IN THE SUPREME COURT OF THE STATE OF MONTANA 

STATE BANK OF TOWNSEND, A MONTANA 

CORPORATION, 

Plaintiff and Appellant, 

vs. 

MARYANN 'S, INC., a Montana 

corporation, and ARLO B. WESTON 

and VERNETTA WESTON, husband 

and wife, 

Defendants and Respondents. 

Appeal from: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin 

Honorable Joseph B. Gary, Judge presiding. 

Counsel of Record: 

For Appellant: 

Hooks and Budewitz, Townsend, Montana 

Thomas A. Budewitz argued, Townsend, Montana 

For Respondents: 

Small, Hatch and Doubek, Helena, Montana 

Floyd 0. Small argued, Helena, Montana 

Moore, Rice, O'Connell & Refling, Bozeman, Montana 

Filed: 

Submitted: December 2, 1982 

Decided: May 10, 1983 

- 

Clerk 
Mr. Justice Fred J. Weber delivered the Opinion of the Court. 

State Bank of Townsend (Bank) brought this action on a 

promissory note executed by defendants Maryanns, Inc. and 

Arlo B. Weston (herein referred to as Maryanns) in the 

District Court of the Eighteenth Judicial District for 

Gallatin County. Maryanns counterclaimed, seeking damages 

alleged to have been caused by the fraudulent 

misrepresentation of the Rank and the breach of an agreement 

to loan money. Following jury trial, judgment was entered 

for Maryanns in the amount of $129,484.13 ($150,000.00 

verdict less $16,015.87 owing from Maryanns to the Bank and 

$4,546.00 attorneys fees). The Bank appeals. We affirm the 

judgment in part and reverse as to the balance of the 

judgment, returning the cause for new trial. 

The issues presented by the Bank are: 

1. Was it error for the court to refuse to reduce 

Maryanns' damages by 40 percent? 

2. Did the court err in refusing to instruct on the 

statute of frauds? 

3. Was there sufficient evidence to support the verdict 

of negligent misrepresentation? 

4. Was there sufficient evidence to support the finding 

of damages to Maryanns? 

5. Was it error to admit Maryanns' Exhibit "AA"? 

Arlo and Vernetta Weston are the principal stockholders 

of Maryanns, Inc., a corporation. Maryanns operated a 

clothing store in Bozeman starting in 1974. In July 1978, 

the Westons leased a store building in Townsend from Mrs. 

Ragen under a six month's lease with option to purchase 

during the lease term; and they also bought certain inventory 

and fixtures from Mrs. Ragen. 
In August 1978, Mr. Weston went to the Bank to inquire 

about borrowing money in connection with the opening of the 

Townsend store. Mr. Weston applied for a loan and provided 

personal and corporate financial statements. Mr. Weston was 

furnished with a corporate borrowing resolution to be adopted 

by Maryanns, Inc. On August 29, Mr. Weston returned the 

incomplete corporate borrowing resolution to Mr. Wilson, a 

bank officer. After a discussion between banker Wilson and 

Mr. Weston, Wilson inserted a $50,000 limit in the blank in 

the borrowing resolution. 

On August 29, 1978, Maryanns, Inc. and Mr. Weston signed 

a promissory note for $20,000, the proceeds of which were 

deposited in the corporate bank account. On January 3, 1979, 

$2,000 was borrowed by a note signed by Mr. Weston. On 

January 18, 1979, an additional $7,000 was borrowed under a 

note signed by Mr. Weston. In early February 1979, Mr. 

Weston notified Mrs. Ragen of his intention to exercise his 

option to purchase her building. At that time Mr. Weston 

left a check for $20,800 drawn on the Bank for the down 

payment with banker Wilson and told Wilson "to give it to 

Kathern Ragen when she had the necessary papers that she was 

supposed to have ready for the agreement." Upon being 

advised that the check was too large, Mr. Weston delivered to 

banker Wilson a new check for $17,000 with the same 

instructions. On March 8, 1979, Mr. Weston called banker 

Wilson and told him that he had received the necessary papers 

from Mrs. Ragen and to qive her the check. On March 9, 1979, 

Mrs. Ragen picked up the check from Wilson and was unable to 

secure payment because there were insufficient funds to cover 

the check. On March 13, 1979, Mrs. Ragen gave Maryanns 

written notice of her rescission of the lease-option. On 

March 19 or March 20, 1979, banker Wilson wrote Mr. Weston a 
letter which declared all three notes due and payable 

immediately. On April 1, 1979, after Maryanns vacated the 

building, the Bank rented the building from Mrs. Ragen, held 

a sale of the inventory remaining in the store, and applied 

the proceeds to the various notes, leaving a remaining 

balance on the notes in the amount of $14,647.78 together 

with accruing interest. 

The Bank then sued the Westons and Maryanns to foreclose 

upon the various security interests given as collateral. 

Westons and Maryanns counter-claimed, contending that the 

Bank had represented that Maryanns had a $50,000 line of 

credit at the Bank and seeking damages. Following trial, the 

jury completed special interrogatories and a special verdict, 

and judgment was entered for Maryanns in the amount of 

$150,000, less $16,015.87 found to be due and owing by 

Maryanns to the Bank on the notes, and $4,546.00 attorneys 

fees . 

Unfortunately it is necessary to comment on the state of 

the record before we address the specific issues raised. In 

the course of preparation for trial, the court prepared an 

extensive pre-trial order which included agreed facts and the 

contentions of both the Bank and Maryanns. The substance of 

the contentions of Maryanns was that the Bank fraudulently 

caused Maryanns to believe the Bank was willing to gra.nt 

credit of up to $50,000 and that the Bank knowingly, 

willfully, deceitfully and fraudulently failed to inform 

Weston that the Bank was not going to advance the money; that 

the Bank acted in a fraudulent and precipitous manner in 

declaring the notes of Maryanns to be due and payable; and 

that as a result of the foregoing, damages were caused to 

Maryanns. Under Rule 16, M.R.Civ.P., such an order controls 

the subsequent course of the action unless modified at the 
trial to prevent manifest injustice. As appears from the 

instructions, the theory of Maryanns case was changed during 

the course of the trial to one of negligent 

misrepresentation. In the absence of an issue of negligent 

misrepresentation in the pre-trial order or subsequent 

amendment, the District Court should not have allowed the 

legal theory of negligent misrepresentation to be presented 

to the jury. Sufficient objections were not made to justify 

a reversal by this Court. The chanqe in theory during the 

course of the trial resulted in confusion as to the law of 

the case on the part of the attorneys and the trial court. 

Contradictory and confusing instructions were one result. In 

addition we have found it almost impossible to analyze the 

confused record. 

The Bank contends that it was error for the District 

Court to refuse to reduce the damage verdict of $150,000 by 

40%. The Rank contends that under the form of interrogatory 

completed by the jury, the jury determined that the full 

amount or total amount of Maryanns' compensatory damages was 

$150,000 and that such amount should be reduced by 40%, which 

was the jury determination of the percentage of negligence 

chargeable to Maryanns. In its order refusing to reduce the 

award, the District Court considered the special 

interrogatories and the instructions, and in particular 

Instruction No. 35. The Court concluded that because of the 

wording of the latter portion of Instruction 35, which 

provided that damage ahlowed shall be diminished in 

proportion to the amount of negligence attributable to the 

party recovering, the jury may have considered both the 

instruction and the interrogatory and diminished the damages 

when it fixed a figure of $150,000. In pertinent part, the 
interrogatories which were completed by the jury were as 

follows: 

"On the defendant's counter-claim against the 

plaintiff you will answer the following 

interrogatories: 

"INTERROGATORY NO. 2.: Did you find that the 

plaintiff actually or impliedly represented to the 

defendants that it would loan sufficient funds to 

make the downpayment to Katherine Hunsaker [Ragen] 

for the purchase of the Townsend store? (mark one) 

Yes X No 

"If your answer is "yes," answer the following 

interrogatories. 

"INTERROGATORY NO. 3.: Was the plaintiff's 

representation intentional or an act of negligence? 

(mark one) 

Intentional Negligent X 

"INTERROGATORY NO. 6. : Were the defendants guilty 

of negligence? (mark one) 

Yes X No 

"INTERROGATORY NO. 7.: If your answer to 

Interrogatory No. 6 is "yes," of what percentage 

out of 100% are the defendants guilty? 

"INTERROGATORY NO. 8. : What is the full amount of 

defendant's compensatory damages? 

Amount - $ 150,000 

In addition to the foregoing special interrogatories, the 

District Court gave an instruction on contributory 

negligence: 

"INSTRUCTION NO. 35 

"You are instructed that the laws of the State of 

Montana provide that contributory negligence shall 

not bar recovery in an action by any person or his 

legal representative to recover damaqes for 

negligencg resulting in death or injury go person 

or property, if such negligence was not greater 

than the negligence of the person against whom the 

recovery is sought, but any damage allowed shall be 

diminished in proportion to the amount of 

negligence attributable to the person recovering. 
Contributory negligence is not a defense to a 

willful wrongdoing." (underscoring added) 

In considering the motions of the Bank seeking a 

reduction of the $150,000 damage figure, the District Court 

was presented with juror affidavits by counsel for Maryanns. 

Relying on Harry v. Elderkin Mont. I 

809, 38 St.Rep. 2076, the District Court refused to consider 

the jurors' affidavits, which had been filed by the 

defendants with the aim of explaining the jurors1 viewpoint 

of the damage award. We affirm the holding of the District 

Court with regard to juror affidavits. The following 

statements from Harry are pertinent: 

"Montana law on the use of juror testimony and 

affidavits upon an inquiry into the validity of the 

verdict is concisely summarized by Rule 606(b), 

Montana Rules of Evidence as follows: 

"'Inquiry into validity of verdict or indictment. 

Upon an inquiry into the validity of a verdict or 

indictment, a juror may not testify as to any 

matter or statement occurring during the course of 

the jury's deliberations or to the effect of 

anything upon his or any other juror's mind or 

emotions as influencing him to assent or dissent 

from the verdict or indictment or concerning his 

mental processes in connection therewith. Nor may 

his affidavit or evidence of any statement by him 

concerning a matter about which he would be 

precluded from testifying be received for these 

purposes." Mont. at , 637 P.2d at 813, 

38 St.Rep. at 2079. 

There are exceptions set forth in Rule 606(b) which are not 

pertinent. Juror affidavits are useable where external 

influences have been exerted upon a jury or where extraneous 

prejudicial information is brought to the jurors1 attention. 

In holding that affidavits are not admissible to prove the 

thought processes of the jurors, this Court stated: 

"Here, the juror affidavit reflects the foreman's 

belief that the jury did not understand the 

instructions on contributory negligence, 

comparative negligence and mitigation of damages. 

This case falls into the category of cases 

involving internal influences on the jury. We hold 

that the District Court abused its discretion in 

granting a new trial on the basis of a juror 
affidavit which purports to impeach the verdict by 

delving into the thought processes of the jurors." 

Harry, Mont. at- , 637 P.2d at -813, 38 

St.Rep. at 2080. 

We hold in this case that it would be improper to consider 

the juror affidavits to delve into the thought processes of 

the jurors in connection with the completion of the special 

interrogatories. 

After careful consideration of Instruction 35 and the 

other instructions, as well as the special interrogatories, 

we have concluded that the law of the case as contained in 

the instructions and interrogatories is so inherently 

contradictory and confusing that a new trial is required in 

justice to both the plaintiff and defendants. As pointed out 

by the District Court, the latter portion of Instruction 35 

can be interpreted as instructing the jury that any damages 

allowed to Maryanns shall be diminished in proportion to the 

amount of negligence attributable to Maryanns, even though 

Interrogatory No. 8 asks that the jury determine the "full 

amount of defendants' compensatory damages." We find it 

impossible to determine which standard the jury should have 

applied or did apply. This confusion is compounded by the 

placement of Interrogatory No. 8, asking the determination of 

the compensatory damages, immediately after Interrogatory No. 

7, which covers the percentage of negligence on the part of 

the defendant. This confusion is enhanced by the reference 

in Instruction No. 35 to "negligence resulting in death or 

injury to person or property." Obviously this was an 

instruction prepared for a different type of case than the 

present case, which does not involve either death or injury. 

In addition the failure to carefully instruct on negligent 

misrepresentation as distinguished from fraudulent 
misrepresentation is demonstrated in the first paragraph of 

Instruction No. 24, to which the Bank did object: 

"In this action defendants and counter-claimants, 

Arlo Weston and Maryanns, Inc., seek to recover 

damages they claim they sustained as a result of 

negligent and fraudulent misrepresentations made by 

the Bank . . ." 

The remainder of the instruction sets forth the elements of 

negligent misrepresentation. The initial sentence only 

muddies the clear legal distinction between fraudulent 

misrepresentation and negligent misrepresentation. 

In a similar manner, Instruction No. 36 makes reference 

a number of times to the injuries to the defendant and 

plaintiff's negligence as a proximate cause of the injuries 

to the defendant, raising the probability of confusion on the 

part of the jury in considering the instructions. 

Initially the District Court concluded that it was the 

function of the judge to apportion damages depending upon the 

percentage determined by the jury. Because of the confusion 

resulting from the interrogatories and instructions, the 

District Court subsequently reversed that conclusion. 

We are not able to determine what the iury was 

instructed to do by virtue of the interrogatories and 

instructions, nor are we able to determine what the jury 

actually did. In the absence of adequate objections of 

record, we have concluded that this Court may apply the 

"plain error" doctrine under which we consider questions 

raised for the first time on appeal if the existing error 

affects the substantial rights of the parties. Halldorson v. 

Halldorson (1977), 175 Mont. 170, 573 P.2d 169. In this case 

both parties have a substantial right to instructions which 

correctly set forth a legal basis for the assessment of 

damages, as well as an understandable method of computing the 

amount of such damages. 
Rule 51, M.R.Civ.P., does provide that no party may 

assign as error the failure to instruct on a point of law 

unless he offers an instruction thereon, and this Court 

frequently has refused a review on that basis. Nevertheless, 

this Court will consider whether parties have been denied 

substantial justice by the trial court. As stated in 

McAlpine v. Midland Elec. Co. (1981), Mont . , 634 

"Normally, the party complaining of error must 

stand or fall upon the ground relied upon in the 

trial court and objections which are urged for the 

first time on appeal will not be considered by this 

Court. Bower - v. Tebbs (1957), 132 Mont. 146, 160, 

314 P.2d 731, 739. Nevertheless, this Court has a 

duty to determine whether the parties before it 

have been denied substantial justice by the trial 

court. This Court can, within its sound 

discretion, consider whether the trial court has 

deprived a litigant of a fair and impartial trial, 

even if the parties ignored the mandate of a 

statute or an established precedent." 

To the same affect is our holding in Kudrna v. Comet Corp. 

(1977), 175 Mont. 29, 51, 572 P.2d 183, 195: 

"By this decision this Court is not repudiating the 

sound rules of practice which require timely, 

specific objections to instructions and the full 

presentation of issues for review on appeal. On 

the facts having carefully reviewed the entire 

record, we hold that a serious error which appears 

on the face of that record is reviewable, although 

not presented by the parties." 

Our holding is consistent with the holding in Black v. 

Stephens (3rd Cir. 1981), 662 F.2d 181, cert. denied -- sub nom. 

Stephens v. Black (1982), 455 U.S. 1008, 102 S.Ct. 1646, 71 

L.Ed.2d 876, in which the Circuit Court explained the problem 

with regard to Rule 51 and failure to object and reached a 

conclusion which we specifically approve: 

"It is true that Rule 51 of the Federal Rules of 

Civil Procedure provides that '[nlo party may 

assign as error the giving or the failure to give 

an instruction unless he objects thereto before the 

jury retires to consider its verdict, stating 

distinctly the matter to which he objects and the 

grounds of his objection.' . . . In [City of 

Newport v. Fact Concerts, Inc. (1981), 453 U.S. 
247, 101 S.Ct. 2748, 69 L.Ed.2d 6161, the Supreme 

Court recognized that the purpose of Rule 51 is to 

encourage counsel to correct errors in the judge's 

charge before the trial ends, while these errors 

can still be rectified. The Rule seeks to avoid 

situations in which an error in jury instructions 

would necessitate a new trial, one that could have 

been prevented had the error been brought to the 

judge's attention before jury deliberations began. 

"'Although generally jury instructions will not be 

reviewed on appeal if they were not objected to at 

trial, we have the discretion to review 

instructions sua sponte if the error is fundamental 

and highly prejudicial . . . and our failure to 

consider the error would result in a miscarriage of 

justice.'" 662 F.2d at 206-07. 

We also find an inherent error in the instructions and 

special interrogatories as submitted to the jury. This 

question was analyzed by Justice Sheehy in his dissent in 

Harry v. Elderkin, supra. The special interrogatories and 

instruction in Harry v. Elderkin are directly comparable to 

the above-quoted interrogatories and instruction. As pointed 

out by Justice Sheehy, the error arose because the District 

Court submitted a special verdict without an instruction 

telling the jury how to use the special verdict. In this 

case, Instruction No. 35 does conflict with the directions 

contained in the special verdict. On retrial, should the 

question arise, an instruction similar to that set forth in 

the Harry v. Elderkin dissent properly could be used. 

Because we are sending the case back for a new trial, it 

is appropriate that we comment upon the issue of negligent 

misrepresentation. We approve the definition of negligent 

misrepresentation as contained in Restatement (Second) of 

Torts S552: 

'IS 552. Information Negliqently Supplied -- for the 

Guidance - of Others 

"(1) 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 communicating the information. 

" (2) Except as stated in Subsection (3), the 

liability stated in Subsection (1) is limited to 

loss suffered 

(a) by the person or one of a limited group of 

persons for whose benefit and guidance he intends 

to supply the information or knows that the 

recipient intends to supply it; and 

(b) through reliance upon it in a transaction that 

he intends the information to influence or knows 

that the recipient so intends or in a substantially 

similar transaction. 

In considering the definition, we find the following 

comment by the authors of the Restatement to be applicable: 

"The liability stated in this Section is likewise 

more restricted than that for fraudulent 

misrepresentation stated in § 531. When there is 

no intent to deceive but only good faith coupled 

with negligence, the fault of the maker of the 

misrepresentation is sufficiently less to justify a 

narrower responsibility for its consequences. 

"The reason a narrower scope of liability is fixed 

for negligent misrepresentation than for deceit is 

to be found in the difference between the 

obligations of honesty and of care, and in the 

significance of this difference to the reasonable 

expectations of the users of information that is 

supplied in connection with commercial 

transactions. Honesty requires only that the maker 

of a representation speak in good faith and without 

consciousness of a lack of any basis for belief in 

the truth or accuracy of what he says. The 

standard of honesty is unequivocal and 

ascertainable without regard to the character of 

the transaction in which the information will 

ultimately be relied upon or the situation of the 

party relying u.pon it. Any user of commercial 

information may reasonably expect the observance of 

this standard by a supplier of information to whom 

his use is reasonably foreseeable. 

"On the other hand, it does not follow that every 

user of commercial information may hold every maker 

to a duty of care. Unlike the duty of honesty, the 

duty of care to be observed in supplying 

information for use in commercial transactions 

implies an undertaking to observe a relative 

standard, which may be defined only in terms of the 

use to which the information will be put, weighed 

against the magnitude and probability of loss that 
might attend that use if the information proves to 

be incorrect. A user of commercial information 

cannot reasonably expect its maker to have 

undertaken to satisfy this obligation unless the 

terms of the obligation were known to him. Rather, 

one who relies upon information in connection with 

a commercial transaction may reasonably expect to 

hold the maker to a duty of care only in 

circumstances in which the maker was manifestly 

aware of the use to which the information was to be 

put and intended to supply it for that purpose. . . 

"Since the rule of liability stated in Subsection 

(1) is based upon negligence, the defendant is 

subject to liability if, but only if, he has failed 

to exercise the care or competence of a reasonable 

man in obtaining or communicating the information. 

(See $5 283, 288 and 289). What is reasonable is, 

as in other cases of negligence, dependent upon the 

circumstances. It is, in general, a matter of the 

care and compentence that the recipient of the 

information is entitled to expect in the light of 

the circumstances and this will vary according to a 

good many factors. The question is one for the 

jury, unless the facts are so clear as to permit 

only one conclusion." S552 (comment) at pp. 

127-30. 

The Bank contends that the District Court erred in 

refusing its proposed instructions on the application of the 

statute of frauds. The Bank argues that there was no ability 

on the part of the defendants to make the payment of the 

claimed amount within one year and that section 

28-2-903 (1) (a), MCA applied. The evidence does not support 

this contention. While the jury did find that the Bank 

actually or impliedly represented that it would loan 

sufficient funds to make the down payment for the purchase of 

the Townsend store, the evidence does not disclose any terms 

of an agreement for payment. In the absence of evidence 

showing that the agreement could not be performed within one 

year, the statute of frauds is not applicable. 

While the evidence does appear sufficient to support the 

verdict of negligent misrepresntation and the finding of 

damages to the defendant, such conclusion is based upon the 

contradictory and incomplete instructions with regard to 

negligent misrepresentation. We therefore d.o not 
specifically rule on the sufficiency of such evidence in the 

absence of adequate and complete instructions on the law of 

the case. 

The bank contends that it was error to admit Maryanns' 

Exhibit "AA" into evidence. The exhibit was prepared by a 

certified public accountant who had many years of experience 

and had handled the Maryanns store in Bozeman and other 

communities. He was tkoroughly familiar with the business 

operations and with profits and losses and his testimony 

regarding anticipated net income formed the basis for Exhibit 

"AA", a ten-year forecast of earnings. Instruction No. 29 

detailed the claimed elements of defendants' damages and in 

part stated: 

"Defendants and counter-claimants claim in this 

action that the Bank and its officers have, as a 

direct and proximate result of their false, 

negligent, fraudulent and wrongful acts and 

omissions, caused counter-claimants, Arlo Weston 

and Maryanns, Inc., damages in the amount of One 

Million Dollars ($1,000,000,00) . This, as claimed 

by counter-claimants, is for loss of the clothing 

store in Townsend (including inventory and fixtures 

owned by them) and for profits they might 

reasonably have expected to enjoy from the 

operation of said store for the next 10 years; for 

the causing of the rescission, by Kathern Ragen, of 

her contract to sell the store building to 

counter-claimants; for damage to the reputation and 

credit rating of counter-claimants with the general 

public, and. more particularly with Banks, business 

establishments and. wholesalers; and also for the 

subsequent closing of the Bozeman store, as a 

result thereof." 

In addition, Instruction No. 33 was given by the court 

regarding damages: 

"Damages are recoverable for losses caused or for 

profits and other gains prevented by the breach 

only to the extent that the evidence affords a 

sufficient basis for estimating their amount in 

money with reasonable certainty. Damages which are 

a matter of mere speculation cannot be the basis of 

recovery. Recovery cannot be denied for damages 

simply because they are difficult to ascertain." 
The instructions adequately establish a standard for 

computing damages with reasonable certainty. This answers 

the Bank's argument regarding lost profits. 

There is substantial evidence to support the elements of 

damages in Instruction No. 29. The testimony of the 

certified public accountant and the testimony that the 

Westons invested between $80,000 and $95,000, together with 

evidence regarding the rescission of the Ragen contract, 

damage to reputation and credit rating, and subsequent 

closing of the stores, all afford an adequate basis for the 

conclusions of the jury. We hold that Exhibit "AA" was 

properly admitted. 

We reverse the judgment of the District Court and remand 

We concur: 

. Chief Justice 

- 

Justices 

Mr. Justice Daniel J. Shea will file a separate opinion later.