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 Leeus actual 

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 SheppardArmstrong 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. 
Affirmed. 

We Concur: A 

a a. 

Justice 

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