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 JANEARMSTRONG 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 constitutedactual and constructivefraud entitling respondentsto $17,838.50 inactualdamages, $5,000inpunitive damages, $8,818.89 in attorney fees and costs. We affirm. Appellanthasraised numerous issues,severalof which arenot 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 actsconcealed the true stateof affairs concerning the property, constituting constructive fraud. 3. 

### Whether the DistrictCourt erred in awarding Leeus actual and punitive damages. JeanneA. Roth sold realproperty 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 JaneArmstrong and her husband, Byron JohnArmstrong, by contract for deed inMay, 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 theparcel in two, as 1.25 acre and 3.75 acre plots. This certificate was not signed by the other owner, Byron JohnArmstrong, andwas not signedby JaneC. Armstrong in thename in which she acquired her interest. No instrument of record was ever filedwith theMissoula County Clerk and Recorder terminating the interest of Byron John Armstrong. After the death of her husband, JaneArmstrong again attempted to divide the property bycertificate 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. JaneArmstrong 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 Piedaluewas 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 Piedaluelsattorney 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 canqualify foran occasional saleexemption within the terms of the Montana Subdivision and Platting Act." Jane Armstrong failed to include a similar provision in the Armstrong-Lee contractwhich shepersonally drafted. Jane Armstrong also failed to include the following language mandated under 

### 5 76-3-303(5), 

### MCA, tobe 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 theproperty cannot be transferred in anymanner." Nor did the contract provide that the payments by Lees were not to be distributed by the escrow agent to Piedalue orArmstrong until the finalplatwas filed,and that if theplat 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. Thecontractwas subjecttounderlying 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 twoweeks' advance notice. No restrictions are noted in either the contract or the escrow agreement. However, had Lees been able to review the SheppardArmstrong contract, theywould have seenthat JaneArmstrong 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 shewould record thenoticeofpurchasers interest,and took $50 from Lees for thatpurpose. Thatnoticewas not recorded. On December 4, 

### 1985, the Lees, through counsel, notified Armstrong and Piedalue of their default under the contract for failureto filethe certificateof survey ornotice of purchaser's interest. Inthe letter,Armstrong and Piedaluewereurged to take all curative measures. In follow-up correspondencedated May 9, 

### 1986, counsel for Lees informed Piedalue and Armstrong that in lightof their failuretoact, the escrow agenthad been instructed to hold all funds until status of the titlehad been resolved. On August 1, 1986, Lees filed suit, alleging fraud, constructive fraud, deceptive practices, and breach of contract. Defaultwas entered against Piedalue on June 3, 

### 1987. On November 17, 1987, Lees notified Armstrong's attorney by certified mail thatLeeswerewilling and abletopay theremaining balance on the contract, and stated thatArmstrong 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 fraudtoheracts. Specifically,Armstrong statesthather representationsthat 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 theproperty whatsoever. Armstrong's argument is that since she was not obligated to produce title until the entire contract pricewaspaid, the factthat shecould notproduce good title at the beginning of the contract does not constitute fraud. This argument has nomerit in this case. One of the bases for fraud was that JaneArmstrong 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. Consequentand 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 wereunaware of the falsity and rightfullyrelied upon therepresentations. This Court will not setaside 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'sdetermination in non-jury settings. Bauer Ranch, Inc. v. Mountain West Farm Bureau Mutual Insurance Co. (1985), 215 Mont. 153, 695 P.2d 1307. JaneArmstrong next contendsthat the lower court erred in its findings of constructive fraud. Specifically, Armstrong states that no constructive fraudwas 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 theamountdue on their contract. Also clear from the record is thatArmstrong represented that Piedaluehad an interest in theproperty, Armstronghaving 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

### certificatewas not filed until after Lees were compelled to file suit.Section 28-2-406, MCA, describes constructive fraud:

What constitutes constructivefraud. 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 asthe lawespeciallydeclarestobe 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 thisstatute. Other jurisdictionshold that constructive fraud is invoked as amatter of law to prevent a party from being unjustly enriched as a result of false statementsmade, even if the deception is not knowinglymade. (Cites omitted.)

Withholding relevant factsconcerning purchased property can be a fraudulent act. (Citeomitted.) Furthermore, where a vendor by his conduct or words creates a false impression concerningamatter of vital importanceto 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 representationsas tomaterial 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, andthat 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 andmisrepresentation. This amount consisted of Lee's downpayment and monthly payments,property improvements and moving expenses. These were out-of-pocket expenses incurredby the Lees that the court found recoverabledue toArmstrong'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 arguesthat,at the least,the $7,965inmonthly 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 shouldnotprosperby hermisrepresentation. 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 8punitive 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 orpresumed,the jury, in additiontothe actualdamages, 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 damagesmay be awarded and anunderlying contract doesnot defeat such an award. Purcellv. 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,Castillov. Franks (1984), 213 Mont. 232, 690 P.2d 425,and where the District Court sits as trier of fact, it may award punitive damages. Shorsv. Branch (1986),221Mont. 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: 

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# w Justice