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: District Court of the Sixth Judicial District, 

In and for the County of Park, 

The Honorable Thomas Honzel, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Terry Schaplow; Morrow, Sedivy & Bennett, Bozeman, 

Montana 

For Respondent: 

Joe Swindlehurst; Huppert & Swindlehurst, Livingston, 

Montana 

Sid Thomas; Moulton Law Firm, Billings, Montana 

Submitted on Briefs: Aug. 11, 1988 

Decided: September 27, 1988 

Clerk 
Vr. Juseice R. C. 5fcDonough delivered the Opinion of che 

Courc. 

Roberc and Jacqueline Shiplec (Shiplecs) appeal from che 

order of rhe Discricc Courc of che Sixch Judicial Discricr, 

Park Councy, grancing summary judgmenc in favor of Firsc 

Securicy Rank of Livinqscon (Bank). We affirm. 

The Shiplecs presenc one issue for review: 

Did che Discricc Courc err in grancing che Rank summary 

judgmenc on all counrs of che complaint? 

A complece scacemenc of che faces would 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 business wich che Bank for a number of years, 

enrering inco various loan agreemencs in che 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 cerm of 

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 

credic ceiling. 

Once che guarancy was obtained, che Bank and che 

Shiplecs executed a one-year promissory noce for 5350,000 ac 

an inceresc rate of 10%. The Shiplecs were nor able co repay 

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 of which were issued for six-monch cerms. The 

principal and inceresc scill ouescanding as each noce came 

due were carried over co che new noce. 

When che 1978 nore came due and ic appeared chae anocher 

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 chac according co ics accorneys, 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 accorney began meecing 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 FmHA guarancy. The condieions accached co the new 

guarancy included complece repayment of inceresc and 

operacing credic ar che end of each 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 che pose-1978 

noces. They alleged breach of concracc, breach of 

chird-parcy-beneficiary concracc, bad fairh, fraud, negligenc 
infliction of emocional dis~ress, breach of fiduciary ducy 

and economic duress. On January 21, 1988, che Discricc Courc 

issued an order grancing che Bank's mocion for summary 

judgmene as co all chirceen councs enurneraced in che 

Shiplecs' cornplainc. This appeal followed. 

In order for summary judgrnenc co issue, che moving 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 

represencacions made by che Bank prior co che signing of chac 

noce merged with che noce'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, chis Courc held in Weinherg such a concracc exisced 

in a face sicuacion very similar co chis case. In Weinberg, 

che farm operacors alleged a seven-year loan agreemenc ac an 

inceresc race of 93%. Ilowever, in char case boch pareies had 

signed a promissory noce which on ics face lisced a 

seven-year rerm and a 94% inceresc race. 

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 che Bank 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 

applicacion was in facr a concracc, che Discricc Courc quoced 

language from our decision in Firsc Nacional Moncana 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 che wriccen 

agreemenc will merge inco che subsequenc wrircen 

agreemeniz unless izhey are discincc and can srand 

independencly of one anocher. 

705 P.2d ac 584. Under che doccrine of merger as enunciaced 

in McGuiness, any oral represencacions made by che Bank 

merged wich che cerms of che nore, which chen represenced che 

concracc reached becween chese two parries. 

The Shiplecs second argumenc is char an exception co che 

doccrine of merger exiscs for evidence of an oral agreernenc 

introduced in order co establish fraud. As will be discussed 

more fully below, any such evidence would be barred by che 
cwo-year scacuce of 1-imicacions for fraud-relaced corcs found 

ac 5 27-2-203, MCA. The Disrricr Courc was correcc in 

grancing summary judgmenc on chis coune. 

The Shiplecs' second coune alleged breach of a chirdparry-beneficiary concracc. They argued chey are chird-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-benef iciary 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 in Weinberg is 

overlooked in che Shiplecs' argumenc. 

In Weinberg, che guarancy concracc was nor held co be 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 for a 

line of credir lascing seven years. VJe held che parol 

evidence rule did noc apply, because the Weinbergs were noc 

a~cempcing co vary 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 is made in order 

to explain, bur noc modify, ics cerms. 

The guaraney conrracc in Weinberg was one piece of 

evidence showing ehe circurnscances surrounding che execurion 

of che noce. The documencs used in procuring che guaraney 

and che bank's subsequenc accions in reliance on che guarancy 

concracc all percained co whac che bank and che Weinbergs had 

in mind when chey execuced che noce. 
Unlike Weinberg, che Shiplees are noc seeking co enforce 

che cerms of cheir noce wich che Bank. Inscead, rhey seek KO 

enforce the guarancy concracc icself. The Disericc Courc's 

cicacion KO che Souch Dakoca Supreme Coure decision in Swier 

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

The loan in chac case was an FmHA emergency livescock loan, 

che same kind of loan involved in chis 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 life of che guarancy. Before 

raising che rare ic charged 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 

chis counc. 

111. 

The chird counc of che Shiplecs' complainc alleged 

breach of che scacucory obligacion of good faich found in he 

Uniform Commercial Code as adopced in Mon~ana. Secrion 

30-1-203, MCA, scaces, " [elvery concracc or ducy 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 scaces basically 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 are pare of che 

Uniform Commercial Code, we are afforded che opporcunicy KO 

look KO decj-sions in ocher scaces incerprecing virtually 
identical provisions. From our reading of cases such as 

Third Nacional Rank in Nashville 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 is whecher che cerms of che 

agreernenc were carried ouc faithfully. 

Our review of che record before us shows che various 

noces evidencing agreernenc becween che Bank and rhe Shiplecs 

were in face carried our by che Bank. The monies agreed upon 

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 

rhis counc. 

IV. 

The Shiplecs' fourch counc alleged breach of che implied 

covenanc of good faich and fair dealing. The Discrice 

Courc's ruling ciced auchoricy from chis Courc requiring char 

a breach of concracc muse be rhe resulc of some 

"impermissible accivicy" before rhe breaching parcy can be 

held co have also breached 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 

Discricc No. 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 is 
crue, we also seaced che obligation imposed by che covenanc 

is co ace reasonably. Under chis scandard, we have held che 

"minimal requiremenc" for breach of che covenanc is accion by 

che defendanc char is "arbicrary, capricious or unreasonable, 

and exceeded plaintiffs' juscifiable expeccacion [char che 

defendanc ace reasonably]." Noonan, 740 P.2d ac 635. 

In chis case, che Shiplecs had a juscifiable expeccacion 

chac che Bank would ace reasonably by loaning rhem money on 

che cerms agreed upon in che noces. As we found above, chis 

was done. The evidence adduced by che Shiplecs fails co show 

arbicrary or unreasonable conduce by che Bank. The Discricc 

Courc was correcc in granring 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 or miscake 

found ac S 27-2-203, MCA. On appeal, che Shiplecs concend 

ehey had developed a confidencial relacionship wich che Bank 

similar to chac found by chis Courc in Weinberg, 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 in chis case is 

37 Am Jur 2d Fraud and Deceic S 409: 

Where a confidencial relacionship exiscs becween 

che pareies, failure co discover faces conscicucing 

fraud may be excused. 

The basis of che Shiplecs' complainc is char che Bank 

represenced KO chem it would loan chem money ac a race of 10% 

over a period of five years, and chen did nor do so. In 

January of 1978, the Shiplecs signed a noce chac did noc 
contain 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 ac char poinc certainly 

discovered faces sufficienc to conscicuce fraud. There was 

no failure co discover faces, and therefore no need for a 

confidencial relacionship argumenc. The Discrice Courc' s 

ruling was correcc. 

VI . The Shiplecs' cench counc alleged negligent infliccion 

of emocional discress. Negligent infliccion of emocional 

discress is a narrowly-defined corc in Montana. We see our 

che cesc for chis corc in Versland v. Caron Transporc (1983), 

206 Monc. 313, 671 P.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: 

presene here, and che counc is therefore ac lease mislabeled. 

The body of chis counc, and che Shiplecs' subsequenc 

argumencs co che Districc Courc and chis Courc, use language 

adopced from our decision in Johnson v. Supersave Markecs, 

Inc. (Monc. 1984), 686 P.2d 209, 41 Sc.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 in favor of che Bank on all councs lisced in 

7;he Shiplecs' complainc. Therefore we need noc reach che 

issue of damages. 

VII. 

The eleveneh counc of the complainc alleged promissory 

noLe breach of concracc. The Shiplecs and the Bank allegedly 

agreed inceresc would be due ac macuricy, wich all incerim 

paymencs applied to principal. The Shiplecs allege che Bank 

parcially misapplied some incerim paymencs co inceresc. 

Boch parcies agree che Discrice Courc correctly scared 

the general rule char incerim paymencs on a debc are normally 
applied firsc co accrued inceresc. Shiplecs argue, however, 

che cescimony of ehe Bank's experc wicness 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, 

incerim payrnencs would be applied co principal. The Shiplecs 

also poinc ouc chae cwo of che noces scare early paymencs 

would be applied co principal. 

A recenc scacemenc of che general rule on applicacion of 

incerim payrnencs is found. ac 45 Am Jur 2d Inceresc and TJsury 

S 99. Known as che "Uniced Scares Rule," ic provides 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 is presene in chis case. 

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 char payrnencs be 

applied firsc co principal, buc che Rank's reply has been 

"chey'd do whacever chey wane co wich ic." There is likewise 

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 

principal was preceded. by he cavear char such early payrnencs 

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 

Courc was correce in grancing summary judgmenc on chis counc. 

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), 678 P.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, cheplaintiff 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 in Weinberg, 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 Shiplets did nor place such greac reliance 

on che Bank's advice. The Shiplecs felt chey knew more abouc 

ranching chan did che Bank's agenc. While che Bank advised 

che Shiplecs on the operacion of cheir ranch, char advice was 

noc always heeded. For example, chey refused co wichdraw 

from che FmHA guarancy program when advised co do 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, chey were represented by counsel during 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 che Rank's unwarranced foreclosure chreacs 

descroyed cheir free agency and lefc chem wich 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 che making of conrraccs under 

circumscances showing a lack of free will on che pare of one 

of che concraccing parries. 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 chey had no choice bur 

co sign chese noces seem nor from some unlawful chreac by rhe 

Bank, bur from che pressure of cheir mouncing debc. True, 

had chey nor signed che noces, the Bank could have "pue chem 

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 affirm the order of the District Court. 

Re& 

Justice 

We Concur: 

Justices 6'