No. 82-428 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1984 

JOAN A. DEIST, 

Plaintiff and Respondent, 

PAUL D. WACHHOLZ JOHN R. DITTMAN 

VAN KIRKE NELSON, and CONRAD NATIONAL 

BANK , 

Defendants and Appellants. 

APPEAL FROM: District Court of the Eleventh Judicial District, 

In and for the County of Flathead, 

The Honorable John S. Henson, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Garlington, Lohn & Robinson; Gary L. Graham 

argued and Sherman V. Lohn argued, Missoula, 

Montana 

Murphy, Robinson, Heckathorn & Phillips, 

Kalispell, Montana 

Murray, Kaufman, Vidal & Gordon, Kalispell, 

Montana 

For Respondent : 

Sharon Morrison argued, Helena, Xontana 

William Rossbach, Missoula, Montana 

Submitted: November 17, 1983 

Decided: February 22, 1984 

Clerk 
Honorable Henry Loble, District Judge, delivered the Opinion 

of the Court. 

Defendants Wachholz, Dittman, and Nelson appeal from 

the judgment of the District Court of the Eleventh Judicial 

District, Flathead County. Defendant Conrad National Bank 

was not affected by the judgment and therefore is not a 

party to this appeal. For the reasons stated below, we 

affirm the District Court judgment in part, reverse in part, 

and remand for further proceedings to be conducted in 

accordance with this opinion. 

Joan Deist and her husband, Russell, owned a ranch 

west of Kalispell, Montana. During the course of operation, 

Russell incurred a large debt on the ranch, represented by a 

Farmers1 Home Administration mortgage and a demand note with 

the Conrad National Bank of Kalispell. By the late 19701s, 

the ranch had become an unprofitable enterprise. Russell 

died in May of 1978, leaving Joan with a debt of 

approximately $200,000. 

Officers of the Conrad National Bank informed Joan 

that something had to be done about the debt. Joan had been 

a ranch wife for much of her life, and although she had been 

appointed to fill her late husband's seat on the Flathead 

County Commission, and had been elected to the position in 

her own right in 1980, she had little, if any, experience in 

real estate matters. Eugene Gillette, president of the bank 

and a family friend, advised Joan that she had three 

options: continue to operate the ranch, subdivide it, or 

sell. Gillette recommended a complete liquidation of her 

interest in the property, recognizing that the ranch was not 
turning a profit in its current condition, and that Joan 

would not pursue subdivision. 

Paul Wachholz was vice-president for marketing at the 

Bank. According to his testimony at trial, his chief 

responsibility consisted of matching people with business 

opportunities, although he did counsel bank customers from 

time to time. Wachholz had toured the Deist ranch with 

other bank officials after Russell's death when they were in 

the process of deciding how to help Joan deal with the 

outstanding debt. Joan asked him to help her find a buyer, 

and he agreed to do so. There is nothing in the record to 

suggest that he was authorized to negotiate a sale on Joan's 

behalf, or that he acted in an advisory capacity similar to 

the role played by Eugene Gillette. Apparently, any offers 

to buy made their way to Joan through Roy Deming, an 

agricultural loan officer with the Conrad National Bank. 

Deming then passed on any information about prospective 

buyers to Joan. 

That the Deist ranch was for sale was obviously common 

knowledge in the Kalispell community, as Joan was approached 

by prospective buyers or individuals who knew about 

prospective buyers. One of the former was Dr. Loren 

Vranish, a local physician and acquaintance of Joan Deist. 

Joan was willing to negotiate with Vranish, and her 

attorney, James Murphy of Kalispell, assisted her in drawing 

up acceptable terms. Vranish made an offer to purchase the 

real property for $500,000 with a $50,000 down payment and 

monthly payments of approximately $3800 reflecting an 

interest rate of nine-and-one-half percent (9-1/2%). 

Vranish also wanted deed releases included in the contract, 
to allow sale of 80 acre parcels after 1985. Although Joan 

was hoping that an agreement could be reached, the 

negotiations eventually fell through. Vranish was having 

trouble raising sufficient money to make the purchase. He 

sought a loan from the Conrad National Bank, but was turned 

down. Vranish's testimony, however, revealed that his deal 

with Joan collapsed over the proposed deed release 

provisions. Joan was unwilling to sell without assurances 

that the land would be preserved for agricultural use. 

Vranish testified that he intended to ranch the land for as 

long as it proved economically feasible to do so, but wanted 

the deed release option available. This compromise was 

unacceptable to Joan. 

In the meantime, however, another offer became 

available. Wachholz referred a local forestry consultant 

and real estate investor, John Dittman, to Joan's attention. 

Dittman was willing to purchase the ranch, and had already 

submitted an offer to Roy Deming in late September of 1978, 

about the time the Vranish deal was floundering. Wachholz 

and Gillette represented Dittman to be a reputable buyer, 

and Joan testified that Wachholz told her that entering into 

an agreement with Dittman would be a "good deal." After the 

Vranish deal fell through, negotiations between Murphy, 

Joan's attorney, and Dittman proceeded. 

There is some dispute about the extent of Joan's 

knowledge as to what took place during these negotiations. 

Joan usually was not present when Murphy a.nd Dittman 

discussed contract terms. Eventually, on January 2, 1979, 

Joan signed a contract for deed with Dittman, who purchased 

as a trustee. There were no other signatories to the 
contract, and there was nothing in the contract, except the 

designation of Dittman as trustee, to indicate whether other 

buyers were involved in the purchase. The agreement called 

for a sales price of $532,400 for the land and outbuildings 

with $74,200 downpayment and the balance to be paid over 

fifteen years at eight percent (8%) interest. 

Interestingly, the agreement provided for deed releases 

beginning in 1980. Joan also sold the farm machinery for 

$25,800. 

The immediate dispute began the same day the contract 

was signed. While dining with her daughter and son-in-law, 

Joan learned from them that Wachholz and a local physician, 

Van Kirke Nelson, were partners in the Dittman purchase. 

The three had entered into a partnership agreement covering 

the ownership and management of the ranch a few days before 

the contract was signed. Furthermore, testimony at trial 

revealed that Dittman and Wachholz were partners in other 

local real estate transactions. Joan was apparently upset 

about this revelation and, in particular, Nelson's 

involvement, although she testified at trial that, some time 

prior to completion of her negotiations with Dittman, 

Wachholz had told her that he might join in the Dittman 

purchase. She insisted, however, that Wachholz never told 

her that he had finally decided to join Dittman. 

In the weeks following the signing of the contract, 

Wachholz, Dittman and Nelson had the land platted into 

twenty and forty acre parcels, in expectation that proposed 

changes in state law might affect future subdivision of the 

property. They sold the ranch machinery and equipment, and 

eventually sold the Deist family home located on the ranch, 
in addition to twenty acres for $115,000 on a contract 

providing nine-and-one-half percent (9-1/2%) interest. In 

the interim, Joan sought advice as to any legal recourse she 

might have against Wachholz, Dittman and Nelson. In 

December, 1979, Joan formally requested rescission of the 

contract, but her request was refused. In September of 

1980, the partners sold another twenty acres for $56,000 on 

a contract for nine-and-one-half percent (9-1/2%) interest. 

A complaint was filed in January, 1980, seeking 

rescission of the contract as against Wachholz, Dittman and 

Nelson, and, in the alternative, damages from the 

transaction as against the Conrad National Bank. The theory 

behind the initial complaint involved an alleged breach of 

fiduciary duty by Wachholz or the Bank to Joan. An amended 

complaint filed in May of 1981 clearly set forth allegations 

of constructive fraud and undue influence on the part of 

Wachholz, and sought rescission against the three partners 

or, in the alternative, damages against the Bank. 

After extensive discovery, the case came to trial in 

April, 1982. Following trial and further briefing, the 

court rendered judgment against Wachholz, Dittman and 

Nelson. The Court concluded that Wachholz owed Joan a 

fiduciary duty both in his capacity as an officer of the 

Bank, which the court found was in a fiduciary relationship 

with Joan, and because Wachholz and the Bank were her agents 

in the sale of the ranch. Wachholz was found liable for 

constructive fraud and undue influence in his dealings with 

Joan, and the contract was ordered rescinded as to all 

parties. Joan was ordered to tender payment of monies 

received under the contract together with ten percent (10%) 
interest, and defendants were ordered to pay Joan rental 

payments for the time the ranch was in their possession, and 

also the monies due them under land sales made after the 

contract was signed. An amended judgment was entered 

specifying the sums due all of the parties. The Bank was 

not adjudged liable to Joan in any way. Wachholz, Dittman 

and Nelson filed a notice of appeal. 

Appellants present four issues for review: 

(1) Whether the trial court erred in finding that a 

fiduciary relationship existed on the part of Wachholz with 

respect to dealings with Joan? 

(2) Whether the trial court erred in finding 

constructive fraud and undue influence respecting the real 

estate transaction between Joan and the appellants? 

(3) Whether rescission was a proper remedy? 

(4) Whether the trial court erred in its determination 

of amounts due Joan under the judgment? 

THE EXISTENCE OF A FIDUCIARY DUTY 

Appellants correctly note that a finding of a 

fiduciary duty is essential to subsequent findings of 

constructive fraud and undue influence. In the absence of 

such a duty, Joan's grounds for rescission are shaky at 

best. 

The claim of a fiduciary duty on the part of Wachholz 

is based on three alleged relationships: (1) that the Bank 

was Joan's agent for the sale of the ranch, and that the 

fiduciary duty arising from the agency relationship flowed 

to all the Bank's officers, including Wachholz; (2) that 

Wachholz was Joan's personal agent for the sale of the 

ranch, and therefore owed her a personal fiduciary duty; and 
(3) that the Bank, acting as Joan's financial adviser, owed 

her a fiduciary duty and that this duty flowed to all the 

bank's officers, including Wachholz. 

Upon review of the testimony, we conclude that the 

existence of a true agency relationship between either the 

Bank or Wachholz and Joan is unsubstantiated. Unlike the 

trial court, we find no evidence to suggest that either the 

Bank or Wachholz were authorized to negotiate a sale of the 

ranch or to direct to Joan only those prospective buyers 

whom the bankers deemed appropriate. Thus, any fiduciary 

duty owed to Joan by the Bank and its officers had to arise 

from the Bank's role as Joan's financial advisor. 

The relationship between a bank and its customer is 

generally described as that of debtor and creditor, State v. 

Banking Corp. of Montana (1926), 77 Mont. 134, 251 P. 151, 

and as such does not give rise to fiduciary 

responsibilities. Neverthless, there are exceptions in 

certain situations: 

"As a general rule, the relationship 

between a bank and a depositor or 

customer does not ordinarily impose a 

fiduciary duty of disclosure upon the 

bank. They deal at arm's length. 

[citations omitted] However, special 

circumstances may dictate otherwise: one 

who speaks must say enough to prevent his 

words from misleading the other party; 

one who has special knowledge of material 

facts to which the other party does not 

have access may have a duty to disclose 

these facts to the other party; and one 

who stands in a confidential or fiduciary 

relation to the other party to a 

transaction must disclose other facts. 

[citation omitted] Present-day 

commercial transactions are not, as in 

past generations, primarily for cash; 

rather, modern banking practices involve 

a highly complicated structure of credit 

and other complexities which often thrust 

a bank into the role of an advisor, 

thereby creating a relationship of trust 
and confidence which may result in a 

fiduciary duty upon the bank to disclose 

facts when dealing with the customer. 

[citation omitted] 'I 

Tokarz v. Frontier Fed. Sav. & Loan Assln. (1983), 33 

Wash.App. 456, 656 P.2d 1089, 1092. See also Dolton v. 

Capitol Fed. Sav. & Loan Assln. (1981 Colo.App.), 642 P.2d 

21. See generally Annot., 70 A.L.R.3d 1344 (1976) (existence 

under special circumstances of fiduciary relationship 

between bank and depositor or customer so as to impose 

special duty of disclosure upon bank). 

The existence of a fiduciary duty to a loan customer 

depends upon satisfactory proof of a special relationship. 

In Stewart v. Phoenix Nat'l Bank (1937), 49 Ariz. 34, 64 

P.2d 101, the Arizona Supreme Court held that: 

"[wlhere it is alleged [that] a bank has 

acted as the financial advisor of one of 

its depositors for many years, and that 

the latter has relied upon such advice, 

it is a sufficient allegation that a 

confidential relationship in regard to 

financial matters does exist and that, if 

it is proved, the bank is subject to the 

rules applying to confidential relations 

in general." 

49 Ariz. 34, 64 P.2d at 106. Accord: Fridenmaker v. Valley 

Nat'l Bank of Ariz. (1975), 23 Ariz.App. 565, 534 P.2d 1064; 

Bank of America v. Sanchez (1934), 3 Cal.App.2d 238, 38 P.2d 

787; Lloyds Bank, Ltd. v. Bundy [1974], 3 Al1.E.R. 757 

(C.A.) (English Court of Appeal, Civil Division) (Opinion of 

Sir Erich Sachs). Similarly, in Pigg v. Robertson (1977 

Mo.App.), 549 S.W.2d 597, the Missouri Court of Appeals held 

that evidence that a banker was aware he was being called 

upon to advise a customer on obtaining a loan for purchase 

of real estate would entitle a jury to find that a 

confidential relation existed and that certain disclosures 
by the customer to the banker should be protected, and that 

disclosures by the banker to the customer of any adverse 

interests on the former's part should be encouraged. 

There is substantial, credible evidence in the case at 

bar that the relationship between the Conrad National Bank 

and Joan Deist was more than a simple debtor-creditor 

affair. Joan and her husband had dealt with the bank for 

about twenty-four years prior to his death. Both she and 

Russell had imposed trust and confidence in the advice of 

Eugene Gillette, who as an officer was the alter-ego of the 

enterprise and, for all practical purposes, was the "bank" 

to Joan and other customers. See Independent Banker's Ass'n 

of Georgia, Inc. v. Dunn (1973), 230 Ga. 345, 197 S.E.2d 

129, appeal after remand, 231 Ga. 421, 202 S.E.2d 78, appeal 

after remand (1976), 237 Ga. 252, 227 S.E.2d 227. Gillette 

acted as a financial advisor to Joan after Russell's death 

with respect to handling the ranch debt. Even though Joan's 

association with the Bank in this transaction did not extend 

over several years, the nature of the association and her 

reliance, combined with her husband's years of dealings with 

the bank on essentially the same matters, were sufficient to 

make out a prima facie case that a fiduciary relationship 

existed. Even appellants Wachholz, Dittman and Nelson have 

conceded that the Bank might have been in such a 

relationship and had such a duty under these facts. 

Appellants principal concern, however, is how 

Wachholz, as a bank officer, is vested with a duty or 

responsibility to Joan. Appellants emphasize that Wachholz 

did not act in the same capacity as Gillette. Wachholz 

never advised Deist on her financial situation and how she 
might cope with it. He did agree to help Joan find a buyer 

for the ranch, and he did tell her that selling to Dittman 

would amount to a "good deal," but there is no evidence that 

he participated in negotiations between Joan or her attorney 

and Dittman. Appellants point to this lack of evidence as 

satisfactory proof that Wachholz was not acting in the role 

of confidant and advisor and could not therefore be vested 

with fiduciary responsibilities. 

Nevertheless, the court found that because "the 

officers of the Conrad National Bank were Joan's financial 

and business advisors and because she reposed trust and 

confidence in them, the officers of the bank owed to Joan 

Deist a fiduciary duty. That fiduciary duty extended to 

Paul Wachholz . . . " Presumably, the court was convinced 

that, because Eugene Gillette, and perhaps Roy Deming, acted 

as financial advisors to Joan respecting the sale of the 

ranch, any fiduciary duty vested in them carried over to any 

other bank officer involved in the transaction, including 

Wachholz. This presumption appears well grounded in 

precepts of agency, so long as the duty imposed does not 

extend beyond the scope of the Bank's or Wachholzgs 

association with the sale of the Deist ranch. Appellants 

argue that Wachholz cannot be held liable merely because the 

Bank fails to discharge affirmative duties which it owes to 

a third person. This argument, however, misconceives the 

nature of Wachholzgs duties and any liabilities arising from 

the breach thereof. As noted above, the duty extends no 

further than his involvement with the land sale. 

Appellants' fear that innocent employees could be made to 

suffer for the sins of errant coworkers is assuaged by the 
rule that the agent of a disclosed principal (here, the 

Bank) is not subject to liability for the conduct of other 

agents unless he is at fault in cooperating with them. See 

Restatement (Second) of Agency, Section 358 (1957). 

We recognize that most, if not all, of the cases 

relied upon to support the trial court's finding of a 

fiduciary duty involve fact situations different than those 

in the immediate dispute. Nevertheless, the ratio decidendi 

of these decisions is not incompatible with the facts of the 

case at bar. The Bank acted as Joan's financial advisor, 

and she undoubtedly relied upon their counsel. Equity is 

not compromised by holding Wachholz to a fiduciary duty to 

Joan in those dealings intimately associated with the 

off ices of the Bank, so long as the duty reaches no further 

than the internal association that gave rise to it. The 

Bank was unquestionably involved in the sale of the ranch, 

and Wachholz was not so detached from the transaction that 

imposition of fiduciary responsibilities would be 

impermissible. Appellants' retort that innocent bank 

employees would always suffer unjustly because of another 

employee's indiscretions is unwarranted. 

In summary, Wachholz had an obligation to inform Joan 

fully as to his involvement in the ranch purchase and to do 

nothing which would place Joan at a disadvantage. He was 

bound to insure that Joan was not "insufficiently informed 

of some factor which could affect [her] judgment." Bundy, 

supra, at 768. We are not saying that Wachholz could not 

make a "reasonable legitimate profit" from his dealing with 

Joan, so long as he disclosed fairly and honestly all the 

information which might be presumed to have influenced her 
in the transaction. Cf. Stewart v. Phoenix Nat'l Bank, 

supra, 49 Ariz. 34, 64 P.2d 101, 106 (bank owing fiduciary 

duty to client in transaction may make reasonable legitimate 

profit from client so long as bank fully discloses all facts 

presumed to influence client in the transaction). 

PROOF OF CONSTRUCTIVE FRAUD AND UNDUE INFLUENCE 

According to Section 28-2-406, MCA, constructive fraud 

consists of: 

"(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." 

Clearly, subsection (1) of Section 28-2-406 is at issue 

here, even though respondent relies upon some case law 

construing subsection (2). Appellants have also muddied the 

waters with references to the nine elements of actual fraud, 

which have nothing to do with proof of constructive fraud. 

See Moschelle v. Hulse (Mont. 1980), 622 P.2d 155, 37 

St.Rep. 1506. Consequently, the following discussion will 

address only those factual and legal issues pertinent to 

subsection (1). 

The trial court found a breach of duty on Wachholz's 

part by concluding that (1) the contract price and terms 

were disadvantageous to Joan; (2) the true purchasers were 

undisclosed to her; and (3) the property was used by the 

buyers for purposes other than those contemplated by Joan. 

With respect to the contract price, it should be 

remembered that Joan and Dittman agreed to a total sales 

price of approximately $558,000, which included the land and 
farm equipment. This figure was higher than that proposed 

in the unsuccessful negotiations between Joan and Dr. 

Vranish, the only other figure that was the result of actual 

negotiations. Nevertheless, the trial court's attention was 

not focused on the Vranish figure. Instead, the court 

considered two varying estimates of the fair market value of 

the ranch as of January 2, 1979, the date of sale. Joan's 

appraiser, Roger Jacobson, valued the property at about 

$870,000, or about $300,000 over the actual contract price. 

Appellants' appraiser, Wayne Neil, testified that the 

property was worth about $515,000, just slightly under the 

contract price. In its findings of fact, the trial court 

makes mention of the $870,000 figure, but found that the 

fair market value as of January 2, 1979, was $635,000. 

There is only one possible source for the latter 

figure. During her testimony, Joan indicated that she 

consulted another appraiser named Zugliani sometime after 

the sale. This appraisal produced a value of $635,000. 

Zugliani was not called as a witness, and his report was not 

entered into evidence. Under the circumstances, it is 

arguable whether the court's finding should be upheld. The 

figure adopted by the trial court is based on data that 

could not be cross-examined by appellants. Nevertheless, 

the court's implicit recognition of the Jacobson appraisal 

of $870,000 suggests that the fair market value of the ranch 

on the date of sale was substantially higher than the actual 

contract price. The expression of market value in specific 

dollars is not as important as the fact that the value was 

higher than the agreed contract price. 

Although we regard the trial court's acceptance of the 
$635,000 figure as harmless error in this case, this does 

not absolve the court from its failure to explain why one 

appraiser's figure should be believed over that of another. 

In marriage dissolution and property settlement cases, this 

Court has expressed dissatisfaction with district court 

findings on valuation that skip the essentials of 

elaboration: 

"As a general rule, if contested evidence 

is presented to the trial court regarding 

the existence or valuation of marital 

assets and no findings are made regarding 

that asset or no explanation is provided 

as to why the District Court accepted one 

party's valuations over that of the 

other, the District Court has abused its 

discretion. Peterson v. Peterson (1981) 

Mont., 636 P.2d 821, 38 St.Rep. 1723. 

Item-by-item findings are not required in 

property division cases, but findings 

nevertheless must be sufficiently 

adequate to ensure that this Court need 

not succumb to speculation while 

assessing the conscientiousness or 

reasonableness of the District Court's 

judgment. In re the Marriage of Caprice 

(1978), 178 Mont. 455, 585 P.2d 641. 

"This Court cannot uphold [a] District 

Court's judgment as within the realm of 

its broad discretion if we have no 

inkling of its thought process." 

Larson v. Larson (Mont. 1982), 649 P.2d 1351, 1354, 39 

St.Rep. 1628, 1631-32. The same principle should be 

followed by trial judges in all future cases involving 

valuation of real estate. 

Evidence was submitted challenging the other contract 

terms. Much if not all of it came through the testimony of 

attorney Milton Datsopolous, who was called by Joan as an 

expert in the field of real estate transactions. In answer 

to a question about a hypothetical sale similar to the one 

to appellants, Datsopolous indicated that the Deist contract 
was "tilted very much so in favor of the purchasers." 

Specifically, Datsopolous faulted the sales price as being 

below market value, the interest rate as being below 

prevailing rates in the area, and the annual payments as 

being lower than usual. Datsopolous also criticized the 

deed release provisions for giving appellants the 

opportunity to sell off choice parcels, thereby jeapordizing 

any interest or value Joan would have in the land if the 

parties terminated the contract and allowed all legal and 

equitable interests to revert to Joan. 

Datsopolous did not examine the escrow files of the 

Bank or make independent studies of interest rates other 

than to speak to his experience as a real estate speculator 

in the area and as a director of the bank in Columbia Falls, 

Montana. He did not conduct an independent appraisal of the 

Deist property. Nevertheless, appellants did not attempt to 

challenge his status as an expert witness. However, they 

did rely on testimony from other witnesses that the contract 

was the result of honest bargaining. For example: attorney 

Murphy testified that, in his opinion, he had negotiatied a 

good deal on Joan's behalf. Wachholz testified that, in 

other real estate purchases he participated in shortly 

before the Deist purchase, he was giving a slightly lower 

interest rate on contracts, although Dittman admitted that 

the interest rate on future sales of sections of Deist land 

was nine-and-one-half percent (9-1/2%). 

The trial court obviously accepted Datsopolous' 

testimony that the contract was more favorable to the 

purchasers. His testimony is, for the most part, 

uncontradicted and credible. Because this Court will not 
disturb findings based on substantial though conflicting 

evidence, unless there is a clear preponderence of evidence 

against such findings, Toeckes v. Baker (Mont. 1980), 611 

P.2d 609, 37 St.Rep. 948, the trial court's observation that 

the contract terms were more favorable to appellants 

withstands challenge. 

The matter of whether Joan knew Wachholz and Nelson 

were involved in the purchase also involves consideration of 

conflicting testimony. Joan insists that she never knew 

these individuals were partners in the Dittman purchase, 

even though she knew at one time that Wachholz had expressed 

to her an interest in possibly joining as a co-purchaser. 

Wachholz contends that Joan was aware he would be a buyer 

before the contract was signed, and that her attorney, 

Murphy, corroborated this testimony. Gillette thought it 

best that Wachholz inform Joan if he intended to join 

Dittman, as that would be proper policy for a bank employee. 

The court again chose to believe Joan and we can find no 

acceptable reason to question that judgment. 

The interesting aspect of the disclosure matter is 

whether Joan knew that Dr. Nelson was a purchaser. Gillette 

testified that Joan came into his office sometime after the 

sale and told him that Nelson "was involved in buying the 

ranch and had she known it, she would not have sold it to 

them." This testimony was corroborated by Nelson himself. 

He indicated that when he first saw Joan after the sale, she 

expressed displeasure with his involvement, and again said 

that had she known he would be a co-purchaser, she would 

never have signed the contract. There was no indication at 

trial why Joan looked upon Nelson's involvement with 
disfavor, but it does appear that she did not know of his 

interest, even if it can be argued that she knew or had 

reason to know that Wachholz was involved. 

Although the trial court concluded that appellants 

"intended to use the property for purposes other than those 

represented to Joan before the sale," Joan's "intentions" 

were somewhat cloudy. She testified that it was always her 

intention to have the ranch remain in agricultural use, but 

she admitted that the ranch was unprofitable and that the 

sale of some acreage was inevitable. Moreover, she agreed 

to deed releases in the Dittman contract, to begin in 1980, 

even though she had rejected the Vranish proposal, which 

included provisions for deed releases beginning in 1985. 

Dittman maintained that Joan never told him directly that 

she wanted the land maintained as a ranching unit, but he 

admitted hearing rumors to the contrary. Once again, the 

trial court was forced to weigh conflicting testimony, and 

chose to believe Joan, even though her entire testimony on 

the matter was confusing and possibly contradictory. 

ZIJevertheless, even if we concede that Joan had full 

knowledge of the appellant's actual intentions, such an 

admission is not fatal to the ultimate finding of 

constructive fraud. 

Two other considerations affecting the alleged breach 

of duty must be addressed. The first was the introduction 

into evidence of the so-called "Bowler Report," the results 

of an internal audit of the Conrad National Bank conducted 

in 1980. Bowler appeared as a witness for appellants, 

although his report, submitted during presentation of Joan's 

case-in-chief, was potentially damaging to Wachholz. The 
report concluded that the bank had made loans to 

individuals, partnerships and companies in which Wachholz 

had financial interests. All were real estate projects. 

Wachholz's personal net worth had increased nearly 

$2,000,000 in the years between 1972 and 1980, and the 

increase was due primarily to his real estate investments. 

The audit found nothing illegal in these transactions, 

principally because the Bank did not have a clear conflict 

of interest policy. However, the audit concluded that 

because of his "extensive outside interest," Wachholz's 

lending authority should be curtailed or eliminated and 

brought into compliance with a formal conflict of interests 

policy. 

The other consideration was the role played by Joan's 

attorney, James Murphy, during the negotiations. Appellants 

cannot conceive how Joan could assert that her best 

interests were unprotected when she was represented by 

counsel. Admittedly, Joan was not present during many of 

the meetings, although Murphy testified that he had 

counseled Joan on all important decisions and had striven to 

get the best possible deal for her. Murphy's testimony does 

not describe the negotiation process beyond his 

generalizations about protecting Joan's best interests. He 

did indicate, however, that he did not advise Joan on the 

difference between various interest rates, or about the 

legal significance of a "trustee." As noted earlier, Murphy 

claimed that Joan was aware of Wachholz's involvement, but 

his testimony is silent as to his knowledge of Nelson's 

interest. Obviously, the court was unimpressed with his 

representation, and possibly regarded portions of his 
testimony as revealing less than a yeoman's effort on behalf 

of Joan. 

Considering together the testimony about contract 

price and terms, the allegations about disclosure, the 

alleged misrepresentations of intended use of the land, 

Wachholz's past activities, and attorney Murphy's role, we 

cannot say that the trial court erred in finding a breach of 

duty amounting to constructive fraud. There is substantial 

credible evidence that the contract terms favored appellants 

at Joan's expense, and the fact that she was represented by 

counsel does not mitigate any harm suffered by her. 

Wachholz breached his fiduciary duty and failed to consider 

Joan's best interests. 

The court also found that the evidence support.ed a 

finding of undue influence, relying on Section 28-2-40'7(1), 

MCA, which provides, in pertinent part, that undue influence 

"consists in . . . the use by one in whom a confidence is 

reposed by another . . . of such confidence . . . for the 

purpose of obtaining an unfair advantage over him." This 

subsection has apparently never been construed by this 

Court, and there is little guidance from the California 

courts as to the scope of identical language in Cal.Civ.Code 

Section 1575(1) (West 1982). As a general rule, however, a 

presumption of undue influence arises from a transaction 

between individuals in a fiduciary relationship where the 

dominant party in the relationship is the beneficiary of the 

transaction. See 25 AmJur 2d Duress and Undue Influence 

Section 39 (1966). Presumably, however, the dominant party 

must exert some kind of unfair presuasion over the victim. 

- Id. Because Wachholz never negotiated directly with Joan, 
and because there was no evidence of unfair persuasion on 

Wachholzls part when he told Joan about the Dittman 

proposal, it seems clear that the presumption of undue 

influence was successfully rebutted by the testimony of 

several parties, including Joan. Nevertheless, the 

available evidence still supports the finding of 

constructive fraud. 

THE APPROPRIATENESS OF RESCISSION 

Section 28-2-1712(1), MCA, requires the party 

aggrieved by the contract to "rescind promptly upon 

discovering the facts which entitle him to rescind . . ." 

Because Joan allegedly took several months to seek 

rescission, appellants argue that pursuit of the remedy is 

barred by laches. It is unnecessary, however, to inquire 

into the time frame in which Joan acted. Laches is an 

affirmative defense and must be set forth in a defendant's 

answer. Rule 8(c), M.R.Civ.P. Appellants, however, did not 

raise this defense in answers to the initial and amended 

complaints, and it cannot be raised for the first time on 

appeal. Moschelle, supra, 622 P.2d at 160, 37 St.Rep. at 

1511. 

Appellants also maintain that rescission is improper 

because Dittman, not Wachholz, was the "actual" purchaser, 

and because Dittman (and Nelson) did not breach any duty to 

Joan and therefore cannot be held liable to rescind. This 

argument is an unpersuasive exercise in semantics. Wachholz 

was a "purchaser" by virtue of his partnership with Dittman 

and Nelson to buy the ranch. Moreover, Section 

28-2-1711(1), MCA, apparently allows for rescission against 

all the par ties even though the sole llwrongdoer,ll Wachl?olz, 
did not participate in the negotiations or the signing. The 

statute provides that the aggrieved party may rescind his 

contract if his consent "was . . . obtained through . . . 

fraud, or undue influence exercised by or with the 

connivance of the party as to whom he rescinds or of any 

other party to the contract jointly interested." 

VALUATION OF AMOUNTS DUE UNDER THE JUDGMENT 

In the judgment, the court ordered appellants to pay 

Joan $11,122 in rent for each year or part thereof when they 

were in possession of the ranch, or $35,072 total. In 

addition, the court ordered appellants to tender the 

$171,000 they earned from sale of the parcels after purchase 

of the ranch. Both sums were to be applied as a set-off to 

the $249,512.48 that Joan had received from the sale of the 

ranch between January 1979 and the time of judgment. 

Appellants maintain that the computations behind these 

set-offs are in error. 

The $11,122 per year rental payment is based on an 

esimate of annual net income derived from the Neil 

appraisal, the report commissioned by appellants. 

Apparently, this figure is based upon an assumption that 

approximately $100,000 of additional capital improvements 

would have to be made on the property to generate that net 

income. Under the circumstances, the figure used by the 

trial court could be considered erroneous. We note, 

however, that this figure represents the net return after 

expenses on a gross return of approximately $25,000 per 

year. This $25,000 figure appears to be akin to an average 

estimate of gross returns ranging from approximately $5,250 

per year to over $35,000 per year, depending upon the basis 
of renting or leasing agricultural property. The low figure 

reflects a pure cash rental method. The high figure 

reflects a combination of crop and calf sharing. A third 

method contemplates operating the ranch strictly for cattle 

raising, and gives a rental figure of $22,725, a sum very 

close to the $25,000 used as a gross return. Given that all 

three bases for renting or leasing agricultural property are 

observable in the vicinity of the Deist ranch, and given 

constant annual expenses of operation, the $11,122 annual 

rental payment ordered by the court as a set-off does not 

appear excessive or unreasonable. Even when we grant that 

the figure has some connection to gross income from greatly 

improved property, it still appears to approximate closely a 

fair net return on property not substantially improved. 

Because of this close proximity, we are reluctant to 

overturn this portion of the trial court's judgment. 

We do not agree with the trial court that appellants 

must "tender" to Joan in the form of a set-off the full 

$171,000 owed to them under the contracts for sale of the 

parcels. Appellants note that the $171,000 is not yet in 

their hands. This is a sum owing to them over the periods 

of the contracts. The present value of any sum due in the 

future, whether in installments or lump sum, is worth less 

today. See A. Alchian & W. Allen, Exchange and Production: 

-- Theory in Use, 264 (1969); R. Heilbroner, Understanding 

Macroeconomics, 118-19 (4th ed. 1972). Any set-off 

involving the sale of the two parcels should amount to no 

more than the present value of the $171,000 to be earned 

over the life of the sales contracts. The trial court 

should have examined the period that the contracts were in 
effect prior to delivery of the warranty deeds and applied 

an appropriate discount rate to the total sales price in 

order to reflect present value. 

JUDGMENT 

Those portions of the District Court's judgment 

involving the finding of a fiduciary duty and a breach of 

that duty amounting to constructive fraud are affirmed. The 

requirement that $11,122 in rent for each year or part 

thereof appellants were in possession of the ranch be 

applied as a set-off to the amount owed by Joan under the 

terms of rescission is also affirmed. That portion of the 

judgment requiring treatment of the full $171,000 owing on 

the two contracts for deed as a set-off is reversed, and the 

case is remanded to the District Court for additional 

proceedings to determine the present value of the amounts 

owing to appellants under those contracts and to enter an 

appropriate judgment. 

Ho~orable Henry~o~le, District 

Justice 

We concur: 

Chief 

3~44 

Justice .$v& d, 
Justices 
Mr. Justice L.C. Gulbrandson dissenting 

I respectfully dissent. 

After citing Stewart v. Phoenix National Bank (1937), 

49 Ariz. 34, 64 P.2d 101, for the existence of a bank's 

fiduciary duty to a loan customer, the majority opinion 

states: "The Bank was unquestionably involved in the sale of 

the ranch and Wachholz was not so detached from the 

transaction that imposition of fiduciary responsibilities 

would be impermissible." 

I quote from the next case cited by the majority, 

Fridenmaker v. Valley National Bank of Arizona (1975), 23 

"Fridenmaker has previously alleged that 

he was in a confidential relationship 

with the Bank and that this relationship 

forces this court to examine the right to 

rely in that light. It is contended that 

the length of time he dealt with the 

Bank, the receipt of credit lines on a 

signature, the intermittent advice given 

by the Bank, all, if proven, indicate a 

confidential relationship. Stewart v. 

Phoenix National Bank, 49 Ariz. 34, 64 

P.2d 101 (1937). We agree that this is a 

correct statement of law and will 

concede, for argument's sake, that 

initially - a confidential relationship 

existed. The presence and participation 

...................... 

of counsel representing ------------ Fridenmaker 

interests was so Drevalent. however. as 

- to leave any coniidential relationship 

that existed of nugatory legal effect." 

( Emphasis added. ) 

Here, the plaintiff was represented by attorney James 

Murphy throughout all negotiations for the sale of the ranch 

after Mr. Diest's death. Attorney Murphy was instrumental 

in drawing the proposed contract to Dr. Vranish, and in fact 

testified that he told Dr. Vranish the offer of $800 per 

acre was too low. When the Vranish negotiations ended, 
attorney Murphy, after consultations with the plaintiff, 

obtained information from the plaintiff's accountant, Harry 

Isch, regarding terms of down payment, annual payments and 

release provisions, and then drew the final contract with 

Dittman, trustee, at $1,050 per acre. 

Attorney Murphy testified as follows: 

"Q. With reference to Mr. Isch, what did 

he do in the continuing negotiations over 

the summer and autumn? 

"A. I consulted with him about the amount 

of money we could take down on the Ranch. 

I consulted with him about the payments. 

I particularly consulted with him about 

release provisions, because we didn't 

want a whole bunch of money to be coming 

in in any one year where--and let too 

much of it go to income tax." 

"Q. All right. Do you remember, Mr. 

Murphy, a conversation with Dr. Vranish 

with reference to an eight hundred dollar 

per acre figure? 

A. Yes. 

"Q. What did you say to Dr. Vranish with 

reference to that conversation? 

"A. He said he was going to talk to Joan 

about it, and I asked him not to. 

"Q. Why? 

"A. Well, because they were real good 

friends. And if he was going to talk to 

her, I felt that he was going to try to 

get her to take eight hundred dollars an 

acre. And I asked him not to, because 

she needed the money a lot more than he 

did, because that was all she had to live 

on. And he had a medical practice to 

keep him going. And I told him that we 

could get more than that for it. 

"Q. Did you get more than that? 

"A. We got one hundred [sic] thousand 

and fifty for it. 

"Q. Okay. In your best judgment as her 

counsel, Mr. Murphy, do you believe that 
was a fair price for the sale at that 

time of the land? 

"A. I thought we had made a heck of a 

good deal." 

In my view, the knowledge of the purchasers, and of 

all the terms of the contract, by the plaintiff's attorney 

and accountant, rendered the existence of any fiduciary 

relationship between Paul Wachholz and the plaintiff of 

little legal effect. 

In addition, the majority correctly states Montana law 

regarding the appropriateness of findings by a trial judge, 

but then ignores that case law, with the admonition that 

trial judges should comply in future cases involving 

valuation of real estate. Here the trial court found the 

market value of the Deist ranch at the time of sa.le was 

$635,000. The testimony to that figure was by the plaintiff 

that she consulted an appraiser named Zugliani about ten 

months after the sale and that his appraisal value was 

$635,000. Zugliani was not called, his appraisal was not 

offered by the plaintiff, and no foundation was made 

regarding qualifications, acreage appraised, or appraisal 

methods used. 

The trial court also found that the annual rental 

value of the ranch was $11,122. That figure could only have 

come from the report of the purchaser's appraiser, Mr. Wayne 

Neal, and was clearly based on the assumption that 

approximately $100,000 of ditch improvements would ha.ve to 

be made first to generate that income. In addition, the 

plaintiff herself testified that the ranch had not shown a 

profit in the ten-year period preceding the sale of the 

ranch. 
The trial court further ordered an immediate set off 

in favor of the plaintiff of the proceeds of the two sales 

made by the appellants even though the sales were made on 

contract. In essence, the judgment converted a contract 

receivable into a cash payment without consideration of any 

discounted value. 

Because I believe erroneous findings and conclusions 

were entered, I would reverse and remand for a new trial.