Opinion ID: 2363135
Heading Depth: 1
Heading Rank: 2

Heading: dishonest or fraudulent acts exclusion

Text: Summary judgment on the basis of the policy's exclusion for dishonest, fraudulent, criminal, or malicious acts or omissions was also improper. Proof of fraud requires a showing of five elements: 1) a false representation of a material fact; 2) knowledge or belief on the part of the person making the representation that the representation is false; 3) an intent to induce the other party to act or refrain from acting in reliance on the misrepresentation; 4) a justifiable reliance by the other party; and 5) resulting damages. Brookside Village Mobile Homes v. Meyers, 301 Ark. 139, 782 S.W.2d 365 (1990). Again, the testimony in the depositions and at trial creates factual questions as to whether Mays actually intended to defraud Morris and to induce his reliance on the acts and omissions at issue. The facts not in dispute show that Morris' company, JWM, paid the Mays-Connealy Corporation $100,000 for a lease with an option to purchase the motel. The total purchase price was listed at $175,000. As stated earlier, Mays did not inform Morris of an approximate $80,000 lien on the property. Morris later exercised his option to purchase and paid, through JWM, $35,000 toward the purchase price. Upon Morris' discovery of the existence of the lien, Mays told Morris that if he would pay the balance of the purchase price ($40,000) he would deliver title. Morris paid the balance, but Mays never delivered title, and the bank foreclosed on the motel. What remains in dispute is whether Mays' failure to deliver clear title was fraudulent or dishonest. Mays' testimony at trial on this issue is sufficient to create a genuine issue of material fact. The following exchange occurred on direct examination: Q: What was your position in December of 1984, Jim, about whether your corporation was required to deliver a deed to Mr. Morris' corporation? A: It was my belief that, technically, it was not necessary to do so, but if he were to pay me his half of what we were losing in M & M that I'd take that and pay off the mortgage that was there and deliver one to him. Q: In other words, if you received the money from the telethon, you would use it to extinguish the lien at Worthen. A: That's right. Q: And deliver the deed. A: That's correct.       Q: Was there any time when you formed any intent not to pay off the mortgage at Worthen Bank and deliver a deed, if you had the money to do it. A: I always intended to do that.       This testimony, at the least, compels a consideration of appellants' argument that Mays never intended to permanently withhold delivery of title but, rather, hoped to pay off the lien from the profits of another investment thereby enabling him to give clear title. Any question of credibility is solely for the trier of fact to resolve. Weber v. Bailey, 302 Ark. 175, 787 S.W.2d 690 (1990). As to Mays' failure to inform Morris of the lien, Mays testified that he thought no more about the lien than on any other occasion where he had rented out an apartment and there was a lease on the building. This precludes a determination that Mays possessed a fraudulent or dishonest intent as a matter of law. Furthermore, an attorney's failure to disclose the existence of a lien to his client, without proof of actual fraud or dishonesty, implicates only constructive fraud. We have defined constructive fraud as a breach of legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law [declares] fraudulent because of its tendency to decive others ... Neither actual dishonesty of purpose nor intent to deceive is an essential element. (Emphasis added.) Davis v. Davis, 291 Ark. 473, 725 S.W.2d 845 (1987) (quoting Lane v. Rachel, 239 Ark. 400, 389 S.W.2d 621 (1965)). It has been held that policy exclusions for fraudulent acts should not include constructive fraud or acts or omissions which are deemed fraudulent only because they constitute a breach of fiduciary obligations. See R. Mallen and J. Smith, Legal Malpractice, § 28.19 (1989). See also Perl v. St. Paul Fire & Marine Ins. Co., 345 N.W.2d 209 (Minn. 1984) where the court held that an attorney's failure to inform his client of his business relationship with an insurance adjuster, with whom he was negotiating on the client's behalf, constituted only constructive fraud, thus making the policy's fraud exclusion inapplicable. Since much of an attorney's practice involves fiduciary duties, to exclude such conduct from an attorney's liability policy would eviscerate the policy coverage. Id. at 213. Surely Valley Forge did not intend to exclude coverage for a breach of fiduciary duty without a showing of intentional wrongdoing, which, as we stated, presents a factual issue.