NO. 91-271 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1991 

MICHAEL C. BENGALA, M.D., 

Plaintiff and Appellant, .. L . .. - . ._ , .~. , T1?'7?* ; ...,. \ i 

V. 

CONSERVATIVE SAVINGS BANK, 

AND LOAN, 

a/k/a CONSERVATIVE SAVINGS 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Missoula, 

The Honorable John S. Henson, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Michael C. Bengala, Pro se, Boardman, Ohio 

For Respondent: 

Colleen E. Ambrose, Sullivan & Tabaracci, P.C.; 

Missoula, Montana 

Filed: 

Submitted on briefs: August 29, 1991 

Decided: September 24, 1991 
Justice R. C. McDonough delivered the Opinion of the Court. 

This is an appeal from a bench trial and judgment in the 

Fourth Judicial District Court, Missoula County. Dr. Michael C. 

Bengala (Plaintiff/Appellant) appeals the trial court finding that 

Conservative Savings Bank of Omaha, Nebraska (Defendant/Respondent) 

did not commit actual or constructive fraud in leasing commercial 

property to the plaintiff and that the plaintiff improperly invoked 

the lessee's remedies under 5 7 0 - 2 6 - 203, MCA. We affirm. 

Dr. Bengala (Bengala) entered into a three year lease 

agreement with Conservative Savings Bank (the Bank) and the Randel 

Corporation. During negotiations for the leasehold, Bengala became 

aware that the office building lay in a flood plain. He was 

informed by the Bank through its agent and property manager (Ms. 

Lonnie Warner), that in 1980 the basement of the building had 

flooded, that a berm had been constructed to minimize the risk of 

future flooding and that in the previous three years no flooding 

had occurred. 

Bengala took possession of the premises October 1, 1985. In 

February, 1986, flooding occurred, the berm failed to protect the 

building, and floodwater entered Bengala's office. Ms. Warner 

(Warner) responded to the flood by directing the installation of 

a sandbag dike and by bringing in pump trucks to remove flood water 

from the building. Damage to Bengala's property in the office was 

prevented. 

Warner told Bengala, on his inquiry, that the sandbag dike 

2 
was temporary and that the Bank would take further action to 

prevent the threat of future flooding. An engineering firm was 

hired: however, construction of a berm that would protect the 

property was not possible because it entailed procuring an easement 

that the adjacent property owner was unwilling to provide. 

Throughout the remainder of the year, the Bank and the engineering 

firm attempted to develop alternative solutions. Meanwhile, the 

temporary sandbag dike, later fortified with dirt, remained. 

In December,1986, Bengala withheld his rent in protest of the 

Bank's inaction on installation of permanent flood protection. In 

January, 1987, Bengala wrote the Bank that he was pursuing remedy 

for breach of contract in accordance with 5 70-26-203, MCA, 

(Failure of Lessor to Repair-Lessee's Remedies), and that he 

intended to vacate. Bengala remained as a tenant but continued to 

withhold his rent. 

In February, 1987, Bengala sent a letter to Warner informing 

her that the sidewalks in front of the office had heaved upwards 

and created a dangerous hazard. Warner had warning signs placed 

next to the walk and contacted a contractor to inspect the problem. 

It was determined that the cause of the upheaval was frost. When 

the frost subsided, the sidewalk returned to its normal state and 

no repairs were made. 

Twice, Bengala experienced problems with the sewer system. On 

both occasions the Bank, through Warner, timely responded and 

restored the sewer to working order. 

After refusing partial rent payments in April and May, the 

3 
Bank gave Bengala notice to pay rent or quit. Bengala then 

initiated this action requesting the court rescind or revise the 

lease on the basis of misrepresentation and failure of the Bank to 

remedy the flood threat and the sidewalk problem. The Bank 

counterclaimed that Bengala be ordered to vacate, pay back rent 

and penalties, pay future rent (until the space is sublet), and pay 

all costs and reasonable attorney's fees. 

Ultimately, Bengala was found to have improperly invoked the 

remedies of 5 70-26-203, MCA. The court ruled that no 

misrepresentations or other evidence of constructive fraud existed 

and therefore the lease was not revised or rescinded. Bengala was 

ordered to pay delinquent rent, and late penalties up to the time 

that he actually vacated (August, 1987). In addition, the Bank was 

awarded reasonable attorney's fees. Bengala appeals from this 

order. 

The issues for review are: 

1) Did the District Court err by not finding that the Bank 

committed actual or constructive fraud? 

2) Did the District Court err in finding that Bengala suffered 

no loss of enjoyment, loss of business profits, or loss of 

reputation as a result of the flooding? 

3) Did the District Court err when it made no finding of fact 

in regards to an alleged conflict of interest between the Bank and 

the Randel Corporation? 

Bengala asserts that the Bank committed actual fraud by 

concealing its inability to repair the flood control structure and 

4 
by concealing that the sidewalk defect was a recurrent problem. 

Furthermore, Bengala asserts that the Bank committed constructive 

fraud and thereby breached a duty under the lease agreement when 

it failed to repair the flood control structure or the sidewalks. 

Actual fraud as defined by 5 28-2-405, MCA: 

... consists in any of the following acts committed by a 

party to the contract or with his connivance with intent 

to deceive another party thereto or to induce him to 

enter into the contract: 

(1) the suggestion as a fact of that which is not true 

by one who does not believe it to be true; 

(2) the positive assertion, in a manner not warranted by 

the information of the person making it, of that which 

is not true, though he believes it to be true: 

(3) the suppression of that which is true by one having 

knowledge or belief of the fact; 

(4) a promise made without any intention of performing 

it; or 

(5) any other act fitted to deceive. 

A prima facie case of actual fraud must include proof of a 

representation; its falsity; its materiality; the speaker's 

knowledge of its falsity or ignorance of its truth; the speaker's 

intent that it should be acted upon by the person and in the manner 

reasonably contemplated; the hearer's ignorance of its falsity; 

the hearer's reliance upon its truth; the right of the hearer to 

rely upon it: and the hearer's consequent and proximate injury or 

damage. AVCO Financial Services v. Foreman-Donovan (1989), 237 

Mont. 260, 772 P.2d 862. 

Whether or not there has been fraud in any given case is a 

question of fact. AVCO Financial Services, 237 Mont. at 263. 

Review of questions of fact in a non-jury case are governed by Rule 

52(a), M.R.Civ.P., which provides in part that: 

5 
Findings of fact shall not be set aside unless clearly 

erroneous, and due regard shall be given to the 

opportunity of the trial court to judge of the 

credibility of the witnesses. 

"[A] finding is 'clearly erroneous' when, although there is 

evidence to support it, a review of the record leaves the court 

with the definite and firm conviction that a mistake has been 

committed." Steer, Inc. v. Department of Revenue of the State of 

Montana (Mont. 1990), 803 P.2d 601, 47 St.Rep. 2199, citing Wage 

Appeal of Montana State Highway Patrol Officers v. Board of 

Personnel Appeals (1984), 208 Mont. 33, 676 P.2d 194. 

Bengala argues that the Bank failed to provide evidence that 

it did not conceal its inability to repair. However, fraud can 

never be presumed but must be proven by a preponderance of the 

evidence by the party alleging the fraud. Batten v. Watts Cycle 

and Marine, (1989) 240 Mont. 113, 783 P.2d 378, cert. denied, 110 

S.Ct. 1826. Bengala had the burden of proving by a preponderance 

of the evidence the elements as elaborated in m. The District 

Court finding that the evidence Bengala presented did not meet this 

burden is not clearly erroneous: therefore, we affirm. 

Bengala contends that the Bank committed constructive fraud 

by failing to repair. He relies on 5 28-2-406, MCA, which states 

in part that constructive fraud consists in: 

(1) any breach of duty which, without an actually 

fraudulent intent, gains 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; . , . 

Bengala asserts that the Bank has breached the provision in the 

6 
lease providing that: 

The lessor shall also maintain the roof, the foundations, 

exterior walls and structural members of the premises and 

sidewalks in good condition. 

Bengala contends that regardless of the Bank's explanation for 

failing to do so, the lease obligated the Bank to make repairs to 

the flood control structure and the sidewalk and they have not. 

Allegedly, the Bank misled Bengala that the repairs would be made 

but have avoided doing so and thereby saved itself the cost of 

repair. 

The evidence is clear that the Bank acted on the sidewalk 

problem and was attempting to resolve the flood problem. Bengala 

was not made aware of the Bank's efforts until after he withheld 

his rent in protest. In essence, Bengala is asking the court to 

find an affirmative duty on the part of the Bank to provide 

progress reports of the repair project. Absence of these reports, 

Bengala contends, constitutes constructive fraud because it 

indicates concealment and/or misleading conduct on the part of the 

Bank. There is a failure of proof. The District Court's ruling 

that the Bank did not commit constructive fraud was not clearly 

erroneous and therefore is affirmed. 

Nonetheless, the court did find that once Bengala vacated 

the office building he was no longer liable for further rent 

payment. Although it is not clear, it appears that the court did 

find a sufficient breach of contract to support absolving Bengala 

from future payments on the lease. Whether or not the flood 

control structure is covered by the lease provision requiring 

7 

.... 
repair, and the basis of the court's decision to absolve Bengala 

from future rents was not cross-appealed by the respondent and is 

not before this Court. 

The court ruled that Bengala improperly invoked the remedies 

of 5 70-26-203, MCA, which states: 

If within a reasonable time after notice to the lessor 

of dilapidations which he ought to repair, he neglects 

to do so, . . . the lessee may perform such repairs himself 

and deduct the expenses of such repairs from the rent, 

or the lessee may vacate the premises, in which case he 

is discharged from further payment of rent... 

'Dilapidation' that a landlord 'ought' to repair "are those which 

significantly diminish the enjoyment of the premises or 

substantially interfere with the purposes for which the leased 

premises are intended. Bunke,Inc. v. Johnson (1983), 205 Mont. 125, 

666 P.2d 1234. 

The record here establishes that the sidewalk settled back 

down and was no longer in immediate need of repair, that the sewer 

system functioned properly and that the Bank was making efforts to 

repair the flood control structure. Furthermore, Bengala did not 

repair the defects he complained of and deduct them from his rent, 

he did not vacate until August, 1987 and he did not pay rent from 

December 1986 until he vacated. 

The District Court ruled that the premises continued to be 

fit for use as an office. The court found that the sandbag dike, 

the problems with the sewer system and the sidewalk problem did not 

render the building unfit for its intended use. The record 

indicates not only that Bengala was not entitled to invoke lessee's 

remedies pursuant to 5 70-26-203, MCA, but also that the court 

8 
correctly ruled that Bengala failed to properly invoke them. 

Because Bengala remained a tenant and the use of his leasehold was 

not substantially impaired, the court properly held Bengala liable 

pursuant to the lease agreement. Liability included rent payments 

from December to August, late payment penalties and reasonable 

attorney's fees. 

In addition, the court did not find sufficient evidence to 

substantiate the claim that Bengala's reputation was damaged or 

business profits lost. Bengala has been abundantly clear from 

before he entered the lease agreement that as a medical 

professional he places tremendous importance in maintaining a 

professional atmosphere. Bengala alleges that the flooding, the 

sidewalk and the sewer problems have all detracted from that 

atmosphere and consequently diminished his reputation and business 

profits. Bengala asserts that the court failed to appreciate the 

seriousness of the evidence he offered and erred in its ruling. 

The record does not support these claims. The District Court's 

findings are not clearly erroneous and therefore must be affirmed. 

Bengala makes one final claim regarding the relationship 

between the Bank and the Randel corporation. The adjacent property 

owner, a successor in interest to the Randel corporation (a colessor) would not grant the easement necessary to build the flood 

control structure. It appears that Bengala is attempting to argue 

that the Bank unduly influenced its co-lessor to default on the 

adjacent property knowing that the successor in interest (a 

Maryland bank) would refuse to grant the easement and thereby save 

9 
the Bank the expense of repair. 

There is no evidence on the record to substantiate such a 

tenuous claim. Bengala did not raise the issue of conflict of 

interest at trial. Its initial appearance is in his brief 

submitted to this Court. We will not consider an issue raised for 

the first tine on appeal. Schaeffer v. Champion Home Builders Co. 

(1987), 229 Mont. 533, 747 P.2d 872, citing Rozel Corp. v. 

Department of Public Service Regulation (1987), 226 Mont. 237, 735 

P.2d 282. The District Court did not err by failing to make a 

finding of fact that a conflict of interest existed. 

Af f irned. 

We Concur: 

10 
September 24, 1991 

CERTIFICATE OF SERVICE 

I hereby certify that the following order was sent by United States mail, prepaid, to the 

following named: 

MICHAEL C. BENGALA 

P.O. Box 3371 

Boardman, Ohio 44.513 

Colleen Ambrose 

SULLIVAN & TABARACCI, P.C. 

430 Ryman 

Missoula, MT 59802 

ED SMITH 

CLERK OF THE SUPREME COURT