NO. 91-020 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1991 

BRUCE SCOTT, 

Plaintiff and Appellant, .,-. , ..,, 

-vsEAGLE WATCH INVESTMENTS, INC., i, r. 

a Montana Corporation, and PETER BOUMA, !-LC .;c,j (?.{ 

'"j 

Defendants and Respondents. 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Missoula, 

The Honorable John S. Henson, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

P. Mars Scott: Mulroney, Delaney & Scott, Missoula, 

Montana. 

For Respondents: 

Edward A. Murphy; Datsopoulos, MacDonald & Lind, 

Missoula, Montana. 

Submitted on Briefs: October 31, 1991 

Decided: December 19, 1991 

Filed: 
Justice John Conway Harrison delivered the Opinion of the Court. 

Appellant Bruce Scott (Scott) appeals from the judgment of the 

District Court of the Fourth Judicial ~istrict for Missoula County, 

Montana. The court held that Scott breached his oral employment 

contract and was properly terminated from his job as an athletic club 

manager, requiringhirntopayrespondent/employerPeterBourna (Bouma) 

$755.81 with interest. We affirm. 

The appellant takes issue with the District Court's Findings 

of Fact, Conclusions of Law, and Judgment almost in their entirety. 

We address only the following dispositive issues: 

I. Whether the District Court erred in concluding that an at 

will employment relationship existed between the parties. 

11, Whether the District Court erred in concluding that the 

employer did not breach the implied covenant of good faith and fair 

dealing when he terminated the employee. 

The history of this action spans nearly ten years and began 

sometimein1980whenBoumabeganresearchinginvestmentswhichwould 

provide him with tax advantages. Bauma became aware of a defunct 

athletic club located east of Missoula and considered it a potential 

investment. Through conversations with Scott, Bouma became acquainted 

with Scott's previous involvement with a Missoula tennis club known 

as Garden City Racket Club which failed after only three months of 

operation in early 1980. The two men began informal talks about the 

possibility of opening a full service athletic club (The Club) at 

the site of the defunct athletic club east of Missoula. They made 

inquires with financing entities and researched the existing liens 

2 
on the property. Bouma and Scott toured other athletic clubs in the 

State of Montana. Bouma also traveled to Spokane, Washington to 

observe another athletic club operation. 

Bouma contributedapproximately $787,000 in capital to purchase 

The Club. He pledged the necessary collateral to obtain financing. 

Although Scott contributed his past experience in the area of tennis 

andwiththe failedGardenCityRacket Club, hecontributednocapital 

to the venture. 

As the venture began to materialize, Bouma and Scott discussed 

the idea that Scott become the general manager of The Club. The 

parties met at various times and drafted an employment agreement. 

Both parties acknowledged that various parts of the agreement were 

not acceptable and consequently they did not sign the agreement. 

Although the agreement remained unsigned, the parties made compensation 

arrangements which involved splittingthemonthly net profits ofthe 

operationafter some adjustments suchas depreciation. Additionally, 

the parties agreed that Scott would act as the general manager in 

charge of operations on a day-to-day basis, monitoring all aspects 

of The Club. 

In preparation of the venture, both parties worked in various 

capacities to accomplish everything necessary to open The Club. 

Construction plans were made, approved and implemented; mechanics 

liens were removed; zoningproblems were addressed; a staff was hired; 

a promotional campaign was initiated; and equipment was purchased. 

On December 15, 1981, The Club membership roster immediately 

filledto capacitywithapproximately 1,200 members, and the facility 
opened on January 15, 1982. With such a large turnout the parties 

employed the Dobbins accounting firm to compile monthly financial 

statements and help in the billing process. The record indicates 

that due to the volume of financial transactions various problems 

were encountered with the financial records especially since all 

transactions were initially handled manually at The Club. 

Bouma and Scott met on a regular basis to discuss the progress 

of The Club and work out problems. Bouma, who was financially at 

risk forthe venture, was understandably interested in the financial 

elements of The Club. Bouma requested basic financial information 

from Scott such as the amount of accounts payable and receivable. 

Although Scott was the on site general manager in charge of the 

employees who handled the income and expenses of The Club, Scott 

continually referred Bouma to the Dobbins firm and simply presented 

Theclub's financial pictureas positive. Scottdidnotprovide Bouma 

with even the most basic list of accounts payable and receivable as 

requested. 

Bouma later became aware of other problems at The Club such as 

lack of cleanliness, an unauthorizedgiftofa free lifetimemembership 

(which was not discovered until after Scott's termination), and lack 

of policy development. He also learned of an unpaid invoice when 

a supplier contacted him at home indicating that delivery would be 

suspended unless the account was brought current. Bouma became 

increasingly frustrated with Scott's performance, particularly in 

the financial area. In view of Bouma's investment and Scott's 

performancedeficiencies, Boumaconsideredterminationbutpostponed 
such action pending a financial report from the Dobbins firm. 

On June 13, 1982, Bouma made an appointment with Scott for the 

following day to assure his availability. That same day, Scott went 

to see Bouma and stated that The Club's bills were paid and there 

wasmoney in The Club's checking account. The next day Bouma acquired 

the financial report from the Dobbins firm which confirmed that The 

Club's bank account was overdrawn, numerous outstanding accounts 

payable existed, and that Scott had taken two cash withdrawals 

totalling approximately $13,000. In view of Scott's performance 

deficiencies, Bouma terminated him that day. Due to the financial 

state of The Club, Bouma borrowed an additional $25,000 to meet 

existing operating expenses. 

Scottinitiated suit on a variety of theories requesting monetary 

relief including punitive damages, but primarily seeking damages of 

$720,000 in lost profits due to his termination. The District Court 

found that Scott was an at will employee and that Scott breached the 

oral employment agreement. The court also found that Bouma was 

justified in terminating Scottand ordered Scottto pay Bouma $755.81 

plus interest to compensate Bouma fordraws Scotttook as over-payment. 

STANDARD OF REVIEW: 

The trier of fact is in the best position to hear the testimony 

and observe the witnesses and their demeanor, therefore, on appeal, 

we will not overturn the findings of fact unless they are clearly 

erroneous. Morin v. Mapston (1985), 217 Mont. 403, 407, 705 P.2d 

118, 120; Rule 52(a), M.R.Civ.P. "Particularly where credibility 

of witnesses is involved, we give great weight to fact-findings of 
a district court." Morin, 217 Mont. at 407, 705 P.2d at 120. We 

will not overturn the conclusions of law unless they are incorrect. 

Steer, Inc. v. Dept. of Revenue (1990), 245 Mont. 470, 474, 803 P.2d 

601. 603. 

ISSUE I. Did the District Court err when it found that an at will 

employment relationship existed between the parties. 

Today, the concept of at will employment or the "employment at 

will rule" is deceptively simple. The employment at will rule has 

been defined as follows: when "an employer may dismiss an at-will 

employee for a good reason, bad reason, or for no reason at all." 

Henry H. Perritt, Jr. , Emplovee Dismissal Law and Practice, p. 1 (2d 

ed. 1987). Montana has implemented protective devices through both 

the legislature and case law that operate to curb the harsh effects 

of the rule. Prout v. Sears (1989), 236 Mont. 152, 157, 772 P.2d 

288, 291 (decided on pre-Wrongful Discharge Act law and provides for 

four exceptions to the termination at will rule; also see Montana's 

Wrongful Discharge Act 55 39-2-901 et seq., MCA, enacted in 1987). 

These devices however do not obliterate the at will rule. Medicine 

Horse v. Trustees, Big Horn County School Dist. (No. 91-090, decided 

December 10, 1991), P. 2d -I - St.Rep. -. 

In the case at bar, the record indicates that while the parties 

met and contemplated a written employment agreement with a term of 

five years, a contract to that effect was never finalized. The parties 

each indicated that they wished to make various revisions to the 

agreement and therefore did not sign the agreement. Section 28-2- 
903 (1) (a), MCA (198l), states: 

The following agreements are invalid unless the same or 

some note or memorandum thereof is in writing and subscribed 

by the party to be charged or his agent: (a) an agreement 

that by its terms is not to be performed within a year from 

the making thereof; . . . 

We have previously stated that "[tlhe word 'invalid,' as employed 

in these statutes, means void; of no force or effect. Therefore the 

contract cannot be relied upon or furnish evidence for any purpose." 

Mahoney v. Lester (1946), 118 Mont. 551, 560, 168 P.2d 339, 343; citing 

Dreidlein v. Manger (1923), 69 Mont. 155, 163, 220 P. 1107, 1109. 

Here neither party signed the agreement committing them to a specified 

employment term. Therefore, under the facts of this case the agreement 

of employment is an at will employment relationship. 

ISSUE 11. Did the District Court err in concluding that Bouma did 

not breech the implied covenant of good faith and fair dealing when 

he terminated Scott. 

In Montana, termination of an at will employment relationship 

is governed by 3 39-2-503, MCA, which provides that "an employment 

havingno specifiedtermmaybeterminatedatthewillof either party 

on notice to the other. . . . 'I Supplementing this statute is our 

opinion of Crenshawv. Bozeman DeaconessHosp. (1984), 213 Mont. 488, 

693 P.2d 487, in which we said that an employer owes even a 

probationary employee a duty of good faith and fair dealing. In 

Crenshaw, we stated that "[e]mployers can still terminate untenured 

employees at-will and without notice. They simply may not do so in 

bad faith or unfairly without becoming liable for damages." Crenshaw, 
213 Mont. at 498, 693 P.2d at 492. 

With this in mind we look to the facts of the case at bar. First, 

Scott insists that the termination notification requirements set forth 

in the draft ofthe employment contract should be followed. However 

since the contract was never signed the provisions of the contract 

governingnoticearenotcontrolling. Instead, the notice requirements 

of g 39-2-503, MCA, are determinative; no prior notice is required. 

Gates v. Life of Montana Ins. Co. (1982), 196 Mont. 178, 185, 638 

P.2d 1063, 1067. In the case at bar, Bouma properly followed the 

notice requirement when he informed Scott that their employment 

relationship was terminated. 

Secondly, much is also made of whether The Club was profitable 

from its date of opening until Scott's termination, a period of about 

sixmonths. The parties hotly contestedthe profitability issue and 

numerous calculations with various inclusions and exclusions were 

presented at trial. The lack of profitability was again one of the 

written contract provisions under which Bouma could terminate the 

employment relationship. We have already stated that the contract 

provisions cannot control since they were not the final expression 

of the parties as evidenced by its lack of signatures. We take time 

to point out that the profitability of The Club was only one factor 

in Scott's termination. If the profitability issue was the sole reason 

for termination, we must look to the belief of the employer at the 

time of termination. If the termination was rooted in a mistaken 

belief, "[elven an honest, though mistaken, belief that the employer 

for legitimate business reasons had good cause for the discharge would 
negate bad faith." Heltborg v. Modern Machinery (1990), 244 Mont. 

24, 37-38, 795 P.2d954, 962; citing~ughv. See's Candies, Inc. (Cal. 

Important to the issue of bad faith in the case at bar, is that 

the record indicates that Bouma chose to terminate the at will 

employment relationship due to various deficiencies in Scott's 

performance. Accordingly, the District Court stated in Findings of 

Fact #33 that: 

[B] ouma began to questf on Scott more closely about payables, 

policies and money. Scott was nonresponsive and 

nonproductive. Often when Bouma went into the facility 

he would see Scott on the courts playing tennis. Bouma 

began to show his dissatisfaction with the way he was being 

put off, but Scott was either unconcerned about that or 

didnot recognize it. The formerisprobablythe case since 

a reasonable manager would know why his employer kept asking 

the questions and that his employer expected informed 

responses. Scott should have been prepared to give the 

information that Bouma wanted. Boumals requests were 

reasonable and confined to the things that a person with 

overall responsibility for a business ought to know. 

Further, the ~istrict Court's ~onclusions of Law #7 follows the 

same train of thought : 

[Bouma] had fair and honest reasons to discharge Bruce Scott 

from employment. He was non-responsive when the employer 

made reasonable demands for information relating to the 

financial condition of the business. He failed to write 

and implement policies for the conduct of the business as 

requested by the employer. He made unauthorized draws of 

money. He jeopardized the business by withdrawing large 

sums of money for his own use when the funds were intended 

to act as working capital. He failed to fulfill his 

responsibilitiestosetupanaccountingsystem. He failed 

to maintain the level of cleanliness expected by the 

customers of the business. He allowed payables to go 

unpaid. Underhismanagement, membership levels declined. 

Under his management, the business ran out of cash. All 

of the foregoing happened in a five month period. Such 

events would give any employer a fair and honest reason 

to terminate a manager. 
Scott's own testimony supports the court's statements particularly 

with regard to the cash balances of The Club and the large draws taken 

by Scott. Scott acknowledgedthe progressively declining cash balance 

ofTheClubts checkingaccountandstatedthathemaintainedpossession 

of the checking register in his desk which he consulted "on a regular 

basis." Despite this knowledge, when The Club was only a few months 

old and cash flow streams were unproven and unpredictable, Scott took 

draws totalling over $13,000 in cash. Additionally, Scott testified 

that he was directly responsible for the information that went to 

the Dobbins firm, but declined to take responsibility for the 

information. Scottneglectedto monitor The Club's basic income and 

expenses and failed to obtain such information when requested. 

Further, Scott did not correct this performance problem which was 

critical especially for assessing the viability of a new business, 

and referred Bouma to the Dobbins firm. Section 39-2-404, MCA 

provides : 

[A]n employee must substantially comply with all the 

directions of his employer concerning the service on which 

he is engaged, except where such obedience is impossible 

or unlawful or would impose new and unreasonable burdens 

upon the employee. 

We conclude that obtaining a list of accounts payable and 

receivable frominvoices and checks receivedat The Club and reviewed 

by the manager was possible and within the capability of the general 

manager. Overall, Scott did not fulfill the basic functions of a 

general manager and Bouma honestly believed his interests were being 

mishandled. Boumatookstepstocorrecttheproblemandwasjustified 

in terminating Scott. Under the circumstances, the District Court 
did not err in concluding that Bouma did not violate the covenant 

of good faith and fair dealing when terminating Scott from the at 

will employment relationship. 

In the case at bar, we find that the court's Findings of Facts 

were supported by the record and were not clearly erroneous. The 

court also made correct Conclusions of Law. Therefore, we will not 

disturb the court's ruling. Affirmed. 

We concur: 
December 19. 1991 

CERTIFICATE OF SERVICE 

I hereby certify that the following order was sent by United States mail, prepaid, to the 

following named: 

P. Mars Scott 

Mulroney, Delaney & Scott 

P.O. Box 8228 

Missoula, MT 59807 

Edward A. Murphy 

Datsopoulos, MacDonald 21: Lind 

201 W. Main, Ste. 201 

Missoula, MT 59802 

ED SMITH 

CLERK OF THE SUPREME COURT 

STAT ONTANA