## Facts

- A buyer agreed to purchase ranch land and a separate irrigation system in a transaction split between two related seller entities controlled by the same individual.
- One entity sold the land; the other sold the irrigation equipment. The buyer assigned the equipment contract to H-D Irrigating, Inc.
- H-D paid $150,000 and executed a $200,000 promissory note at 8% interest, with an acceleration clause and a higher default rate.
- The seller’s president represented that the irrigation system was in good working order, that all pivots could operate simultaneously, and that the system would supply adequate water for the acreage.
- The seller did not disclose a known erosion condition affecting a specific pivot located over a filled former river channel lacking protective stabilization, creating serious erosion risk and impairing function.
- After purchase, H-D discovered inadequate system performance and incurred significant costs to stabilize the erosion area and modify the pivot.
- H-D sued for misrepresentation and nondisclosure; after a bench trial, the district court found constructive fraud, awarded damages for repairs/modification, offset those damages against the note, found the land-selling entity liable, and awarded no attorney fees.

## Issues

1. Whether accepting funds paid into court under the judgment waived the right to appeal.
2. Whether constructive fraud was properly before the court under the pleadings and pretrial order.
3. Whether the equipment seller and its president were liable for constructive fraud based on affirmative statements and nondisclosure of a material impairment.
4. Whether the land-selling entity could be held liable for constructive fraud tied to representations about the irrigation equipment.
5. Whether the buyer remained liable on the promissory note and how damages and interest should be offset and calculated.
6. Whether either side was entitled to prejudgment interest or attorney fees as the prevailing party.

## Decision

- The court held the appellant did not waive the right to appeal by accepting deposited funds where reversal could not affect the benefit accepted.
- The court held constructive fraud was within the issues framed by the pleadings and final pretrial order.
- The court affirmed constructive fraud liability against the irrigation-equipment seller and its president based on misleading affirmative representations and failure to disclose known erosion risk and impairment.
- The court reversed constructive fraud liability against the land-selling entity because the actionable misrepresentations concerned the irrigation equipment and were not made on that entity’s behalf.
- The court affirmed that the promissory note remained enforceable but remanded for recalculation of offsets and interest consistent with the corrected allocation of liability.
- The court affirmed denial of prejudgment interest and attorney fees, concluding neither side was the prevailing party.
- Disposition: affirmed in part, reversed in part, and remanded.

## Legal Principles

- A party’s acceptance of benefits under a judgment does not bar appeal when the challenged issues cannot affect the benefit accepted or the party would be entitled to it regardless.
- Constructive fraud may be established without a fiduciary relationship when a seller’s words or conduct create a false impression about a material impairment and the seller fails to disclose relevant, known facts.
- A duty to disclose may arise from the transaction’s circumstances, including the seller’s superior knowledge of latent defects coupled with affirmative statements suggesting the absence of those defects.
- When constructive fraud damages and a buyer’s contractual payment obligation coexist, damages may be offset against the amount owed, but fraud does not necessarily void the underlying promissory note.
- Prejudgment interest is unavailable where the amount due is not fixed or certain because it depends on offsets and recalculation.
- Where results are mixed, a court may find no prevailing party for attorney-fee purposes.

## Conclusion

The court held that the irrigation-equipment seller and its president committed constructive fraud by creating a misleading impression of system capability while withholding known erosion risks, reversed constructive fraud liability for the separate land seller, and remanded to recompute the net amount owed on the promissory note after proper offsets and interest.


H-D Irrigating, Inc. v. Kimble Props., Inc., 8 P.3d 95 (Mont. 2000)