No. 87-259 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1988 

MOATS TRUCKING COMPANY, INC., 

a Montana Corporation, LLOYD 

MOATS and LUCILE MOATS, 

Plaintiffs and Appellants, 

GALLATIN DAIRIES, INC., 

a Montana Corporation, 

Defendant and Respondent. 

APPEAL FROM: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin 

The Honorable Joseph B. Gary, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Lyman H. Bennett, 111; Morrow, Sedivy and Bennett, P.C. 

Bozeman, Montana 

For Respondent: 

Berg, Coil, Stokes and Tollefsen, Bozeman, Montana 

Michael Cok; Cok and Wheat, Bozeman, Montana 

Submitted on Briefs: March 18, 1988 

Decided: May 31 1988 

Clerk 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

Plaintiff Moats Trucking Company appeals from a jury 

verdict from the District Court, Eighteenth Judicial 

District, Gallatin County. The plaintiff brought this action 

against the defendent alleging breach of contract as well as 

breach of the covenant of good faith and fair dealing arising 

out of a termination of an oral agreement. The jury returned 

its verdict in favor of the defendant and awarded no damages. 

From this judgment, plaintiff appeals. We affirm. 

Moats Trucking Company presents the following issues for 

our review: 

1. Did the District Court err in refusing to admit 

evidence pertaining to the issue of mental and emotional 

distress suffered by Lloyd and Lucille Moats? 

2. Did the District Court err in ruling that Keith 

Nye's testimony was not hearsay? 

3. Did the District Court err in denying plaintiffs a 

new trial as the verdict reached by the jury was contrary to 

the law? 

In 1956, the plaintiff Lloyd Moats began hauling milk 

for the defendant Gallatin Dairies, Inc. (Gallatin) . Moats ' 

relationship with the dairy was that of an independent 

contractor. As time passed, Gallatin's operation increased 

in size. Moats Trucking Company also expanded in order to 

meet Gallatin's hauling needs. No written agreement was ever 

entered into between Moats and Gallatin. 

In 1970, Lloyd Moats and his wife, Lucille, incorporated 

their trucking business and formed Moats Trucking Company 

(MTC). Lloyd and Lucille Moats were the directors and sole 
stockholders of MTC. MTC continued to do the hauling for 

Gallatin. 

The rising cost of fuel in the late 1970's resulted in 

problems for both Gallatin and MTC. MTC requested five 

separate rate increases from Gallatin during the period 

between 1978-1981. The increased transportation costs 

resulted in reduced profits prompting Gallatin's board of 

directors to investigate ways of reducing the operating 

budget. At that time, the defendant's Montana hauling was 

being done by two companies. MTC was responsible for the 

Gallatin valley as well as the Spokane run and Milky Way 

Trucking covered the western Montana region for Gallatin. 

In fall, 1981, Gallatin leased its own tractor-trailer 

and took over KTC's Spokane run. The Spokane run was 

terminated on 30 days notice without any objection by MTC. 

As a result of doing its own hauling to Spokane, Gallatin 

realized significant savings. Subsequent to assuming the 

Spokane run, Gallatin's board of directors reviewed all of 

Gallatin's transportation costs. 

In 1982, Gallatin requested that MTC submit a bid 

covering Gallatin's entire transportation needs. MTC did not 

object to submitting a bid and did submit a bid. Upon review 

of the bids, Gallatin decided to lease its own trucks and 

assume the plant-to-market hauling in the Gallatin valley. 

At this same time, Gallatin terminated MTC's Gallatin valley 

agreement on 49 days notice and gave MTC the western Montana 

routes previously handled by Milky Way. The oral agreement 

became effective April 1, 1982. The duration of the 1982 

agreement has been the subject of intense dispute between the 

litigants. After the new contract had been negotiated MTC 
borrowed a significant amount of money to improve its 

operation. 

In March, 1983, Lloyd Moats met with Gallatin's board of 

directors and requested that MTC be granted another rate 

increase. Moats brought documents which suggested that MTC 

could not stay solvent operating under the 1982 agreement. A 

new rate increase was negotiated and granted. This agreement 

became effective April 1, 1983. 

In May, 1983, Gallatin's board of directors again met to 

look into alternative means by which to reduce transportation 

costs. The board concluded that it could save a significant 

amount of money by doing its own hauling. 

Because of the significant savings available, Gallatin 

decided to terminate the contract with MTC and lease the 

equipment and vehicles necessary to do its own hauling. Once 

the leased equipment arrived at Gallatin, MTC was notified 

that its agreement with Gallatin was terminated. Gallatin 

gave MTC 48 days notice of termination. MTC did not object 

to the termination or the notice. 

MTC brought this action alleging that the defendants 

were liable for breach of contract and for breach of the 

covenant of good faith and fair dealing. The action was 

tried before a jury in Gallatin County. The jury returned a 

verdict in favor of the defendant and awarded no damages. 

The District Court denied MTC's motion for a new trial. MTC 

appeals from the judgment entered by the court and from the 

order of the court denying plaintiffs' motion for a new 

trial. 

MTC maintains that the District Court should have 

permitted Lloyd and Lucille Moats to present their claim for 

damages for pain, suffering, mental anguish and anxiety to 
the jury. MTC further contends the District Court compounded 

this error by refusing to grant a new trial on this issue. 

We find the contrary to be true. 

In Malcolm v. Stondall Land Co. (1955), 129 Mont. 142, 

145, 284 P.2d 258, 260, this Court stated the general rule 

regarding a stockholder's personal right to sue in the 

corporation's cause of action: 

. . . As a general rule stockholders may not sue 

upon a cause of action belonging to their 

corporation whether in their own names or in the 

name of the corporation itself. 

In Malcolm, this Court addressed for the first time the 

issue of whether individual shareholders who control all of 

the stock of the corporation may disregard the corporate 

entity and sue as individuals on the corporation's cause of 

action. We held that such individual shareholders do not 

have the right to pursue an action on their own behalf when 

the cause of action accrues to the corporation. Malcolm, 129 

Mont. at 146, 284 P.2d at 260. 

MTC suggests that a "reverse piercing of the corporate 

veil'' should be allowed and that Lloyd and Lucille Moats 

should be allowed to bring an action for emotional distress 

on their own behalves. Reverse piercing of the corporate 

veil for the benefit of the shareholders would allow persons 

who have incorporated to invoke the corporate entity only 

when it would be to their advantage. 

Under Montana law, it is well settled that a corporation 

has a separate and distinct identity from its stockholders. 

Wortman v. Griff (1982), 200 Mont. 528, 534, 651 P.2d 998, 

1001; Monarch Fire Insurance Co. v. Holmes (1942), 113 Mont. 

303, 124 P.2d 994. In the present case, the oral agreement 

which is the center of the controversy was between MTC and 
Gallatin Dairies. It is MTC, not Lloyd and Lucille Moats, 

who is the real party in interest in the case at bar. 

Rule 17(a), M.R.Civ.P. provides in pertinent part: 

"Real Party - In Interest. Every action shall be prosecuted in 

the name of the real party in interest." 

The argument of Lloyd and Lucille Moats that as sole 

shareholders of the corporation, their claims for mental and 

emotional distress should have been submitted is moot. The 

jury found in favor of the defendant on liability. 

We hold that the District Court acted appropriately in 

refusing to allow Lloyd and Lucille Moats to present evidence 

relating to mental and emotional distress. 

MTC next contends that the District Court erred in 

ruling that Keith Nye's testimony pertaining to Gallatin's 

rationale for giving MTC less than two months notice of 

termination was not hearsay. We affirm the ruling of the 

District Court. 

MTC alleged that Gallatin's conduct in terminating the 

oral agreement with MTC upon only 48 days notice was 

unreasonable and constituted a breach of the implied covenant 

of good faith and fair dealing. In order to rebut MTC's 

contention, Gallatin's general manager Keith Nye testified as 

to their reasons for giving only 46 days notice of 

termination to MTC. In the course of Nye's testimony, he was 

asked why Gallatin did not immediately inform MTC of 

Gallatin's decision to terminate the hauling agreement. In 

response to the question, Nye alluded to a conversation that 

had taken place between himself and Dan Smith, one of 

Gallatin's employees. MTC objected to such testimony as 

hearsay. The District Court discussed the matter in 

chambers, wherein it was informed as to the content of Nye's 
testimony. Nye proposed to testify that Smith had informed 

him of a conversation between Smith and Moats which occurred 

during a prior dispute between Gallatin and MTC. In that 

conversation Moats told Smith that he was through hauling for 

Gallatin and that MTC would cease hauling immediately. 

After listening to the arguments of both counsel, the 

District Court ruled that such testimony was not hearsay. As 

it was offered not to prove the truth of the matter asserted 

(that MTC would immediately refuse to haul any milk upon 

being given notice of termination) but for the purpose of 

showing that the statement was made and the resulting effect 

on Nye's state of mind. Before allowing the disputed 

testimony to be introduced, the District Court admonished the 

jury that Nye's testimony relating to his conversation with 

Smith was admitted only for the purpose of showing that the 

statements were made, not for the truth of the statements. 

Rule 801 (c) , M.R.Evid. provides the definition of 

hearsay. 

(c) Hearsay. Hearsay is a statement, other than 

one made by the declarant while testifying at the 

trial or hearing, offered in evidence to prove the 

truth -- of the matter asserted (Emphasis added.) 

The District Court correctly determined Nye's testimony 

did not fit within the parameters of the Rule 801(c) 

definition of hearsay. Nye's testimony regarding the 

statements made to him by Smith to the effect that MTC would 

immediately stop hauling if Gallatin terminated the 

agreement, were not offered to prove the truth of the matter 

asserted. Rather, the statement was made to show the 

resulting effect on Nye's state of mind, to show why Gallatin 

reacted as it did and why it waited until it had the leased 
trucks on hand before informing MTC that the agreement was 

being terminated. 

This Court addressed a situation similar to the one at 

hand in Brown v. Homestake Exploration Corp. (1934), 98 Mont. 

305, 39 P.2d 168, which involved an action for breach of 

contract. In Brown, a witness (A) was permitted over a 

hearsay objection to testify about a conversation that he had 

with another party (B). The substance of the conversation 

concerned another conversation that (B) had with yet another 

party (C). The testimony was permitted not for the purpose 

of proving the truth of the matter asserted in the various 

statements but to show that those statements were made and 

relied on by the testifying witness. Brown, 98 Mont. at 

Wherever an utterance is offered to evidence the 

state of mind which ensued in another person in 

consequence of the utterance, it is obvious that no 

assertive or testimonial use is sought to be made 

of it, and the utterance is therefore admissible, 

so far as the hearsay rule is concerned. 

Brown, 98 Mont. at 340, 39 P.2d at 179-180, quoting Wigmore 

on Evidence (2d ed.) 5 1789. See also Wallace v. wallace 

(1929), 85 Mont. 492, 279 P. 374. Nye's testimony was 

properly admitted by the District Court. 

Lastly, MTC contends that the District Court erred in 

denying a new trial because the verdict reached by the jury 

was contrary to law. We think otherwise. 

MTC1s contention is predicated upon two of the District 

Court's jury instructions. The court's instruction no. 13 

provided : "You are instructed that a contract may be oral 

and not in writing." 

The court's instruction no. 15 was given as follows: 
You are instructed that where an agreement contains 

no provision for its termination and one party to 

said agreement furnishes a consideration in 

addition to just providing the service, the 

agreement may be terminated only after a reasonable 

time has lapsed and reasonable notice of 

termination is given. 

MTC maintains that the jury's verdict evidences a 

disregard of the jury instructions and further is contrary to 

Montana law. MTC submits that in view of the relationship 

between MTC and Gallatin and in light of the fact that MTC 

had made substantial investments of time and money in its 

trucking business in order to provide for Gallatin's needs, 

the jury abused its discretion in finding 48 days notice of 

termination was reasonable. 

In Bronken's Good Time Co. v. J. F7. Brown (1983), 203 

Mont. 427, 661 P.2d 861, this Court specifically addressed 

the issue of who determines what constitutes a reasonable 

period of time under the circumstances of the case. We held: 

As to what is a reasonable period of time in a 

given situation, we will defer to the judgment of 

the trier of fact. Absent an abuse of discretion, 

this Court will not interfere. 

Bronken, 203 Mont. at 432, 661 P.2d at 864. 

There was sufficient evidence in the record to support 

the jury's findings and determinations. There is nothing in 

the record to suggest that an abuse of discretion occurred on 

the part of the jury. As such, we defer to the judgment of . - --, 

the trier of fact and will not 

,, Justice 

We Concur: tJ