blo. 88-141


### IN THE SUPREME COURT OF THE STATE OF MONTANA
1988

ROBERT SHIPLET and JACQUELINE SHIPLET, Plaintiffs

### and Appellants,

FIRST SECURITY BANK OF LIVINGSTON, INC., 

### a Montana corporation,
Defendant and Respondent.

APPEAL FROM: DistrictCourtof the SixthJudicialDistrict, Inand 

### for the Countyof Park, TheHonorableThomas Honzel, Judge presiding.
COUNSEL OF RECORD:
For Appellant: TerrySchaplow; Morrow, Sedivy & Bennett, Bozeman, Montana
For Respondent: 

### Joe Swindlehurst; Huppert & Swindlehurst, Livingston, Montana SidThomas; Moulton Law Firm, Billings, Montana

Submitted

### on Briefs: Aug. 11, 1988
Decided: September27, 1988

ClerkVr. Juseice R. C. 5fcDonough delivered theOpinion of che Courc.

Roberc andJacqueline Shiplec (Shiplecs)appeal from che order of rhe Discricc Courc of che Sixch Judicial Discricr, Park Councy, grancing summary judgmenc in favor of Firsc SecuricyRank of Livinqscon (Bank). Weaffirm. The Shiplecspresencone issue forreview: Did che Discricc Courc 

### err ingrancing che Rank summary judgmenc on allcounrs of che complaint? A complece scacemenc of che faceswould be very lengrhy. However, an oucline of relevanc evencs 

### will provide 

### sufficient background and more decail 

### will be given where required. The Shiplecs operare a ranch souch of Livingscon. They have done businesswich che Bank for a number of years, enrering inco various loan agreemencs inche course of cheir ranching operations. In 1978, che Shiplers soughc furcher financing for cheir ranch from che Rank in che form of a $350,000 loan. The Bank indicaced chac i could nor make che loan unless a guarancy could be arranged chrough che Farmers Home Adminiscracion (FmHA). The Bank chen submicced a Requesc for Guarancee [sic] co FmHA, which lisced a "Line of Credic Ceiling" of $350,000, an inceresc race of

## lo%,and a cermof five years. The Concracc of Guarancee [sic] issued by FmHA upon ics approval of che application lisced no 

### cerms particular co che Shiplecs' loan orher than rhe $350,000 credicceiling. Once che guarancy was obtained, che Bank and che Shiplecs executed a one-year promissory noce for 5350,000 ac
an incerescrateof 10%. The Shiplecs

### werenor able corepay che coca1 principal and inceresc due afcer one year, and in

### 1979 chey execuced a new one-year noce. This began a cycle of noces,mosc ofwhich were issued for six-monch cerms. The principal and inceresc scill ouescanding as each noce came due were carried over co chenewnoce. When che 1978nore camedue and ic appeared chaeanocher noce would be necessary, che Bank concacced FmHA and asked whecher che cerms of che guarancy would prohibic che Bank from raising che race of inceresr on che loan co reflecc che overall rise in inceresc races caking place ac chac eime. The FmHA replied chacaccording co icsaccorneys, such a race increase was permissible. The 1979 noce carried an inceresc
race of 11.75%. The inceresc race on 

### subsequent noces fluccuaced as the prime lending race rose and fell, reaching a peak of 214% in 1981. The FmHA guarancy expired in 1.984, ac which eime pavmencs from che Shiplecs on cheir loan were in arrears. The FmHA decided chac the Rank would have co concinue che Shiplecs' loan wichouc a guarancy or presenc a plan of liquidacion. In February of char year, che Shiplecs and cheir accorneybeganmeecing wich Rank officials to

### determine whac could be done co resolve che sicuacion. Negociacions resulred in 

### execution of a $400,000 noce and a new, seven-year FmHAguarancy. The condieionsaccached co thenew guarancy included complece repayment 

### of inceresc and operacing credic ar che end ofeach year, and liquidacion of
some Shiplec real escace holdings in order co repay $338,000 of che loan. When chis final nore reached macuricy on Sepcember 28, 

### 1985, 

### approximately $348,000 remained oucscanding. In Occober of 1985, che Shiplecs filed suic againsc che Bank based on che increased ineeresc charged on chepose-1978
noces. They alleged breach of concracc, breach of chird-parcy-beneficiaryconcracc,bad fairh, fraud,negligenc

### infliction of emocional dis~ress, breach of fiduciary ducy and economic duress. On January 21, 1988,cheDiscriccCourc issued an order grancing che Bank's mocion for summary judgmene as co all chirceen councs enurneraced in che Shiplecs' cornplainc. Thisappeal followed. In order for summary judgrnenc co issue, chemoving parcy
muse show chere is no genuine issue as 

### co faces chac are macerial in lighc of che subscancive principles enticling chae parcy co judgmenc as a rnaccer of law. If che moving parey meecs chis burden, che non-moving parey chen has che burden of showing a genuine issue of macerial face. These scandards also apply co chis Courc when reviewing che granc
or denial of summary judgrnenc. Frigon v. Morrison-Maierle, Inc. (Monc. 1988) 

## -P.2d - 

## , 45 Sc.Rep. 1344, and cases 

### cited cherein. I. 

### The firsc counc of che Shiplecs' complainc alleged breach of concracc. They argued che Bank represenced co chem char the applicacion form for che guarancy was a concracc becween che Bank and che Shiplees for a five-year loan ac an annual inceresc race of 10%. Shiplecs alleged che Bank breached chis concracc by raising che race of inreresc charged on che loan above 10%. The 

### ~iscricc Courc held 

### chis counr failed for a 

### number of 

### reasons, including che applicaeion was noc a concracc Seeween che Bank and che Shiplecs. The courc ruled che
concracc becween che cwo parries was evidenced by che 1978 promissory noce for a cerm of one year ac lo%,and any oral represencacionsmade by 

### che Bank prior co che signingof chac noce merged with chenoce's cerms. On appeal, che Shiplecs direcc cwo arguments 

### ac che Discricc Courc's holding. Firsc, chey argue Weinberg 

### v. Farmers Scace Bank of Worden (Monc. 1988), 752 P.2d 719, 45

### Sc.Rep. 391, is conerolling in chis case. According KO 

### che Shiplecs, chisCourcheld inWeinherg such a concraccexisced in a face sicuacionvery similar co chis case. InWeinberg, che farm operacors alleged a seven-year loan agreemenc ac an incerescrace of 

### 93%. Ilowever, in char caseboch pareies had signed a promissory noce which on ics face lisced a seven-year rerm and a 94% incerescrace. The only wricing in chis case concaj-ning che cerms alleged by che Shiplecs is che applicacion for guarancy. Thac documenc was signed.only by che Bank's agent, and was direcced co

### he FmHA. The FmHA and cheBank later execuced a separace concracc of guaraney once che applicacion had been approved. The applicacion was noc a concracc becween che Bank and che Shiplers. As co any oral represencacions by che Bank chac che applicacionwas in facr a concracc,cheDiscriccCourc quoced language from our decision in FirscNacionalMoncana Bank of Missoula v. McGuiness (Monc. 1985), 705 P.2d 579, 42 Sc.Rep. 1288:
[Elvidence of prior oral agreemencs is noc admissible for che purpose of alcering subsequenc wriccen agreemenes dealing wich che same subjecc, and chac ehe prior oral agreemencs and chewriccen agreemenc will merge inco che subsequenc wrircen agreemeniz unless izhey are discincc and can srand independenclyof one anocher.
705 

### P.2d ac 584. Under che doccrine ofmerger as enunciaced in McGuiness, any oral represencacions made by 

### che Bank mergedwich che cerms of chenore,which chen represenced che
concraccreached becween chese twoparries. The Shiplecs second argumenc is char an 

### exception co che doccrine of merger exiscs for evidence of an oral agreernenc 

### introduced inorder co

### establish fraud. As will be discussed more fully below, any such evidence would be barred by checwo-year scacuceof 1-imicacionsfor fraud-relaced corcs found

ac 

### 5 27-2-203, MCA. The Disrricr Courc was correcc in grancing summary judgmenc on chiscoune.

The Shiplecs' second coune alleged breach of a chirdparry-beneficiary concracc. They argued chey arechird-parcy beneficiaries of che guaraney concracr between che Bank and rhe FmHA. On appeal, rhe Shiplecs argue Weinberg 

### is conerolling on chis issue as well. They asserc chis Courc found a chird-parry-beneficiary concracc in Weinberg, rejecting rhe argumenc chac che guarancy concracc was scriccly becween che bank and che FmHA. Again, che discinguishing faccor of che promissory noce inWeinberg 

### is overlooked inche Shiplecs' argumenc. InWeinberg, che guarancy concraccwas nor held cobe a chird-parcy-beneficiary concracc as such. The bank in char

case argued under the parol evidence rule found ac 

### 5 28-2-905, MCA, che noce was evidence only of che inicial advances made to che Weinbergs, which had been repaid. The Weinbergs alleged che noce was evidence of an agreemenr fora line of credir lascing seven years. VJe held che parol evidence rule did noc apply, because theWeinbergs 

### were noc a~cempcing covary che 

### cerms of che noce. They 

### were inscead basing cheir argumenc on cerms found on che noce's face. We n here fore applied 

### S 28-3-402, MCA, which allows evidence of che circurnscances under which an agreemenc 

### ismade inorder toexplain, bur nocmodify, ics 

### cerms. The guaraney conrracc in Weinberg was one piece of evidence showing ehe circurnscances surrounding che execurion of che noce. The documencs used inprocuring che guaraney and che bank's subsequencaccions inrelianceon che guarancy
concracc allpercained cowhac chebank and cheWeinbergs had inmind when chey execuced che noce.Unlike Weinberg, che Shipleesarenoc seeking co enforce che 

### cerms of cheirnoce wich che Bank. Inscead, rhey seek KO enforce the guarancy concracc icself. The Disericc Courc's cicacion KO che Souch Dakoca Supreme Coure decision inSwier

v. Norwesc Bank (S.D. 1987), 409 N.W.2d 121, 

### ispersuasive. The loan in chac casewas an FmHA emergency livescock loan, che same kind of loan involved inchis case. Such loans are governed by regul-acions found ac 7 CFR 

### 5s 1980.201 

## - ec

### seq, which do nor prohibic a bank from raising che inceresc race charged on a loan during che lifeof che guarancy. Before raising che rare 

### iccharged che Shiplecs, che Bank CO~K~CK~~ che FmHA co find our: if chis would violace che guarancy concracc, and was cold correctly chac ic would nor. The Discricc Coure was correcc in grancing summary judgmenc on chiscounc. 111. The chird counc of che Shiplecs' complainc alleged breach of che scacucory obligacion of good faichfound inhe Uniform Commercial Code as adopced in Mon~ana. Secrion 30-1-203, MCA, scaces, 

### "[elveryconcracc orducy within chis code imposes an obligacion of good faich," and 

### 5 30-1-202 (19),MCA, scaces char "good faich"means honesey in face. The Shiplecs' argumenc on appeal scacesbasically chac chere is ample evidence of dishonesry in a number of represencacions made KO chem by che Bank's agenc. While 

### ic appears from our review of che record char che Shiplecs experienced difficulties in dealing wich che Rank, che evidence before us does nor supporc a violacion of scacucory good faich. Moncana case law on chis subjecc 

### is scarce. However, because the scacucory provisions ciced above arepare of che Uniform Commercial Code, 

### we are afforded che opporcunicy KO look KO decj-sions in ocher scaces incerprecing virtuallyidentical provisions. From our reading of cases such as Third Nacional Rank inNashville v. Hardi-Gardens Supply of Illinois, Inc. (M.D. Tenn. 1.974),380 F.Supp. 930; and 

### ~irsc Bank of Savannah 

### v. Kilpacrick-Smich Conscruccion Co., Inc. (Ga. 1.980), 264 S.E.2d 576, 

### ic appears che gravamen of che scacucory good faich requirement 

### iswhecher che 

### cerms of che agreernenc

### werecarriedouc faithfully. Our review of che record before us shows che various

noces evidencing agreernenc becween che Bank and rhe Shiplecs


### wereinfacecarriedourby cheBank. The monies agreedupon


### were advanced ac che races agreed upon in wricing by boch parcies. Scacemencs made by che Bank's agenc, while nor always scriccly forchrigh~, did noc deprive Shiplecs of che benefic of che bargains chey scruck wich che Bank. The Discricc Courc was correcc in grancing summary judgmenc on rhiscounc. IV. The Shiplecs' fourch councallegedbreach of che implied

covenanc of good faich and fair dealing. The Discrice Courc's rulingciced auchoricy from chisCourcrequiringchar

a breach of concracc muse be rhe resulc of some "impermissible accivicy" before rhe breaching parcy can be held cohave alsobreached che implied covenanc of good faich and fair dealing. See, Noonan v. Firsc Bank Bucce (Mon~. 1987), 740 P.2d 631, 44 Sc.Rep. 1124; Nordlund v. School DiscriccNo. 14 (MoIIK. 1987),738 P.2d 1299, 44 Sc.Rep. 1183; Nicholson v. Uniced Pacific Insurance Co. (Mone. 1985), 710 P.2d 1342, 42 Sc.Rep. 1822. The Shiplecs seek co discinguish chis auehoricy by nocing in Nicholson we held a breach of concracc was nor a prerequisite co breach of che covenanc, because che implied

covenanc of good faich 

### is noc an obligation arising from che

concracc icself. Nicholson, 710 P.2d ac 1348. While chis

### iscrue, 

### we also seaced che obligation imposed by che covenanc 

### is co ace reasonably. Under chis scandard, we have held che "minimalrequiremenc" forbreachof che covenanc

### isaccionby che defendancchar 

### is "arbicrary, capricious orunreasonable, and exceeded plaintiffs' juscifiable expeccacion [char che defendancacereasonably]." Noonan, 740 P.2d ac635. In chiscase, che Shiplecshad a juscifiable expeccacion chac che Bank would ace reasonably by loaning rhem money on che 

### cerms agreed upon inche noces. As

### we found above, chis

was done. The evidence adducedby che Shiplecs failsco show arbicrary orunreasonable conduce by che Bank. The Discricc Courcwas correccingranring summary judgment. 

## v. Councs five ehrough nine of che complainc alleged various forms of fraud and fraud-relaced cores. The Discricc Courc ruled chese claims 

### were barred by 

### Montana's cwo-year
scacuce of limicacions for accions based on fraud ormiscake found ac 

### S 27-2-203, MCA. On appeal, che Shiplecs concend ehey had developed a confidencial relacionship wich che Bank similartochac found by chisCourc inWeinberg, which roll-ed che scacuce of limicaeions. The existence of a confidencial relacionship, however, 

### is noc an issue here. The authoricy ciced 

### b57 Shiplecs for che proposition char che scacuce was colled inchis case 

### is 37 Am Jur 2d Fraud and Deceic

### S 409:
Where a confidencial relacionship exiscs becween che pareies, failurecodiscover facesconscicucing fraudmay be excused.

The basis of che Shiplecs' complainc 

### is char che Bank represenced KO chem itwould loanchem money aca raceof 10%

over a period of five years, and chen did nor do so. In January of 1978, the Shiplecs signed a noce chac did noccontain the alleged five-year 

### cerm. Tn January of 1979, chey signed a noce chat concained neither the alleged 

### cerm, nor che alleged inceresc race. They had accharpoinc certainly discovered faces sufficienc toconscicuce fraud. There was
no failure co discover faces, and therefore no need for a confidencial relacionship argumenc. The Discrice Courc's rulingwas correcc. VI

# . The Shiplecs' cench counc alleged negligent infliccion of emocional discress. Negligent infliccion of emocional discress 

### is a narrowly-defined corc inMontana. We 

### see our che cesc forchiscorcinVersland v. Caron Transporc (1983), 206 Monc. 313, 671P.2d 583, by requiring an emocional impact resuleing from direcc observance of the deach or serious injury of a close relacive. Thac sicuacion clearly 

### is nor: presenehere, and che counc 

### istherefore acleasemislabeled. The body of chis counc, and che Shiplecs' subsequenc argumencs co che 

### Districc Courc and chisCourc, use language adopced from our decision in Johnson v. Supersave Markecs, Inc. (Monc. 1984), 686 P.2d 209, 41Sc.Rep. 1495, concerning emocional discress as an elemenc of damages resulting from a
corc. We are here affirming che Discricc Courc'

### s granc of summary judgmenc infavor of che Bank on allcouncs liscedin 7;he Shiplecs' complainc. Therefore we need noc reach che issueof damages. 

### VII. The eleveneh counc of the complainc allegedpromissory noLe breach of concracc. The Shiplecsand theBank allegedly agreed inceresc would be due ac macuricy, wich all incerim paymencs applied toprincipal. The Shiplecs allege che Bank parciallymisapplied some incerimpaymencs co inceresc. Boch parcies agree che Discrice Courc correctly scared thegeneral rule char incerimpaymencs on a debcarenormallyapplied firscco accrued inceresc. Shiplecs argue, however, che cescimony of ehe Bank's expercwicness creaeed a genuine issue of macerial face as co a possible excepcion co che rule. The Bank's experc cescified che provision chat inceresc would be due ac macuricy meanc, in his opinion, incerimpayrnencs would be applied coprincipal. The Shiplecs also poinc ouc chae cwo of che noces scare early paymencs would be applied coprincipal. A recenc scacemenc of che general ruleon applicacion of incerim payrnencs 

### is found. ac45 Am Jur 2d Inceresc and TJsury 

### S 99. Known asche "Uniced ScaresRule," icprovides incerim payrnencs are firsc applied co accrued inceresc unless chere 

### is a scacuce or an agreernenc co che contrary. See, e.g., Shuccs v. Phillips Pecroleum Co. (Kan. 1987), 732 p.2d 1286. Neicher excepeion 

### ispresene inchiscase. Lack of an agreernenc as co applicacion of incerim payrnencs 

### is evidenced by che Shiplecs' own brief co chis Courc. They concend chey have always asked charpayrnencs be applied firsc co principal, buc che Rank's reply has been "chey'd dowhacever cheywane cowich 

### ic." There 

### islikewise

no scacuce in Moncana diceacing applicacion of incerim payrnencs co principal. Furcherrnore, che noce language ciced by che Shiplecs scaring early payrnencs would be applied co principalwas preceded.by he cavearchar suchearlypayrnencs would noc relieve che dehcor of che duey co concinue making payrnencs under che agreed paymenc schedule. This language therefore deals wiizh paymenes made oucside ~he normal course of che loan, noc regular incerim paymenes. The Discrice Courcwas correceingrancing summary judgmenc on chiscounc. 

### VIII. Counc cwelve of che complaint alleged breach of fiduciary duey arising from che confidencial relacionship becween che Shiplecs and che Bank. On appeal, che Shiplecs

### again argue che 

### situation here is analogous co chat in Weinberg, where a confidencial relacionship was found. Shiplecs also cice our decision in Deisc v. Wachholz (Monc. 1984), 678P.2d 188, 41 Sc.Rep. 286, for che

### proposition char

a confidencial relacionship can exisc becween a bank and ics customer in cercain sicuacions. In Deisc, we began wich che general rule chac a bank-cuscomer relacionship does not ordinarily give rise co fiduciary 

### responsibilities. However,we found an excepcion
co chis general rule when special circumscances are presenc. In D~~sK, che plaintiff and her deceased husband had banked wich che defendanc for over 20 

### years. After che husband's deach, che bank had caken an accive advisory role in che 

### plaintiff's finances, and she had relied on char advice. Deisc, 678 P.2d ac 193-94. Likewise inWeinberg,we found a confidencial relacionship where che bank "parccipaced in and encouraged the changes co be made regarding che Weinbergs' farming operacion." Weinberg, 752 P.2d ac 731. One celling faccor 

### distinguishes chis case from Deisc and Weinberg. The Shipletsdid norplace such greac reliance

on cheBank's advice. The Shiplecs 

### felt chey knewmore abouc ranching chan did che Bank's agenc. While che Bank advised che Shiplecson the operacion of cheirranch, char advicewas noc always heeded. For example, chey refused co wichdraw from che FmHA guarancy programwhen advised codo so in 1979, and even refused to sell land when required to do so by che condicions of che seven-year FmHA guarancy issued in 1984. Furehermore,cheywere representedby counselduring che 1984 negociacions. No special circumscances are presenc in chis case co create an excepcion co che general rule char a bank's relacionship wich ics cuseomer is noc a confideneial. one.

### The Discricc Courc was correcc in grancing summary judgmen~
on chis counc. IX. 

### The Shiplecs final c0un.c alleged Economic Duress, in ~hac che Bank's agenc chreacened foreclosure when he had no legal righc co do so. Shiplees advance chis argumene again on appeal, scacing cheRank's unwarranced foreclosure chreacs descroyed cheir free agency and lefc chemwich no choice buc
co sign che noces. The Shiplecs' argumene on chis counc fails for much rhe same reason as cheir argumene concerning breach of fiduciary duey. Economic duress, also known as "business compulsion," concerns chemaking of conrraccs under circumscances showing a lack of freewill on chepare of one of che concraccingparries. However,

[economic duress] is noc 

### established merely by proof char consent was secured by che pressure of financial circumscances, or by che face char one parcy insisced upon a legal righc and che ocher parry yielded co such 

### insistence.

25

### Am Jur 2d Duress and Undue Influence § 

### 7. The record before us shows che noces ac issue represenred an indebcedness incurred ac che requesc of che Shiplecs. They were unable co repay even che firsc note 

### completely, and wich each new note, the indebcedness compounded. The Shiplecs' claims chac cheyhad no choicebur
co sign chesenoces seemnor from some unlawful chreacby rhe Bank, bur from che pressure of cheir mouncing debc. True, had chey nor signed che noces, the Bank could have "puechem
ouc of business," bur chis would have been chrough foreclosure, rhe Bank's lawful remedy for failure of repaymenc. The Discricc Courc was correcc in grancing summary judgment on chis counc.

### We affirmtheorderof 

### the District

### Court. 

# Re&
Justice We Concur:



### Justices 

### 6'