No. 88-518 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1990 

KITCHEN KRAFTERS, INC., 

Plaintiff and Respondent, - % t. 

-VS- , x c -> - - . - k.3 

EASTSIDE BANK OF MONTANA, --i , . z.7 

Defendant, Counterclaimant ' _-, 

and Appellant, !-- 7 -1 C - -. 

1 

EASTSIDE BANK OF MONTANA, ' I-J 

Third Party Plaintiff, , C-J 

-vs- . . 

ROBERT W. SCHELL; MARY ANN CLARY, formerly, MARY ANN ,. c;-J c 7 

SCHELL, former wife of ROBERT W.SCHELL; STATE OF - , 

MONTANA, EMPLOYMENT SECURITY DIVISION, DEPARTMENT OF 

LABOR & INDUSTRY, et al., 

Third Party Defendants. 

APPEAL FROM: District Court of the Eiqhth Judicial District, 

In and for the County of Cascade, 

The Honorable Thomas McKittrick, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Ward E. Taleff argued; Alexander, Baucus & Linnell, 

Great Falls, Montana 

For Respondent: 

Maxon Davis argued; Cure, Borer & Davis, Great Falls, 

Montana 

Submitted: December 12, 1989 

Decided: March 20, 1990 

Filed: 

3 ,". 

Clerk - 1. 
Justice R. C. McDonough delivered the Opinion of the Court. 

Defendant, ~astside Bank of Montana (Bank) appeals from a jury 

verdict rendered in the Eighth Judicial District, Cascade County 

in favor of the plaintiff Kitchen Krafters, Inc. (Kitchen 

Krafters). We reverse. 

The issues on appeal are: 

1) Whether itche en Kraftersl claims are barred by the 

statutes of limitations. 

2 1 Whether Kitchen Krafters claims are supported by 

substantial evidence. 

3) Whether the District Court erred in instructing the jury 

on causation. 

The facts of this case are complicated. In early 1973, Arnold 

Wirtz (Wirtz) and Don Morris (Morris) of Kitchen Krafters contacted 

Robert Schell (Schell) about purchasing commercial property in 

Great Falls, Montana located on 25th Street North. At the initial 

meeting, a price of $40,000 was settled upon. Approximately one 

week later, Wirtz and Morris were contacted by Bruce ~iller 

(Miller) of the Bank to review a draft of a proposed contract for 

deed and escrow agreement naming the Bank as escrow on the 

property. The contract for deed had been prepared by Schellls 

attorney. Morris and Wirtz were unrepresented. 

At the meeting, Wirtz and Morris learned that Schell and the 

Bank had negotiated a separate transaction concerning the property. 

The Bank loaned Schell $30,000 which was secured by a trust 

indenture on the property. The escrow agreement specified that 

1 
payments made by Kitchen Krafters would be distributed to the Bank 

as payments on Schellls underlying trust indenture with the balance 

going to Schell. The exact wording is as follows: 

Special instructions, if any, in addition to the 

foresoins: In the event Buyers prepay an additional 

$5,000.00 on or before July 1, 1973, upon such payment 

there shall be credited against principal an additional 

$2,000.00. to-wit: upon payment of additional $5,000.00 

principal on or before July 1, 1973, Buyers shall be 

credited with $7,000.00 payment; if said $5,000.00 

payment made on or before July 1, 1973, this special 

instruction becomes automatically void and cancelled. 

3. Payments made hereunder are to be distributed as 

follows: 

Applied first to monthly payments under Trust Indenture 

dated March 29, 1973, running to Eastside Bank of Montana 

wherein Sellers are Grantors; balance of payments 

remitted to Sellers. 

4. Terms of prepayment privilege are as follows: (If no 

such privilege, so state) 

Full prepayment privileges, interest to cease on amounts 

prepaid; but prepayment shall not excuse subsequent 

monthly payments. 

On July 9, 1973, Kitchen Krafters exercised this option and 

made the prepayment. Although the payment was made beyond the July 

1 deadline contained in the escrow agreement, the parties executed 

a waiver and authorized the Bank to accept the payment which was 

applied to the contract principal. The Bank did not apply this 

payment to Schellts note secured by the trust indenture, however. 

Instead the $5,000 was given to Schell who never applied the money 

to his debt. Kitchen Krafters was never advised that this payment 

was not applied to Schellts note. 

As a result of the prepayment, the Bank sent Kitchen Krafters 
a revised amortization schedule which shortened the number of 

monthly payments from 180 to 125. The amount due monthly remained 

the same. Schellls repayment schedule under his trust indenture 

remained the same. As a result, Kitchen Krafters was amortizing 

its contract for deed at a much faster rate than Schellls debt on 

his trust indenture. 

Finally, in either 1980 or 1981, the president of the Bank 

called Kitchen Krafters and notified them that because the 

prepayment had not been applied to Schellls trust indenture, the 

property would not be fully released until that underlying 

obligation was paid. Kitchen Krafters then contacted Schell who 

confirmed that he had not applied the prepayment to the Bank's 

note. He also stated that he was financially unable to meet the 

obligation. In 1982 Schell filed a petition in bankruptcy that was 

subsequently dismissed by the bankruptcy court. 

Subsequently, Kitchen Krafters, experienced a number of 

setbacks. In September of 1981 Wirtz, who managed the sales and 

business end of itche en Krafters, quit and went into direct 

competition. Kitchen Krafters continued to meet its obligations 

under the contract for deed. On December 23, 1982, Kitchen 

Krafters attempted to pay the Bank, as escrow, the balance due on 

the contract. This final payment was contingent upon a demand made 

by Kitchen Krafters that the trust indenture be released. Under 

this condition the Bank refused to accept the payment and the trust 

indenture was not released. 

r 

Kitchen Krafters filed suit against the Bank on February 8, 
1983 seeking damages for breach of the covenant of good faith and 

fair dealing, constructive fraud, failure to disclose and negligent 

misrepresentation. Both parties amended their pleadings on March 

18, 1985. On April 4, 1985, the Bank filed a revised amended 

answer, counterclaim and a third-party complaint seeking to 

foreclose the trust indenture. 

Trial commenced on June 20, 1988. The Bank's motion for 

summary judgment, based upon the statute of limitations defense, 

was denied as was its motion for a directed verdict. On June 28, 

1988, the jury returned a verdict in favor of Kitchen Krafters for 

$285,000. The District Court entered judgment accordingly and this 

appeal followed. 

I 

The Bank maintains that each of Kitchen Krafters claims are 

barred by the statute of limitations. As stated earlier, Kitchen 

Krafters brought its lawsuit, which is based in tort, alleging four 

causes of action -- breach of the covenant of good faith and fair 

dealing, constructive fraud, negligent misrepresentation and breach 

of a duty to disclose. We hold that there is not substantial 

evidence to support the allegation of constructive fraud and 

negligent misrepresentation. This holding will be discussed in 

greater detail later in this opinion. However, as a result of this 

conclusion we will only analyze the statute of limitations issue 

in regard to the remaining two causes. 

Each side presents differing theories on how the statute of 

limitations should be applied. The Bank relies upon the discovery 
doctrine to argue that itche en Kraftersl claims are barred. 

According to this theory, the applicable statute of limitations 

begins to run once the plaintiff knew or should have known that a 

cause of action exists. ~ccording to the Bank, a dispute exists 

as to when Kitchen Krafters discovered the discrepancy between the 

amortization on the trust indenture and the contract for deed. 

The Bank maintains that it notified Kitchen Krafters of the 

discrepancy in January of 1980. Kitchen Krafters, on the other 

hand, maintains that it was notified a year later, in January of 

1981. 

The dispute, it is argued, should have been submitted to the 

jury. If the 1980 date is determined to be the date of discovery 

then all of Kitchen Krafterst claims would be time barred. The 

allegations of breach of the implied covenant of good faith and 

fair dealing and the duty of disclosure are both general tort 

claims which are subject to a three year limitation. See 5 27-2- 

204 (I), MCA; Tynes v. Bankers Life Co. (1986), 224 Mont. 350, 730 

P.2d 1115. Therefore, using the Bank's analysis, because Kitchen 

Kraftersl claims were not brought until February of 1983, each of 

its claims would be barred if the 1980 date of discovery is 

accepted. 

Kitchen Krafters, for its part, argues that the discovery 

doctrine is inapplicable to the case. Instead, theymaintain that 

their cause of action was brought as soon as they could validly 

assert their claim. According to their argument, they could not 

bring a lawsuit until their cause of action fully accrued. In 
order for the cause of action to accrue, they must have sustained 

an injury. They did not sustain an injury until Eastside refused 

to release the trust indenture. This refusal occurred in December 

of 1982, and Kitchen Krafters filed its lawsuit in February of 

1983. Therefore, they filed their cause of action well within the 

statute of limitations. 

We agree with Kitchen Krafters' argument insofar as it is 

applied to the claim of breach of the duty to disclose. However, 

we disagree with this argument as applied to the bad faith claim. 

Section 27-2-102, MCA, states: 

(1) For purposes of statues relating to the time within 

which an action must be commenced: 

(a) a claim or cause of action accrues when all 

elements of the claim or cause exist or have occurred, 

the right to maintain an action on the claim or cause is 

complete and a court or other agency is authorized to 

accept jurisdiction of the action. 

(2) Unless otherwise provided by statute, the period of 

limitation begins when the claim or cause of action accrues. 

Lack of knowledge of the claim of cause of action, or its 

accrual, by the party to whom it has accrued does not 

postpone the beginning of the period of limitation. 

As the language of this statute makes clear, the statute of 

limitations does not begin to run until all elements of a cause of 

action are in existence. For example, in a negligence action the 

plaintiff must prove four elements: 

1) Existence of a duty 

2) Breach of the duty 

3) Causation 
4) Damages. 

Thornock v. State, 229 Mont. 67, 745 P.2d 324 (1987). If these 

elements are not in existence, the plaintiff could not successfully 

bring a cause of action based upon negligence. Therefore, although 

one may be able to establish the existence and breach of a duty, 

he cannot successfully assert his cause of action until he has 

sustained an injury, Heckaman v. Northern Pacific Railroad (1933), 

93 Mont. 363, 20 P.2d 258. 

Kitchen Krafters' claim based upon breach of the duty to 

disclose is based upon the fiduciary relationship between it and 

the Bank created by the escrow agreement. As an escrow agent, the 

Bank owed a fiduciary duty to Kitchen Krafters. 3 C. J. S. Agency 

5 271. This relationship conferred upon Eastside the duty to make 

full disclosure of all material facts relevant to the agency. 3 

Am.Jur.2dI Agency 5 211. Kitchen Krafters maintains that under 

this duty the Bank should have notified them of the problems 

surrounding the financial arrangement. 

Successful assertion of a cause based upon a breach of a 

fiduciary duty, like a negligence action requires the plaintiff to 

prove that he has suffered an injury. 3 Am.Jur.2d, Agency 5 337. 

No injury occurred until the Bank refused to release the trust 

indenture. Therefore, Kitchen Kraftersl cause of action based upon 

nondisclosure did not accrue until that time. Kitchen Krafters' 

claim was filed less than three months following this refusal. It 

was filed within the applicable statute of limitations. 

Kitchen Krafters argues that the cause of action alleging the 
tort of breach of the implied covenant of good faith and fair 

dealing is not barred. Similar to the cause of action described 

above, it bases this argument on the fact that it did not sustain 

an injury until Eastside refused to release the trust indenture. 

Assuming there is a cause of action, we disagree with this 

argument. Kitchen Krafters theorizes that the breach of the 

implied covenant occurred when the Bank failed to properly apply 

the $5,000 prepayment to Schellgs trust and when it subsequently 

failed to disclose this misapplication. Using this theory, it is 

apparent that the claim of bad faith flowed directly from the 

Bank's purported breach of contract. Therefore it is necessary to 

determine when Kitchen Krafters had a right to maintain an action 

for breach of the escrow agreement. 

A breach of contract is a legal wrong independent of actual 

damage. A failure to show actual damages and the resulting 

inference that none were sustained does not defeat the cause of 

action. Sutherland on Damages Vol. I B 11 (3rd Edition 1903). An 

action for breach of contract, then does not require that the 

plaintiff sustain any damages. Jacobs Sultan Co. v. Union 

Mercantile Co. (1895), 17 Mont. 61, 42 P. 109. In light of these 

principles, it has long been recognized that the statute of 

limitations runs from the time of the breach and not from the time 

of injury, or in the absence of fraudulent concealment, from the 

time of discovery. Williston on Contracts at B 2025C. 

The alleged breach of contract, in this case, occurred in 

1973, when the Bank purportedly misapplied the $5,000 prepayment. 
The statute of limitations began to run at this time. Since the 

tort of bad faith arose (for the purpose of this discussion we are 

assuming that the establishment of the tort of the implied covenant 

of good faith and fair dealing is retroactive to this time period) 

directly from the terms of the escrow contract, the statute 

applicable to it began running at the same time the alleged breach 

of the escrow agreement occurred. We base this conclusion on 

reasoning of the Supreme Court of Illinois which has held that when 

a tort arises directly out of a contractual relationship, the 

statute of limitations commences to run at the time the contract 

is breached. Stevens v. Obryant (Ill. 1979), 392 N.E.2d 935; West 

American Ins. Co. v. Sal E. Lobiance & Son Co. Inc. (Ill. 1977), 

370 N.E.2d 804. Two reasons are given for this rule: 

First, the breach itself is actionable and it encourages 

the party to act within [the period of limitations] of 

an actionable breach rather than to delay until damages 

increase. The rule also recognizes that plaintiff has 

chosen to deal with the defendant and that a contract may 

be stated in terms to minimize losses from defective 

performance . 

Aetna Life and Casualty Co. v. Sal E. Lobiance & Son Co. Inc. (Ill. 

1976), 357 N.E.2d 621, 624. This rule is in keeping with the 

general principles of contract law and the theories behind the 

covenant of good faith and fair dealing, which is an implied 

provision contained within certain contracts. If the statute of 

limitations begins to run at the time of breach of an express 

contractual term, then for the sake of consistency, we hold that 

this same general rule should apply equally to implied covenants. 

The tort of bad faith is subject to a three year statute. 

9 
Tynes v. Bankers Life Co. (1986), 224 Mont. 350, 730 P.2d 1115. 

As stated earlier, Kitchen Krafters did not file its case until 

1983. The cause of action alleging bad faith is, therefore, 

barred. 

We must next determine whether Kitchen Krafters' claims are 

supported by substantial evidence. We will not reverse the 

findings of a jury unless they are not supported by substantial 

evidence. Green v. Wolff (1962), 372 P.2d 140, 427 Mont. 413. 

Substantial evidence is defined as that evidence that a reasonable 

mind might accept as adequate to support a conclusion. Although 

it may be based upon weak and conflicting evidence, in order to 

rise to the level of substantial evidence it must be greater than 

trifling or frivolous. Christensen v. Britton (Mont. 1989), - 

P.2d -, 46 St.Rep. 2223. In short, where a verdict is based upon 

substantial evidence which from any point of view could have been 

accepted by the jury as credible, it is binding upon this Court 

although it may appear inherently weak. Batchof f v. Craney (1946) , 

119 Mont. 157, 172 P.2d 308. 

Four theories of recovery were submitted to the jury--breach 

of the covenant of good faith and fair dealing, constructive fraud, 

negligent misrepresentation, and breach of the duty to disclose. 

We have found that the bad faith claim is barred by the statute of 

limitations. Therefore, we need only consider the remaining three 

theories relative to substantial evidence. We begin our analysis 

with the constructive fraud claim. 
In order to sustain a claim of constructive fraud, Kitchen 

Krafters must present substantial evidence to prove that the Bank 

committed a "breach of duty which without fraudulent intent gains 

an advantage to the person in fault or anyone claiming under him 

by misleading another to his prejudice or to the prejudice of 

anyone claiming under him." Section 28-2-406, MCA. 

There is no evidence presented by Kitchen Krafters supporting 

the conclusion that the Bank's actions resulted in any advantage 

to "it or anyone claiming under it." The claims against the Bank 

are based upon the allegation that it wrongfully gave Kitchen 

Krafter $5,000 prepayment to Schell rather than applying it to the 

trust indenture. The Bank incurred no advantage through this act. 

Any benefit was gained by Schell, who was merely a party to the 

escrow. He could not be regarded as one I1claiming under" the Bank. 

We therefore hold that the juryls determination that Eastside was 

liable for constructive fraud is not supported by substantial 

evidence, there being no evidence of an essential element. 

The third theory submitted to the jury was negligent 

misrepresentation. Kitchen Krafters argues that the Bank was 

negligent when it led them to believe that all payments made into 

escrow would be applied to the underlying trust indenture. We 

disagree. 

In State Bank of Townsend v. Maryannls Inc. (1983), 204 Mont. 

21, 664 P.2d 295, we adopted the definition of negligent misrepresentation as provided in Restatement (Second) of Torts 5 552. 

Proof of negligent misrepresentation requires the plaintiff 
establish that: 

a) the defendant made a representation as to a past or 

existinq material fact; 

b) the representation must have been untrue; 

c) regardless of its actual belief, the defendant must have 

made the representations without any reasonable ground for 

believing it to be true; 

d) the representation must have been made with the intent to 

induce the plaintiff to rely on it; 

e) the plaintiff must have been unaware of the falsity of the 

representation; it must have acted in reliance upon the truth of 

the representation and it must have been justified in relying upon 

the representation; 

f) the plaintiff, as a result of its reliance, must sustain 

damage. 

As the first element indicates, the false representation must 

relate to a fact already in existence. This did not occur in this 

case. The evidence indicated that the Bank told Kitchen Krafters 

that all of its payments would dovetail with those due on the trust 

indenture. This evidence does not indicate that the Bank 

misrepresented any existing facts. This statement only became in 

possible error when the Bank later allegedly failed to properly 

apply the $5,000 prepayment. Kitchen Krafters cannot, therefore, 

successfully assert a cause of action based upon negligent 

misrepresentation because it fails to establish the first element. 

Accordingly, the jury's findings on this issue are not supported 
by substantial evidence. 

The final issue submitted to the jury required it to determine 

whether the Bank breached a special duty of disclosure. For 

guidance on this issue, we refer to 9 551 of the Restatement 

(Second) of Torts which states: 

9 551. Liability for Nondisclosure 

(1) One who fails to disclose to another a fact that he 

knows may justifiably induce the other to act or refrain 

from acting in a business transaction is subject to the 

same liability to the other as though he had represented 

the nonexistence of the matter that he has failed to 

disclose, if, but only if, he is under a duty to the 

other to exercise reasonable care to disclose the matter 

in question. 

The elements contained in this section are met by the facts 

of this case. As an escrow, the Bank was an agent who owed a 

fiduciary duty to both Kitchen Krafters and Schell in all matters 

affecting the escrow relationship. First Fidelity Bank v. Matthews 

(1984), 214 Mont. 323, 692 P.2d 1255. Furthermore in its capacity 

as an agent, the Bank had a duty to make full disclosure to its 

principals of all material facts relevant to the agency. 3 

Am.Jur.2d Agency 5 211. The evidence submitted supports the 

contention that this duty was breached. 

The Bank possessed the amortization schedules for the contract 

for deed and the trust indenture. The jury could find that based 

upon this knowledge and its fiduciary duty, it should have 

disclosed the payment discrepancy to Kitchen Krafters in a timely 

matter. Also a finding could be had that through the Bank's 

failure to disclose this information, Kitchen Krafters was induced 
to rely upon the representation that the trust indenture was being 

amortized at the same rate as the contract for deed. By the time 

the Bank finally disclosed this payment discrepancy, it was too 

late for Kitchen Krafters to do anything to remedy the situation 

because Schell was insolvent and had filed for bankruptcy. We hold 

there is substantial evidence to support a verdict rendered against 

the Bank in this cause. 

I11 

The Bank argues that the District Court erred in its 

instructions to the jury on causation. The Bank is contending the 

lower court erred by instructing on the substantial factor test and 

failed to instruct on proximate cause. We agree that the lower 

court erred in failing to instruct on proximate cause. 

The legal principles surrounding the element of causation have 

been set forth in Young v. Flathead County (Mont. 1988), 757 P.2d 

772, 45 St.Rep. 1047. This case succinctly sets forth the law on 

this subject as it has been developed in Montana. Therefore, we 

review the legal principles set forth in Younq. 

In determining whether a defendant's breach of duty caused a 

plaintiff's injury, one must conduct a two-tiered analysis. First, 

one must determine whether the defendant's actions were the causein-fact of the plaintiff's damages. Causation in fact can be 

established in one of two ways. Normally, the l'but-forll test is 

used. Under the "but-for" test, causation in fact is established 

simply by proving that the plaintiff's injury .would not have 

occurred Itbut for" the defendant's illegal conduct. Young, 757 
P.2d at 777. Stated differently, the defendant's conduct is a 

cause of an event if the event would not have occurred but for that 

conduct; conversely, the defendant's conduct is not a cause of the 

event if the event would have occurred without it. Prosser and 

Keeton on Torts (5th Edition) 3 41. 

The "but foru rule serves to explain the great majority of 

cases. However, there is one type of situation in which it fails. 

If two causes concur to bring about an event, and either one of 

them, alone, would have been sufficient to cause the identical 

result, some other test is needed. In response to this problem, 

the courts have developed the "substantial factor test." Younq, 

757 P.2d at 777. 

The substantial factor test originated in the Minnesota case 

of Anderson v. Minneapolis, St. Paul & Sault Ste. Marie Ry. Co. 

(Minn. 1920), 179 N.W. 45. In this case, the defendant negligently 

started a fire which combined with other fires of unknown origin 

and destroyed the plaintiff Is property. Each of the fires, by 

itself, had the ability to destroy the property. 

In this type of situation, the "but for1' test was impossible 

to satisfy because, as previously stated, any of the fires, acting 

alone, could have destroyed the plaintiff's property. The court, 

however, refused to absolve the defendant of liability on the 

ground that the identical harm would have occurred without his 

negligent act. Such a result would prevent the plaintiff from 

realizing any recovery. Therefore, the courts have uniformly held 

that a defendant's conduct is a cause of an event if it was a 
material element and a substantial factor in bringing it about. 

Prosser and Keeton on Torts (5th Edition) 4 In short, this 

rule dictates that a defendant will not be absolved from liability 

simply because the conduct of one or more others would have been 

sufficient to produce the same result. If his actions are a 

substantial factor in causing the plaintiff 's injury, the defendant 

will be held liable. 

As the above discussion demonstrates, cause-in-fact is 

determined in one of two ways--either through the "but forn test 

or the "substantial factor1' test. Once either one of these tests 

is satisfied, the plaintiff has established that the defendant's 

conduct was the cause in fact of his injury. It is now incumbent 

upon him to move to the second tier of the causation analysis and 

prove that the defendant's conduct proximately caused his damages. 

The laws of physics and Sir Isaac Newton tell us that there 

are causes and effects which continue into eternity. Therefore, 

in both a philosophical and a real sense, the consequences of a 

wrongful act can extend in time for years--perhaps beyond the 

defendant's lifetime. For this reason, the courts have found that 

sole reliance upon cause-in-fact analysis is undesirable. At some 

point within the chain of causation, the law must intervene and 

absolve the defendant from liability. Thelen v. City of Billings 

(Mont. 1989), 776 P.2d 520, 46 St.Rep. 1108. It was this policy 

consideration which led to the development of llproximatell or 

"legal11 cause. 

Proximate cause is normally analyzed in terms of 
foreseeability. Simply stated, one is only liable for consequences 

which are considered to be reasonably foreseeable. Prosser and 

Keeton at 5 43. If the consequences of one's wrongful act are not 

reasonably foreseeable, then it follows that it was not proximately 

caused by that act. Using this analysis, one must look forward 

through the chain of causation in order to determine whether the 

events which occurred were foreseeable. If they were, the element 

of proximate cause is satisfied and liability will attach. Prosser 

and Keeton, at § 43. 

We must now apply this causation analysis to this case in 

order to determine whether the District Courtls instructions to the 

jury were proper. The jury was instructed on causation as follows: 

Instruction No. 13. 

A legal cause of the damage is a cause which is a 

substantial factor in bringing it about. 

Instruction No. 14. 

The defendant's conduct is a cause of the damage if 

it helped produce it and if the damage would not have 

occurred without it. 

Instruction No. 13, although improperly worded, was correctly 

given. It is improperly worded due to the fact that the adjective 

I1legall1 is used before the word llcause.ll Legal cause is synonymous 

with proximate cause. Young v. Flathead County (Mont. 1988), 757 

P.2d 772, 45 St.Rep. 1047. This instruction is an instruction on 

the substantial factor test which is part of causation-in-fact, not 

proximate cause. Therefore, the word legal should be removed in 

order to prevent confusion between proximate cause and cause-in- 
fact. 

The facts of this case require that the court instruct the 

jury on whether the Bank's conduct was a substantial factor in 

bringing about Kitchen Krafters' damages. Kitchen Krafters alleged 

that the Bank's failure to properly apply the $5,000 payment caused 

it to sustain monetary damages through the loss of its business. 

The Bank, in reply, has argued that this misapplication did not 

cause Kitchen Krafters damages. It argues that Kitchen Krafters' 

loss of business was caused instead by outside factors such as a 

poor economy. 

Kitchen Krafters acknowledges that the poor economy may have 

contributed to its demise. However, it steadfastly maintains that 

the Bank's conduct combined with these outside influences and as 

a result was a substantial factor in bringing about its injuries. 

On remand the jury should be presented with a substantial factor 

instruction in order to determine whether the results of the Bank's 

conduct concurred with other events to cause Kitchen Krafters' 

collapse. 

Instruction No. 14 is nothing more than a recitation of the 

"but forvt test. The jury had already been instructed on causationin-fact through the substantial factor instruction. Therefore, 

Instruction No. 14 was superfluous. Moreover, this instruction 

cannot take the place of an instruction on proximate cause. In 

order to be properly instructed on proximate cause, the jury must 

be directed to look forward, through the chain of causation, and 

to determine whether events which occurred subsequent to Eastside's 
wrongful act were foreseeable. A proper instruction on proximate 

cause should be worded as follows: 

In order for the defendants negligence (failure to 

disclose) to be the proximate cause of the plaintiff's 

injury, it must appear from the facts and circumstances 

surrounding the accident [the nondisclosure] that the 

defendant as an ordinarily prudent person, could have 

foreseen that the plaintiff Is injury would be the natural 

and probable consequence of the wrongful act. 

Kitchen Krafters maintains that the Bank's actions caused the 

break up of the corporation. According to their argument, Wirtz 

left the corporation as a direct result of Eastside's failure to 

release the Schell trust indenture. This may be true. However, 

this occurrence may or may not have been a reasonably foreseeable 

consequence of the Bank's actions. If this event was foreseeable, 

the Bank could be liable for the damages sustained as a result of 

his departure. If it was not foreseeable, then this consequence 

should be regarded as a superseding intervening event which breaks 

the chain of causation as to any damages as a result of his 

leaving. In this circumstance the Bank cannot be held liable for 

damages resulting from Wirtz's departure. 

Due to the failure to instruct the jury on causation, this 

case is reversed and remanded for a new trial. Kitchen Krafters 

is entitled to assert, as a cause of action, breach of the duty to 

disclose. Reversed and remanded with instructions to conduct 

proceedings consistent with this opinion. 
We Concur: 

' "~hidf Justice 

, I, Justices 

~igtrict ~udse ~homas A. Olson 

sitting for Justice Fred J. Weber 
No. 88-518 

KITCHEN KRAFTERS, INC., 

Plaintiff and Respondent, 

EASTSIDE BANK OF MONTANA, 

Defendant, Counterclaimant -d 

and ~~~eliant, 1 r.l. P 

C-',O PD E R ,, 0 1 C w 

EASTSIDE BANK OF MONTANA, 

Third Part Plaintiff, 

ROBERT W. SCHELL; MARY ANN CLARY, formerly 

MARY ANN SCHELL, former wife of ROBERT W. 

SCHELL; STATE OF MONTANA, EMPLOYMENT SECURITY 

DIVISION, DEPARTMENT OF LABOR & INDUSTRY, et al., 

Third Party Defendants. 

IT IS ORDERED that the last sentence of the second complete ' 

paragraph on page 8 of our opinion, dated March 20, 1990 be revised 

to read as follows: 

In light of these principles, it has long been recognized 

that the statute of limitations runs from the time of the 

breach and not from the time of injury, or in the case 

of fraudulent concealment, from the time of discovery. 

IT IS FURTHER ORDERED that the petition for rehearing is 

denied. 

DATED this 24' day of April, 1990. 
Justices