Opinion ID: 2675901
Heading Depth: 2
Heading Rank: 1

Heading: Constructive Fraud and Deceit

Text: ¶9 Montana’s constructive-fraud statute defines constructive fraud as: (1) any breach of duty that, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under the person in fault by misleading another person to that person’s prejudice or to the prejudice of anyone claiming under that person; or (2) any act or omission that the law especially declares to be fraudulent, without respect to actual fraud. Section 28-2-406, MCA. In order to make out a prima facie case of constructive fraud, a plaintiff must establish the following elements: a representation; the falsity of that representation; the materiality of that representation; the speaker’s knowledge of that representation’s falsity or ignorance of its truth; the hearer’s ignorance of that representation’s falsity; the hearer’s reliance upon the truth of that representation; the hearer’s right to rely upon that representation; and the hearer’s consequent and proximate 5 injury or damage caused by reliance on that representation. White v. Longley, 2010 MT 254, ¶ 28, 358 Mont. 268, 244 P.3d 753 (citing Town of Geraldine v. Mt. Municipal Ins. Auth., 2008 MT 411, ¶ 28, 347 Mont. 267, 198 P.3d 796). Montana’s deceit statute provides, in relevant part: (1) One who willfully deceives another with intent to induce that person to alter the person’s position to the person’s injury or risk is liable for any damage that the person suffers. (2) A deceit, within the meaning of subsection (1), is either: (a) the suggestion as a fact of that which is not true by one who does not believe it to be true; (b) the assertion as a fact of that which is not true by one who has no reasonable ground for believing it to be true; (c) the suppression of a fact by one who is bound to disclose it or who gives information of other facts that are likely to mislead for want of communication of that fact; or (d) a promise made without any intention of performing it. Section 27-1-712, MCA. ¶10 In support of her constructive fraud and deceit claims, Dewey contends that at the time she and Stringer entered into the Agreement, Stringer informed her that he was in the process of selling a home he owned in California, but that execution of the Agreement did not depend upon that sale. Stringer also purportedly told Dewey that he had sufficient funds to close on her home. Based on these representations, Dewey alleges that she agreed to purchase another home for herself and her daughter. Dewey further alleges that Stringer purchased property located in Boulder, Montana while living in her home, even though he claimed to be broke at the time he moved out. Based on this conduct, Dewey states that she 6 “now believe[s] that Mr. Stringer was intentionally false and misleading in his statements and representations . . . about his intention to purchase her home.” She also “think[s] Mr. Stringer’s conduct was malicious.” ¶11 The District Court dismissed Dewey’s tort claims on the ground that her injuries resulted strictly from Stringer’s breach of contract. The court reached this conclusion after applying our holding in Story v. City of Bozeman, 242 Mont. 436, 450-52, 791 P.2d 767, 775-76 (1990), where we determined that in order to establish a duty of good faith and fair dealing, absent specific statutory provisions, the parties must have a “special relationship.” The court concluded there was “no special relationship between Dewey and Stringer to establish a duty independent of the buy-sell agreement.” The court reasoned that “[b]ecause Dewey’s claim for constructive fraud fails to establish a duty independent of the buy-sell agreement, she cannot establish the elements for constructive fraud.” Likewise, the court determined that the issues raised under Dewey’s deceit claim “fall squarely within the provisions of the buy-sell agreement which specifically provided Dewey a remedy when Stringer breached the contract. Whether Stringer deceived Dewey when he entered the contract is irrelevant.” Accordingly, the court dismissed Dewey’s tort claims and determined that Dewey had exercised her contractual remedy by retaining the $2000 earnest-money deposit following Stringer’s breach. ¶12 Dewey acknowledges that the Agreement enumerates certain remedies in the event of a breach, but argues that those remedies are not exclusive and do not bar her ability to pursue additional claims in tort. She cites Glacier Campground v. Wild Rivers, Inc., 182 Mont. 389, 403, 597 P.2d 689, 696 (1978), for the rule that “[i]n the absence of a contractual provision 7 expressly limiting the remedy or remedies available, a party may pursue any remedy which law or equity affords, as well as the remedy or remedies specified in the contract.” Dewey argues that § 28-2-406, MCA (constructive fraud), and § 27-1-712, MCA (deceit), provide statutory duties independent of the Agreement—duties not to lie and deceive. She also contends that the District Court’s reliance on the “special relationship” test in Story is misplaced because she has not claimed tortious breach of the covenant of good faith and fair dealing. ¶13 Stringer contends that no duty independent of the Agreement exists in this case. He argues that an independent duty arises “primarily from claims arising out of professional obligation[s] to a client or to one’s fiduciary obligations,” but that “[t]his Court has not found such a duty in an arm’s length transaction in which the parties have equal bargaining power.” Stringer offers that he would have been under no duty to truthfully describe whether he could buy Dewey’s property if he did not agree to buy it, and that he would have had no duty to accurately describe his finances to Dewey if not for the Agreement. Stringer argues that because his liability in this case arises strictly under contract, Dewey cannot pursue a remedy beyond those provided in the Agreement. ¶14 We have held that, even if an action sounds in contract, “‘tort-type damages are . . . available for traditional contract-related torts such as fraud, fraudulent inducement, and tortious interference with a contract.’” Corp. Air, ¶ 49 (citations omitted). A fraud-based claim is not precluded by the fact that a party may also make a contract claim based on the same events. Corp. Air, ¶ 50 (dismissal of Corporate Air’s tort claims by the district court on the ground that recovery under a contract theory precludes recovery under a tort theory was 8 error). “‘The incidental fact of the existence of the contract . . . does not negative the responsibility of the actor when he enters upon a course of affirmative conduct which may be expected to affect the interests of another person.’” Jim’s Excavating Serv. v. HKM Assocs., 265 Mont. 494, 502, 878 P.2d 248, 253 (1994) (citation omitted). ¶15 Based on our precedent, the prohibitions on fraudulent and deceitful conduct under Montana law are not negated simply because the parties have entered into a contract concerning the same subject matter. Section 27-1-712, MCA, sets forth an independent statutory prohibition on the willful deception of another with the intent to induce that person to detrimentally alter that person’s position. Section 28-2-406, MCA, defining constructive fraud, requires a plaintiff to establish a duty independent of the statute to implicate the statute. See H-D Irrigating, Inc. v. Kimble Props., Inc., 2000 MT 212, ¶ 25, 301 Mont. 34, 8 P.3d 95. Our constructive fraud cases make clear that such a duty exists in fiduciary relationships, Morrow v. Bank of Am., N.A., 2014 MT 117, ¶ 63, ___ Mont. ___, ___ P.3d ___; Rowland v. Klies, 223 Mont. 360, 369, 726 P.2d 310, 316 (1986), certain commercial transactions, McJunkin v. Kaufman & Broad Home Sys., 229 Mont. 432, 439, 748 P.2d 910, 915 (1987), and other “special circumstances,” H-D Irrigating, Inc., ¶ 25 (“special circumstances may exist where one party has acted to mislead the other in some way”). Significant misrepresentations made in the course of executing a buy-sell agreement may give rise to a constructive fraud claim. See H-D Irrigating, Inc., ¶ 25 (special circumstances exist “where sellers [of real property], by words or conduct, create a false impression concerning serious impairment or other important matters and subsequently fail to disclose the relevant facts.”). 9 ¶16 However, we need not conduct further analysis on these claims because we conclude that Dewey has failed, in any event, to set forth sufficient evidence to satisfy her burden to avoid summary judgment. In her complaint and supporting affidavit, Dewey offers several conclusory and speculative assertions regarding Stringer’s financial position and intentions of performing as he represented. Dewey claims that she “now believes that Mr. Stringer was intentionally false and misleading in his statements and representations,” and that she “think[s] Mr. Stringer’s conduct was malicious.” Summary judgment cannot be avoided by offering mere speculation. Hiebert v. Cascade Co., 2002 MT 233, ¶ 45, 311 Mont. 471, 56 P.3d 848. We conclude that Dewey’s subjective beliefs about Stringer’s statements and the fact that he purchased a different piece of property after agreeing to purchase Dewey’s, without more, is insufficient evidence to establish constructive fraud or deceit here. Although the District Court dismissed Dewey’s claims under a different analysis, “[w]e will not reverse a district court when it reaches the right result, even if it reached that result for the wrong reason.” Wells Fargo Bank v. Talmage, 2007 MT 45, ¶ 23, 336 Mont. 125, 152 P.3d 1275 (citation omitted). Summary judgment was appropriate on Dewey’s constructive fraud and deceit claims.