Lead Opinion
dеlivered the Opinion of the Court. ¶1 Abraham B. Morrow and Betty Jean Morrow appeal from an order of the First Judicial District Court, Lewis and Clark County, granting Defendant Bank of America’s motion for summary judgment. We affirm in part, reverse in part, and remand.
¶2 The following issues are presented for review:
¶3 Issue One: Whether the District Court erred in finding the Morrows failed to establish the existence of an oral contract for modification of their loan.
¶4 Issue Two: Whether the District Court erred in finding that Bank of America owed no common law or fiduciary duty to the Morrows.
¶5 Issue Three: Whether the District Court erred in granting summary judgment to Bank of America on the Morrows’ claim of negligent misrepresentation.
¶6 Issue Four: Whether the District Court erred in finding that the Statute of Frauds precluded the Morrows’ claims of actual fraud, constructive fraud, and violations of the Montana Consumer Protection Act.
¶7 Issue Five: Whether the District Court erred in granting summary judgment to Bank of America on the Morrows’ claim of actual fraud.
¶8 Issue Six: Whether the District Court erred in granting summary judgment to Bank of America on the Morrows’ claim of constructive fraud.
¶9 Issue Seven: Whether the District Court erred in granting summary judgment to Bank of America on the Morrows’claim under the Montana Consumer Protection Act.
PROCEDURAL AND FACTUAL BACKGROUND
¶10 Abraham B. Morrow and Betty Jean Morrow, husband and wife, are the owners of a home on fifty acres of land outside White Sulphur Springs, Montana. The Morrows, who are from South Carolina, built the home in 2006 and planned to spend their retirement there. This case arises from the Morrows’ attempts to secure a modification of their home loan, serviced by Bank of America, thrоugh the federal Home Affordable Modification Program (HAMP).
¶11 HAMP is intended to help homeowners in default or at immediate risk of default on their home loans by modifying their monthly payments to affordable levels. The program requires participating loan servicers to execute a servicer participation agreement and service
¶12 The Morrows’ home was financed by Quicken Loans for $291,200.00, secured by a deed of trust. The loan was to be repaid over a fifteen-year term at 4.99% interest, with monthly payments of $2,301.28. The loan was subsequently sold to Countrywide. Bank of America is the successor by merger to Countrywide and BAC Home Loans Servicing, LP.
¶13 In 2009, the Morrows lost most of their anticipated retirement income when the purchaser of two businesses they had owned in South Carolina defaulted on his payments. The Morrows resumed control of one of the businesses and returned to South Carolina to manage it until they could find a new buyer. From February2009until May 2012, they spent most of their time in South Carolina, returning to the Montana property for only six to eight weeks of each year. The Morrows first contacted Bank of America to discuss a modification of their loan in May 2009, beginning a process that would continue for nearly two years.
¶14 The Morrows remained current on their payments until November 2009. They claim that in October 2009, a Bank of America employee informed them they should intentionally miss the following month’s payment to become eligible for a modification. Bank of America denies its employees would instruct a borrower to intentionally default, and argues that the Morrows defaulted because they could not afford their payments.
¶15 On December 8, 2009, the Morrows spoke with Sunil Kumar, a Bank of America representative from Hyderabad, India, who identified himself as “Brian.” According to the Morrows, Kumar told them they were “locked” for a modification with trial payments of $1,239.99. Kumar explained to the Morrows they would be required to make the trial payments for three to four months. At the end of that period, if the Morrows had successfully made the trial payments, the modification would be made permanent. The modification, according to the Morrows, extended the period of the loan from fifteen to forty years and reduced the interest rate from 4.99% to 2%. The Morrows
¶16 The Morrows made their first trial payment of $1,239.99 in December 2009. They also submitted financial documentation including their tax return, bank statement, and employment verification. On February 16,2010, Bank of America sent the Morrows a notice of intent to accelerate indicating their loan was in default. Mr. Morrow claims he called Bank of America on March 2,2010 and spoke with an employee named “Ron,” who instructed him to ignore the letter and continue making the reduced payments. Bank of America records indicate that on March 2, 2010, an employee named Rohitash S. Baneijee advised Mr. Morrow that the account was under review. Baneijee also noted that the Morrows intended to pay the trial amount by the end of the month. The Morrows continued to make monthly payments of $1,239.99 until February 2011.
¶17 On March 3,2010, the day after Baneijee informed Mr. Morrow his account was under review, Bank of America issued another notice of intent to accelerate. On March 16, 2010, Bank of America sent a letter to the Morrows acknowledging receipt of the financial information they had submitted in December 2009. The letter, issued over ninety days after the Morrows had sent their financial information to Bank of America, also indicated that “receipt of your documentation starts the review process, which may take up to 45 days to complete.”
¶18 On April 22, 2010, Bank of America sent a form letter to the Morrows inviting them to apply for HAMP. The letter stated:
Once we receive all of your documents, we will validate your information and check your eligibility. You can expect to hear back from us within 10 business days. If you qualify for the program, you will enter a three month Trial Period Plan where you will make a monthly trial period payment for three months.... You will receive a permanent modification if you successfully make all of your Trial Period Plan payments and you are notified in writing that your modification has been approved.
As long as you comply with the terms of the Trial Period Plan, we*43 will not start foreclosure proceedings. If foreclosure proceedings have already started, we will not conduct a foreclosure sale as long as you comply with the terms of the Trial Period Plan.
According to the Morrows, by the time they received this letter, they had already been making trial payments for at least four months.
¶19 On May 24, 2010, the Morrows filled out a Request for Modification and Affidavit as required under HAMP. The Morrows certified that the property was owner-occupied and they intended to reside there for the next twelve months. On May 26, 2010, Bank of America sent the Morrows a letter requesting additional documentation. On July 8, 2010, Bank of America sent the Morrows another notice of intent to accelerate. On August 6,2010, the Morrows received another request for additional documentation, and on August 31, 2010, they received another nоtice of intent to accelerate. The Morrows claim each time they received a notice, they contacted Bank of America, and each time, a Bank of America employee instructed them to ignore the notice and continue making the modified payments.
¶20 In October 2010, the Morrows were informed their modification had been denied due to missing or incomplete paperwork. Mr. Morrow filed a complaint with the Office of the Comptroller of the Currency. Bank of America assigned a liaison, Luke Mai, to handle the Morrows’ account. Mr. Morrow claims that in December 2010, Mai informed him over the phone that the modification had been approved. Mai does not recall his conversations with Mr. Morrow, but claims it is not his standard practice to verbally approve a modification for clients.
¶21 On January 11, 2011, the Morrows received another letter indicating their modification had been denied. In February 2011, Bank of America rejected the Morrows’ payment of $1,239.99 and scheduled a trustee’s sale of the property. The Morrows’ complaints to Bank of America were assigned to unit manager Jesse Vasquez. On March 23, 2011, Vasquez explained that the modification had been denied because the Morrows appeared to reside in South Carolina, and the Montana property was not their primary residence.
¶22 The Morrows filed a complaint in the District Court of Lewis and Clark County on May 6, 2011, which was later amended to state the following claims: oral contract established and breached; negligence, negligent misrepresentation, and tortious breach of the covenant of good faith and fair dealing; fraud; and violation of the Montana Consumer Protection Act (MCPA). Both parties moved for summary judgment, and the District Court granted summary judgment to Bank of America on April 3,2013.
STANDARD OF REVIEW
¶24 We review a district court’s grant of summary judgment de novo, applying the same criteria as the district court under M. R. Civ. P. 56(c). Turner v. Wells Fargo Bank, N.A.,
DISCUSSION
¶25 Issue One: Whether the District Court erred in finding that the Morrows failed to establish the existence of an oral contract for modification of their loan.
¶26 A promissory note is a written contract, and may be modified in writing or by an executed oral agreement. Section 28-2-1602, MCA; Nimmick v. Hart,
¶27 The Morrows claim that Bank of America offered to modify their home loan by reducing the interest rate and reamortizing the payments over forty years. The modified terms were never reduced to writing. Therefore, the agreement is enforceable only if it was fully executed, with nothing left to be done by either party. Section 28-2-1602, MCA; Winkel,
¶28 Moreover, a mortgage or deed of trust “can be created, renewed, or extended only by writing, with the formalities required in the case of a grant of real property.” Section 71-1-203, MCA; § 71-1-305, MCA (deed of trust subject to all laws relating to mortgages). An agreement to extend the time for repayment of a debt secured by a mortgage or deed of trust is within the scope of § 71-1-203, MCA. See Register Life Ins. Co. v. Kenniston,
¶29 That section, unchanged since its adoption in 1895,
contemplates the making of a contract assented to by the parties: the delivery by the mortgagor to the mortgagee of the mortgage, or renewal or extension. In order that notice of the existence of the mortgage, or renewal, or extension may be given to subsequent purchasers and mortgagees, the instrument must be filed with the county clerk for record.
O.M. Corwin Co.,
¶30 The Morrows’ original promissory note provided for a repayment period of fifteen years. Mr. Morrow claims that Bank of America offered a modification which would have reamortized the loan over a period of forty years. The Morrows’ deed of trust states that it secures repayment of “all renewals, extensions, and modifications of the Note.” It also states that the debt is to be paid in full by May 1, 2023. The purported oral agreement extended the life of the security by twenty-five years, presumably to May 1, 2048. Such an extension must be made in writing, “with the formalities required in the case of a grant of real property.” Section 71-1-203, MCA. The agreement to extend the debt, and thereby the security for the debt, was neither written nor recorded, and its enforcement would create substantial uncertainty in the land records. We affirm the order of the District Court granting summary judgment to Bank of America on the Morrows’ breach of contract claim.
¶31 The Morrows also claim that Bank of America tortiously breached the covenant of good faith and fair dealing. Implied in every contract is a covenant of good faith, which requires “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” Section 28-1-211, MCA; Story v. Bozeman,
¶32 Issue Two: Whether the District Court erred in finding that Bank of America owed no common law or fiduciary duty to the Morrows.
¶33 We next address the Morrows’ claims of negligence. A plaintiff in an action for negligence must offer proof of a duty, breach оf that duty, causation, and damages. Hatch v. Dept. of Hwys.,
¶34 We recognize at the outset that a bank has no duty to modify or renegotiate a defaulted loan. Mont. Bank, N.A. v. Ralph Meyers & Son, Inc.,
¶35 The complexity of modem banking and credit transactions, in particular, may “ ‘thrust a bank into the role of an advisor, thereby creating a relationship of trust and confidence....’ ” Deist,
¶36 If the borrower has not been advised by the bank or has not relied on that advice, no fiduciary relationship exists. Coles Dept. Store,
¶37 The Morrows have alleged facts which, if proven, would establish that Bank of America owed them a fiduciary duty.
¶38 The recent foreclosure crisis has led to many cases alleging breaches of duty by mortgage servicers, and these cases have not reached uniform results. Compare Ansanelli v. JPMorgan Chase Bank, N.A.,
¶39 We repeat that the duty owed by Bank of America was not the duty to avoid foreclosure or to grant a modification of the loan. Richland Natl. Bank & Trust,
¶41 The facts alleged by the Morrows, if proven, would demonstrate that Bank of America failed to provide them with accurate information about the modification process; failed to minimize the confusion and risk associated with the modification; and failed to timely respond and resolve their inquiries and complaints. The Morrows also allege that Bank of America placed the loan in default, rather than in forbearance; failed to determine eligibility within the usual three-month period; and failed to promptly communicate its eligibility decision. The Morrows claim Bank of America’s excessive delays in processing the modification significantly increased the deficiency they owed, making foreclosure all but inevitable.
¶42 Bank of America contests these factual allegations, claiming it accurately explained to the Morrows the servicing status of their loan; did not initiate foreclosure until after the application for modification had been denied; and was justified in taking several months to process the application because the Morrows’ documentation raised questions about their residency status. Bank of America also denies advising the Morrows to miss a payment or ignore notices of default. It is evident there are genuine issues of material fact regarding the Morrows’ claim for negligence. The District Court erred by granting summary judgment to Bank of America, and we reverse.
¶43 Issue Three: Whether the District Court erred by granting
¶44 In addition to allegations that Bank of America was negligent in its processing of their application for modification, the Morrows allege Bank of America negligently misrepresented the status of their loan. The District Court did not address the Morrows’ claim of negligent misrepresentation in its original Order. It then issued an Addendum to that Order, in which it stated, “For the reasons set forth in the Court’s discussion of the negligence and fraud counts, summary judgment is also granted to Defendants on the claim of negligent misrepresentation.” The District Court failed to address the specific elements of a negligent misrepresentation claim, as distinct from either negligence or fraud. We address those elements here.
¶45 We have adopted the following definition of negligent misrepresentation:
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communiсating the information.
Restatement (Second) of Torts § 552 (1977); State Bank v. Maryann’s,
a) the defendant made a representation as to a past or existing material fact;
b) the representation must have been untrue;
c) regardless of its actual belief, the defendant must have made the representations without any reasonable ground for believing it to be true;
d) the representation must have been made with the intent to induce the plaintiff to rely on it;
e) the plaintiff must have been unaware of the falsity of the representation; it must have acted in reliance upon the truth of the representation and it must have been justified in relying upon the representation;
f) the plaintiff, as a result of its reliance, must sustain damage.
¶46 The Restatement definition tends to focus on business transactions. Restatement (Second) of Torts § 552. We have recognized that negligent misrepresentations may occur outside of this context. Jackson v. Dept. of Fam. Servs.,
¶47 The Morrows allege Bank of America made several false statements regarding the servicing of their existing loan and the status of their application for modification: in October 2009, Bank of America told the Morrows they should intentionally default on their payments to be considered for a modification; in December 2009, Sunil Kumar said they were approved for a HAMP modification, which would be finalized subject to the trial payment period; in March 2010, Rohitash S. Banexjee told them to disregard notices of default and impending foreclosure and continue making reduced payments; and in December 2010, Luke Mai said their modification had been approved. Bank of America claims these statements were never made, demonstrating the existence of genuine issues of material fact. Bank of America also insists the Morrows’ modification was never approved, and that
¶48 The alleged statements were made in the course of Bank of America’s business as a loan servicer for the guidance of the Morrows in their loan transaction. Bank of America argues that the Morrows suffered no pecuniary loss because of its alleged misconduct. The Morrows have asserted losses including lost time from Mr. Morrow’s accounting work, travel expenses, loss of personal lines of credit, and increased costs due to negаtive credit reporting. The Morrows cannot recover for losses related to credit reporting, because state statutory causes of action premised on damages directly related to a bank’s credit reporting duties are preempted by the Fair Credit Reporting Act. 15 U.S.C. § 1681t(b)(l)(F) (2006); Feller v. First Interstate Bancsystem, Inc.,
¶49 Bank of America also argues the Morrows did not rely on the information it supplied. Bank of America argues the Morrows’ continuing default was simply due to their inability to afford the payments. The Morrows have offered testimony that at the time Bank of America instructed them to default, they had the financial resources available to continue making payments for the immediate future, and therefore defaulted only at Bank of America’s direction. A genuine issue of material fact exists as to whether the Morrows’ default was caused by their reliance on Bank of America’s alleged misrepresentations.
¶50 Bank of America further argues that any reliance by the Morrows was not justified, because they knew their modification had not been approved. The Morrows have presented evidence of confusing and directly conflicting communications from Bank of America. These communications informed the Morrows in one instance that their modification was pending and in another that it was approved. They were told by mail their loan was in default, but over the phone that they were in a modification status. In essence, Bank of Amеrica claims the Morrows were entitled to rely on one set of statements, but not the other. The conflicting communications issued by Bank of America raise genuine questions of material fact regarding whether the Morrows’ reliance was justified.
¶51 Finally, the allegations by the Morrows raise questions of fact regarding whether Bank of America “exercise[d] reasonable care or
¶52 Issue Four: Whether the District Court erred in finding that the Statute of Frauds precluded the Morrows’ claims of actual fraud, constructive fraud, and violations of the Montana Consumer Protection Act.
¶53 The District Court concluded that, because enforcement of the alleged oral contract was precluded by the Statute of Frauds, the same was true of the Morrows’ fraud-related claims. We have held that “[t]he Statute of Frauds applies to liabilities based on contract, and not to theories of liabilities based on fraud or negligent misrepresentation.” Phil-Co Feeds v. First Natl. Bank,
¶54 As its name suggests, the Statute of Frauds is primarily concerned with the prevention of fraud. Hinebauch, ¶ 23. The Statute of Frauds cannot “ ‘be used as a shield or cloak to protect fraud, or as an instrument whereby to perpetrate a fraud, or as a vehicle or means of culpable wrong, injustice, or oppression.’ ” State ex rel. Farm Credit Bank v. Dist. Ct.,
¶55 The Morrows are not merely seeking to enforce an oral agreement. Independent of their allegations that Bank of America promised to grant them a modified loan, they also allege Bank of America misrepresented the status of their existing loan and serviced that loan in an unfair and deceptive manner. The District Court erred in concluding that the Statute of Frauds precluded the Morrows’ claims of actual fraud, constructive fraud, and violations of the MCPA. We now address the merits of each of these claims in turn.
¶56 Issue Five: Whether the District Court erred in granting summary judgment to Bank of America on the Morrows’ claim of actual fraud. ¶57 A party asserting a claim of actual fraud must establish the following elements:
(1) a representation; (2) the falsity of that representation; (3) the materiality of the representation; (4) the speaker’s knowledge of the representation’s falsity or ignorance of its truth; (5) the speaker’s intent that the representation should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer’s ignorance of the representation’s falsity; (7) the hearer’s reliance upon the truth of the representation; (8) the hearer’s right to rely upon the representation; and (9) the hearer’s consequent and proximate injury or damages caused by their reliance on the representation.
Franks v. Kindsfather,
¶58 The Morrows’ claim of fraud rests on the same factual allegations as their claim of negligent misrepresentation. Supra ¶ 47. We have already noted in our discussion of negligent misrepresentation that the Morrows’ allegations raise genuine issues of material fact regarding whether Bank of America made false representations; whether the Morrows knew of the falsity of the representations; whether the Morrows relied on those representations; whether their reliance was justified; and whether they were damaged as a result. Supra ¶¶ 47-50. As we also nоted, it does not appear to be contested that the statements, if made, were intended to guide the Morrows in repaying their loan. Supra ¶ 48. Under the facts alleged, it is clear the statements were material in that they led directly to the Morrows’ default and subsequent foreclosure proceedings.
¶60 The Morrows have produced evidence of a multitude of conflicting communications from Bank of America regarding the status of both their existing loan and their application for a modification. They have also produced evidence of communications regarding Bank of America’s loan servicing policies, which Bank of America says do not accurately represent its policies. This evidence raises genuine issues of material fact regarding whether the representatives who allegedly made these statements did so despite their ignorance of whether the statements were true. The Morrows have stated a prima facie case of fraud, and the factual issues they have raised should now be resolved by a jury. Franks, ¶ 18. We therefore reverse the order of the District Court granting summary judgment to Bank of America on the Morrows’ claim of actual fraud.
¶61 Issue Six: Whether the District Court erred in granting summary judgment to Bank of America on the Morrows’ claim of constructive fraud.
¶62 Constructive fraud is a breach of duty which, without fraudulent intent, creates an advantage for the breaching party by misleading another person to that person’s prejudice. Section 28-2-406, MCA. The Dissent argues that constructive fraud, as defined by statute, provides only grounds for rescinding a contract. Dissent, ¶ 95. We find several cases allowing a plaintiff to seek damages for constructive fraud independently of any action to rescind a contract. Mattingly,
¶63 We have already determined that, based on the facts alleged, Bank of America owed a fiduciary duty to the Morrows. Supra ¶ 37. If the facts establishing this duty are not ultimately proven, however, we note that a fiduciary duty is not required to support a claim of constructive fraud. Mattingly,
¶64 Even without a fiduciary duty, a duty of disclosure may arise in the following circumstances: “ ‘one who speaks must say enough to prevent his words from misleading the other party; one who has special knowledge of material facts to which the other party does not have access may have a duty to disclose these facts to the other party....’ ” Deist,
¶66 Issue Seven: Whether the District Court erred in granting summary judgment to Bank of America on the Morrows'claim under the Montana Consumer Protection Act.
¶67 The Montana Unfair Practices and MCPA of 1973 prohibits “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” Section 30-14-103, MCA. The MCPA applies to banks engaged in consumer lending and the collection and servicing of loans. Baird v. Norwest Bank,
¶68 The Morrows claim Bank of America instructed them to default on a loan and make partial payments on that loan, while keeping them in a servicing status that required them to make full payments on that loan. The Morrows claim they were not accurately informed of their servicing status, because Bank of America told them both that they remained in regular servicing and that they were in a modification program. These conflictingrepresentations sometimes occurred within a day or two of one another, only for the cycle to be repeated again the following month. The Morrows were not granted a decision on their
¶69 The allegations stated by the Morrows, if true, would constitute a practice substantially injurious to consumers. See e.g. Wigod v. Wells Fargo Bank, N.A.,
¶70 Bank of America also argues that the Morrows have failed to show “any ascertainable loss of money or property” as required to state a claim under the MCPA. Section 30-14-133, MCA. As we have already noted, the question of the Morrows’ damages should be resolved by a finder of fact. Supra ¶ 48. Therefore, we reverse the order of the District Court granting summary judgment to Bank of America on the Morrows’ claim for violations of the MCPA.
CONCLUSION
¶71 We affirm the District Court’s grant of summary judgment to Bank of America regarding breach of contract and tortious breach of the implied covenant of good faith and fair dealing. We reverse summary judgment on the Morrows’ claims of negligence, negligent misrepresentation, actual fraud, constructive fraud, and violations of the MCPA, and remand for further proceedings consistent with this Opinion.
Notes
To determine “a special relationship in cases where it normally does not exist — such as between a bank and a customer — a court may be required to make a fact-intensive inquiry.” Gliko v. Permann,
The Comptroller of the Currency of the United States examined Bank of America’s residential foreclosure processes, as a result of which the Bank stipulated to the issuance of a Consent Order. Though not determinative of this action, the Consent Order contains findings consistent with the Morrows’ allegations. The Consent Order notes that Bank of America failed to devote appropriate resources, oversight, and training to its foreclosure processes. The Consent Order required the Bank to develop a plan to ensure compliance with federal servicing guides, including those pertaining to HAMP. In re Bank of Am., N.A., Consent Order No. AA-EC-11-12 (U.S. Office of the
Concurrence Opinion
concurring in part and dissentingin part.
¶73 Hence, the Morrows are left with only the possibility of recovering tort damages arising out of the manner in which Bank of America handled their request for a loan modification. I agree with the Court that the Morrows have alleged facts which, if proved, would establish that Bank of America owed them a fiduciary duty in managing the loan-modification process. I also agree that the Morrows may pursue a claim of negligent misrepresentation as defined in Restatement (Second) of Torts § 552 (1977). Finally, I agree that the Morrows’ allegations regarding Bank of America’s conduct, if true, would constitute a practice that violates the Montana Consumer Protection Act.
¶74 Beyond this, however, I do not agree with the Court’s analysis of the Morrows’ fraud claims. While I conclude, as does the Court, that the Morrows may proceed with a claim of actual fraud, I believe our Opinion blurs the distinction between actual fraud and negligent misrepresentation. In my view, it is important in this case that we clarify that distinction. Furthermore, I do not agree with the Court that the Morrows have stated a claim of constructive fraud. Thus, for these reasons, I concur in the Court’s resolution of Issues One, Two, Three, Four, Five, and Seven, but write separately to discuss certain facets of Issues Two, Four, and Five. I dissent аs to Issue Six.
¶75 I agree with the Court’s analysis and conclusion under Issue Two that the District Court erred in granting Bank of America summary judgment on the Morrows’ negligence claim. Since there are genuine issues of material fact regarding this claim, Opinion, ¶ 42,1 believe it is important to discuss how our decision in Gliko v. Permann,
¶76 The relationship between a bank and its customer is generally described as that of debtor and creditor. Deist v. Wachholz,
¶77 In Gliko, the parties disputed whether the existence of a “special relationship” giving rise to a fiduciary duty between a bank and its customer is a question of fact or a question of law. We noted that there were precedents supporting both approaches. Gliko, ¶¶ 16-23. After discussing these precedents, we held that
whether a fiduciary duty exists between two parties is a question of law, not fact, and it may be resolved on summary judgment when no genuine issues of material fact remain. Likewise, whether a “special relationship” exists between two parties such as would give rise to a fiduciary duty is a question of law, not fact, for the relationship and the duty are two sides of the same coin. To determine the existence or absence of a special relationship in cases where it normally does not exist — such as between a bank and a customer — a court may be required to make a fact-intensive inquiry. The circumstances of the particular relationship are*62 factual, and disputes over material facts will preclude summary judgment. However, the conclusion drawn by a court from undisputed facts is one of law, not of fact.
Gliko, ¶ 24 (emphasis in original).
¶78 As clarified in Gliko, therefore, the existence of a special relationship is a question of law that is determined by the court based on the facts of the case. Where the material facts are undisputed, the existence of a special relationship may be resolved on summary judgment. Gliko, ¶ 16 (citing cases standing for the proposition that, “in the absence of a genuine issue of material fact, the question of the existence of a fiduciary relationship could properly be resolved on summary judgment”). But, where there are genuine issues of material fact relating to the existence of a special relationship, it becomes necessary for a fact-finder to resolve the factual dispute one way or the other. If the fact-finder resolves the factual dispute in favor of the customer, by finding the facts necessary to establish a special relationship, then a fiduciary duty exists as a matter of law and the issue then becomes whether the bank breached that duty and thereby caused the customer damages. Conversely, if the fact-finder resolves the factual dispute in favor of the bank, by finding facts that do not support a special relationship, then a fiduciary duty does not exist and the customer’s negligence claim fails.
¶79 Importantly, then, in situations where the material facts are disputed, the existence of a special relationship is still a question of law. Gliko, ¶ 24. If the court determines that the facts alleged by the customer would not support a special relationship, even if those facts were resolved by the fact-finder in the customer’s favor, then the customer’s negligence claim necessarily fails and summary judgment for the bank is proper. On the other hand, if the trial court determines that the facts alleged by the customer would support a special relationship if they were resolved by the fact-finder in the customer’s favor, then summary judgment is not proper. This latter scenario is what we have determined exists here. Opinion, ¶ 37 (“The Morrows have alleged facts which, if proven, would establish that Bank of America owed them a fiduciary duty.”).
¶80 Properly instructingthe jury is critical to this scheme. On remand, the District Court will need to identify the specific facts which, if proved by the Morrows, would establish that Bank of America had a “special relationship” with them. The relevant facts alleged by the Morrows are discussed at ¶¶ 37 and 41 of our Opinion. The District Court also may draw from a long line of authority identifying what
¶81 I believe that instructing the jurors in this manner is necessary to maintain our clarifications in Gliko. The facts, where there is a genuine dispute, are d etermined by a fact-finder.
Issue Four - Statute of Frauds
¶82 The District Court agreed with Bank of America’s argument that the Morrows cannot use fraud claims to enforce an alleged oral contract. In this respect, I believe the District Court’s decision is correct. As we explain, “a claim of fraud may not serve as an alternative means of enforcing an oral agreement within the Statute of Frauds, because ‘the breach of a promise which the law does not regard as binding is not a fraud.’ ” Opinion, ¶ 54 (quoting Austin v. Cash,
¶83 In litigation of this nature, however, the parties and the court must recognize the subtle distinctions between (1) a contract action where a party is trying to enforce or rescind a contract and (2) a tort
¶84 I thus agree with the Court that an action in tort may be maintained independently of an action in contract, given appropriate facts. Opinion, ¶ 54. Nevertheless, as Justice Cotter noted in her dissent in Town of Geraldine v. Mont. Mun. Ins. Auth.,
Issue Five - Actual Fraud
¶85 According to the Court’s Opinion, the Morrows may establish claims of negligent misrepresentation and actual fraud if they prove the following:
negligent misrepresentation: Bank of America, in the course of its business, supplied false information for the guidance of the Morrows in their business transaction; Bank of America failed to*65 exercise reasonable care or competence in obtaining or communicating this information; the Morrows justifiably relied upon the information; and the Morrows suffered pecuniary loss as a result. Opinion, ¶¶ 45-46 (citing Restatement (Second) of Torts § 552).
actual fraud: Bank of America made a false representation to the Morrows; the representation was material to their requested loan modification; Bank of America knew the representation was false or was ignorant of its truth; Bank of America intended the Morrows to act upon the representation in the manner reasonably contemplated; and the Morrows were ignorant of the representation’s falsity, justifiably relied upon its truth, and suffered damages as a result. Oрinion, ¶ 57.
¶86 As articulated, these two causes of action appear essentially the same. Both are satisfied if the Bank supplied false information for the Morrows’ use or guidance, the Bank was ignorant (perhaps due to a lack of reasonable care) about the information’s truth, and the Morrows justifiably relied on the information to their detriment. Indeed, the Court states that “[t]he Morrows’ claim of fraud rests on the same factual allegations as [their] claim of negligent misrepresentation.” Opinion, ¶ 58. In particular, the Bank allegedly made several false statements regarding the servicing of the Morrows’ existing loan and the status of their application for a loan modification; the statements were made in the course of the Bank’s business and for the Morrows’ guidance; the Bank failed to exercise reasonable care in obtaining the information and was ignorant of the statements’ truth or falsity; and the Morrows did not know of the statements’ falsity and suffered damages due to their justifiable reliance on the statements. Opinion, ¶¶ 47-51, 58-60.
¶87 I believe we have lost sight of the distinction between actual fraud and negligent misrepresentation. Initially, it is important to note that actual fraud may be based on common law or statute. The statutory provision states:
Actual fraud, within the meaning of this part, consists in any of the following acts committed by a party to the contract or with the parly’s connivance with intent to deceive another party to the contract or to induce the other party to enter into the cоntract: (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 the person believes it to be true; (3) the*66 suppression of that which is trae 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.
Section 28-2-405, MCA (emphasis added, paragraph breaks omitted). As reflected in the italicized language, actual fraud involves an “intent to deceive... or to induce” another party. A showing of actual fraud under this statute means that consent to a contract was not given freely and the party is entitled to rescind the contract. See §§ 28-2-102(2), -301(1), -302, -401(l)(c), -404, -405, -1711(1), MCA. Here, however, the Morrows do not seek to rescind a contract. If anything, they seek to enforce one. Hence, the Morrows are not asserting statutory actual fraud. Rather, they assert common law actual fraud.
¶88 The common law definition of actual fraud consists of the nine elements set forth at ¶ 57 of today’s Opinion and in numerous prior cases, such as Franks v. Kindsfather,
In order to go to the jury the plaintiff must make out a prima facie case embracing the elements of actual fraud, viz.: (1) A representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity, or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7) his reliance upon its truth; (8) his right to rely thereon; (9) and his consequent and proximate injury. (26 C. J. 1062.)
¶89 The Court opines that an “intent to deceive or injure” is not required to establish actual fraud. Opinion, ¶ 59 (citing W. Sec. Bank v. Eide Bailly LLP,
¶90 “Because an intent to defraud is generally not susceptible to direct proof, it invariably must be proven by circumstantial evidence.” 37 C.J.S. Fraud § 42. Such intent may be established “by inferences
¶91 The Court posits that knowledge of the statement’s falsity is not required and that “[t]he requisite knowledge may also be established where the defendant is ignorant of whether the statement is true.” Opinion, ¶ 59.1 agree that actual knowledge is not required, but I do not agree that simple ignorance, by itself, is sufficient. Again, the authority from which we adopted the nine-element definition of actual fraud explains that “ignorance of [the representation’s] truth” means that the speaker “doubts the truth of his representations,” speaks “with conscious ignorance or reckless indifference as to their truth or falsity,” or makes “unqualified” assertions that “importt ] a knowledge of which the speaker is consciously ignorant.” 26 C.J. Fraud §§ 37, 39, 40, 44 (footnotes omitted). Similarly, the Restatement sets forth three conditions under which a misrepresentation is fraudulent: “A misrepresentation is fraudulent if the maker (a) knows or believes that the matter is not as he represents it to be, (b) does not have the confidence in the accuracy of his representation that he states or implies, or (c) knows that he does not have the basis for his representation that he states or implies. ’Restatement (Second) of Torts § 526. “The fact that the misrepresentation is one that a [person] of ordinary care and intelligence in the maker’s situation would have recognized as false is not enough to impose liability” for fraudulent misrepresentation (actual fraud). Restatement (Second) of Torts § 526 cmt. d. “Fraudulent” means that the speaker had “knowledge of the untrue character of his representation.” Restatement (Second) of Torts § 526 cmt. a. This does not mean the speaker must have had actual knowledge of the falsity. It is sufficient if the speaker was conscious of a likelihood that the facts may not be as he represented them:
*69 In order that a misrepresentation may be fraudulent it is not necessary that the maker know the matter is not as represented. Indeed, it is not necessary that he should even believe this to be so. It is enough that being conscious that he has neither knowledge nor belief in the existence of the matter he chooses to assert it as a fact. Indeed, since knowledge implies a firm conviction, a misrepresentation of a fact so made as to assert that the maker knows it, is fraudulent if he is conscious that he has merely a belief in its existence and recognizes that there is a chance, more or less great, that the fact may not be as it is represented.
Restatement (Second) of Torts § 526 cmt. e (emphasis added).
¶92 Thus, both the Restatement and Corpus Juris recognize that, at a minimum, a “conscious” ignorance by the speaker about whether his or her statements are true is necessary to establish actual fraud. Without evidence that the defendant at least “recognizetd] that there is a chance, more or less great, that the fact may not be as it is represented,” Restatement (Second) of Torts § 526 cmt. e, it is impossible to infer that the defendant intended to deceive the plaintiff. As discussed, an intent to deceive, manipulate, or defraud is an essential element of actual fraud and is the critical distinction between actual fraud and negligent misrepresentation — the latter involving "good faith coupled with negligence.” Restatement (Second) of Torts § 552 cmt. a. Accordingly, in my view, the Court errs in suggesting that merely being unaware or oblivious about a representation’s truth or falsity is sufficient. Opinion, ¶ 59.
¶93 Here, the Morrows did not expressly allege in their First Amended Complaint that Bank of America had an intent to deceive, manipulate, or defraud them. And, frankly, I question what Bank of America would have hoped to gain from such an effort. It seems to me that what the Morrows’ allegations genuinely reflect is a classic claim of negligent misrepresentation resulting from Bank of America’s left hand not knowing what its right hand was doing. This view finds support in the Court’s footnote referring to the Consent Order, which “notes that Bank of America failed to devote appropriate resources, oversight, and training to its foreclosure processes.” Opinion, ¶ 39 n. 2.
¶94 Nevertheless, the Morrows did allege in their First Amended Complaint that Bank of America “knew” its representations to the Morrows “were false.” The Morrows have presented evidence of a multitude of conflicting communications from the Bank. A jury could infer from the Morrows’ evidence that Bank employees were at least consciously aware that the facts they communicated to the Morrows
Issue Six - Constructive Fraud
¶95 As a final matter, I disagree with the Court’s analysis of constructive fraud. Our cases discussing constructive fraud have tied such claims to § 28-2-406, MCA, as the Court does again today. See Opinion, ¶ 62; Harris v. St. Vincent Healthcare,
¶96 Perceiving that I have concluded that the Morrows’ constructive fraud claim must fail “because they do not seek to rescind a contract,” the Court cites several cases for the proposition that a plaintiff may seek damages for constructive fraud apart from any action to rescind a contract. Opinion, ¶ 62 (citing Mattingly v. First Bank of Lincoln,
¶97 Unlike actual fraud — which is defined for contract purposes in § 28-2-405, MCA, and for tort purposes in our nine-element definition discussed above — this Court has never articulated a common law definition of constructive fraud. I question whether it is necessary to do so, given our determination in Bottrell v. American Bank,
¶98 Here, I disagree with the Court’s assertion that the Morrows have alleged Bank of America gained an advantage from making misleading statements regarding the status of their loan and their application for modification. Opinion, ¶ 65.1 see no such allegation in the constructive fraud allegations of their First Amended Complaint, in their summary judgment briefing, or in their briefs on appeal. Moreover, aside from failing to allege that Bank of America gained an advantage from the allegedly misleading statements, the Morrows also fail to identify what that supposed advantage was. The Court opines that the Bank gained an advantage because the Morrows made payments to the Bank for an additional 14 months rather than immediately seek another lender or proceed with a short sale or foreclosure. Opinion, ¶ 65. Again, the Morrows made no such allegations. Furthermore, the Morrows had a preexisting contractual obligation to the Bank to make monthly mortgage payments of $2,301.28. The monthly payments the Morrows made during the 14-month period ($1,239.99) were approximately half of what the Bank was entitled to receive under the original mortgage. As the Court concedes, the Bank had no obligation in the first place to avoid foreclosure or to grant a modification of the loan. Opinion, ¶ 39. Thus, it could be argued that the Bank incurred a disadvantage from the Morrows’ reduced payments. In short, there is no evidence, let
¶99 In conclusion, I dissent as to Issue Six and, except as otherwise stated above, I concur as to all other issues.
We noted in Gliko, ¶ 25, that although the existence of genuine issues of material fact is not always easily ascertained, neither conclusory assertions nor mere disagreement about the interpretation of a fact constitutes a genuine issue of material fact.
Western Security Bank, upon which the Court relies for the contrary proposition (see Opinion, ¶ 59), is not persuasive. There, the Court first faulted the district court for “cit[ing] no authority” for the “intent to injure” standard, and then merely cited to the nine-element definition of аctual fraud as authority that “intent to injure” is not required. W. Sec. Bank, ¶¶ 60-62 (citing Durbin,
Although a plaintiff may allege both actual fraud (intent to deceive) and negligent misrepresentation (failure to exercise reasonable care) as to the same course of conduct, the plaintiff “cannot recover wider [both] theories” because “a defendant cannot be found to have committed an act both intentionally and negligently.” Textron Fin. Corp. v. Nationwide Mut. Ins. Co.,
“Legal duty” in this context refers to a fiduciary relationship or a duty that arises from “special circumstances.” Bottrell,