No. 95-315

IN THE SUPREME COURT OF THE STATE OF MONTANA

1995

MIKE THOMPSON,

Plaintiff and Respondent,

v.

JAMES PRICE,

Defendant and Appellant.

APPEAL FROM: District Court of the Eleventh Judicial District,

In and for the County of Flathead,

The Honorable Katherine R. Curtis, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

James C. Bartlett; Hash, O'Brien & Bartlett,

Kalispell, Montana

For Respondent:

Tia R. Robbin; Murray & Kaufman, Kalispell,

Montana

Filed:

Submitted on Briefs: November 21, 1995

Decided: December 21, 1995
Justice W. William Leaphart delivered the Opinion of the Court.

Pursuant to Section I, Paragraph 3(c), Montana Supreme Court

1995 Internal Operating Rules, the following decision shall not be

cited as precedent and shall be published by its filing as a public

document with the Clerk of the Supreme Court and by a report of its

result to Montana Law Week, State Reporter and West Publishing

Company.

James Price (Price) appeals from the Eleventh Judicial

District, Flathead County, jury verdict awarding Mike Thompson

(Thompson) damages for breach of contract, and from the District

Court's order denying Price's Motion for a New Trial. We affirm.

Price presents three issues on appeal:

1 . Did the District Court fail to properly instruct the jury on

Price's theory of the case, specifically, the implied covenant of

good faith and fair dealing?

2. Did the District Court properly exclude evidence of Thompson's

prior experience and knowledge of the limited scope and

enforceability of covenants not to compete?

3 . Is the verdict contrary to the law or contrary to the evidence?

In June of 1989, Thompson and Price formed a carpet cleaning

partnership called Thompson's Thoro Kleen. The carpet cleaning

enterprise was initially owned by Thompson and was subject to a

pre-existing business debt of approximately $25,000. Thompson sold

one-half of the business to Price for approximately $13,000. In

early 1990, Price and Thompson dissolved their partnership. They

contracted that Price would pay Thompson approximately $25,000 in

consideration for purchasing the business. The contract included

a covenant not to compete which limited Thompson's future carpet

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cleaning to his personal accounts from outside the partnership,

"personal friends, and people affiliated with his accounts." Price

received the business name, business phone number, a van,

equipment, and some customers. However, Price did not pay Thompson

the $25,000.

1 . Did the District Court fail to properly instruct the jury on

Price's theory of the case, specifically, the implied covenant of

good faith and fair dealing?

Price argues that the District Court erred by not instructing

the jury regarding the implied covenant of good faith and fair

dealing. Price asserts that because every contract contains an

implied covenant of good faith and fair dealing as a matter of law,

the court should have given the jury Price's proposed instruction,

MPI 13.17. Price's proposed instruction correctly stated the

implied covenant of good faith and fair dealing based on both

statutory and case law. Section 28-l-211, MCA; Talley v. Flathead

Valley Comm. College (19931, 259 Mont. 479, 489, 857 P.2d 701, 707,

cert. denied, 114 S.Ct. 691 (1994). The proposed instruction read

as follows:

There is an obligation of good faith in every contract.

The obligation is breached if a party failed to exercise

honesty in fact and observe reasonable commercial

standards of fair dealing in the trade.

The court refused to instruct on the implied covenant on the

grounds that Price did not plead breach of the covenant of good

faith and fair dealing as a cause of action or as an affirmative

defense.

The District Court has discretion in deciding how to instruct

the jury, taking into account the parties' theories of the case,

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and we will not overturn that decision absent an abuse of

discretion. Foley v. Harrison Ave. Motor Co. (1994), 267 Mont.

200, 205, 883 P.2d 100, 102-03; Arnold v. Boise Cascade Corp.

(1993), 259 Mont. 259, 267, 856 P.2d 217, 222. When reviewing jury

instructions, we consider all the offered jury instructions as a

whole, in light of the evidence presented at trial. Nevrville v.

State Dep't of Family Servs. (1994), 267 Mont. 237, 261, 883 P.2d

793, 807; Folev, 883 P.2d at 103.

The covenant of good faith and fair dealing is implied into

every contract. Tallev, 857 P.2d at 707; Story v. City of Bozeman

(1990), 242 Mont. 436, 450, 791 P.2d 767, 775. However, the

standards for breach of the implied covenant are distinct and

different from breach of other contract provisions. 791 Story,

P.2d at 775; § 28-1-211, MCA. In its Order and Rationale, the

District Court determined that although every contract may contain

an implied covenant of good faith and fair dealing, every contract

action does not automatically contain a claim for breach of the

implied covenant. Price pled breach of contract. He did not plead

breach of the covenant, amend his pleadings to include breach of

the covenant, nor invoke breach of the covenant as an affirmative

defense.

The court correctly determined that by not pleading breach of

the covenant, Price denied Thompson notice of this separate cause

of action. McJunkin v. Kaufman & Broad Home Systems, Inc. (1987),

229 Mont. 432, 437, 740 P.2d 910, 913. As this Court has held:

"liberal construction and amendment of pleadings does not grant

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counsel carte blanche to advance new theories on an unsuspecting

opponent." McJunkin, 748 P.2d at 913. In McJunkin, we held that

the district court correctly refused to give a breach of express

warranty instruction when that claim had not been pled. McJunkin,

748 P.2d at 914. We apply that reasoning here. Price is not

entitled to a jury instruction on the implied covenant of good

faith and fair dealing without having pled the covenant as a cause

of action. The District Court did not abuse its discretion in

refusing Price's offered jury instruction.

2 . Did the District Court properly exclude evidence of Thompson's

prior experience and knowledge of the limited scope and

enforceability of covenants not to compete?

At trial, Price attempted to introduce testimony from Mike

Olsen (Olsen). Olsen and Thompson had a previous contract that

included a covenant not to compete. Price wanted to establish that

Thompson knew that the language of the covenant not to compete in

the Thompson/Price contract was unenforceable. Price argued that

Olsen's testimony would show that Thompson knew the limits that

Montana law places on covenants not to compete. See § 28-2-704,

MCA. The testimony, asserts Price, would have revealed Thompson's

shrewd business tactics and dishonesty.

However, the District Court granted Thompson's Motion in

Limine restricting Olsen's testimony. The court excluded the

testimony on the grounds that the previous Olsen/Thompson covenant

not to compete used different language than the Price/Thompson

covenant. Thus, the court determined the testimony was not

probative of the issue whether Thompson knew the Price/Thompson

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covenant not to compete was unenforceable. The court determined

that the evidence would be inadmissible character evidence.

Notwithstanding the Motion in Limine, Olsen testified about his

previous business dealings with Thompson and offered his opinion

regarding Thompson's business practices.

The determination of the admissibility of evidence is within

the broad discretion of the trial court, and we will not disturb

the court's ruling absent a manifest abuse of this discretion.

King v. Zimmerman (1994), 266 Mont. 54, 65, 878 P.2d 895, 902.

Outside of the narrow exceptions found in Rule 404, M.R.Evid.,

character evidence is specifically proscribed. See Rule 404,

M.R.Evid.; Lindberg v. Leatham Bros., Inc. (19851, 215 Mont. 11,

23, 693 P.2d 1234, 1242. We agree with the District Court's

determination that because the language of the two covenants not to

compete was quite different, the Olsen testimony was irrelevant.

We find no abuse of discretion in the District Court's exclusion of

testimony regarding the covenant not to compete in the

Olsen/Thompson contract.

3. Is the verdict contrary to the law or contrary to the evidence?

It is not the function of this Court to agree or disagree with

the jury's verdict. Arnold, 856 P.2d at 220. Our role is to

determine whether there was substantial evidence to support the

verdict. Arnold, 856 P.2d at 220. Substantial evidence is

evidence which a reasonable mind might accept as adequate to

support a conclusion, even if the evidence is weak or conflicting.

Arnold, 856 P.2d at 220.

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Price contends that the jury's verdict was contrary to the law

and contrary to the evidence. He asserts that he was excused from

performing the contract because Thompson breached a previous

contract with Olsen. Price apparently contends that the

Thompson/Price contract required him, in part, to satisfy certain

outstanding debts that Thompson's Thoro Kleen had with Olsen and

two other parties. He argues that if Thompson had remained current

on these obligations, the amount of the debts would have been

reduced thereby reducing Price's obligation to Thompson. This

argument ignores the fact that the indebtedness was merely used to

arrive at a sum certain on the Thompson/Price contract; that Price

agreed to pay this sum, regardless of whether the obligees agreed

to an assignment of the obligations to Price. In fact, the

obligees did not consent to an assignment of the debts. Thus,

Thompson remained liable on the underlying debts. In turn, Price

remained liable to Thompson for the full amount of the

Thompson/Price contract, regardless of whether Thompson remained

current on his independent debt obligations. Payments, or lack of

payments, by Thompson on the underlying debts had no effect upon

Price's separate obligation to pay Thompson the agreed upon

consideration for the purchase of the business.

Contrary to Price's contention, the facts presented in this

case fail to trigger the rule of law that if a contracting party

materially breaches a contract,~ the injured party is entitled to

suspend his performance. Liddle v. Petty (1991), 249 Mont. 442,

446, 816 P.2d 1066, 1068; Sjoberg v. Kravik (1988), 233 Mont. 33,
38, 759 P.2d 966, 969. We will not extend this well-established

rule to cover the situation presented by this case, i.e., that

Thompson's breach of a contract not at issue, entitles Price to

suspend performance on a separate and distinct contract.

The District Court properly instructed the jury regarding the

law concerning a party's breach of contract. The parties presented

sufficient evidence for the jury to conclude that Thompson did not

materially breach the contract and thus, that Price was not excused

from performance. Therefore, based on our review of the record, we

conclude that there was substantial evidence to support the verdict

that Price was not excused from performing the Thompson/Price

contract. We affirm the jury verdict.

Justices