NO. 93-150

IN THE SUPREME COURT OF THE STATE OF MONTANA

1993

JEROME J. CATE and the CATE LAW

FIRM, P.C.,

APPEAL FROM: District Court of the Thirteenth Judicial District,

In. and for the County of Yellowstone,

The Honorable Maurice R. Colberg, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Robert L. Stephens, Jr., R.L. Stephens, P.C.,

Billings, Montana

For Respondent:

Gregory G. Murphy, Moulton, Bellingham, Longo &

Mather, Billings, Montana

Filed:

Submitted on Briefs: October 5, 1993

Decided: December 16, 1993
Justice Fred J. Weber delivered the Opinion of the Court.

This is an appeal from the Thirteenth Judicial District Court,

Yellowstone County, granting First Bank summary judgment on all

issues. We affirm.

Appellant appeals the District Court's grant of summary

judgment to First Bank. However, he only argues on appeal count

five of his complaint that alleges a breach of the covenant of good

faith and fair dealing. Therefore, we consider the following

issues on appeal:

1 . Did the District Court err in granting summary judgment to

First Bank on the issue of breach of the covenant of good faith and

fair dealing?

2 . Did the District Court err in failing to grant Gate's crossmotion for summary judgment concerning alteration of records?

Jerome 3. Cate (Cate) is a Billings attorney. In 1978, Cate

left Billings to accept a position with the Attorney General's

office. He returned to Billings five years later to once again

establish his practice. Cate began to borrow money from First Bank

in Billings (First Bank). Gate's initial loan was for $15,000 but

within two years the balance owed had escalated to $127,691.

During February of 1985, Cate signed a final promissory note

for the entire account balance payable in full by June 14, 1985.

The loan was to be paid by funds gained from a successful court

case. Sometime after the loan became past due, First Bank asked

Cate for additional verification that the case would be over soon.

The case was settled on September 17, 1985, and Cate paid the loan

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in full.

In November of 1985, Gate's office manager asked First Bank

whether it would lend the Cate firm additional funds. First Bank

informed the office manager that it would not lend Cate any more

money for the operation of his firm.

Two and one-half years later, on February 2, 1988, Cate

brought a six count complaint against First Bank alleging: (1)

breach of fiduciary duty: (2) breach of contract: (3) defamation of

credit: (4) breach of statutory duty: (5) breach of the covenant of

good faith and fair dealing; and (6) that the matters alleged in

counts one through five constituted wanton and malicious acts

entitling Cate to punitive damages. First Bank filed its answer on

February 19, 1988.

On March 14, 1990, First Bank filed a motion for summary

judgment. Several years passed with no action taken on the lawsuit

and on March 24, 1992, First Bank again moved for summary judgment.

Gate then filed a cross-motion for summary judgment in April of

1992, alleging that First Bank had altered his banking records,

causing liability on the part of First Bank as a matter of law and

that material issues existed precluding summary judgment.

The District Court issued its Order and Judgment on October

12, 1992. That order granted First Bank summary judgment on all

issues. Cate appeals this order.

Did the District Court err in granting summary judgment to

First Bank on the issue of breach of the covenant of good faith and

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fair dealing?

Cate argues that First Bank breached its covenant of good

faith and fair dealing by refusing to loan him additional money and

by altering its own bank records to bolster its decision not to

loan him such money. First Bank argues that once Cate paid the

overdue $127,691 loan in full, it had no obligation to loan him

additional funds. Further, contends First Bank, Cate presented no

evidence to the District Court concerning record-tampering. First

Bank argues that Gate never modified his initial complaint to add

a charge having to do with alteration of records and that letters

submitted on appeal from Gate's alleged expert cannot be considered

because they are not part of the record.

The District Court determined that no contract existed between

Cate and First Bank following Cate's payment of the overdue

$127,691 loan. According to the court, First Bank was under no

obligation to loan more money to Cate. Without a contract, the

court determined that First Bank did not breach the covenant of

good faith and fair dealing. The court determined that Cate had

not supplied it with any evidence to substantiate his claims of

alteration of bank records.

On review o:E a grant of summary judgment, we use the same

standard as that of the District Court. We determine whether the

moving party has presented evidence that no genuine issues of

material fact exist and also whether the moving party is entitled

to judgment as a matter of law. Rule 56(e), M.R.Civ.P.; McCracken

v. City of Chinook (1990), 242 Mont. 21, 788 P.2d 892. Once this

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burden has been satisfied, the non-moving party then has the

subsequent burden to demonstrate the presence of a genuine issue as

to some material fact. Peschel v. Jones (1988), 232 Mont. 516, 760

P.2d 51. The burden carried by the non-moving party must be met

with some precision. Duensing v. Traveler's Companies (1993), 257

Mont. 376, 849 P.2d 203.

Here, First Bank presented evidence that it had satisfied its

contract obligation to Cate and that Cate had paid the overdue

loan. The record indicates that the contract between Cate and

First Bank had been satisfied and that no subsequent contract had

been entered into. First Bank presented adequate law to support

its contention that it could not be guilty of a breach of the

covenant of good faith and fair dealing because no subsequent

contract existed between it and Cate. First Bank met its burden

and, therefore, the burden shifted to Gate to provide evidence that

issues of material fact existed with regard to Gate's claim of

breach of the covenant of good faith and fair dealing.

In order to recover on the theory of the implied covenant of

good faith and fair dealing, there must be an enforceable contract

to which the covenant attaches. Beaverhead Bar Supply, Inc. v.

Harrington (lPPl), 247 Mont. 117, 805 P.2d 560. Although Gate is

correct that the implied covenant is concerned with the

"justifiable expectations" of the parties, those expectations

concern the parties' responsibilities under the terms of a

contract:

The nature and extent of an implied covenant of good

faith and fair dealing is measured in a particular

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contract by the justifiable expectations of the parties.

Tresch v. Norwest Bank of Lewistown (1989), 238 Mont. 511, 514, 778

P.2d 874, 875-876 citing Nicholson v. United Pacific Ins. Co.

(1985) I 219 Mont. 32, 41-42, 710 P.2d 1342, 1348.

Cate cites Blame v. Nat'1 Bank of Miles City (1989), 238 Mont.

181, 776 P.2d 525, for the proposition that a contract breach is

not needed for the covenant to apply.

The Shiplets seek to distinguish this authority by noting

in Nicholson, we held a breach of contract was not a

prerequisite to a breach of the covenant, because the

implied covenant of good faith is not an obligation

arising from the contract itself. Nicholson, 710 P.2d at

1348. While this is true, we also stated the obliaation

imposed by the covenant is to act reasonably. Under this

standard, we have held the 'minimal reouirement' for

breach of the covenant is action by the defendant that is

'arbitrarv. caoricious or unreasonable. and exceeded

plaintiffs' justifiable expectation rthat the defendant

act reasonablvl.' (Emphasis added.)

Blame, 238 Mont. at 188. Cate then attempts to divorce the finding

of a breach of the covenant from a contract altogether. He argues

in essence that if he had "justifiable expectations" of continued

credit, he has proven a breach of the covenant. This is not true.

Those "justifiable expectations" must attach to a party's actions

within the confines of its duties under a contract. If there is no

contract, express or implied, concerning continued credit to Cate,

then there can be no "justifiable expectations" that are pertinent

here.

The Blome decision upon which Cate relies goes on to cite

evidence indicating that First Bank acted within the confines of

its responsibilities under the terms of its lender contracts.

Thus, Gate's use of Blame for his argument that all that is needed

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to find First Bank's breach of the covenant is his "justifiable

expectatio:ns" concerning future credit is a mischaracterization of

the law.

We a&o stated in Blome that:

Nothing in the evidence suggests anything more than a

day-to-day ormonth-to-month financing arrangement, based

upon a review of the financial condition of the borrowers

at the time the notes were executed and delivered.

Particularly, there is no indication in the Bank

memoranda or any oral evidence that the Bank did not

expect the notes to be paid when due nor any agreement

outside the notes for loans to the Blames when they

needed them, and without regard to the necessity of

repayment. (Emphasis added.)

Blame, 238 Mont. at 186, 776 P.2d at 528. The record before us

reflects banking circumstances similar to those that existed in

Blome. The facts in both cases indicate that the applicable notes

and contracts contained specific pay-back dates. Therefore, it was

a "justifiable expectation" on the part of both parties that the

borrowers would repay the loan on the due dates.

Cate has offered no evidence that a contract existed entitling

him to "justifiable expectations" of continued financing. He

stated in his own deposition that the bank officer with whom he had

discussed a future $250,000 line of credit, did not have the

authority to make such an agreement. There is no indication from

the depositions that First Bank's contract contains a provision for

future financing once the $127,691 loan amount was paid; thus, no

express contract existed concerning future loans. Further, there

is no evidence to suggest that First Bank's conduct implied a

future contract. The record contains no evidence of specific terms

that would indicate by First Bank's conduct that they had reached

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an agreement to continue the financial arrangements. See Section

28-2-103, MCA.

We conclude that because no contract, express or implied,

existed between Cate and First Bank to lend Gate additional sums of

money, there could be no breach of the covenant of good faith and

fair dealing. We hold that the District Court did not err in

granting summary judgment to First Bank on the issue of breach of

the covenant of good faith and fair dealing.

Did the District Court err in failing to grant Gate's cross-motion

for summary judgment concerning alteration of records?

Cate argues that he was familiar with First Bank comments on

his account sheets and that these comments had been changed. Cate

also argues that his office manager, Clyde Bonsack, testified

during his deposition that the records as produced by First Bank

are at variance with the policy and recollection of the officers in

connection with their normal preparation. Cate argues that had he

been permitted to introduce evidence from his expert, that evidence

would have corroborated First Bank's alteration of records.

First Bank argues that Cate attempted to have his expert added

to the list of witnesses a month after the deadline that the court

set for the presentation of expert witness lists for both parties.

First Bank protested this untimely addition, as it protested the

addition of other experts which Cate attempted to add several

months after the first attempt. According to First Bank, no law

exists that requires it to keep its records of loan comments in any
particular form or that prohibits any modification once the comment

is written. Further, First Bank argues that indications are that

Gate's expert would testify to the fact that several comments were

written on the same day as opposed to the dates listed for loan

transactions. First Bank contends that even if this is true, Cate

makes no connection between such activity and any "alteration" of

records or any impermissible activity on the part of First Bank.

The court stated in its October 14, 1992 order and memorandum

that no affidavits or other factual matters were included in the

file which would substantiate Gate's claim of alteration of

records.

Cate claims that genuine issues of material fact exist

concerning whether bank records were altered so that the court

erred in granting summary judgment to First Bank on the issue of

the implied covenant of good faith and fair dealing. In order to

rebut First Bank's successful motion for summary judgment, Gate had

to prove that genuine issues of material fact existed. Oar Lock

Land & Cattle Co., v. Crowley, Haughey, Hanson, Toole, & Dietrich

(19921, 253 Mont.. 336, 833 P.2d 146. In order to effectuate an

adequate rebuttal, Gate had to present facts of a substantial

nature; speculative statements are insufficient to raise genuine

issues of material fact. First Sec. Bank of Bozeman v. Jones

(1990) r 243 Mont. 301, 794 P.2d 679.

The record in this case does not contain such substantial

facts. Because of the procedural anomalies in this case, it is

necessary to lay out the circuitous procedures in order to

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understand Gate's lack of substantial facts. In an untimely move,

Cate attempted to add expert testimony concerning document analysis

over a month beyond the date that the court had set for

distribution of lists of each party's experts. Subsequently, First

Bank filed a motion in limine to exclude all of Gate's experts

because he had not complied with the court's order concerning

discovery. Further, Gate's notices were inadequate, failing to

contain any mention of the issues to which each expert would

testify as required by Rule 26(b)(4)(A)(i), M.R.Civ.P.

At one point in this action, a substitution of judges

occurred which caused delay. The second judge issued an order on

September 25, 1991, setting a trial date of November 16, 1992, and

a pretrial conference on October 29, 1992. He also set a status

conference for October 17, 1991, for the court's consideration of

the approximately ten unresolved motions before it. However, at

this status conference, Gate's representative was not his attorney

of record. The judge ordered Gate's attorney of record to call the

court and reschedule the status conference. There is no record

that this was ever done. Therefore, there is no final resolution

of the various motions in this case, one of which is whether Gate's

expert on documents is able to testify.

Nothing happened until March 24, 1992, when First Bank again

filed a motion for summary judgment. In April of 1992, Cate filed

a cross-motion for summary judgment based upon his allegation that

First Bank altered records and, therefore, he was entitled to

summary judgment as a matter of law. In his brief on this motion,

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Cate attached a copy of the letter from his expert witness, dated

March 1, 1990. The letter stated that he had made a "preliminary"

analysis of copies of the bank comment sheets. This same letter is

also in Gate's appeal brief.

On May 20, 1.992, Cate filed a motion with the District Court

to add additional discovery to the record. One of those items is

the March 1, 1990 letter from his expert on document analysis. The

expert who wrote the letter is the same one that Cate had earlier

attempted to add to his untimely list of experts.

The letter states that several of the bank loan comments were

made at one sitting. No significance is attached to this.

Further, the letter which Cate bases his rebuttal on is not the

final opinion of its author. The letter states:

My conclusions about the unnatural uniformity of the

typed entries and of the initials on the three questioned

pages are preliminary in the sense that confirmation

would require my analysis of the original record rather

than photocopies.

The record contains no indication that the originals were ever sent

to the expert. The record contains no affidavit from the expert

confirming his initial opinion: nor does it contain an analysis

indicating impermissible activity on the part of First Bank.

Although Cate cites § 32-l-491(1), MCA, as the authority for

no allowable modification of bank records, he does not explain the

huge chasm between the statute's requirement that banks keep

records and his determination that this means that a bank cannot

modify such records. Neither does Cate explain how recording

several loan comments at one sitting amounts to "alteration of

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records" or constitutes an impermissible banking activity. Even if

First Bank's general procedure is to record one comment on one day,

doing otherwise does not constitute bad faith behavior per se. N o

authority is presented to us which would indicate that First Bank's

course of dealing here was in any way impermissible activity.

We conclude that Cate has not provided substantial evidence

that genuine issues of material fact exist. Neither has he

presented any law which would entitle him to summary judgment. We,

therefore, hold that the District Court did not err in failing to

grant Gate's cross-motion for summary judgment concerning

alteration of records.

Affirmed.

We Concur:

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