Court Opinion

ID: 882022
Source: CourtListenerOpinion
Date Created: 2013-06-05 00:56:38.330395+00
Date Added: 2024-06-11T09:07:42.091736
License: Public Domain

NO.    91-271
          IN THE SUPREME COURT OF THE STATE OF MONTANA
                                    1991

MICHAEL C. BENGALA, M.D.,
                Plaintiff and Appellant,
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                                                                               i
                                                                                   ;   ...,.\
    V.

CONSERVATIVE SAVINGS BANK,
a/k/a CONSERVATIVE SAVINGS
AND LOAN,

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

                                Submitted on briefs: August 29, 1991
                                              Decided: September 24, 1991
Filed:
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 - 2 0 3 , 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 co-
lessor) 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 firned.

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