h e
f a l s e r e p r e s e n t a t i o n o r concealment of d e f e n d a n t . Peskin v.
ago
S q u i r e s ( 1 9 5 7 ) , 156 Cal.App.2d MI 319 P.2d 405. The f o l -
l o w i n g t e s t i m o n y was g i v e n a t t r i a l :
"Q. Mr. O l s o n , would you h a v e b o u g h t t h e s h a l e and
b l o c k p l a n t had you known of t h e a i r p o l l u t i o n
p r o b l e m s w i t h t h e s h a l e p l a n t , and t h a t you would
be u n a b l e t o o p e r a t e t h e s h a l e p l a n t ? A .
D e f i n i t e l y , I would n o t h a v e been i n v o l v e d . "
Q . [To P o u l s e n ] Did you r e l y on t h e r e p r e s e n t a -
t i o n s t h a t t h e p l a n t was i n c o m p l i a n c e w i t h a i r
p o l l u t i o n r e g u l a t i o n s when you p u r c h a s e d t h e p l a n t ?
A. Yes.
"Q. Were t h o s e r e p r e s e n t a t i o n s , t h e r e p r e s e n t a -
t i o n s t h a t I ' m r e f e r r i n g t o a r e t h o s e made by Bob
Mager and by Ken K n i g h t ? A. Those r e p r e s e n t a t i o n s
w e r e made by Bob Mager when we w e r e v i s i t i n g t h e
s h a l e p l a n t , and by K e n n e t h K n i g h t i n h i s o f f i c e i n
t h e Holiday V i l l a g e .
"Q. And t h o s e w e r e t h e r e p r e s e n t a t i o n s t h a t you
r e l i e d upon. A. Yes, v e r y d e f i n i t e l y . "
D i r e c t evidence s u p p o r t s a f i n d i n g of r e l i a n c e . We
e n g a g e t h e d o c t r i n e o f " i m p l i e d f i n d i n g s " and h o l d t h e t r i a l
c o u r t found r e l i a n c e . W a f f i r m t h e holding of a c t u a l
e
fraud.
The D i s t r i c t C o u r t a l s o made a n a l t e r n a t i v e r u l i n g t h a t
d e f e n d a n t s were g u i l t y o f c o n s t r u c t i v e f r a u d w i t h r e g a r d t o
o t h e r a i r p o l l u t i o n p r o b l e m s a t t h e p l a n t and t h e w a t e r
d r a i n a g e problem.
"Constructive fraud consists in:
" ( 1 ) any b r e a c h o f d u t y w h i c h , 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 an a d v a n 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
another 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 of
anyone c l a i m i n g u n d e r him . . ." S e c t i o n 28-2-406,
MCA .
R u s s e l l v. R u s s e l l ( 1 9 6 9 ) , 1 5 2 Mont. 461, 452 P.2d 7 7 ,
i s s q u a r e l y i n p o i n t on a f a c t u a l s i t u a t i o n v e r y a n a l o g o u s
t o the instant case. R u s s e l l was an a c t i o n f o r t h e r e c o v e r y
o f money p a i d f o r a n o p t i o n t o p u r c h a s e p r o p e r t y b a s e d on
fraud. The p r o p e r t y i n v o l v e d was a b a r and c a f e . Prior t o
t h e p l a i n t i f f ' s p a y i n g c o n s i d e r a t i o n f o r an o p t i o n t o p u r -
c h a s e , t h e p r e m i s e s had b e e n examined by t h e c o u n t y s a n i -
t a r i a n and a S t a t e D e p a r t m e n t of H e a l t h i n s p e c t o r . They
f o u n d t h a t t h e sewage d i s p o s a l s y s t e m was i n a d e q u a t e and
warned t h e owner t h a t t h e v i o l a t i o n o f h e a l t h r e g u l a t i o n s
was s e r i o u s and s h o u l d be c o r r e c t e d a n d , i f i t were n o t , a
l i c e n s e t o c o n t i n u e o p e r a t i n g t h e b u s i n e s s would n o t be
i s s u e d i n t h e coming y e a r .
The owner d i d n o t d i s c l o s e t h e sewage p r o b l e m o r t h e
w a r n i n g from t h e Board o f H e a l t h t o t h e p r o s p e c t i v e
purchaser. The p u r c h a s e r was l a t e r warned by t h e Board
t h a t , i f he d i d n o t make t h e n e c e s s a r y c o r r e c t i o n s , t h e
l i c e n s e t o o p e r a t e t h e b a r and c a f e would n o t be renewed.
The p u r c h a s e r t h e n b r o u g h t s u i t t o r e s c i n d t h e c o n t r a c t and
r e c o v e r t h e o p t i o n money.
The j u r y found i n f a v o r o f t h e p l a i n t i f f . On a p p e a l ,
t h e d e f e n d a n t made t h e same a r g u m e n t a s d e f e n d a n t s i n t h e
c a s e a t bar--that i s , t h a t t h e p l a i n t i f f ' s e v i d e n c e and
p r o o f had f a i l e d t o e s t a b l i s h t h e n i n e e l e m e n t s o f a c t u a l
fraud hereinabove set f o r t h . In rejecting that contention,
t h i s Court said :
"We d o n o t t h i n k t h e i n s t a n t c a s e was o n e of a c t u a l
f r a u d s o t h a t t h e a b o v e n i n e e l e m e n t s would a p p l y .
W t h i n k , i n s t e a d , i t was a c o n c e a l m e n t , more i n
e
t h e n a t u r e of c o n s t r u c t i v e fraud.
" S e c t i o n 13-309, R.C.M. 1947, s t a t e s :
"'Constructive fraud consists: ... ( 2 ) I n any
such a c t or omission a s t h e law e s p e c i a l l y d e c l a r e s
t o be f r a u d u l e n t w i t h o u t r e s p e c t t o a c t u a l f r a u d . '
"We t h i n k it was a f r a u d u l e n t a c t on t h e p a r t o f
t h e a p p e l l a n t t o w i t h h o l d i n f o r m a t i o n on t h e
w a r n i n g s h e had r e c e i v e d from t h e S t a t e Board o f
Health.
I# I . . . fraud 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 o f h i s p r o p e r t y which t h e
v e n d e e had no r e a s o n t o s u s p e c t . ' [ C i t a t i o n s
omitted.]" 1 5 2 Mont. a t 465-466.
The n o t i c e o f v i o l a t i o n d a t e d May 2 3 , 1 9 7 2 , s e n t t o TSI
and t h e l e t t e r d a t e d A p r i l 6 , 1 9 7 3 , s e n t t o K n i g h t c l e a r l y
i n d i c a t e d e f e n d a n t s had knowledge o f p o l l u t i o n v i o l a t i o n s a t
t h e s h a l e p l a n t i n c l u d i n g t h e hammermill, e l e v a t o r s , s p r a y
t o w e r 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,
a s e v i d e n c e d by n e i g h b o r B a l l a r d ' s t e s t i m o n y . The r e c o r d i s
v o i d o f any a t t e m p t b y 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 -
tion to plaintiffs. These v i o l a t i o n s were s e r i o u s impair-
m e n t s t o t h e p r o p e r t y which p l a i n t i f f s had no r e a s o n t o
suspect. W e f i n d t h e r e is s u b s t a n t i a l e v i d e n c e t o s u p p o r t a
f i n d i n g of c o n s t r u c t i v e f r a u d .
I n d e t e r m i n i n g T S I 1 s r i g h t t o i n d e m n i f i c a t i o n from
K n i g h t , we m u s t a s c e r t a i n t h e b a s i s upon w h i c h l i a b i l i t y was
imposed.
The g e n e r a l r u l e i s t h a . t a p r i n c i p a l i s r e s p o n s i b l e f o r
t h e i n j u r i e s r e s u l t i n g from f r a u d o f h i s a g e n t , committed
d u r i n g t h e e x i s t e n c e o f t h e a g e n c y and w i t h i n t h e s c o p e o f
the agent's actual or apparent authority. Gleason v.
S e a b o a r d A i r L i n e R. Co. ( 1 9 2 9 ) , 278 U.S. 3 4 9 , 49 S . C t . 161,
yrs
73 L.Ed. W5; G r a n t v . W e a t h e r h o l t ( 1 9 5 4 ) , 1 2 3 C a l . 2 d 3 4 ,
266 P.2d 1 8 5 . T h i s r u l e is f u l l y a p p l i c a b l e t o c o r p o r a t i o n s
i n t h a t a c o r p o r a t i o n i s a p r i n c i p a l which c a n be l i a b l e f o r
f r a u d only through conduct of i t s agents. Thomas v.
D u r a l i t e Company, I n c . (D. N.J. 1 9 7 4 ) , 386 F.Supp. 698.
I t i s u n d i s p u t e d t h a t a t a l l times p e r t i n e n t , R o b e r t
Mager was a c t i n g w i t h i n t h e c o u r s e and s c o p e o f h i s employ-
ment w i t h TSI. I n accordance with t h e aforementioned r u l e ,
TSI, a s p r i n c i p a l , is l i a b l e f o r t h e f r a u d u l e n t r e p r e s e n t a -
t i o n s and c o n c e a l m e n t s o f i t s a g e n t R o b e r t Mager.
The D i s t r i c t C o u r t f o u n d , and w e a g r e e , t h a t a t a l l
times p e r t i n e n t t o t h i s l i t i g a t i o n , K e n n e t h K n i g h t was
p r e s i d e n t of TSI and was a c t i n g w i t h i n t h e s c o p e and c o u r s e
o f h i s employment w i t h t h e c o r p o r a t i o n . I t is c l e a r l y
e s t a b l i s h e d t h a t a d i r e c t o r o r o f f i c e r of a c o r p o r a t i o n is
individually l i a b l e for fraudulent a c t s or f a l s e repre-
s e n t a t i o n s o f h i s own o r i n which h e p a r t i c i p a t e s e v e n
t h o u g h h i s a c t i o n i n s u c h r e s p e c t may be i n f u r t h e r a n c e o f
the corporation's business. T y l e r v. Savage ( 1 8 9 2 ) , 143
U.S. 79, 12 S.Ct. 3 4 0 , 36 L.Ed. 82; Hoffman v . T o f t ( 1 9 1 4 ) ,
70 Or. 488, 142 P. 365. This personal l i a b i l i t y attaches
r e g a r d l e s s of whether l i a b i l i t y a l s o a t t a c h e s t o t h e
corporation. U n i t e d S t a t e s L i a b i l . I n s . Co. v . H a i d i n g e r -
Hayes, I n c . ( 1 9 7 0 ) , 83 C a l . R p t r . 418, 463 P.2d 770.
D e f e n d a n t s ' l i a b i l i t y i s j o i n t and s e v e r a l . TSI's
l i a b i l i t y is b a s e d on i t s p r i n c i p a l a g e n t r e l a t i o n s h i p w i t h
i t s manager Mager, w h e r e a s K n i g h t ' s l i a b i l i t y i s b a s e d on
h i s f r a u d u l e n t m i s r e p r e s e n t a t i o n s and c o n c e a l m e n t o f
material facts.
The r i g h t t o i n d e m n i t y i s a n e q u i t a b l e p r i n c i p l e , b a s e d
on t h e g e n e r a l t h e o r y t h a t o n e c o m p e l l e d t o p a y f o r damages
c a u s e d by a n o t h e r s h o u l d be a b l e t o s e e k r e c o v e r y f r o m t h a t
party. May T r u c k i n g Co. v . International Harvester (Idaho
1 9 7 5 ) , 543 P.2d 1 1 5 9 ; s e e a l s o DeShaw v . J o h n s o n ( 1 9 7 0 ) , 1 5 5
Mont. 355, 472 P.2d 298. "As a g e n e r a l r u l e o n e c o m p e l l e d
t o pay damages f o r t h e n e g l i g e n t o r t o r t i o u s a c t o f a n o t h e r
i s n o t e n t i t l e d t o i n d e m n i t y f r o m t h e l a t t e r where b o t h
p a r t i e s are joint tortfeasors or i n p a r i dilecto." 42
C.J.S. I n d e m n i t y , 5 27 a t 240. T h i s r u l e was a d o p t e d i n
G r e a t N o r t h e r n R a i l w a y Company v. U n i t e d S t a t e s ( D . Mont.
1 9 6 0 ) , 1 8 7 F.Supp. 690, 693; F l e t c h e r v . C i t y of H e l e n a
( 1 9 7 3 ) , 1 6 3 Mont. 337, 517 P.2d 3 6 5 , 369.
The c o u r t found d e f e n d a n t s i n p a r i d i l e c t o . In the
a b s e n c e o f a f i n d i n g o f f a c t which d e t e r m i n e s t h e a c t i o n s o f
K n i g h t t o have t o t a l l y c a u s e d p l a i n t i f f s ' i n j u r y , TSI ' s
r i g h t t o i n d e m n i f i c a t i o n m u s t be v a c a t e d .
I n t h e s a l e of commercial p r o p e r t y , a commercial
s t a n d a r d of damages s h o u l d be a p p l i e d . Plaintiffs are
e n t i t l e d t o t h e b e n e f i t of t h e i r bargain--that is, t h e
b e n e f i t which d e f e n d a n t s p r o m i s e d t o d e l i v e r . S e e Moore v.
Swanson ( 1 9 7 6 ) , 1 7 1 Mont. 1 6 0 , 556 P.2d 1 2 4 9 . Defendants
p r o m i s e d t o d e l i v e r an o p e r a t i v e s h a l e p l a n t . The c o d e
v i o l a t i o n s rendered t h e p l a n t inoperative. Therefore,
p l a i n t i f f s a r e e n t i t l e d t o damages i n t h e amount which w i l l
b r i n g t h e p l a n t i n t o compliance.
I n t h e absence of s u b s t a n t i a l e v i d e n c e t o s u p p o r t a
f i n d i n g of fraud i n r e l a t i o n t o t h e t h e water flowing onto
t h e B a l l a r d p r o p e r t y , h o w e v e r , t h e r e i s no b a s i s on w h i c h t o
award damages f o r t h e c o n s t r u c t i o n o f t h e d i v e r s i o n dam by
plaintiffs.
W a f f i r m t h e D i s t r i c t C o u r t judgment h o l d i n g d e f e n d a n t s
e
j o i n t l y and s e v e r a l l y l i a b l e f o r a c t u a l and c o n s t r u c t i v e
f r a u d and v a c a t e t h e judgment f o r i n d e m n i f i c a t i o n and t h e
damages f o r t h e d i v e r s i o n dam.
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