NO. 91-466 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1992 

CAROL FARRIS , 

Plaintiff and Appellant, 

JOHN M. HUTCHINSON, individually 

and in the capacity of 

COMMISSIONER OF HIGHER EDUCATION, 

MONTANA, BOARD OF REGENTS OF 

HIGHER EDUCATION, 

Defendants and Respondents. 

APPEAL FROM: District Court of the First Judicial District, 

In and for the County of Lewis and Clark, 

The Honorable Thomas C. Honzel, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Peter Michael Meloy argued, The Meloy Law Firm, 

Helena, Montana 

For Respondents: 

LeRoy H. Schramm argued, Montana University System, 

Helena, Montana 
Justice R. C. McDonough delivered the Opinion of the Court. 

This is an appeal from an order and entry of judgment of the 

First Judicial District Court, Lewis and Clark County, granting a 

motion to dismiss in favor of John M. Hutchinson and the 

Commissioner of Higher Education. We affirm. 

We decide the following issues on appeal: 

1. Did the District Court err in dismissing Farris's cause of 

action for breach of the implied covenant of good faith and fair 

dealing; 

2. Did the District Court err in dismissing the wrongful 

discharge claim and the claim under the Wrongful Discharge from 

Employment Act of 1987; and 

3. Did the District Court err in finding appellant had no 

entitlement to property under a written contract for a specified 

term when the contract is not renewed at the expiration of the 

term? 

On April 10, 1989, Carol Farris was hired as a gender equity 

coordinator by the Commissioner of Higher Education for a federally 

mandated affirmative action program for the vocational technical 

education system in Montana. Farris alleged in her complaint that 

she received objective manifestations of job security when she was 

hired. Specifically, she contends that she was told the position 

was permanent, even though it was governed by a yearly term 

contract. Farris quit her job in Great Falls, sold her home and 

moved to Helena for the position. 

Throughout the course of her employment, Farris signed three 

2 
ttproEessional employment contractstt prepared by the Montana 

University System. The contracts were term contracts, lasting one 

year. The contracts provided for non-renewal with adequate notice. 

The last contract was effective between July 1, 1990 and June 30, 

1991. Pursuant to the contract, on February 5, 1991, the 

Commissioner notified Farris that her contract would not be 

renewed. No reason was provided for the non-renewal, nor was one 

required under the terms of the contract. Farris filed a complaint 

against the Commissioner of Higher Education and the Board of 

Regents. The District Court granted defendants' motion to dismiss. 

This appeal followed. 

In considering a Rule 12 (b) (6) motion to dismiss, the 

allegations must be viewed in a light most favorable to the 

plaintiff, admitting and accepting as true all facts well-pleaded. 

Devoe v. Missoula County (1987), 226 Mont. 372, 374, 735 P.2d 1115, 

1116; United States Nat'l Bank of Red Lodge v. DOR (1977), 175 

Mont. 205, 207, 573 P.2d 188, 190. Further, a court should not 

dismiss a complaint for failing to state a claim unless it appears 

beyond doubt that the plaintiff can prove no set of facts in 

support of his or her claim which would entitle him or her to 

relief. Proto v. Missoula County (1988), 230 Mont, 351, 353, 749 

P.2d 1094, 1095, quoting Conley v. Gibson (1957), 355 U.S. 41, 45- 

46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80, 84; Marshall v. State (1992), 

Mont. , 830 P.2d 1250, 49 St.Rep. 336. 

I 

Did the District Court err in dismissing Farris's cause of 
action for breach of the implied covenant of good faith and fair 

dealing? 

It first should be noted Farris has not pled an action for 

fraud and does not comply with Rule 9(b) of the Montana Rules of 

Civil Procedure. The District Court relying on Nordlund v. School 

District No. 14 (l987), 227 Mont. 402, 738 P.2d 1299, found that 

because the Commissioner did not breach the employment contract, 

there could be no breach of the implied covenant. Nordlund at 406, 

738 P.2d at 1302. This characterization is not exactly correct. 

Under Story v. City of Bozeman (lggo), 242 Mont. 436, 791 P. 2d 767, 

a breach of the underlying contract is not a prerequisite to a 

breach of the implied covenant of good faith and fair dealing. 

Farris argues that if she can show objective manifestations of 

job security beyond the term contract, she may maintain a breach of 

the implied covenant of good faith and fair dealing. Farris relies 

on Dare v. Montana Petroleum Marketing (1984), 212 Mont. 274, 282, 

687 P.2d 1015, 1020, for the proposition that an employerfs 

objective manifestations give the employee a reasonable belief that 

he or she has job security. Farris argues that Dare should apply 

to employment relationships not covered under the Wrongful 

Discharge From Employment Act (Act). Farris also argues that 

because the Commissioner viewed the contract as exempt from the 

Act, he was able to terminate her "at will, and for this reason 

she is an at will employee. 

Dare involved an at will employee with no written contract who 

was terminated from her job. The position she held was not covered 
by an employment handbook, We held that an employment handbook was 

not essential in a cause of action for breach of the implied 

covenant of good faith and fair dealing in an at will employment 

relationship. Pare at 283, 687 P.2d at 1020. Dare was decided in 

1984 prior to the enactment of the Wrongful Discharge From 

Employment Act of 1987. 

Farris essentially argues that Dare stands forthe proposition 

that a violation of an employment handbook is not essential to 

maintaining an action for breach of the implied covenant in an at 

will situation. Therefore, even though the Commissioner did not 

breach his own employment regulations (which in Farris's reasoning 

is likened to having no employment handbook) in effect at the time, 

this does not bar Farrisls claim. We do not disagree, but such 

analysis does not apply here. 

On appeal, Farris argues that prior to being hired she was 

informed that the Commissioner viewed her position as a permanent 

position. Farris, upon accepting the position, sold her house in 

Great Falls and moved to Helena. Further, Farris contends she 

understood that the signing of the yearly lltemll contracts was 

merely a formality. 

Even admitting and accepting the facts well-pleaded in favor 

of Farris, she cannot overcome the Par01 Evidence Rule. Section 

28-2-904, MCA, provides: 

The execution of a contract in writing, whether the law 

requires it to be written or not, supersedes all the oral 

negotiations or stipulations concerning its matter which 

preceded or accompanied the execution of the instrument. 

Here, the consideration of oral negotiations between the 

5 
Commissioner and Farris prior to the signing of the contracts is 

barred by the Parol Evidence Rule. The term contracts embody the 

legal agreement between Farris and the defendant. Farris signed 

three term contracts each for one year. She was aware that upon 

adequate notice the contracts could be non-renewed. We do not 

accept her argument that the Commissioner's adoption of the 

regulations allowed him to circumvent the Wrongful Discharge From 

Employment Act, thus terminating her "at will," therefore mandating 

a "just cause" requirement. 

As to the alleged representations made after the agreements 

were entered into, relative to job performance and terms, 

consideration of these would violate 5 28-2-1602, MCA. An 

agreement made in writing cannot be altered except in writing or by 

an executed oral agreement, and not otherwise. This is the public 

policy of the State of Montana. Therefore, in suits of good faith 

and fair dealing relative to termination at the expiration of the 

term, the alleged implied covenant cannot be in direct 

contradiction of the written term contract. See § 28-2-1602, MCA. 

Also see Carma Developers (Cal. 1992), 826 P.2d 70, where the 

Supreme Court of the State of California recently stated how a 

covenant of good faith should be read as follows: 

We are aware of no reported case in which a court 

has held the covenant of good faith may be read to 

prohibit a party from doing that which is expressly 

permitted by an agreement. On the contrary, as a general 

matter, implied terms should never be read to vary 

express terms. (Tanner V. Title Ins. & Trust Co. (1942) 

20 Cal.2d 814, 824, 129 P.2d 383; see, Wal-Noon Cor~. v. 

sill (1975) 45 Cal.App.3d 605, 613, 119 Cal.Rptr. 646.) 

"The general rule [regarding the covenant of good faith] 

is plainly subject to the exception that the parties may, 
by express provisions of the contract, grant the right to 

engage in the very acts and conduct which would otherwise 

have been forbidden by an implied covenant of good faith 

and fair dealing. . . . [q]This is in accord with the 

general principle that, in interpreting a contract 'an 

implication . . . should not be made when the contrary is 

indicated in clear and express words. I 3 Corbin, 

Contracts, !j 564, p. 298 (1960). . . . [BIAS to acts and 

conduct authorized by the express provisions of the 

contract, no covenant of good faith and fair dealing can 

be implied which forbids such acts and conduct. And if 

defendants were given the right to do what they did by 

the express provisions of the contract there can be no 

breach. (VTR, Incorporated v. Goodyear Tire & Rubber 

ComDanv (S.D.N.Y. 1969) 303 F.Supp. 773, 777-778.) 

We agree with the analysis in Carrna. No obligation can be 

implied which would result in the obliteration of a right expressly 

given under a written contract. See Gerdlund v. Electric 

Dispensers International (1987), 190 Cal.App.3d 263, 235 Cal.Rptr. 

279. The implied covenant applies to both employer and employee 

relative to a contract. See Barrett v. Asarco (1988) , 234 Mont. 

229, 763 P.2d 27. The right of workers to have a contract which is 

governed by Montana law and to have their express rights therein 

set forth and enforced, also cannot be obliterated by alleged 

contradictory objective manifestations supported by oral testimony. 

Farris argues that Stark v. Circle K Corp. (1988), 230 Mont. 

468, 751 P.2d 162, and Prout v. Sears, Robuck and Co. (1989), 236 

Mont. 152, 772 P.2d 288, apply here. In both cases the employee 

was an at-will employee and had signed written agreements that they 

could be terminated with or without cause. In Stark, the alleged 

reason for discharge was insubordination, and in Prout, for 

falsification of time sheets. Both discharges were stated to be 
for cause. In Stark we allowed the jury to decide whether the 

covenant of good faith and fair dealing was breached in view of all 

the evidence as to whether or not the employer had cause and had 

followed its own policies. In Prout we gave effect to the 

written agreements and said the employer could fire without cause 

under the agreements, but that if it asserted the termination was 

for cause, the employee must have an opportunity to prove that the 

cause stated was false; and among the issues there was a factual 

question of the falsity of the cause which precluded summary 

judgment . 

The eventual determination of these factual issues in Stark 

and Prout did not and would not contradict the express wording of 

the respective agreements. The application of the implied covenant 

addressed the interpretation of the words "with cause" and the 

discretion of the employer thereunder. 

For the reasons stated above, we affirm the District Court on 

this issue. 

I I 

Did the District Court err in dismissing the wrongful 

discharge claim and the claim under the Wrongful Discharge From 

Employment Act? 

The District Court found that the language of the contract at 

issue was clear and unambiguous. Further it found that non-renewal 

was permissible under the contract. Additionally, the District 

Court found that the Commissioner followed the defendants' 
personnel policies in effect at the time. Relying on Nordlund v. 

School District No. 14 (1987), 227 Mont. 402, 738 P.2d 1299, the 

District Court concluded the act of the Commissioner was not a 

wrongful discharge. 

Farris argues that the personnel policies and regulations 

allowed the commissioner to deprive her of the remedies available 

under the Wrongful Discharge From Employment Act. This is because 

the regulations and notice requirements allow the Commissioner to 

circumvent the just cause requirement under the Act. Section 39-2- 

901, MCA, et seq., contains Montana's Wrongful Discharge From 

Employment Act. The purpose of the Act was to set out certain 

rights and remedies with respect to wrongful discharge. § 39-2- 

902, MCA. The Act was meant to preempt common law remedies. 5 39- 

2-913, MCA. Section 39-2-904, MCA, provides in part: 

A discharge is wrongful only if: . . . (2) the discharge was not for good cause . . . (3) the employer violated the express provisions of 

its own written personnel policy. 

Farris argues that the Act imposed a just cause requirement on all 

employment relationships in place of common law remedies. Further, 

she argues that the Commissioner, by unilaterally adopting the 

regulation authorizing him, with adequate notice, not to renew a 

professional contract, violates the public policy of just cause 

under the Act. Farris relies on Portable Embryonics v. J. P. 

Genetics (1991), 248 Mont. 242, 810 P.2d 1197, for the proposition 

that the Commissionerls adoption of these regulations has an 

illegal effect because it violates public policy and is therefore 
unenforceable. 

In Portable the defendants were performing bovine embryo 

transfers. They were without veterinary licenses in violation of 

Montana law. We held that due to the illegality, the entire 

contract was void. Portable at 245, 810 P.2d at 1199. 

Here the Act itself excludes from the provisions of the Act 

the discharge of an employee covered under certain written 

agreements. Section 39-2-912, MCA, of the Act provides in part: 

This part does not apply to a discharge: . . . (2) of an employee covered by a written collective 

bargaining agreement or a written contract of ern~lovment 

for a sgecific term. (Emphasis added.) 

The District Court found that the contract in question was a 

written contract for a specific term as contemplated under the Act. 

Therefore, the Act was not applicable. We agree with the District 

Court. 

Farris also essentially argues that the Commissioner, by 

adopting regulations allowing him to hire employees under specific 

term contracts, can escape the just cause requirements imposed 

under the Act. The effect of this is to terminate an employee by 

simply not entering into a new contract. Nothing in our law 

forbids the parties here from entering into such a contract where 

the contract is exempted from the Act. We have previously upheld 

the discretionary rights of employers to non-renew specific term 

contracts without a showing of good cause. Leland v. Heywood 

(19821, 197 Mont. 491, 497-4530, 643 P.2d 578, 581-582. In addition 

no other violations of public policy have been asserted which would 

give rise to a wrongful discharge claim. 

10 
For the reasons set forth above, we affirm the District Court 

on this issue. 

I11 

Did the District Court err in finding appellant had no 

entitlement to property under a written contract for a specified 

term when the contract is not renewed at the expiration of the 

term? 

Farris based her rights as to a property interest on the 

breach of the implied covenant of good faith and fair dealing and 

wrongful discharge and inasmuch as she failed on these issues, the 

question is moot. 

For the reasons set forth in the opinion, we affirm the 

judgment of the District Court. - 

We Concur: 

Justices 
~ustice William E. Hunt, Sr., dissents. 

I dissent. The majority decision of the Court today deals a 

devastating blow to Montana workers. Under the holding of this 

case, an employer may make significant oral representations to an 

employee concerning the terms of the employment, induce the 

employee to sign a written contract with provisions contrary to the 

oral representations on the basis that the written contract is only 

a formality, and then completely avoid all liability for the oral 

misrepresentations which induced the employee to sign the written 

contract in the first place. The majority opinion prohibits an 

employee from even presenting evidence of the wrongdoing, 

encourages employers to deal dishonestly with employees, and leaves 

a large segment of the working population (destined to grow larger 

as employers familiarize themselves with the majority opinion) 

without any legal recourse. The decision is not mandated by 

existing law and is an unacceptable shift in the balance between 

the rights and protections of employees and employers. 

This Court must accept as true all facts well-pled by the 

appellant in her complaint. Appellant alleges that she was given 

objective manifestations of job security beyond the time specified 

in the written contract. Appellant argues on appeal that she 

relied upon these extrinsic objective manifestations in deciding to 

accept employment with respondents. Further, appellant contends 

she was told that the written contract of employment, which 

contained terms contraryto the extrinsic oral representations, was 

merely a formality. Under this factual situation, the matter 
should not have been dismissed on respondents' Rule 12 (b) (6) motion 

to dismiss. Appellant should have been allowed to present evidence 

of the extrinsic oral representations at trial for a determination 

of the merit of her claim for breach of the implied covenant of 

good faith and fair dealing. 

Every contract entered into in Montana, regardless of type, 

contains an implied covenant of good faith and fair dealing. Story 

v. City of Bozeman (1990), 242 Mont. 436, 450, 791 P.2d 767, 775. 

The majority correctly points out that a breach of the underlying 

contract is not a prerequisite to a breach of the implied covenant 

of good faith and fair dealing. Ston, 791 P.2d at 775. In this 

instance, appellant is not alleging a breach of an express 

contractual term, but is contending that respondents breached the 

covenant of good faith and fair dealing by terminating her 

employment in a manner inconsistent with the representations made 

to her concerning job security. 

In light of the facts in this case and the applicable law, it 

is clear that appellant has a cause of action for breach of the 

covenant of good faith and fair dealing, but the majority concludes 

that all the evidence necessary for appellant to present her case 

is excluded by the parol evidence rule found at 5 28-2-904, MCA. 

However, 28-2-905(2), MCA, provides an exception to the parol 

evidence rule which is relevant in this case. Section 28-2-905(2), 

MCA, provides in part that: 

This section does not exclude other evidence of the 

circumstances under which the agreement was made or to 
which it relates . . . or other evidence to explain . . . fraud . 

Additionally, § 28-2-1611, MCA, provides that: 

When, through fraud or a mutual mistake of the 

parties or a mistake of one party while the other at the 

time knew or suspected, a written contract does not truly 

express the intention of the parties, it may be revised 

on the application of a party aggrieved so as to express 

that intention, so far as it can be done without 

prejudice to rights acquired by third persons in good 

faith and for value. 

The exception to the parol evidence rule for extrinsic 

evidence of fraud is well-established and long-standing, not just 

in Montana, but throughout the nation. It is clear that: 

It was never intended that the parol evidence rule could 

be used as a shield to prevent the proof of fraud, or 

that a person could arrange to have an agreement which 

was obtained by him through fraud exercised upon the 

other contracting party reduced to writing and formally 

executed, and thereby deprive the courts of the power to 

prevent him from reaping the benefits of his deception 

and chicanery. 

37 Am. Jur. 2d, Fraud and Deceit, § 451. Appellant did not bring 

a cause of action specifically alleging fraud. Instead, appellant 

brought an action for breach of the implied covenant of good faith 

and fair dealing resulting from misrepresentations made by 

respondents. In terms of the rationale underlying the fraud 

exception to the parol evidence rule, it should make no difference 

whether a plaintiff in a given case brings an action based on 

misrepresentations under a theory of fraud or breach of the 

covenant of good faith and fair dealing. The rationale for the 

exception to the parol evidence rule applies equally to both 

situations. In either case, there is an allegation that false 
representations have been made which can only be proven by evidence 

extrinsic to the contract. Sheer necessity dictates such evidence 

must be allowed. This is the very essence of the exception to the 

parol evidence rule. 

On appeal, respondents contend that allowing appellant the 

opportunityto present evidence that oral representations were made 

which were contrary to the written contract would be nothing short 

of a "revolution" in Montana contract law. On the contrary, there 

is nothing revolutionary in allowing one party to a contract to 

present evidence that material oral misrepresentations induced the 

party to enter into the contract. The majority opinion concludes 

its discussion of this issue by stating that Ifin suits of good 

faith and fair dealing relative to termination at the expiration of 

the term, the alleged implied covenant cannot be in direct 

contradiction of the written term contract. This statement is 

apparently based on the majority's holding that the parol evidence 

rule excludes all evidence that would show that in fact 

representations were made in contradiction of the written term 

contract. 

In Nordlund v. School District No. 14 (1987), 227 Mont. 402, 

738 P.2d 1299, this Court was faced with a similar factual 

situation. In Nordlund, an employee brought suit for breach of the 

covenant of good faith and fair dealing following the nonrenewal of 

his specific term written contract of employment. We affirmed the 

District Court's decision against Nordlund, partially on the basis 

that Nordlund could prove no set of facts from which a breach of 
the implied covenant could be proven. The par01 evidence rule was 

not mentioned by the Court. 

In Stark v. Circle K Corporation (1988), 230 Mont. 468, 751 

P.2d 162, an employee brought suit for breach of the implied 

covenant of good faith and fair dealing in the termination of his 

employment. In Stark, there was a written contractual provision 

providing that he could be terminated with or without cause. A 

jury returned a verdict in favor of Stark. In affirming the jury 

verdict, this Court stated that "[wle find the evidence 

considerably more than sufficient for the jury to find that Stark 

had an objectively reasonable belief that he would be fired only 

for good cause." Stark, 751 P.2d at 166. The employer in Stark 

argued that oral representations could not overcome the written 

contractual provision that the employment could be terminated with 

or without cause. This Court's response to that argument is 

relevant to the present case. We stated: 

It is alleged that the written contractual provision 

allowing termination without cause cannot be modified by 

oral representations which would give rise to a 

reasonable expectation of anything but "at will" 

employment. Circle K misunderstands the nature of good 

faith and fair dealing. 

In Gates v. Life of Montana Zmurance Co. (1982) , 196 Mont. 

178, 638 P.2d 1063 (Gates I), we recognized that the 

covenant of good faith and fair dealing is applicable to 

employment contracts. The covenant is implied as a 

matter of law based on the public policy of this State. 

It does not depend on contractual terms for its 

existence, nor is the covenant of good faith and fair 

dealing subject to contractual waiver, express or 

implied. See § 28-2-701(2), MCA. "The duty arises out 

of the employment relationship yet the duty exists apart 

from, and in addition to, any terms agreed to by the 
parties. l1 Gates v. Lqe of Montana Imurance Co. ( 1983 ) , 2 05 

Mont. 304, 668 P.2d 213, 214, 40 St.Rep. 1287, 1289 

(Gates II) . Despite the express contract, the question of 

whether the "covenant of good faith and fair dealing is 

implied in a particular case depends upon the objective 

manifestations by the employer giving rise to the 

employee's reasonable belief that he or she has job 

security and will be treated fairly. Dare v. Montana 

PetroEeumMarkztingCo. (Mont. 1984), 687 P.2d 1015, 1020, 41 

St.Rep. 1735, 1739. 

The record demonstrates Stark experienced objective 

manifestations reasonably giving rise to a belief of job 

security. 

Stark, 751 P.2d at 166. The parol evidence rule was not mentioned 

in Stark. This same analysis was later applied in Prout v. Sears, 

Roebuck and Co. (1989), 236 Mont. 152, 772 P.2d 288. 7: believe 

this Court should follow the precedent set in these and other past 

Montana cases, as well as the statutory exception to the pard 

evidence rule and allow appellant the opportunity to present her 

case. 

The application of the parol evidence rule in this case to 

exclude the extrinsic oral representations is unduly harsh, 

formalistic, and contrary to the very spirit and rationale upon 

which the rule is grounded. 

Appellant should be able to present her evidence concerning 

the alleged breach of the implied covenant of good faith and fair 

dealing. If appellant prevails, she is entitled to recover her 

contract damages as provided in Storv. Appellant also contends 

that according to Storv the employer/employee relationship is a 

"special relationship," for which the breach of the covenant may 

allow tort damages. While this Court, in Gates v. Life of Montana 
Insurance Co. (1983), 205 Mont. 304, 668 P.2d 213, stated that the 

employer/employee relationship is similar to the duty to act in 

good faith in discharging insurance contractual obligations, we 

have not explicitly held that it is a special relationship under 

the criteria set out in w. In order to recover damages in 

tort, appellant must satisfy the five criteria set out in Story. 

The question of whether a special relationship exists should be 

presented at trial in accordance with the guidelines set out by 

this Court in Storv wherein we stated that: 

If the facts of the special relationship are 

undisputed as to whether there is a special relationship, 

it is a question of law for the court to decide. If 

substantial evidence is presented supporting each and all 

of the above essential elements and such evidence is 

controverted in whole or in part, there arises 

appropriate questions of material fact to be submitted to 

the jury. If substantial evidence is not presented in 

support of each and all of the essential elements, the 

court shall direct there is no special relationship. 

The decision to exclude all extrinsic oral representations in 

these situations on the grounds that allowing such evidence would 

undermine the sanctity and security of written contracts, is both 

draconian in nature and altogether unnecessary. A decision which 

protects both employers and the sanctity of written contracts, 

while still allowing employees some opportunity to seek redress, 

could have been fashioned in this case and should have been sought 

after by the majority. Employers who have acted honestly and in 

good faith with their employees will be protected by our jury 

system of trials. Rule 11 sanctions are a mechanism already in 
place to protect against suits which are frivolous and without 

merit. Contract provisions can assure adequate compensation for 

attorney fees and costs to employers prevailing in these actions. 

On the other hand, employers who do not conform their conduct to 

comply with the covenant of good faith and fair dealing do not 

deserve the protection of the law. However, for some unknown 

reason, the majority decision extends an absolute protection to 

employers who violate the covenant of good faith and fair dealing, 

insulating them from all liability for their wrongful conduct. 

This result is both unnecessary and unacceptable. I would reverse 

and remand for a trial of this matter. 

Justice 

Justice Terry N. Trieweiler joins in the foregoing dissent of 

Justice Hunt.