No. 94-093 IN THE: SUPREME COURT OF THE STATE OF MONTANA

NORTHWEST TRUCK & TFLAILER SALES, INC.,a Montana corporation, Plaintiff and Respondent,

v. ROGER W. DVORAK and 

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# Y1994 PATRICIA J. DVORAK, Defendants and Appellants

APPEAL FROM: District Court of the Thirteenth Judicial District, In and for the County of Yellowstone, Honorable Maurice R. Colberg,Jr.,Judgepresiding.

COUNSEL OF RECORD: For Appellants: Jack E. Sands, Billings,Montana For Respondent: James P.Murphy and Stewart R. Kirkpatrick, Murphy & Kirkpatrick, Billings,Montana

Filed: Submitted on Briefs: November 23, 1994 Decided: December 29, 1994Chief Justice J.A. Turnage delivered the Opinion of the Court. In this action, Northwest Truck & Trailer Sales, Inc. (Northwest), sought repossession of and the balance owing on a truck it sold to Roger 

### W. and Patricia J. Dvorak. The Dvoraks counterclaimed, alleging fraud and breach of contract. The District Court for the Thirteenth Judicial District, Yellowstone County, entered summary judgment for Northwest on the Dvoraks' counterclaim of fraud. At trial on Northwest's claims and the remaining counterclaims,a jury found that Northwest did not breach its contract with the Dvoraks. The court directed a verdict awardingNorthwest adeficiency judgmentof $30,211.47, plus costs. The Dvoraks appeal. We affirm. The issues are: 1. Did the District Court err in grantingNorthwest'smotion for summary judgment on the counterclaim of fraud? 2. Did the court err in refusing to allow the Dvoraks' proposed evidence that the truck was not a new truck? 3. Did the court err in directing a verdict against the Dvoraks for $30,211.47? 4. Did the court err in refusing the Dvoraks'proposed jury instructions? 5. Do the jury'sanswers on the special verdict form require

a reversal of th(3irverdict because they are internally inconsistent?In June 1987, the Dvoraks bought a 1987 Peterbilt tractor truck fromNorthwest to use in their two-persontrucking business.The $85,600sale price of the truckwas financed over a sixty-month term. In January 1990,Northwest filed a complaint in the District Court alleging that the Dvoraks had failed to make the required monthly payments on the truck. It asked to be restored to immediate possession of the vehicle and for damages, costs, and attorney fees. The Dvoraks counterclaimed, alleging that Northwest falsely represented to them that the truck was new when they bought it. They provided affidavits in which their son-in-lawand four other persons stated they had examined the truck and found signs that it

was not in its original condition. The Dvoraks asserted that Northwest's misrepresentation constituted fraud and breach of contract. They asked forcompensatoryandpunitive damages and for their attorney fees and costs. In May 1990, following a hearing, the District Court ordered that the truckbe delivered toNorthwest. Roger Dvorak admitted to being at least eight payments in arrears at that time. Northwest resold the truck in September of 1990 for $58,000. The truck's odometer showed some 326,000miles at that time. In May 1991, the District Court granted partial summary judgment forNorthwest on the Dvoraks' counterclaim alleging fraud and requesting punitive damages. The court ruled that the Dvoraks had failed to establish material issues of fact concerning necessary elements of their fraud claim. The case proceeded to trial on Northwest's claim for a deficiency judgment and on the Dvoraks' counterclaims thatNorthwest breached the implied covenant of good faith and fair dealing and otherwisebreached the contract. Ina specialverdict, the jury found that the written contract between the parties had been altered by an oral agreement, but that Northwest had not breached the modified contract orbreached the implied covenant of good faith and fair dealing therein. The jury further found that Northwesthad breached the implied covenant in the original written contract, but that there were no damages from that breach. The court directed a. verdict against the Dvoraks for the $30,211.47 deficiency proved by Northwest between the amount owing on the contract and the resale price of the truck. The Dvoraks appeal. This Court has previously ruled that the Dvoraks'notice of appeal in this matter was timely filed. See Northwest Truck & Trailer Sales, Inc. v.Dvorak (Mont. 1994), 877P.2d31,51 St.Rep. 564. Issue 1 Did the District Court err in grantingNorthwest'smotion for summary judgment on the counterclaim of fraud? 

### A motion for summary judgment is properly granted if the record demonstrates no genuine issuesofmaterial fact and that the moving party is entitled to judgment as a matter of law. Rule 56(c),M.R.Civ.P. 

### A party opposing a motion for summary judgment may not rest upon the mere allegations ordenialsof thepleadings, but must set forth specific facts showing there is a genuine issue for trial. Rule 56(e),M.R.Civ.P. This Court reviews a ruling on a motion for summary judgment under the same standard as that usedby the district court in its ruling on the motion. Minnie v. City of Roundup (1993),257 Mont. 429, 431, 849 P.2d 212, 214. The nine elements of fraud are: 1. A representation; 2. Falsity of the representation; 3. Materiality of the representation; 4. The speaker'sknowledge of the falsity of the representation or ignorance of its truth; 5. The speaker'sintent that the representation shall be relied upon; 6. The hearer'signorance of the falsity of the representation; 7. The hearer'sreliance on the representation; 8. The hearer'sright to rely upon the representation; 9. Consequent and proximate injury caused by the reliance on the representation. Wiberg v. 17 Bar, Inc. (1990),241 Mont. 490, 496, 788 P.2d 292, 295. The District Court ruled that the Dvoraks failed to establish elements 2, 5, 6,and 9. The Dvoraks claim that contrary to the District Court's ruling,they produced evidence creating genuine issues of material fact concerning whether the truck was used and rebuilt before they bought it. They claimed damages because a rebuilt truck is worth less than a new one. Attached to the Dvoraks' brief in opposition to Northwest's motion for claim and delivery were affidavits signed by the Dvoraks' son-in-lawand four other individuals. The affidavits were identical and were all datedApril 20, 1990. Attached to eachaffidavitwas a list of thirty-twoobserveddefects in the Dvoraks

### ' truck. Each affidavit stated: From my personal observations noted on Exhibit 1, it is my opinion that the truck either is not a factory-built new truck, or has had major components replaced and had repainting done to conceal the work done on the truck. The affidavits were dated almost three years after the Dvoraks purchased the truck. At that time, the Dvoraks had driven the truck over 300,000miles. The affidavits do not state when the observations about the truck were made. They state no opinion as to who created the alleged defects in the truck or when they were created. Moreover, the affidavits do not demonstrate that Northwest knew or should have known of the claimed defects in the truck. The Dvoraks essentially argue that "becausewe did not tamper with the truck, Northwest must have." However, this general assertion does not satisfy the Dvoraks'obligation to prove their claim of fraud with particularity. See Rule 9(b),M.R.Civ.P. We conclude that the District Court did not err in ruling that the Dvoraks failed to establish element 2 of their claim of fraud. The District Court observed as to the sixth element of the fraud claim that, within a few days after he bought the truck, Roger Dvorak had it inspectedby a qualifiedperson engaged in the truck repair business. That person stated by deposition that he did not note the defects listed in the above-mentionedaffidavits. As to the ninth element of fraud, damages, Northwest cited Roger Dvorak'sdeposition testimony that the truck ran okay and he had been satisfied with its condition. The Dvoraks, in rebuttal, 6maintained "it is common knowledge that trucks which have been wrecked and rebuilt are worth far less than thosewhich have not." However, they offered no specificproof of their damages to support this allegation. An April 29, 1991 affidavit of the Dvoraks'sonin-law,to which.they refer in their briefs on appeal, does not appear in the record nor is it listed on the court'sdocket. We conclude that the court did not err in ruling that the Dvoraks failed to present a genuine issue of material fact as to the ninth element of their claim of fraud. We hold that the District Court did not err in granting Northwest summary judgment on the counterclaim of fraud. Issue 2 Did the court err in refusing to allow the Dvoraks'proposed evidence that the truck was not a new truck? In its memorandum accompanying the order granting partial summary judgment for Northwest, the District Court stated: In addition, there being no substantial evidence to establish that the plaintiff did not sell the defendants a new truck, no evidence on this issue of the alleged breach of the contract by the plaintiff will be permitted at the trial. The Dvoraks argue that this was error because it precluded a contract claim for the difference between the contract price and the value of a used/wrecked truck. The Dvoraks maintain that the ruling "hadadditional far-reachingconsequences for the remaining portion of the Dvoraks'counterclaimswhich eventuallywent to the jury e.,breach of contract, breach of the covenant of good faith and fair dealing, and odometer tampering."Under any counterclaim based on the alleged used condition of the truck,the Dvorakswould be obliged to prove damages therefrom. As discussed above in regard to the motion for summary judgment, they failed toprovide evidence of any damages resulting from their claim that the truck was not new when they bought it. Moreover, Northwest produced evidence at trial that the resale price of the truck was above the averageprice for a truck with that many miles

on it. The Dvoraks were allowed to try to the jury their counterclaims concerning warranties, modification to and breach of contract,and odometer tampering. We hold that the District Court did not err in refusing to allow evidence at trial that the truck

was not new when the Dvoraks bought it. Issue 3 Did the court err in directing a verdict against the Dvoraks for $30,211.47? The Dvoraks contend no deficiency judgment should have been granted because the sale was not done in a commercially reasonable

manner for the following reasons: (1)the repossession affidavit signed by the bank officer was false; and (2)Northwest improperly refused to credit.the Dvoraks with credit life and credit disability insurance refunds which Northwest got back when it foreclosed and cancelled the Dvoraks' insurance. The Dvoraks maintain that commercial reasonableness is a question of fact for the jury. The Dvorakshave not demonstrated any way in which the bank's affidavit changed the amount of money received from the sale orcredited to the Dvoraks. Also, the evidence showed that the Dvoraks' maintenance account on the truck was credited with the insurance refund

### . During the presentation of Northwest's deficiency case at trial,the Dvoraks stipulated that they received notice of the sale and that Northwest obtaineda commercially reasonable price for its resale of the truck. The Dvoraks did not raise an issue at trial

as to the time,place, or advertising of the sale of their truck. This Court generally will not review issues raised for the first time on appeal. Weinberg 

### v. Farmers State Bank of Worden (1988), 231 Mont. 10, 19, 752 P.2d 719, 724. We therefore affirm the District Court's directed verdict against the Dvoraks for $30,211.47. Issue 4 Did the court err in refusing the Dvoraks' proposed jury instructions? The standard of review for a trial court's refusal to give jury instructions iswhether the trial court abused its discretion. Hislop v. Cady (1993),261 Mont. 243, 247, 862 P.2d 388, 390. A court may refuse instructionswhen the facts proven at trial do not show a basis for the instructions requested. Bushnell v. Cook

(1986),221 Mont. 296, 300, 718 P.2d 665, 668. Two sets of proposed instructions are at issue. One set would have instructed the jury on the Uniform Commercial Code (UCC)

measure of damages. The other set would have instructed on theDvoraks' claims that Northwest had improperly sold insurance in violation of Montana's laws. The rights of and remedies for a buyer claiming breach in a sale of goods under the UCC are listed at §§ 30-2-601and -711, MCA. In this case, the evidence showed that the Dvoraks did not reject the truck upon delivery,as described under § 30-2-602, MCA. Absent rejectionof nonconforming goods,theUCC requires notice to the seller within a reasonable time. See 5 30-2-607,MCA. The evidence also showed that the Dvoraks failed to notify Northwest of the alleged nonconformityof the trcck until after Northwest filed suit to recover the truck,when they filed their counterclaims. It does not appear therefore that the Dvoraks were entitled to any damages under the UCC. The second set of offered instructions concerned the unlawful sale of insurance by Northwest. This related to a policy of insurance on Roger Dvorak's life which the Dvoraks purchased when they entered the financing agreement. The Dvoraks failed to introduce any evidence at trial to show who sold the insurance or who received the commissions, or that Northwest received any commission. Because the facts proven at trial did not show abasis for the above jury instructions offered by the Dvoraks, we hold that the District Court did not abuse its discretion in refusing them. Issue 5 Do the jury's answers on the special verdict form require a reversalof theirverdict because they are internally inconsistent?The jury answered "no" to question no. 2 on the special verdict form,whether Northwest breached the modified contract or breached the covenant of good faithand fair dealing impliedby law in the modified contract. In question no. 4, the jury answered "yes" to the question of whether Northwest breached the implied covenant of good faith and fair dealing in the written contract between Northwest and the Dvoraks. The Dvoraks maintain that this is inconsistent. At trial, the Dvoraks introduced evidence that the written financing agreement was altered to allow them to make late payment. The jury accepted this argument,because it found in question no. 1 that the contract was modified. In answer to question no. 2, however, the jury found that the modified contract was not breached. The Dvoraks also introduced evidence at trial that Northwest breached, in other ways, the covenant of good faith and fair dealing implied in the written contract. The jury found that this covenant was breached,but found no damages from this breach. The Dvoraks'counterclaims included several separatetheories. We hold that the Dvoraks have shownno inconsistency in the jury's verdict which warrants reversal. We affirm the judgment of the District Court.

## 1 We concur:Justice Terry N. Trieweiler dissenting. I dissent from the majority's conclusion that the District Court correctly dismissed the Dvoraks' counterclaim for punitive damages based on fraud. Pursuant to Rule 56, M.R.Civ.P.,summary judgment is only appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. In deciding whether there is an issue of fact, the party opposed to summary judgment isentitled to all reasonable inferenceswhichmay be drawn from the offered proof. Brown v.Merrill Lynch (1982) , 197 Mont. 1, 9,640 P.2d 453, 457;Reavesv.Reinbold (1980),189Mont. 284, 287, 615 P.2d 896, 898. Any doubt is to be resolved in favor of theparty opposing summary judgment. Reagan

### v.UnionOil

### Co. (1984 ) 

### , 208 Mont. 1, 7, 675 P.2d 953, 956. I conclude that the affidavits attached to the Dvoraks' memorandum inoppositiontoNorthwest'smotion for summary judgment were sufficient to raise factual issues regarding the Dvoraks' claim that they were induced to purchase a truck from Northwest by fraudulent representations. For example,Robert G. Wittman operates a service shop where trucks are rebuilt and serviced,and where body work isperformed. He inspected the truck purchased by the Dvoraks and swore in his affidavit that the truck had,at some time, sustained damage to its body, the enginehad been in another truck,and numerous parts were not installed at the factory. The affiant also stated that thetruckhad beenpainted somewhereother thanat the factory and that the new paint did not match the factorypaint. In fact, there was evidence that the entire cab had been removed and substantialwork done on the truck. The Dvoraks testified that none of the work described in Wittman's affidavit was done while they owned and operated the truck, and that no one else had possession of the truck for a sufficient period of time within which to perform such extensive work after its purchase. Northwest represented to Dvoraks that the truck it sold them

was new. The affidavits offered evidence that it was not new. Obviously,thedealer'srepresentationwasmaterial to theDvoraks' decision to purchase the truck. Knowledge of the speaker's falsity can never be proven directly unless the speaker admits that he lied. Therefore, to prove fraud, knowledge must normally be inferred based on all of the circumstances. In this case, the truck in question was delivered to Northwest in December 1986 and was in its possession until sold to Dvoraks on June 1, 1987. The truck was presumably inspected byNorthwest after delivery from the factoryandprior to resale. If the conditions which were noted by those persons who filed affidavits in support of Dvoraks'claim were present prior to sale, it can be inferred that they were equally apparent to the qualified service people working for Northwest. Likewise, it canbe inferred that when apurchaser comes into

a new car or truck dealership, the dealer intends that person torely on his or her representations that the vehicle being sold is new, as opposed to used. Finally, it can be inferred that when a purchaser pays the price appropriate for a new vehicle, as opposed to adiscounted price for aused or damagedvehicle,that purchaser relied on representationsby the dealer that the vehicle was new. It was not necessary in order for the Dvoraks to prevail on their claim for fraud that they prove appreciable out-of-pocket loss. Section 27-1-204,MCA,provides that " [wlhen breach of duty has caused no appreciable detriment to the party affected,he may yet recover nominal damages." Furthermore, § 27-1-221,MCA, provides that "reasonablepunitive damagesmay be awarded when the defendant has been found guilty of actual fraud 

## . . . ." InLaumanv.Lee (1981),192 Mont. 84, 89, 626 P.2d 830, 833,we held that nominal damage may serve as the basis for a punitive damage award, even where the amount of actual damage is elusive. Certainly, in this case, if the Dvoraks purchased a used and repaired truck for the price of a new truck, they received less than they bargained for at the time of sale, even though over the long term, their use of the truck was not adversely affected. As pointed out in Lauman, where some actual damage can be presumed, based on the breach of a legal duty, punitive damages may be awarded even where the finder of fact assigns no value to the actual damages sustained. For these reasons, I would reverse the District Court's dismissal of the Dvoraks' claim based on fraud, and remand thiscase to the District Court forretrial ofall issues,including the claims of fraud and breach of contract. Based on this conclusion, Iwould not address the remaining issues discussed in the majority opinion.

Justice William E. Hunt, Sr., joins in the foregoingdissenting opinion.December29, 1994 CERTIFICATEOFSERVICE Ihereby certifythat the followingcertifiedorderwas sentby United Statesmail, prepaid,to the following named:

JackE.Sands Attorney atLaw 100North27thSt.,#250 Billings.MT59101 James P. Murphy&StewartR.Kirkpatrick MURPHY&KIRKPATRICK 2929 Third AvenueNorth Billings,MT59101

EDSMITH CLERKOFTHE SUPREMECOURT STATEOFMONTANA BY:

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