No. 89-260 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

GRANT BAKER and ELMA L. BAKER 

Plaintiffs and Appellants 

-vsARTHUR L. BAILEY and EDNA L. BAILEY, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Missoula, 

The Honorable James R. Wheelis, Judge Presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Rex Palmer, Missoula, Montana 

For Respondent: 

David B. Cotner; Boone, Karlberg & Haddon, iss sou la, 

Montana 

h &!? 2 Submitted on Briefs: October 25, 1989 

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"Y 5 Decided: December 1, 1989 2 ;-; 2; 

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Q .c- b,y *s o Clerk 
Justice R. C. McDonough delivered the Opinion of the Court. 

Grant and Norma Raker (Bakers) appeal from a judgment of 

the District Court of the Fourth Judicial District, Missoula 

County. The District Court, sitting without a jury, found 

the Bakers liable for breach of the covenant of good faith 

and fair dealing and further found their claims for damages 

arising out of breach of contract should not be fully granted. We reverse in part and affirm in part. 

The issues on appeal are: 

1. Whether the District Court erred when it found the 

Bakers in breach of contract and the implied covenant of qood 

faith and fair dealing. 

2. Whether the District Court erred when it found that 

the Rakers are limited to the recovery of less than one-half 

the sums claimed under the contract. 

3. Whether the District Court abused its discretion 

when it found that both parties should be responsible for 

their own attorney fees. 

In June of 19?6, Arthur and Elma Bailey moved a mobile 

home onto property owned by their daughter and son-in-law. 

With their permission, the Raileys hooked onto the water line 

which serviced their daughter's home and installed a pipeline 

which would provide water for their trailer. 

Approximately six years later, in the spring of 1982, 

the Bailey's daughter and son-in-law made the decision to 

sell their residence and the surrounding property. Because 

they were concerned about taking care of their parents, 

however, they transferred one acre of the property to the 

Baileys. This one acre surrounded the mobile home. The 

remaining property, consisting of forty-five acres, was sold 

to the Rakers. 
In order to insure that the Bailey's continued to have 

access to water, a Water Well Use Agreement was prepared. 

Mrs. Baker was concerned about future ownership of the 

one-acre plot. In particular, she was worried that "a bunch 

of hippies" would move in next to her and consequently she 

wanted some control over the type of person who may, in the 

future, buy the Bailey's land. In order to address this 

concern, the well agreement specifically provided that the 

right to use water would only extend to the Bailevs. In the 

event the Baileys conveyed the property, the Bakers were 

under no obligation to provide the new owners with water. 

Despite the plain language used in the agreement, the 

Baileys believed that although not specifically set forth, 

the Bakers would transfer the right to use the water well to 

a subsequent "reasonable purchaser" of the Bailey property. 

The language of the agreement, according to testimony of both 

the Baileys and the Bakers, was included for the purpose of 

addressing Mrs. Baker's concern over potentially undesirable 

neighbors. This purpose was not, however, articulated within 

the contract. 

In addition to the water well use agreement, the Bakers, 

at the time of purchase, asked for and received a right of 

first refusal in the event the Baileys received an offer to 

purchase their property. If an offer was received, the 

Baileys were to notify the Bakers of the offer in writing. 

The Bakers would then have the opportunity to exercise their 

"right of first refusal" within fifteen days of the offer. 

Following sale of the land, the Bakers and Baileys lived 

next to one another and in fact became friends. The Baileys, 

however, decided to move to Butte, Montana, in the spring of 

1984. On June 30, 1984, they executed a standard form listing contract with a local realty company. Under the terms of 

the listing, the Baileys represented that the property would 
he sold with "shared well water." Based upon the realtor's 

valuation of the property with water, it was listed for 

$47,500.00. 

Shortly after the decision was made to sell the property, the water system developed several problems. As a result 

of these problems pressure in the line was reduced and the 

Baileys were unable to obtain sufficient water to meet their 

needs. As a result, they found it necessary to bring water 

to their residence in plastic jugs. 

The Bakers were not as significantly affected by the 

problems. The Bakers always had sufficient water. In fact, 

during the entire period the Baileys were deprived of water, 

the Bakers had enough water to irrigate their lawn. Despite 

the fact this use adversely affected the Baileys' water 

supply, the Bakers refused to reduce their consumption. This 

problem persisted until August when the water system was 

finally repaired. 

After the problems with the water well surfaced, the 

Bakers informed the Baileys that they would not share the 

water supply with any new purchaser. Consequently, the 

property would have to be sold without access to water from 

the well. 

The Baileys searched for alternative sources of water, 

but unfortunately none was available. They approached the 

Bakers and offered to purchase joint use of the well. This 

offer was refused. 

Recognizing that they would not be able to provide water 

for the property, the Baileys realized that the property was 

virtually without value. They, therefore, agreed to sell it 

for $8,000.00, which was the fair market value of the trailer 

and other improvements on the land. 

After the Baileys made the decision to accept the 

$8,000.00 offer, they gave the Bakers notice of its terms in 
compliance with the right of first refusal provisions in the 

contract. On August 20, 1984, the Bakers exercised their 

option and purchased the property for $8,000.00. The transaction was closed on September 10, 1984. At that time, the 

Bakers acquired the Baileys' one-acre parcel which, if supplied with water, allegedly could be marketed for $40,000.00 

- $47,500.00. 

The Bakers then filed a lawsuit to recover for the value 

of a refrigerator and certain unpaid expenses which they felt 

were owed by the Baileys. The Baileys, on the other hand, 

counterclaimed and sought damages for breach of the Water 

Well Use Agreement. The District Court found the Bakers in 

breach of contract and in breach of the implied covenant of 

good faith and fair dealing. It also found the Baileys 

liable for less than one-half of the electrical expenses of 

the well. Following this judgment, the Bakers appealed the 

lower court's findings in regard to their liability for 

breach of contract and the Baileys' limited liability for 

expenses incurred on the water well. 

The facts of this case present a classic parol evidence 

problem. The parol evidence rule, briefly stated, requires 

that in the absence of fraud, duress, or mutual mistake, all 

extrinsic evidence must be excluded if the parties have 

reduced their agreement to an integrated writing. Under this 

rule, all prior and contemporaneous negotiations or 

understandings of the contract are merged, once that contract 

is reduced to writing. Williston on Contracts, Third Edition 

S 631. 

As this case illustrates, application of the rule can 

work to create harsh results. However, the policies behind 

the rule compel its consistent, uniform application. Commercial stability requires that parties to a contract may rely 
upon its express terms without worrying that the law will 

allow the other party to change the terms of the agreement at 

a later date. 

The Baileys maintain that all of the parties to the 

Water Well Use Agreement, shared a common understanding that 

the Bakers would continue to share the well water with subsequent purchasers provided that the purchasers were acceptable 

to the Bakers. This contention may be true; however it is 

not found within the terms of the contract. 

The Water Well Use Agreement is very explicit concerning 

the rights and obligations of the parties. Its terms provide: "it being specifically understood that this Agreement 

is solely for the benefit of [the Baileys] and shall 

terminate in the event [the Baileys] no longer occupy [the 

land] ." It further provides that "it is the intent of the 

parties to fully set forth their understanding concerning the 

utilization of the domestic water supplies for the respective 

tracts . . . " There are no terms within the contract which 

state that the Bakers will provide water to subsequent 

"reasonable" purchasers. 

Therefore, the fact there may have been further oral 

understandings between the parties is not admissible. The 

language of the Water Well Use Agreement is clear. Where the 

lanquage of a written contract is clear and unambiguous, 

there is nothing for the court to construe. Rather, the duty 

of the court is simply to apply the language as written to 

the facts of the case and decide the case accordingly. The 

lower court's reliance upon evidence of the parties' oral 

negotiations was therefore in error, and there was no breach 

of contract. 

In order to prove that a party acted unreasonably in 

violation of the implied covenant of good faith and fair 

dealing, one must show as an element there was a breach of 
the express terms of the contract. Nordlund v. School District (1987), 44 St.Rep. 1183, 738 P.2d 1299. We have 

concluded that the Bakers did not breach the terms of the 

Water Well Use Agreement and accordingly, there was no 

violation of the covenant of good faith and fair dealing even 

if all other elements of the violation were met. 

I1 

At trial, the Bakers, like the Baileys, sought damages 

for breach of the Water Well Use Agreement. They maintained 

that the Baileys failed to pay one-half of the electrical and 

maintenance expenses of the well. The Baileys, on the other 

hand, argued that they only owed the Bakers for electrical 

expenses incurred during the months of September through May 

of 1984. 

The Water Well Use Agreement specifically provided that 

the two parties would equally share all of the electrical 

bills and maintenance expenses incurred through their joint 

use of the pump. The sum of the electrical expenses attributable for the year preceding the sale of the property js 

$218.03. The total cost of repairs on the pump equalled 

$1,572.85. Bakers maintain that pursuant to the terms of the 

contract the Baileys are responsible for one half of these 

expenses, or $895.42. 

The Baileys maintain that they are only liable for the 

electrical expenses incurred through the operation of the 

pump for the months of September 1983 through May of 1984. 

During the months of June, July and August, 1984, the water 

system was not in working order and consequently the Baileys 

were deprived of water. The Baileys maintain, and the lower 

court agreed, that this deprivation was a partial failure of 

consideration and that as a result the Baileys would he 

excused from their duty to pay their share of the electrical 
expenses due under the contract for the months of June, July 

and August. 

The lower court also held that the Baileys did not owe 

the Bakers any money for the expenses incurred through the 

repair of the water line. The repair expense was incurred 

after the Bakers were notified of their right to exercise 

their option to purchase the property. Four days after 

completion of the work, the Bakers exercised the right and 

purchased the property. The District Court therefore found 

that all benefit derived from the repairs was realized by the 

Bakers, and, accordingly, the Baileys had no responsibility 

to pay a portion of the repair expense. 

The District Court found the Baileys were only liable 

for expenses incurred by the Bakers for electricity which 

operated the pump during the months of September through May. 

The amount owed by the Baileys equaled $60.00. However, the 

court also found, and the Bakers admit, that the Bakers owed 

the Baileys $225.00 for propane which was left on the property after it was sold. Therefore, the amount owed by the 

Bakers to the Baileys, was offset by the $60.00 owed on the 

Water Well Use Agreement. Accordingly, the Bakers owed the 

Baileys $165.00 and the Baileys owed nothing under the 

contract. 

We find the District Court's findings on this issue were 

reasonable and were not an abuse of discretion. They were 

supported by the evidence and, thus, on this issue the lower 

court is affirmed. Let the judgment be entered accordingly 

for $165.00. 

111 

As a final issue, the Bakers assert that the lower court 

erred by not awardinq them attorney fees. In Montana the 

general rule is that attorney fees are awarded only where a 

statute or contract provides for their recovery. 
Northwestern National Bank of Great Falls v. Weaver-Maxwell, 

Inc. (1986), 43 St.Rep. 1995, 729 P.2d 1258. 

The Water Well Use Agreement provided that ". . . in the 

event of litigation . . . reasonable attorney fees - may be 

awarded . . ." (Emphasis added.) The lower court determined 

that the term "may" allowed it to award attorney fees in its 

discretion. Since both parties were successful in the lawsuit, it declined to award fees to either party. 

The District Court correctly construed the terms of the 

agreement. The contract by its terms left the award of fees 

to the discretion of the court. The fact that the Bakers 

were partially unsuccessful in their claims against the 

Baileys does not support an award of attorney fees. The 

judgment of the lower court is therefore reversed and 

remanded for proceedings consistent with this opinion. 

We Concur: 1