Opinion ID: 884021
Heading Depth: 2
Heading Rank: 1

Heading: Actual Fraud and Constructive Fraud

Text: In Lee v. Armstrong (1990), 244 Mont. 289, 293, 798 P.2d 84, 87, we delineated the nine elements of actual fraud: (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; and (9) consequent and proximate injury caused by the reliance on the representation. These elements focus on the knowledge and intent of the broker involved in the transaction. The standard of care exercised by other brokers in similar transactions does not have bearing on what brokers in a specific case know or intend. See e.g., State v. Howard (1981), 195 Mont. 400, 404-05, 637 P.2d 15, 17. In Howard, we held that the jury was as qualified as the doctor to infer the defendant's intent from the nature of the injuries the defendant inflicted. Howard, 637 P.2d at 17; see also U.S. v. Clapp (8th Cir.1995), 46 F.3d 795. In Clapp, the defendant offered expert testimony to show that he had acted without intent to defraud. In holding that expert testimony was not necessary to illuminate the defendant's intent, the court noted that expert testimony is appropriate when it relates to issues that are beyond the ken of people of ordinary experience, but is superfluous where the subject matter is within the knowledge or experience of laypersons. Clapp, 46 F.3d at 802 (quoting United States v. French (8th Cir.1993), 12 F.3d 114, 116). We have similarly held that [t]he test for the admissibility of expert testimony is whether the matter is sufficiently beyond common experience that the opinion of the expert will assist the trier of fact to understand the evidence or to determine a fact in issue. Jim's Excavating Service v. HKM Assoc. (1994), 265 Mont. 494, 509, 878 P.2d 248, 257 (construing Rule 702, M.R.Evid.). For example, in Jim's Excavating, we held that the expert's opinion was based on the type of data which is reasonably relied on by experts in the accounting field and was not a matter within the common experience of a jury, and that there was adequate opportunity for cross examination. We therefore concluded that the district court did not err in allowing the testimony. Jim's Excavating, 878 P.2d at 258. While actual fraud hinges on the knowledge and intent of the defendant, constructive fraud hinges only on the knowledge of the defendant. Lee, 798 P.2d at 88. Courts may invoke constructive fraud as a matter of law to prevent a party from being unjustly enriched as a result of false statements made, even if the false statement is not knowingly made. Lee, 798 P.2d at 88. Withholding relevant facts concerning purchased property can be a fraudulent act. Furthermore, where a vendor by his conduct or words creates a false impression concerning a matter of vital importance to the purchaser, full disclosure of relevant facts may be required. Lee, 798 P.2d at 88 (quoting Moschelle v. Hulse (1980), 190 Mont. 532, 537, 622 P.2d 155, 159). In Lee, we further held that [w]here a contract is induced by false representations as to material existent facts, which are made with the intent to deceive, and upon which the plaintiff relied, it is no defense ... that the party to whom the representations were made might, with due diligence, have discovered their falsity, and that he made no searching inquiry into the facts.... Lee, 798 P.2d at 88. In Lee, we concluded that the district court correctly found that the defendant did not fully disclose all pertinent facts, which constituted constructive fraud. In the instant case, none of the elements of claims for actual or constructive fraud concerns the standard of care exercised by other real estate brokers. Instead, the elements focus on the knowledge and intent of the broker, issues which juries regularly face and determine without assistance from expert testimony. In summary, expert standard of care testimony is not necessary in the instant case, where the Realtors are held to the same standard as an ordinary citizen in a claim for fraud. In fact, the standard is a common law standard based on the individual knowledge and intent of the defendant, not on the custom or practice of other professionals within the real estate profession. For example, if all brokers lied in order to sell a property, then lying would be a standard industry practice, absolving the brokers from fraud. The Realtors are held to the same standard of care as other citizens of Montana; they may not intentionally or negligently defraud a third party. Accordingly, we hold that expert testimony is not relevant to establishing the Realtors' duty toward third parties such as the Durbins.