Case Name: MARK STORY, d/b/a Mark Story Construction, Plaintiff and Respondent, v. CITY OF BOZEMAN, and Neil Mann, Defendants and Appellants
Court: Montana Supreme Court
Jurisdiction: Montana
Decision Date: 1990-05-03
Citations: 242 Mont. 436
Docket Number: No. 88-504
Parties: MARK STORY, d/b/a Mark Story Construction, Plaintiff and Respondent, v. CITY OF BOZEMAN, and Neil Mann, Defendants and Appellants.
Judges: JUSTICES HARRISON, BARZ, McDONOUGH and WEBER concur.
Reporter: Montana Reports
Volume: 242
Pages: 436–464

Head Matter:
MARK STORY, d/b/a Mark Story Construction, Plaintiff and Respondent, v. CITY OF BOZEMAN, and Neil Mann, Defendants and Appellants.
No. 88-504.
Submitted Oct. 17, 1989.
Decided May 3, 1990.
791 P.2d 767.
Bruce E. Becker, Donald R. Herndon argued, Herndon, Harper and Munro, Bozeman, for defendants and appellants.
Gregory O. Morgan argued, Bozeman, for plaintiff and respondent.

Opinion:
CHIEF JUSTICE TURNAGE
delivered the Opinion of the Court.
The City of Bozeman appeals a jury verdict against it in this suit for breach of a construction contract. The jury awarded plaintiff Story $360,000 in tort damages for breach of the covenant of good faith and fair dealing and $13,236 in contract damages. Story cross-appeals. We reverse and remand for retrial.
The appellant raises two interrelated, dispositive issues. The first issue is whether the District Court erred in refusing to grant defendants' motion for a new trial because the special verdict form was inadequate. The second is whether breach of the covenant of good faith and fair dealing gives rise to tort damages in a breach of contract action.
In November 1985 Story successfully bid to construct two water mains for the City of Bozeman (City). The evidence at the one-week trial showed that there was an error in the City's bid schedule form where it gave the engineer's estimate of the amount of pipe bedding material needed for one of the two water mains. The bid schedule asked for a price on 120 "C.F." (cubic feet) of pipe bedding material. (The contract provided that if more material were needed, the successful bidder would be paid extra.) The evidence at trial indicated that the bid schedule should have read "C.Y.," for cubic yards, and that the other contractors who bid on the project assumed cubic yards. Story testified that he bid under a good faith assumption that only 120 cubic feet of pipe bedding material were estimated as needed on the main, as indicated on the bid schedule. This affected the amount of his bid on that item by a factor of 27, and was undoubtedly one reason he had the low bid on the contract. The City's position was that Story knew all along that the "C.F." was a typo graphical error and that he bid a rate which would be appropriate for cubic yards but that he was holding out .to be paid at a cubic foot rate as a bargaining chip. Story and the City had correspondence and discussions about this matter, but they never resolved it.
Story's construction company began working on the water mains in March of 1986. Story made several requests to the City for time extensions on the job, due to bad weather. The City did not immediately approve or disapprove these requests. It maintained at trial that the weather was normál for that time of year in Bozeman and that most of the requests were not justified. Story contended at trial that, contrary to the advice of the private engineering firm on this project, defendant city engineer Neil Mann was holding the requests for extensions of time as leverage to force Story to accept the City's position on the pipe bedding material. The City eventually approved some of the extensions of time but disapproved most.
The City presented evidence that Story's company did shoddy work on a pipeline which had to be dug up and redone and that at one time during this project, Story moved his crew and equipment to Manhattan, Montana, to work on another project. Story testified that the City had not provided him with appropriate bench marks whére the pipe was mislaid and that it was too wet to work on the project in Bozeman at the time he did the work in Manhattan. The City also presented evidence that Story's workers alienated landowners adjacent to the building site by trespassing on and damaging their property. Story testified that the City's easement was not wide enough for this job. In May, Mann wrote to Story's surety on his performance bond, expressing concern that the water mains were not being completed on time. Story's bonding was cut off. In June, Story terminated the contract.
In December of 1986, Story filed his complaint in District Court and in January 1987 filed an amended complaint. The complaint alleged that defendants breached their contract with Story, that they acted in bad faith, and that the letter written by Neil Mann to Story's bonding company was defamatory. The City's answer denied all wrongdoing and affirmatively alleged a typographical error in the contract. The City counterclaimed against Story for reformation and breach of contract.
Using a special verdict form proposed by Story and modified by the court, the jury found that both the City and Mann breached the covenant of good faith and fair dealing. It found no defamation in the letter from Mann to Story's surety. It found that there was a mutual mistake in the contract, and that the contract should be reformed to correct that mistake. It also found that Story acquiesced in the mistake. The court entered judgment against the City for $373,236 plus costs.
Several post-trial motions were filed by each party. The court denied all such motions, and this appeal followed.
SPECIAL JURY VERDICT FORM
Did the District Court err in refusing to grant defendants' motion for a new trial because the special verdict form was inadequate?
The jury verdict form did not comply with this Court's decisions on the implied covenant of good faith and fair dealing. In actions in which allegations of breach of a covenant of good faith and fair dealing are based upon a contractual relationship between the parties, this Court has recently required a finding of breach of contract as a condition precedent to consideration of breach of the covenant of good faith and fair dealing. E.g. Montana Bank of Circle v. Ralph Meyers & Son, Inc. (Mont. 1989), [236 Mont. 236,] 769 P.2d 1208, 1214, 46 St.Rep. 324, 331; Nordlund v. School Dist. No. 14 (1987), 227 Mont. 402, 406, 738 P.2d 1299, 1302.
However, in this case, the main issue, other than defamation, was whether the contract was breached and by whom. This issue would have to be decided before any award of damages. In the pretrial order, both Story and the City listed whether the contract had been breached as an issue to be litigated at trial.
The record reveals that the discussion and redrafting of the special verdict form took place after a long day of trial, lasting from 7:30 a.m. until after 10:00 p.m. The City's proposed special verdict form, while not a model of clarity, did include at interrogatory numbers 6 and 8 the questions, "Did the City of Bozeman breach its contract with Mark Story?" and, "Did Mark Story breach his contract with the City of Bozeman?" The court specifically rejected the City's special verdict form. The special verdict form used, which was modified by the court from the form offered by Story, does not include any question at all as to whether the contract was breached. It does not ask whether the breach arose from a violation of an explicit contract term or whether the breach arose from a violation of an implied covenant of good faith and fair dealing. The City objected that the verdict form was not logically organized and was confusing to the jury. The City did not, however, object on the specific grounds that the special verdict omitted the issue of breach of contract.
For the benefit of the reader, we reprint the special verdict with the jury's answers:
"SPECIAL VERDICT
"We the jury, duly impaneled, answer the questions submitted to us in this Special Verdict as follows:
"QUESTION NO. 1: Did the City of Bozeman breach the obligation of good faith and fair dealing arising out of the Contract with Mark Story?
"ANSWER: Yes JX_ No_
"QUESTION NO. 2: Did Neil Mann breach the obligation of good faith and fair dealing arising out of the Contract with Mark Story?
"ANSWER: Yes _X_ No _
"QUESTION NO. 3: Is the May 13th, 1986 letter from Mann to Balboa (Exhibit No. 130-A) false and defamatory?
"ANSWER: Yes_ No X
"If your answer is 'yes' then move on to the next question. If your answer is 'no' then skip to Question No. 6.
"QUESTION NO. 4: Is the May 13, 1986 letter from Mann to Balboa (Exhibit No. 130-A) privileged?
"ANSWER: Yes_No_
"QUESTION NO. 5: If your answer to any of Questions 1, 2, or 3 is 'yes' then write in below the damages, if any, Mark Story incurred as a result of these actions. If your answer to 3 or 4 is 'nó', you may not consider damages for defamation.
"$ 360,000.00
"QUESTION NO. 6: Was there a mutual mistake on Schedule II, Item No. 1, of the Bid in the Contract?
"ANSWER: Yes _jX_ No_
"If your answer is 'no' then skip to Question No. 11.
"QUESTION NO. 7: Did the City of Bozeman acquiesce in the mistake?
"ANSWER: Yes_No X
"QUESTION NO. 8: Is the City of Bozeman 'estopped' from claiming mistake?
"ANSWER: Yes_No X
"QUESTION NO. 9: Has the City of Bozeman 'waived' its right to claim mistake?
"ANSWER: Yes_No X
"QUESTION NO. 10: Should the Contract be reformed to read so that Item No. 1 on Schedule II reads C.Y. instead of C.F.? If your answer to either Question 7, 8 or 9 is 'yes' then the Contract may not be reformed.
"ANSWER: Yes _X_ No_
"QUESTION NO. 11: Did Mark Story acquiesce in the mistake?
"ANSWER: Yes _X_ No_
"If your answer is 'yes' then skip to Question No. 14.
"QUESTION NO. 12: Is Mark Story 'estopped' from claiming Contract damages?
"ANSWER: Yes_No_
"If your answer is 'yes' then skip to Question No. 14.
"QUESTION NO. 13: Has Mark Story 'waived' his claim for Contract damages?
"ANSWER: Yes_No_
"If your answer is 'yes' then skip to Question No. 14.
"QUESTION NO. 14(A): If you find that there was mutual mistake and if you find that the answers to No's 11, 12 and 13 are 'No' then answer Question No. 15.
"QUESTION NO. 14: If you found that there was a mutual mistake and if you find that the answers to No's 11 or 12 or 13 are 'Yes' then Mark Story cannot recover damages for Type II Bedding.
"However, if the contract was breached by the City in other respects, you may consider damages for Mark Story for other contract breaches.
"QUESTION NO. 15: What contract damages, if any, are due Mark Story?
" $13,236.00
"QUESTION NO. 16: Has Mark Story's further performance of the contract been excused by the conduct of the Defendants?
"ANSWER: Yes_No X
"QUESTION NO. 17: How much, if any, should the City of Bozeman recover on its Counter-claim against Mark Story?
" $nothing
"The Court will enter the proper judgment based upon the above answers.
"DATED this 23 day of March, 1988.
"Bruce E. Ivey
"Foreperson"
The very first question on the special verdict form was, "Did the City of Bozeman breach the obligation of good faith and fair dealing arising out of the Contract with Mark Story?" This sounds in tort and does not adequately and clearly ask the jury to decide whether or not the contract was breached by a breach of the covenant of good faith and fair dealing. Next the jury was asked whether defendant Neil Mann had breached the covenant and then several questions about whether defendants had defamed Story. Then in Question No, 5, the jury was asked the amount of damages suffered by Story. In answer to Question No. 6, the jury found that there was a mutual mistake as to the amount of pipe bedding material. Therefore, the jury found no breach of contract by the City as to the amount of pipe bedding material. As one of the final questions on the special verdict form, the jury was asked the amount of contract damages to Story, without being asked whether the City had breached the contract. The jury awarded Story $13,236 in contract damages. In response to the next question, the jury answered, inconsistently, that Story's further performance of the contract had not been excused by the conduct of defendants.
Special verdicts are governed by Rule 49(a), M.R.Civ.P., which states as follows:
"Special verdicts. The court may require a jury to return only a special verdict in the form of a special written finding upon each issue of fact. In that event the court may submit to the jury written questions susceptible of categorical or other brief answer or may submit written forms of the several special findings which might properly be made under the pleadings and evidence; or it may use such other method of submitting the issues and requiring the written findings thereon as it deems most appropriate. The court shall give to the jury such explanation and instruction concerning the matter thus submitted as may be necessary to enable the jury to make its findings upon each issue. If in so doing the court omits any issue of fact raised by the pleadings or by the evidence, each party waives his right to a trial by jury of the issue so omitted unless before the jury retires he demands its submission to the jury. As to an issue omitted without such demand the court may make a finding; or if it fails to do so, it shall be deemed to have made a finding in accord with the judgment on the special verdict."
The dissent claims that we ignore this rule.
Rule 49(a) first states that the special verdict must contain a finding upon each issue of fact. As demonstrated in the pretrial order, the parties to this case recognized that whether the contract had been breached was an important issue of fact. Yet the special interrogatories drafted at the eleventh hour completely leave this question out.
The dissent is correct in stating that Rule 49(a) also requires that a party wishing to claim error predicated on the omission of an issue must demand the issue's submission to the jury before the jury retires. At least one United States Court of Appeals has held that, under the federal rule from which our Rule 49(a) is taken, a party may preserve its objection by proposing a special verdict form including the issue which is rejected or by objecting to a proposed special interrogatory. See Stewart & Stevenson Services, Inc. v. Pickard (11th Cir. 1984), 749 F.2d 635, 641. The purpose of either method is to direct the court's attention to the omitted issue. We adopt the Eleventh Circuit's holding. In this case, the City proposed a special verdict form which included the issue of breach of contract. The City's proposed special verdict form was rejected. The City also objected to the court's special verdict form on the grounds that the organization of the questions was not logical and would be confusing to the jury.
The special verdict form was internally inconsistent, confusing, and misleading to the jury. We hold that the District Court erred in refusing defendants' motion for a new trial because of inadequacy of the special verdict form.
GOOD FAITH AND FAIR DEALING
The parties contest the appropriate role of the implied covenant of good faith and fair dealing in a breach of contract action. Their arguments, the jury verdict form, and the damages awarded by the jury exhibit some confusion over that role. The jury awarded Story $13,236 in contract damages for an unspecified breach of the contract and $360,000 in tort damages for the City's breach of the obligation of good faith and fair dealing. This great disparity between contract and tort damages is symptomatic of a common problem in the use of the bad faith tort in contract litigation; the "tort tail" has begun to wag the "contract dog." Because of this and other problems, we believe this is an appropriate time to review the current state of the law and to make mid-course corrections.
The concept of good faith and fair dealing has a venerable history in the law of commercial contracts. It first appears in classical Roman law and by the eighteenth century was a well established prin ciple of English contract law imbuing commercial relationships with the common religious and moral principles of the time. E. Farnsworth, Good Faith Performance and Commercial Reasonableness under the Uniform Commercial Code, 30 U. Chi. L. Rev. 666, 669-70 (1962-63). In early twentieth century America, courts first implied the covenant in commercial contracts which, due to the imprecision of the business environment, required that some term be left to the discretion of one of the parties. The implied covenant prevented one party from taking advantage of that discretion to deprive the other of the benefit of the contract. See e.g. Loudenback Fertilizer Co. v. Tennessee Phosphate Co. (6th Cir. 1903), 121 F. 298, 303 (holding that the manufacturer could not interpret "requirements" to purchase from the contract supplier only when the market price exceeded the contract price). Courts used the covenant as a "gap filler" to interpret agreements to cover situations not anticipated in the writing. See e.g. Kirke La Shelle Co. v. Paul Armstrong Co. (1933), 263 N.Y. 79, 188 N.E. 163, 168 (holding that under a contract entered prior to the advent of "talkies," rights to a screen play included rights to the motion picture). Use of the covenant became so common that it was codified in the Uniform Commercial Code. See 1 R. Anderson, Uniform Commercial Code, § 1-201:82 (3rd ed. 1981). In all cases, the remedy was the same; breach of the covenant or implied contract term was breach of the contract.
Later, the courts began to imply a duty of good faith and fair dealing in liability insurance contracts when insureds sue their insurers for abusive claims settlement practices. The courts relied on the new tort version of bad faith because the insurance policies gave the insurer absolute discretion in settlement precluding suits for breach of contract. Compare e.g. Rumsford Falls Paper Co. v. Fidelity & Casualty Co. (1899), 92 Me. 574, 43 A. 503, 506 (no breach of the expressed contract terms); Hilker v. Western Automobile Ins. Co. (1931), 204 Wis. 1, 235 N.W. 413, 414 (breach of the implied covenant). More recently, some jurisdictions implied the covenant in employment contracts to protect at-will employees from wrongful discharge and, in the absence of an express contract, allowed tort recovery. See Fortune v. National Cash Register Co. (1977), 373 Mass. 96, 364 N.E.2d 1251, 1256. The tort remedy has also been allowed when the parties had a special relationship. See e.g. Commercial Cotton Co. v. United Cal. Bank (1985), 163 Cal.App.3d 511, 209 Cal.Rptr. 551, 554.
Montana's interpretation of the covenant of good faith and fair dealing has paralleled that of other jurisdictions, except that its trend in recent cases has been to treat the breach of the covenant as a tort. Montana recognizes that an insurer's statutory duties create a duty of good faith and fair dealing sounding in tort and running to both the insured and third-party claimants. Britton v. Farmers Ins. Group (1986), 221 Mont. 67, 72, 721 P.2d 303, 306; Fode v. Farmers Ins. Exchange (1986), 221 Mont. 282, 285, 719 P.2d 414, 416; Klaudt v. Flink (1983), 202 Mont. 247, 252, 658 P.2d 1065, 1067; First Security Bank of Bozeman v. Goddard (1979), 181 Mont. 407, 420, 593 P.2d 1040, 1047. Prior to enactment of the Wrongful Discharge From Employment Act in 1987, Montana followed other states in upholding common-law tort actions for bad faith discharge. Dare v. Montana Petroleum Marketing Co. (1984), 212 Mont. 274, 282, 687 P.2d 1015, 1020; Gates v. Life of Mont. Ins. Co. (1983), 205 Mont. 304, 307, 668 P.2d 213, 215. Montana has also recognized the bad faith tort in special relationships when the stronger party abuses its superior position. Tribby v. Northwestern Bank of Great Falls (1985), 217 Mont. 196, 211-12, 704 P.2d 409, 419 (bank's reckless disregard of depositor's rights); Morse v. Espeland (1985), 215 Mont. 148, 152, 696 P.2d 428, 430-31 (attorney's fee agreement); First Nat'l. Bank in Libby v. Twombly (1984), 213 Mont. 66, 73, 689 P.2d 1226, 1230 (bank's improper recovery on a promissory note).
Montana, however, has also used the bad faith tort in a manner uniformly rejected by all other jurisdictions. Montana has recognized the tort of bad faith in the typical arms-length contracts. See Dunfee v. Baskin-Robbins, Inc. (1986), 221 Mont. 447, 455, 720 P.2d 1148, 1153 (franchise agreement); McGregor v. Mommer (1986), 220 Mont. 98, 108, 714 P.2d 536, 543 (sale of business).
In the seminal case of Nicholson v. United Pacific Ins. Co., we adopted this tort remedy in the commercial setting to deal with a particular type of problem. The parties in that case entered a lease agreement which provided that the plaintiff would remodel a Helena, Montana, office to the defendant's satisfaction. During the remodeling the defendant decided to forego the new office. Instead of efficiently breaching the lease agreement and paying the plaintiff contract damages, the defendant attempted to force the plaintiff to breach by repeatedly denying satisfaction with the remodeling. Nicholson v. United Pacific Insurance, (1985) 219 Mont. 32, 34-35, 710 P.2d 1342, 1344. This Court affirmed tort damages against the defendant noting that each party to a contract has a justifiable expectation that the other will act in a reasonable manner in the per formance or efficient breach of a contract. When one party used its discretion to arbitrarily, capriciously or unreasonably deprive the other party of the benefit of the contract, those expectations were violated. Nicholson, 219 Mont. at 41-42, 710 P.2d at 1348.
Montana stands alone in allowing the bad faith tort in any type of contract. Apparently California is the only other jurisdiction to have applied the theory to commercial contracts, Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984), 36 Cal.3d 752, 206 Cal.Rptr. 354, 686 P.2d 1158, 1167, but it quickly limited the tort action to cases of special relationships, Quigley v. Pet, Inc. (1984), 162 Cal.App.3d, 208 Cal.Rptr. 394, 403; Price v. Wells Fargo Bank (1989), 213 Cal.App.3d 465, 261 Cal.Rptr. 735, 741.
The problems caused by contaminating common contract litigation with tort damages are well recognized. See e.g. S. Ashley, Bad Faith Actions, § 11.02 and 11.03 (1984); Comment, Commercial Bad Faith; Tort Recovery for Breach of Implied Covenant in Ordinary Commercial Contracts, 48 Mont. L. Rev. 349, 369-73 (1987) (authored by Glenn E. Tremper). Primarily, the specter of tort damages upsets the concept of efficient breach. Parties have traditionally been free to breach their contract and pay contract damages whenever performance was not economically efficient. The relatively simple calculation of whether it is more profitable to breach a contract and pay damages rather than to perform is now complicated by the possibility of more indefinite tort damages. It is true that efficient breach is rarely efficient; the winning party must pay the cost of recovering contract damages. T. Diamond, The Tort of Bad Faith: When, If At All, Should It Be Extended Beyond Insurance Transactions?, 64 Marq. L. Rev. 425, 439-43 (1981). This problem, however does not support tort damages. In written contracts, the parties can avoid this inequity by providing in the contract for an award of costs and attorney's fees to the prevailing party. See § 28-3-704, MCA.
As with damages, the evidence in cases involving contracts becomes more speculative when tort actions are allowed. Contract litigation cases are now routinely accompanied by bad faith tort claims opening the litigation to evidence far beyond the traditional contract issues. Instead of concentrating on pertinent issues such as offer, acceptance, breach, and mistake, the jury is faced with evidence of moral wrongdoing and punitive damages — evidence that may be misleading and inflammatory in contract litigation.
Since first recognizing the cause of action in 1979, First Security Bank of Bozeman v. Goddard (1979), 181 Mont. 407, 420, 593 P.2d 1040, 1047, this Court has decided more than twenty bad faith cases. As the tort became more prevalent in all contexts, this Court's interpretations have evolved to limit its over-use. In wrongful discharge cases, we held that the covenant arises only when the employer's objective manifestations give the employee a reasonable belief that he or she has job security. Dare v. Montana Petroleum Marketing Co. (1984), 212 Mont. 274, 283, 687 P.2d 1015, 1020. In Nicholson we stated that the covenant of good faith and fair dealing does not arise in every contract, but instead depends on the justified expectation of the parties created by their particular contractual relationship. Even when the covenant arose, it was breached only by an arbitrary, capricious or unreasonable violation of those expectations. Nicholson, 219 Mont. at 41-42, 710 P.2d at 1348. We have also held that claims based on an insurer's bad faith refusal to settle must await determination of the underlying liability issue to prevent prejudice to the insurer. Fode v. Farmers Ins. Exchange (1986), 221 Mont. 282, 287, 719 P.2d 414, 417. Most recently, we have adopted the position that the covenant cannot be breached unless the contract is also breached. Montana Bank of Circle v. Ralph Meyers & Son, Inc. (Mont. 1989), [236 Mont. 236,] 769 P.2d 1208, 1214, 46 St.Rep. 324, 331; Nordlund v. School Dist. No. 14 (1987), 227 Mont. 402, 406, 738 P.2d 1299, 1302.
The legislature has also reacted to the prevalence of bad faith torts. In 1987, it restricted wrongful discharge actions, Wrongful Discharge from Employment Act, ch. 641, 1987 Mont. Laws 1764, and punitive damages, Act Approved April 27, 1987, ch. 627, § 2, 1987 Mont. Laws 1722. In actions arising out of contract, the legislature also banned punitive damages, Act Approved April 27, 1987, ch. 627, § 1, 1987 Mont. Laws 1722, and damages for emotional distress, Act Approved April 15, 1987, ch. 488, § 1, 1987 Mont. Laws 1195. While the latter provisions may not apply to the separate tort of bad faith, they do indicate that such damages are not always appropriate in contract actions. Most importantly, in § 28-1-211, MCA, the 1987 Legislature defined the standard of conduct under the implied covenant as honesty in fact and the observance of reasonable commercial standards — the same standard applied to merchants under the Uniform Commercial Code. Act Approved April 20, 1987, ch. 571, § 1, 1987 Mont. Laws 1431. We are persuaded that it is time to reassess the covenant of good faith and fair dealing and to provide more workable guidelines for the future.
In the typical contract case the Nicholson reasoning is still sound, but the Nicholson tort remedy is excessive. The Uniform Commercial Code provides a more workable model for most contracts not covered by specific statutory provisions. The Code states, "Every contract or duty within this code imposes an obligation of good faith in its performance or enforcement." Section 30-1-203, MCA. " 'Good faith' in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." Section 30-2-103(1)(b), MCA. A party who breaches the covenant may be denied the benefit of a relevant Code provision or the breach may be deemed a breach of the contract. 1 R. Anderson, Uniform Commercial Code, § 1-203:14 (3rd ed. 1981 & 1989 Supp.). This Court believes that the Uniform Commercial Code model should be extended to cover all contracts and that the bad faith tort should be used only when the parties have a special relationship.
We hold that every contract, regardless of type, contains an implied covenant of good faith and fair dealing. A breach of the covenant is a breach of the contract. Thus, breach of an express contractual term is not a prerequisite to breach of the implied covenant. For every contract not covered by a more specific statutory provision, the standard of compliance is that contained in § 28-1-211, MCA:
"The conduct required by the implied covenant of good faith and fair dealing is honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade."
This is the same standard as applied to merchants under the Uniform Commercial Code. Each party to a contract has a justified expectation that the other will act in a reasonable manner in its performance or efficient breach. When one party uses discretion conferred by the contract to act dishonestly or to act outside of accepted commercial practices to deprive the other party of the benefit of the contract, the contract is breached.
In the great majority of ordinary contracts, a breach of the covenant is only a breach of the contract and only contract damages are due.
"For breach of an obligation arising from contract, the measure of damages, except when otherwise expressly provided by this code, is the amount which will compensate the party aggrieved for all the detriment which was proximately caused thereby or in the ordinary course of things would be likely to result therefrom. Damages which are not clearly ascertainable in both their nature and origin cannot be recovered for a breach of contract."
Section 27-1-311, MCA. In common contract actions, tort-type damages are not available for breach of the implied covenant of good faith and fair dealing. They are, however, available for traditional contract-related torts such as fraud, fraudulent inducement, and tortious interference with a contract.
The tort of bad faith may still apply in exceptional circumstances. It serves to discourage oppression in contracts which necessarily give one party a superior position. The legislature has codified the tort's most common applications. See Wrongful Discharge from Employment Act, § 39-2-901 through -914, MCA; Unfair Trade Practices Act (Insurance) § 33-18-101 through -1005, MCA. The tort remedy may also be available in contracts involving special relationships which are not otherwise controlled by specific statutory provisions. To delineate those special relationships we adopt the following essential elements from California case law.
"(1) the contract must be such that the parties are in inherently unequal bargaining positions; [and] (2) the motivation for entering the contract must.be a non-profit motivation, i.e., to secure peace of mind, security, future protection; [and] (3) ordinary contract damages are not adequate because (a) they do not require the party in the superior position to account for its actions, and (b) they do not make the inferior party 'whole'; [and] (4) one party is especially vulnerable because of the type of harm it may suffer and of necessity places trust in the other party to perform; and (5) the other party is aware of this vulnerability."
Wallis v. Superior Court (1984), 160 Cal.App.3d 1109, 207 Cal. Rptr. 123, 129.
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.
In special relationship contracts, the standard of conduct is the same as that for other contracts — honesty in fact and observance of reasonable commercial standards of fair dealing in the trade. Section 28-1-211, MCA. In contracts involving the special re lationships that we have delineated, supra, if the standard of conduct required by the implied covenant of good faith and fair dealing as defined in § 28-1-211, MCA, is violated, the duty of good faith and fair dealing is breached. In addition to recovering damages for breach of contract, the aggrieved party may also recover tort damages.
A special jury verdict form, such as that used in the present case, must present the jury with a consistent and logically ordered progression of issues reflecting the above analysis. When contract breach is alleged, the form must first direct the jury to determine if an express term of the contract was breached or if the implied covenant of good faith and fair dealing was breached. If the jury answers affirmatively, it may then consider contract damages. If the court, or the jury upon proper questions, as the case may be, has found that a special relationship exists between the contracting parties, and the jury has found the implied covenant was breached, the jury may then consider tort damages.
FEE AGREEMENT
Story has raised several issues on cross-appeal, none of which we need discuss because of our grant of a new trial. The City has also raised several other issues. The only one which we will address is a question of statutory construction. The issue is whether Story's counsel filed his "notice of fee agreement" in a timely manner under § 2-9-314, MCA. He filed it after entry of judgment.
Section 2-9-314(1), MCA, provides:
"When an attorney represents or acts on behalf of a claimant or any other party on a tort claim against the state or a political subdivision thereof, the attorney shall file with the claim a copy of the contract of employment showing specifically the terms of the fee arrangement between the attorney and the claimant."
The statute says nothing about when the copy of the contract of employment must be filed. It merely tells where to file it. We hold that there is nothing in the statute to preclude the District Court's decision that the fee agreement was timely filed.
Reversed and remanded.
JUSTICES HARRISON, BARZ, McDONOUGH and WEBER concur.