IN THE SUPREME COURT OF THE STATE OF MONTANA 

TAMMY PROUT, 

Plaintiff and Appel3ant, 

-vsSEARS, ROEBUCK and COMPANY, 

and TERRY McGINNIS, 

Defendants and Respondents. 

APPEAL FROM: District Court of the First Judicial District, 

In and for the County of Lewis and Clark, 

The Honorable Henry Loble, LTudge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Randy K. Dix argued, Helena, Montana 

For Respondent: 

John Sullivan argued; Hughes, Kellner, Sullivan & Al.ke, 

Helena, Montana 

Submitted: November 28, 1988 

Decided: February 16, 1989 

Filed: 
Honorable Frank I. Haswell, Retired Chief Justice, delivered 

the Opinion of the Court. 

In this action for wrongful termination of employment, 

the underlying issue is whether there is a genuine issue of 

material fact precluding summary judgment. The District 

Court held there was none. We disagree. 

Plaintiff Tammy Prout, an employee of the Sears catalogue store in Helena, Montana, was fired by Terry McGinnis, 

the store manager, on December 2, 1986. The reason for 

termination given by Sears to Tammy was falsification of her 

time sheets showing the hours she worked on two occasions. 

She sued Sears and McGinnis for wrongful termination of her 

employment, alleging breach of the implied covenant of good 

faith and fair dealing, negligent firing, estoppel and negligent infliction of emotional distress. The defendants answered claiming that Tammy was an employee at-will subject to 

termination for any reason deemed sufficient by Sears, without any reasonable expectation of job security; accordingly, 

the implied covenant of good faith and fair dealing did not 

exist in the employment relationship between Sears and Tammy 

and cannot be used as a basis for her claim of wrongful 

discharge. 

Following pretrial discovery and entry of a pretrial 

order pursuant to Rule 16, M.R.Civ.P., the District Court of 

Lewis and Clark County granted the defendants' motion for 

summary judgment holding there was no genuine issue of material fact presented and that defendants were entitled to 

judgment as a matter of law. 

The undisputed facts disclose that plaintiff went to 

work at the Sears catalogue store in Helena on a part-time 

basis when she was a sixteen-year-old high school student. 

At that time she signed an employment application reading in 

pertinent part: 
"In consideration of my employment, I 

agree to conform to the rules and regulations of Sears, Roebuck & Co. and my 

employment and compensation can be 

terminated with or without notice, at 

any time, at the option of either the 

company or myself. I understand that no 

unit manager or representative of Sears, 

Roebuck & Co. other than the president 

or vice president of the company, has 

any authority to enter into any agreement for employment for any specified 

period of time, or to make any agreement 

contrary to the foregoing. 

When plaintiff was hired four days later she signed a 

personal record card containing the following language: 

"In consideration of my employment, L 

agree to conform to the rules of Sears, 

Roebuck & Co. and my employment and 

compensation can be terminated, with or 

without cause and with or without notice, at any time, at the option of 

either the company or myself. 

June 4, 1979. /s/ Tammy Sharpe [Prout]" 

The agreed facts in the pretrial order further indicate 

that Tammy was initially hired as a sales person but a little 

over two years later, on August 10, 1981, she was promoted to 

the position of machine operator and given a twenty cent per 

hour increase in pay due to the higher technical skills 

required of the machine operator's position. On January 2, 

1983, Tammy was promoted to the position of Division Head A 

(supervisor) and received a pay increase of $1.50 per hour. 

The agreed facts further state that "Tammy Prout was given 

these promotions because her supervisors were generally 

satisfied with her job performance." On December 2, 1986, 

Terry McGinnis advised Tammy that her employment with Sears 

was terminated effective that date. 
During Tammy's employment at the Helena Sears store 

Sears changed managers five times. At least three of these 

managers gave performance evaluations on Tammy reporting that 

she had difficulties with absenteeism and tardiness which 

needed attention and correction. These reports and other 

warnings given to Tammy were both written and verbal. The 

reason given by Sears to Tammy for her termination was falsi-. 

fication of two time sheets although McGinnis, the manager, 

also claimed he asserted absenteeism and tardiness. 

At the heart of this dispute is Sears's time-keeping 

and payment system. Sears paid its employees in the Helena 

store every Friday for the preceding week on the basis of 

time sheets due at the central payroll office each Thursday 

for the entire work week. Thus, if an employee was scheduled 

to work on Friday and Saturday, the employee would enter the 

scheduled hours for those days on the Thursday time sheet and 

be paid accordingly on Friday of the following week. If, in 

fact, the recorded Friday and Saturday hours were not worked 

as scheduled, the employee was supposed to teletype the 

correction of hours to the central payroll office the following Monday. 

The weekly time sheets signed by Tarnmy contained this 

language : 

"I have recorded my actual starting and 

quitting time each day. Any falsification will subject me to immediate 

dismissal." 

This was signed by Tammy each week as she sent in her weekly 

time sheet. 

Tammy believed that it was an acceptable practice to 

make up the necessary hours during the next work week rather 

than to teletype the corrections into the central payroll 

office on the Monday following a missed day. Tammy and two 
former employees of the Helena Sears store testified by 

deposition this was an accepted store practice under two 

prior store managers. The existence of this practice was 

disputed by defendant McGinnis and several current employees. 

During two pay periods in November, 1-986, Tammy missed 

time at work which she had recorded on her time sheets as 

having worked. She did not teletype in the Monday corrections adjusting her pay. Tammy was paid for these hours 

which were missed. She was attempting to make up the hours 

missed on a compensatory time basis. Both of the two incorrect time sheets were observed by manager McGinnis, and he 

promptly fired Tammy for this reason when she returned to 

work after receiving the pay check under the second inaccurate time sheet. 

The pretrial order lists the following issues of fact, 

among others, that remain to be litigated upon the trial: 

1. Whether defendants acted unfairly and in bad faith 

towards plaintiff; 

2. Whether defendants acted in a negligent manner; 

3. Whether defendants negligently inflicted emotional 

distress upon plaintiff; 

4. Whether defendants are equitably estopped from 

relying upon the language in the employment application and 

personal record card regarding termination without cause or 

notice; 

5. Whether defendants led plaintiff to believe that 

her time-keeping procedures were acceptable to them, and, if 

so, whether defendants are equitably estopped from terminating plaintiff for allegedly falsifying her time sheets; 

6. Whether plaintiff acted negligently concerning her 

termination. 

One of the issues of law listed in the pretrial order 

is whether the provisions of plaintiff's employment 
application and personal record card bar the claims asserted 

in this lawsuit. The pretrial order notes that this legal 

issue is the subject of a pending motion for summary judgment 

by defendants. 

The gist of the District Court's ruling on the motion 

for summary judgment is contained in the followinq language: 

"The sole issue decided by the Court is 

that plaintiff's claims are precluded as 

a matter of law by the language of 

plaintiff's employment application and 

her personal record card. That language 

in clear and unequivocal terms notified 

plaintiff that her employment could be 

terminated at any time and for any 

reason, and defeats the claims plaintiff 

is attempting to assert in this case." 

At the outset, we note that this case is governed by 

the law that existed at the time of firing, December 1986, 

and is no way affected by legislation enacted by the 1987 

legislature. 

Montana's at-will employment statute provides in pertinent part : 

"TERMINATION AT WILL. An employment 

having no specified term may be terminated at the will of either party on 

notice to the other, except where otherwise provided by [statute] ." Section 

39-2-503, MCA. 

Notice prior to termination is not required. Gates v. 

Life of Montana Insurance Company (19821, 196 Mont. 178, 638 

P.2d 1063 (Gates I) . None of the statutory exceptions are 

applicable to this appeal. 

Because of the harshness of this statute when applied 

literally and mechanically to all at-will employment terminations (Nye v. Dept. of Livestock (1982), 196 Mont. 222, 639 

P.2d 498), and because of abuses inherent in employment 

relationships between parties of unequal bargaining power 
(Dare v. Montana Petroleum Marketing Co. (1984), 212 Mont. 

274, 687 P.2d 1015; Stark v. The Circle K Corporation (Mont. 

1988), 751 P.2d 162, 45 St.Rep. 3771, courts in Montana and 

elsewhere, to achieve justice in a wide variety of employment 

situations, have established exceptions to the unlimited 

discretion of the at-will employer to discharge his employees. We need not concern ourselves here with a survey and 

exposition of the law in this area nationally or in other 

jurisdictions, as Montana has proven to be a fertile field 

for such litigation and has developed its own law and precedent accordingly. 

Aside from statutory enactments, Montana courts have 

recognized four exceptions to the right of the at-will employer to discharge its employees: 

1. When the discharge violates public policy: Keneally 

v. Orgain (1980), 186 Mont. 1, 606 P.2d 127; Staudohar v. 

Anaconda Co. (D. Mont. 1981), 527 F.Supp. 876; Nye v. Dept. 

of I~ivestock, supra. 

2. When the discharge breaches an express or implied 

promise of job security: Gates I, supra; Dare v. Montana 

Petroleum Marketing Co., supra; Stark v. The Circle K 

Corporation, supra. 

3. When the discharge breaches the implied covenant of 

good faith and fair dealing: Gates I, supra; Gates v. Life 

of Montana Insurance Co. (1983), 205 Mont. 304, 668 P.2d 213 

(Gates 11) ; Dare, supra; Crenshaw v. Bozeman Deaconess 

Hospital (1984), 213 Mont. 488, 693 P.2d 487; Malloy v. 

Judges Foster Home Program (Mont. 1987), 746 P.2d 1073, 44 

St.Rep. 1996; Stark, supra. 

4. Negligent discharge: Crenshaw, supra. 

These four exceptions frequently overlap. For a good 

exposition of the Montana law in this area, see Hopkins and 

Robinson, - Employment - At-Will, Wrongful Discharge, -- and the 
Covenant -- of Good Faith -- and Fair Dealing 7 

in Montana, Past, 

Present, and Future, 46 Mont. L. Rev. 1 (1985). 

In this case we have an express, written, at-will 

employment relationship between Sears and Tammy, giving Sears 

the right to terminate her employment, without notice, without cause and providing that any falsification of time sheets 

would subject Tammy to immediate dismissal. We have a pretrial order approved both as to form and content by the 

attorneys for the respective parties, signed and entered by 

the district judge, and listing what the parties considered 

eight issues of fact remaining to be litigated at the trial. 

Fact issues listed include whether the defendants acted 

unfairly and in bad faith toward the plaintiff; whether 

defendants acted negligently concerning plaintiff's termination; whether defendants led plaintiff to believe that her 

time-keeping procedures were acceptable to them, and, if so, 

whether defendants are equitably estopped from terminating 

plaintiff for allegedly falsifying her time sheets; and 

whether defendants are equitably estopped from relying upon 

the language in the emplovment application and personal 

record card regarding termination without cause or notice. 

At first blush it would appear that at least some of these 

fact issues are really issues of law and that some of them 

are mixed questions of fact and law. However, the parties 

treated them as issues of fact and, underlying all these 

listed issues, are numerous factual disputes concerning 

Tammy's job performance, the reason for and manner in which 

she was discharged, the employer's practice concerning 

time-keeping procedures, and related matters. 

The District Court held as a matter of law that the 

language of Tarnmy's employment application and personal 

record card barred her claims in this action, thus rendering 

the fact issues listed in the pretrial order irrelevant. 
In deciding this appeal we need not further detail the 

evidence developed in pretrial discovery. The parties concede the existence of numerous fact issues for litigation at 

trial by approving the content of the pretrial order. These 

must be resolved to determine whether plaintiff's claims fall 

into any of the four exceptions to the right of the at-will 

employer to discharge its employees. This precludes summary 

judgment. 

Our decision in this appeal turns on the facts peculiar 

to this case. It is not to be read as a carte blanche to the 

jury in every wrongful discharge case. The distinguishing 

characteristics in this case are the agreement by the attorneys that the listed fact issues in the pretrial order "remain to be litigated upon the trial"; the alleged conduct of 

the employer in discharging its employee for dishonesty 

consisting of a time-keeping practice that allegedly had been 

condoned on prior occasions and which allegedly made it 

difficult, if not impossible, for the discharged employee to 

secure further employment; and the alleged negligence of the 

employer. In this case we neither expand the exceptions to 

the at-will rule nor create jury issues out of thin air, but 

simply apply Montana precedent to this case. 

At the same time we give effect to the employment 

application and record. card. These give the employer the 

right to fire without cause. They do not give the employer 

the right to fire for a false cause. If the at-will employer 

who can fire without cause under the employment contract 

chooses instead to fire an employee for dishonesty, the 

discharged employee must be given the opportunity to prove 

the charge of dishonesty false. 

The foregoing limitation on an employer's right to fire 

without cause was recently stated by Justice Harrison: 
"Employers can still terminate untenured 

employees at will and without notice. 

They simply may not do so in bad faith 

or unfairly without becoming liable for 

damaqes." Crenshaw v. Bozeman Deaconess 

Hospital, 693 P.2d at 492. 

We vacate the summary judgment, dismiss the claim for 

negligent infliction of emotional distress as having insufficient basis, and remand the balance of the case to the District Court for further proceedinqs. 

3;Ac4,, W',&< 

Hon. Frank 'I. Haswell, sitting 

in place of Justice William E. 

Hunt, Sr. 

We concur: 

Chief Justice 
Mr. Justice Fred J. Weber dissents as follows: 

I 

The majority has not addressed the key legal issue 

presented in this case. Where the Sears-Prout written contract is clear and unambiguous, can the covenant of good 

faith and fair dealing be implied in such a manner as to 

negate the express contractual terms and allow recovery of 

tort damages? 

The District Court concluded that the plaintiff's claims 

were precluded as a matter of law because of the clear and 

unambiguous language of the employment application and personal record card. On appeal, the majority reverses the 

District Court, concluding that there are issues of fact 

which preclude the granting of summary judgment. To reach 

that conclusion, it is necessary to ignore the terms of the 

written contract because those terms would preclude a factual 

inquiry into Sears' termination of Tammy Prout. The majority 

opinion implies that the terms of Sears1 employment contract 

can be disregarded by a court of law. The majority has also 

implied that the employment at-will statute has no significance here. I do not agree with such a result. For that 

reason, I believe that it is necessary to critically examine 

the Montana cases and to compare our analysis of the law with 

that of other jurisdictions. 

I1 

In the 15001s, the English common law presumed that an 

employment contract with an annual salary computation was for 

a one year term. In the early 19th century, American courts 

borrowed the English rule, concluding that the rule was 

consistent with the predominant master-servant employment 

relationships of that time. 
Then, in apparent response to economic changes sweeping 

the country, American courts abandoned the English rule and 

adopted the employment-at-will doctrine. This became the 

common law doctrine generally followed in the United States. 

Under that doctrine an employer was free to fire an employee 

hired for an indefinite term for good cause, no cause, or 

even for cause morally wrong, without being guilty of legal 

wrong. See generally, Wagonseller v. Scottsdale Memorial 

Hospital (Ariz. 1985), 710 P.2d 1025. 

In 1895 Montana enacted its termination at-will statute 

providing: 

An employment having no specified term may be 

terminated at the will of either party on notice to 

the other . . [with exceptions not here 

applicable] 

That section was adopted from the Field Civil Code, and has 

remained essentially unchanged until the 1987 enactment of 

the Wrongful Discharge from Employment Act, codified as 

SS 39-2-901 to 914, MCA. The facts here preceded the enactment of that Act, which therefore does not apply in this 

case. 

As pointed out in Wagonseller, the trend in the United 

States has been to create exceptions to the at-will employment doctrine with the result that the employer's unlimited 

discretion to discharge at will has been limited. As pointed 

out in the majority opinion, most jurisdictions including 

Montana recognize an exception based on the employer's violation of public policy. Several jurisdictions have recognized 

an exception based on an implied-in-fact promise of employment for a specified term. Other jurisd.ictions have recognized an exception where there is an implied-in-law contract 

term known as the impl-ied covenant of good faith and fair 

dealing. 
California has been one of the leading jurisdictions 

recognizing both an implied-in-fact contract to discharge 

only for good cause (See, Pugh v. See's Candies, Inc. (1981), 

116 Cal.App.3d 311, 171 Ca1.Rptr. 917), and the implied 

covenant of good faith and fair dealing in employment contracts (See, Cleary v. American Airlines, Inc. (1980), 111 

Cal.App.3d 443, 168 Cal.Rptr. 722). The court in Cleary held 

that an employer's breach of the covenant would support an 

employee's action in either tort or contract. That theory 

was adopted in a number of other appellate court decisions of 

the state of California. California reversed that position 

by its Supreme Court decision dated December 19, 1988, Foley 

v. Interactive Data Corp., (Cal. 1988), 765 P.2d 3?3. 

In Foley the majority made a detailed review of cases in 

California and elsewhere. In a similar way the dissents 

carefully reviewed the contrary positions in detail-. Foley 

is an excellent case through which to study the development 

of law in this entire area. The California Supreme Court 

concluded that an action based upon the implied covenant of 

good faith and fair dealing was an action upon contract and 

that tort damages were not recoverable. The Court considered 

the application of bad faith insurance cases to the employment context and stated: 

In our view, the underlying problem in the 

line of cases relied on by plaintiff lies in the 

decisions' uncritical incorporation of the insurance model into the employment context, without 

careful consideration of the fundamental policies 

underlying the development of tort and contract law 

in general or of significant differences between 

the insurer/insured and employer/employee relationships. When a court enforces the implied covenant 

it is in essence acting to protect "the interest in 

having promises performed" (Prosser, Law of Torts 

(4th ed. 1971) p. 613)--the traditional realm of a 

contract action--rather than to protect some 
general duty to society which the law places on an 

employer without regard to the substance of its 

contractual obligations to its employee. . . . The 

covenant of good faith is read into contracts in 

order to protect the express covenants or promise 

of the contract, not to protect some general public 

policy interest not directly tied to the contract's 

purposes. The insurance cases thus were a major 

departure from traditional principles of contract 

law. 

765 P. 2d at 393. I agree with the foregoing analysis and 

with the conclusion reached by the Court: 

We therefore conclude that the employment 

relationship is not sufficiently similar to that of 

insurer and insured to warrant judicial extension 

of the proposed additional tort remedies in view of 

the countervailing concerns about economic policy 

and stability, the traditional separation of tort 

and contract law, and finally, the numerous protections against improper terminations already afforded employees. 

765 P.2d at 396. After its careful review of the numerous 

California appel-late decisions holding to the contrary, the 

California Supreme Court then reached the following holding: 

. . . as to his cause of action for tortious breach 

of the implied covenant of good faith and fair 

dealing, we ---- hold that tort remedies -- are not avail- 

-- able for breach -- of the implied covenant in an 

employment contract to employees who allege they 

have been discharged in violation of the covenant. 

(Emphasis supplied. ) 

765 P. 2d at 401. As will more fully appear in this dissent, 

I agree with the holding of the California Court. California 

joined the majority of jurisdictions in the United States 

which have either expressly rejected the notion of tort 

damages in such cases or impliedly done so by rejecting the 

covenant in employment at-will contracts. Under the majority 

opinion in t-his case, Montana remains one of the few, if not 
the only jurisdiction, which would allow recovery of tort 

damages for a breach of the implied covenant. I conclude 

that such a result is inconsistent with the general principles of contract law. 

I11 

As I review the cases of other states and compare them 

to Montana's cases, I believe it is essential to reanalyze 

our position in previous cases with regard to the covenant of 

good faith and fair dealing and the right of recovery in 

tort. 

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

178, 638 P.2d 1063, (Gates I) the majority concluded that the 

employee entered into an employment contract terminable at 

will; the employer later promulgated a handbook of personnel 

policies with termination procedures; the employer presumably 

sought to secure an orderly, cooperative and loyal work force 

by these uniform policies; the employee then developed the 

peace of mind associated with job security; and if the employer failed to follow its own policies, the peace of mind 

of its employees was shattered. V7e therefore said: 

We hold that a covenant of good faith and fair 

dealing was implied in the employment contract of 

the appellant. There remains a genuine issue of 

material fact which precludes summary judgment, 

i.e. whether the respondent failed to afford appellant the process required and if so, whether the 

respondent thereby breached the covenant of good 

faith and fair dealing. 

638 P. 2d at 1067. The summary judgment was reversed and the 

case was remanded to the lower court. 

As I review that case, I find some contradictions in the 

opinion. We stated that the employee handbook was not a part 

of the plaintiff's employment contract when she was hired and 

could not have been a modification of her contract because 
there was no new and independent consideration. We also 

stated that an employee handbook distributed after the employee is hired does not become a part of the employee's 

contract. These statements seem inconsistent with the holding that "a covenant of good faith and fair dealing was 

implied in the employment contract." We will further discuss 

the question of whether or not a covenant implied in the 

contract is in some manner contractual in nature. 

In Gates v. Life of Montana Ins. Co. (1983) , 205 Mont. 

304, 668 P.2d 213, (Gates 11) , the majority again considered 

the same case and concluded that the jury verdict in favor of 

the plaintiff for $1,891 in compensatory damages and $50,000 

in punitive damages should be affirmed. The majority referred to Lipinski v. Title Insurance Co. (1982), 202 Mont. 

1, 655 P.2d 970, in which this Court held that punitive 

damages could be assessed for a bad faith insurance practice 

in the absence of a statutory provision. The Gates I1 majority further explained that an action for breach of an implied 

covenant of fair dealing at first blush may sound both in 

contract and in tort, but that the duty arises out of the 

employment relationship and yet exists apart from and in 

addition to any terms agreed to by the parties. The majority 

stated that the duty is much like the duty to act in good 

faith in discharging insurance contractual obligations and 

that such a duty is imposed by operation of law and its 

breach should find a remedy in tort. The majority referred 

to a 1906 Indiana case as authority. Without other significant authority the majority concluded: 

We hold that S 27-1-221, MCA, [the section which 

provides that in any action "not arising from 

contract" where the defendant has been guilty of 

oppression, fraud, or malice, the jury may give 

exemplary or punitive damages] only exempts breach 

of contract actions from its provisions. Breach of 
the duty owed to deal fairly and in good faith in 

the employment relationship is a tort for which 

punitive damages can be recovered if defendant's 

conduct is sufficiently culpable. 

668 P.2d at 215. 

This is a key holding which I believe should be reexamined. As pointed out by Justice Gulbrandson in his dissent 

to Gates 11, by allowing punitive damages the majority approved an independent tort of bad faith in at-will employment 

contracts whereas all other jurisdictions do so only when the 

determination violates public policy. In my own dissent I 

pointed out that Gates I1 was an action for the breach of the 

covenant of good faith and fair dealing, arising from the -- 

contract from which that covenant is implied. I pointed out 

that § 27-1-221, MCA, allowed punitive damages in any action 

not arising from contract. I suggested that it seemed clear 

that the breach of the contractual obligation did not justify 

an award of punitive damages under the express terms of the 

statute. 

It is not appropriate in dissent to review all of the 

cases which have considered these theories. However, I do 

refer to Stark ~7. Circle K Gorp. (Mont. 1988), 751 P.2d 162, 

45 St.Rep. 371. While I joined in that opinion, as I again 

review the matter, 1 question the following conclusions 

reached in Stark: that the covenant is implied as a matter 

of law based on the public policy of this state; that it does 

not depend on contractual terms for its existence; that the 

covenant of good faith and fair dealing is not subject to 

contractual waiver, express or implied; and that the duty 

exists apart from and in addition to any terms agreed to by 

the parties. It is important to consider the evidence which 

was hefore the Court in Stark as compared to the present 

case. It is true that in -- Stark there was a provision by 
which the employee agreed that he could be dismissed with or 

without cause. However, there were extensive provisions 

adopted by the employer including a policy guide with regard 

to termination, which Stark's supervisor admitted was the 

policy guide which applied to the termination of Stark. That 

guide, of course, contained many provisions with regard to 

the manner of termination and the just cause requirement.. 

That should be distinguished from the present case where 

there is no evidence that Sears issued any similar employer 

provisions with regard to either just cause or termination. 

As I review the cases from other states, and consider 

both Stark and the present case, I conclude that the type of 

action in both Montana cases more properly should be described as one for the breach of "an implied-in-fact contract" as described in detail in Foley. I approve of the 

California analysis in Foley which pointed out that such 

impl-ied-in-fact contract terms ordinarily stand on equal 

footing with express terms; and concluded there is no analytical reason why an employee's promises to render services or 

his actual rendition of services may not support an employer's promise to refrain from arbitrary dismissal. The California court noted that permitting proof of and reliance on 

implied-in-fact contract terms does not nullify the at-will 

rule, it merely treats such contracts in a manner in keeping 

with general contract law. I agree with the conclusion of 

the California court which found no sound reason to exempt 

the employment relationship from the ordinary rules of contract interpretations which permit proof of implied terms. 

As a result, I conclude in both Stark and the present case 

that a more detailed analysis leads to a conclusion that the 

covenant of good faith is a part of the implied-in-fact 

contract and. should be treated as are other contract cases. 
It then logically follows that tort damages are not 

recoverable. 

In our analysis of the law, we should also consider the 

law previously adopted in Montana as it may apply to the 

present case. In Keith v. Kottas (1946), 119 Mont. 98, 172 

P.2d 306, we quoted from 12 Arn.Jur., p. 505, which stated 

that there cannot be an express and an implied contract for 

the same thing existing at the same time so that no agreement 

can be implied where there is an express one existing. The 

Keith case has been subsequently cited in Weston v. Montana 

State Highway Commission (1981), 186 Mont. 46, 606 P.2d 150 

and McNulty v. Bewley Corporation (1979), 182 Mont. 260, 596 

P.2d 474. This same theory is more clearly restated in 17 

Arn.Jur.2d 649 as follows: 

Intention or meaning in a contract may be manifested or conveyed either expressly or impliedly, and 

it is fundamental that that which is plainly or 

necessarily implied in the language of a contract 

is as much a part of it as that which is expressed. . . . Therefore, whatever may fairly be implied 

from the terms or nature of an instrument is, in 

the eyes of the law, contained in it. 

In addition, this authority states at 17 Am.Jur.2d 652: 

No meaning, terms, or conditions can be implied 

which are inconsistent with the expressed provisions. Expressed stipulations cannot, in general, 

be set aside or varied by implied promises. In 

other words, a promise or covenant is not implied 

where there is an express written contract pro~rision covering it. 

Clearly this contradiction between the theory of an implied 

covenant and the existing written contract provision should 

be considered. Here we have a clear and unambiguous express 

contract which negatives the idea of an implied covenant. 

Both Foley and Waqonseller point out that many jurisdictions 
in consideration of the Sears form of contract have refused 

to allow any form of implied covenant. 

I would therefore conclude that the covenant of good 

faith and fair dealing in Montana is an implied-in-fact 

portion of the contract itself which is subject to general 

contract analysis under the law of Montana. I would also 

conclude that any violation of such an implied-in-fact covenant allows recovery only of contract damages and that punitive damages are not recoverable. 

IV 

In the present case, the District Court concluded that 

the plaintiff's claims were precluded as a matter of law by 

the language of the contract because that language in clear 

and unequivocal terms notified the plaintiff that her employment could be terminated at any time and for any reason, and 

therefore defeated the claims asserted by the plaintiff. The 

majority has chosen not to address this fundamental legal 

issue, instead returning the case to the lower court because 

of the claimed presence of material issues of fact precluding 

summary judgment. I disagree with that procedure. 

Here we have facts which are significantly different 

from Gates I or Stark. In both of those cases there had been 

extensive conduct by the employer from which the covenant of 

good faith properly could be implied. Here, there is no 

evidence of conduct of that nature on the part of the employer. In addition, we have the specific contractual limitation 

which provides that no representative of Sears other than the 

president or vice president has any authority to modify the 

written contract which allows termination with or without 

notice, at any time. Neither Gates I nor Stark had a similar 

contract provision. Here Prout agrees that there was no 

modification of the written contract by the authorized officers of Sears. Under the facts presented for consideration 
at summary judgment, I do not conclude there is a material 

issue of ultimate fact which has been presented by the 

plaintiff. 

In accordance with the Foley analysis, I would add that 

there has been no violation of public policy which justifies 

a tort theory of recovery. I would therefore conclude that 

the District Court should be affirmed because Prout's claims 

are precluded as a matter of law by the language of the 

contract between the employer and the employee, and because 

of the absence of any violation of public policy. 

L 

Chief Justice J.A. Turnage and Justice L. C. Gulbrandson 

concur in the foregoing dissent. 
IN THE SI!PREME COTJRT OF THE STATE OF MONTAFA 5 C 

-s 

03 

a- W 

No. 88-117 1:" -'~f 3 . 

-- - 0 2, 

---- 5 - 

Ci - - ru 2 

TAMMY PFOUT, r 

Appellant, 1 AMENDFEST~T 

! DISSENT #I~TT;CE 

v. ) PART OF, QPI~N 

IF ENTITEE& C~SE 

SEARS, FOERIJCK AND COMPANY 

and TERRY McGINNIS, 

Respondents. 

DATED AD F~ED 

1 APRIL 37, 1989 

Subsequent to this opinion, Sears filed a petition for 

rehearing. In that petition, Sears argues that the majority's emphasis on factual issues contained in the pretrial 

order is erroneous. This is because the interpretation of 

the pretrial order had. not been suggested by either party, 

was not considered by the District Court in granting summary 

judgment, and is a matter which first appears in the majority 

opinion as the basis for reversal. 

The basic issue presented to the District Court and to 

this Court on appeal was whether the language of the employment contract and the employee record card, without evidence 

of modification, precluded the plaintiff's claims as a matter 

of law so that summary judgment was proper? Rased on the 

evidence before it, the District Court concl-uded that the 

plaintiff's claims were precluded as a matter of law and that 

no material issues of fact existed which would render a 

granting of summary judgment improper. A review of the 

materials before the court reveals no facts alleged by the 

plaintiff that she had devel~ped any sense of'job security or 

that her at-will employment contract had been modified in any 

way, either expressly or impliedly. The contested facts 

regarsing Tammy Prout's conduct, her treatment, or Sears' 

timekeeping policies were contained in the pretrial order and 

were expressly reserved pending the motion fcr summary judgment. I conclude that it was improper for this Court to have 
ignored the basic inquiry as to whether plaintiff's claims. 

were precluded as a matter of law, and to focus i~stead on 

factual issues in the pretrial orZer which were secondary to 

the pending motion. Whether Sears is entitled to a rehearing 

on the matter is governed by Rule 34, M.R.App.P. 

Rule 34(2), M.R.App.P., provides that a party is entitled to a rehearing if it can show that the Court has overlooked any questions decisive of this case. By deciding the 

propriety of summary judgment based upon factual issues 

presented in the pretrial order which were understood to be 

reserved pending the motion, the majority has indeed overlooked the basic inqui.ry in this case: whether the plaintiff's claims were precluded. by the at-will employment 

contract which she signed, which remained unmodified, and to 

which there had been no Factual al-legations of job security. 

Had the majority square1.y addressed this issue, I do not see 

how it. could have reached the result in this opinion. 

T vroulr2 grant Sears' petition 'or rehearing an2 allow 

reconsideration ef this case without j.nterpretlng the pretrial order. The basic inquiry as to whether plaintiff's c1.aj.m~ 

are precl.uded as a matter of law should be ad6ressed in 

Zeciding whether summary judgment was proper. 

Mr. Justice L. C. Gu!.brandson j 

amendment to the dissent. 

Mr. Chief Justice J. A. Turnage joins in the foregoing 

amendment to the dissent. 
IN THE SUPREME COURT OF THE STATE OF MONTANA 

No. 88-117 

TAMMY PROUT, 

Plaintiff and Appellant, 

SEARS, ROEBUCK AND 

COMPANY, and TERRY 

McGINNIS, 

Defendant and Respondent. 

ORD 

The petition for rehearing is denied. 

*iJ-4, 

DATED this day of Bplk, 1989. 

zd2 ...B.~G&,JQ Hon. Frank I. ~aswe71, ~etiredchief Justice, sitting in place 

of Mr. ~ustice ~i'lliam E. Hunt 

Mr. Justice Fred J. Weber, Mr. Justice L.C. Gulbrandson, 

and Mr. Chief Justice J.A. Turnage would have granted the petition 

for rehearing and have modified their dissent to address issues 

raised in the petition for rehearing.