Court Opinion

ID: 9574112
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:02:24.090515+00
Date Added: 2024-06-11T12:44:07.116457
License: Public Domain

*453JUSTICE SHEEHY,
dissenting:
I.
The majority opinion is an example of scurrying through the record to find a bone to pick on which to base a reversal. The excuse for reversal is flimsy, and that is putting the best possible face on it.
The theme of the reversal is that the special verdict form did not first require the jury to find a breach of contract as a condition precedent to finding a breach of the covenant of good faith and fair dealing. That theme ignores the specific instructions of the District Court to the jury, the submission by defendants of the same form of special verdict, and the provisions of Rule 49(a), M.R.Civ.P., which provisions the reversal ignores where they particularly apply.
When a district court submits a special verdict on an issue of fact to be decided by the jury, the District Court xpust give an instruction telling the jury how to employ the special verdict. State Bank of Townsend v. Maryann’s, Inc. (1983), 204 Mont. 21, 32, 664 P.2d 295, 301. The District Court precisely followed that rule in this case.
The first question submitted to the jury was:
“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 NO_”
In instructing the jury on this subject, the court utilized instructions that were proposed by the defendants. The District Court accepted and gave defendant’s proposed instructions No. 18 and 19, which respectively became court’s instructions No. 33 and 34. Those instructions were as follows:
“INSTRUCTION NO. 33
“There is a covenant of good faith and fair dealing implied into the contract between the City of Bozeman and the plaintiff which is measured by the justifiable expectations of the parties. The covenant of good faith and fair dealing is violated if the justifiable expectations of one party is exceeded by arbitrary, capricious, or unreasonable conduct by the other party.
*454“INSTRUCTION NO. 34
“You must first find that the party breached the contract before you can consider whether the covenant of good faith and fair dealing should be implied and if you find that the covenant should be implied, you may then consider whether the party breached the implied covenant.” (Emphasis added.)
In addition to the foregoing instructions directing the jury first to find a breach of the contract before it could find a breach of the obligation of good faith and fair dealing, the court carefully instructed the jury as to what a “breach” of contract was:
“INSTRUCTION NO. 21
“You are instructed that you must determine the nature and terms of the promises in the contract between the parties and further determine whether or not the promises contained in the contract have been fully performed by them.
“The failure, without legal excuse, to perform any promise which forms the whole or part of a contract is called a ‘breach’ of contract.”
Thus we have a situation where the defendant’s view of Montana law applying to implied covenants of good faith and fair dealing was accepted by the court and given to the jury in the instructions. The court instructed the jury that it must first find that the defendant’s breached the contract before the jury could consider whether the covenant of good faith and fair dealing was implied, and whether it was breached. The jury was further told what constituted a breach of contract.
This case marks the first time, as far as I am able to discover, that a district court has been held in error by this Court for properly instructing a jury as to how the jury should employ and answer a special interrogatory. In instruction No. 1, the District Court told the jury in this case “. . . you are to consider all the instructions as a whole, and to regard each in the light of all the others. The order in which the instructions are given has no significance as to their relative importance.”
In so instructing the jury as to how to answer question No. 1, the District Court faithfully followed the requirement of Rule 49(a), M.R.Civ.P., in part as follows:
“. . . The court shall give to the jury such explanation and instruc*455tion concerning the matter thus submitted as may be necessary to enable the jury to make its findings upon each issue ...”
The second reason for this dissent is that the format followed by the District Court in submitting question No. 1 is precisely the format that was suggested by defendants in their submitted special verdict form. Attached to this dissent as an exhibit is a copy of the special verdict form submitted by the defendants. It will be seen in that form that the first two questions proposed by the defendants related to pipe bedding material involved in the contract between the City of Bozeman and Mark Story. Question No. 3, however, is in almost the same language of question No. 1 which the court used. Thus, whether the District Court utilized the form submitted by the defendants or the form submitted by the plaintiff, in each event, the jury would have been led immediately to the Question of the breach of covenant of good faith and fair dealing. The majority on this Court hold the District Court in error for following exactly the format for interrogatories submitted by the defendants.
The majority opinion is mistaken in stating that the 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. That is not true. The majority have not read the record accurately. What did happen was that the jury, at the close of all the evidence, was excused in the afternoon of Tuesday, March 22, 1988. The court met with counsel in chambers after the jury was excused from 3:00 p.m. until 7:00 p.m. of March 22, 1988, at which time they considered the instructions and the special verdict form which had been offered. At that time, the only special verdict form offered for the court’s consideration was that supplied by the plaintiff. The District Court judge examined the special verdict on March 22, and suggested modifications. The court and counsel adjourned at 7:00 p.m. that evening. The next morning the court and counsel met again in chambers at 7:30 a.m., and made a record as to the rulings of the District Court on the instructions, and on the special verdict. It was only at this time that the defendants presented any form of special verdict. Sometime after the settlement of instructions (the record does not disclose the hour), the District Court read the instructions to the jury and counsel argued. The jury retired to find a verdict and in the evening in the course of their deliberations sent out three questions for answer by the court. The District Court, by telephone conference, discussed with counsel the three questions, none of which related to the implied covenant of good faith and fair dealing, and revised the special verdict form *456accordingly. This revision did occur at 10:05 p.m. in the evening of March 23, 1988, but it did-not pertain to Question No. 1. Thereafter, the jury returned its verdict in the form of special interrogatories.
In ruling on the motion for a new trial, the District Court gave a further reason for denying the objections of the defendants to the jury verdict form, saying:
“(2) Special verdict forms submitted to the jury were confusing, unnecessarily complex, caused the jury to consider liability theories in an incorrect order, and unduly emphasized plaintiff’s theories of recovery. On that objection, the Court points out that the Court requested interrogatories to be submitted by counsel and after thorough deliberation the instructions were settled on the 22nd day of March, 1988, from approximately 3:00 p.m. until 7:00 p.m. The Court convened again at 7:30 a.m. on the 23rd day of March, 1988, for the purposes of settling instructions and it was not until that time that the Defendants brought in a proposed form of special verdict. The Court examined the special verdict form submitted by the Plaintiff the day before and requested certain modifications. After considering both forms of the special verdict, the Court elected to use that form prepared by the Plaintiffs and rejected that prepared by Defendants because of the untimeliness of the filing of the same. Additionally, the Court found the Plaintiff’s form more logical. The Court denies the Motion for a New Trial based upon the alleged deficiencies of the special verdict form.”
It is an unjustifiable imposition upon the District Court to hold it in error in the circumstances thus described. It is more unjustifiable when the defendants’ proposed special verdict form only followed the format of the form already proposed by the plaintiff.
It should be but is not important to this Court and to the decision that the defendants in this case never specifically told the District Court their objections to the special verdict form on the ground that the question of breach of contract should have been submitted first. When the District Court, in formulating the special verdict, at the session on the morning of March 23, 1988, finally settled on the form to be used, the defendant made only this objection:
“MR. HERNDON: Let the record show that the Court, and essentially plaintiff’s counsel, have redrafted plaintiff’s version of the special verdict to which the defendants objected as. being confusing, with a clear bias toward the plaintiff and a clear prejudice toward the defendants, and it misleads the jury as to the proper application of the instructions.”
*457The foregoing is nothing more than a general objection, worthless because it does not state with particularity where the court is in error. This Court ought to apply the same test to objections to a special interrogatory that is applied to instructions, as set out in Rule 51, M.R.Civ.P.:
“. . . Objections made shall specify and state the particular grounds on which the instruction is objected to and it shall not be sufficient in stating the ground of such objection to state generally that the instruction does not state the law or is against the law, but such ground of objection shall specify particularly wherein the instruction is insufficient or does not state the law, or what particular clause therein is objected to . . .”
See Ahmann v. American Fed. Sav. & Loan Ass’n. (1988), 235 Mont. 184, 195, 766 P.2d 853, 860.
Rule 49(a), M.R.Civ.P., properly construed, requires that a specific objection be made to the Court. It provides in part:
“. . . 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 first time that the defendants notified the District Court that they objected to the special verdict form because it did not first require a finding of breach of contract was in their Motion for New Trial filed April 1, 1988.
A proper rule regarding objections to special verdicts is set out in H. J. Baker and Bro. v. Orgonics, Inc. (R.I. 1989), 554 A.2d 196, 201, which held that a party objecting to a special verdict must have submitted an interrogatory for the jury to the Court, and must object to the Court’s failure to include the requested interrogatory before the Court submits its own version to the jury.
Under the instructions given by the Court as to question No. 1, absolutely no prejudice occurred to defendants, because in order to answer “yes” to question No. 1, the jury, under the instructions, had first to find a breach of contract. The reason given by the majority for reversal, on this record is, again, flimsy.
*458In another context, the majority opinion states that the award of $13,236 in contract damages to Story is inconsistent with the jury’s finding in answer to question No. 16 that Mark Story’s further performance under the contract had not been excused by the conduct of the defendants. The finding of contract damages for breach, however, is completely in accord with instruction No. 22 given to the jury, which stated:
“Instruction No. 22
“A party to a contract is excused from further performance by the breach of failure or performance of the other party only when that breach is so great as to defeat the objects of the contract. A breach which is incidental and subordinate to the main purpose of the contract and may be. compensated in damages does not justify termination and the injured party is still bound to perform his part of the agreement.” (Emphasis added.)
Thus, in awarding, damages to the plaintiff for breach of contract, without excusing his further performance, the jury acted consistently with the instructions and in accordance with law.
II.
When we read the second portion of the majority opinion, a light dawns as to the reason for the reversal on this thin record. The majority have a higher agenda, one beyond the appeal in this case: the implied reversal of Nicholson v. United Pacific Ins. Co. (1985), 219 Mont. 32, 710 P.2d 1342. They use the vehicle of this case, weak as it is, to work their purpose.
There is no issue raised in this case from the parties or the record as to the concept of the implied covenant of good faith and fair dealing in contracts. The law applying to this subject used by the District Court was that supplied by the defendants. That application by the District Court has become the law of the case. Without briefs on the issues, and without notice to the Bar in general, the majority opinion accomplishes the following results:
“1. The implied covenant of good faith and fair dealing attends every contract.
“2. The tort of breach of the implied covenant arises only in “special lationships.”
“3. Where no special relationship exists, the only available dam*459ages are contract damages, regardless of how egregious the conduct of the wrongdoing party is and regardless of the tort involved.”
It is inconsistent of course to hold that the implied covenant of good faith and fair dealing attends every contract, and then to limit damages for a breach of the implied covenant to contract damages, unless a “special relationship” exists between the contracting parties. The implied contract does not depend for its existence upon express terms in the underlying contract. The implied covenant comes into being upon considerations of justice and fairness imposed by law, and the implied covenant exists whether or not the parties assented to it. Thus its breach is not a breach of contract, but is a tort, and has always been so defined. McGregor v. Mommer (1986), 220 Mont. 98, 108, 714 P.2d 536, 543, (“a breach of this implied covenant which results in damages can thus give rise to an action in tort”); Dunfee v. Baskin-Robbins, Inc. (1986), 221 Mont. 447, 455, 720 P.2d 1148, 1153, (“In a commercial setting, we now have held that where the conduct of one party unreasonably breaches the justifiable expectations of the other party, an action in tort results”). Applying contract damages to the tort of breach of the implied covenant is a perversion of the historical difference the law has always perceived in damages arising from breach of contract and those arising from tort.
Five justices presently on this Court unanimously agreed to Nicholson v. United Pac. Ins. Co., supra. In that case, this Court stated:
“While we decline to extend the breach of implied covenant to all contract breaches as a matter of law, as California has done, we agree with the statement in Quigley, supra, that the tort resulting from this breach depends on some impermissible activity. The Montana cases discussed above focus on the action of the breaching party in the relationship to find a breach of the implied covenant, not just the existence of a breach of contract.
“At this point a helpful distinction should be noted between an intentional breach or one motivated by self-interest, giving rise to only contract damages, and the action which would give rise to a breach of the implied covenant, resulting in tort damages. Historically, a party to a contract generally had the right to breach or pay damages rather than perform. The non-breaching party, theoretically, is ‘made whole’ from the damages paid following the breach and thus still receives the benefits from the agreement.
“ ‘Contract law is based in part on the assumption that certain intentional breaches are to be encouraged.' Permitting parties to *460breach their contracts promotes an efficient economy, at least when the gains for the breach exceed the expected pecuniary injuries of the promisee.’
“Diamond, The Tort of Bad Faith Breach of Contract: When, If At All, Should It Be Extended Beyond Insurance Transactions, 64 Marquette Law Review, 425, 453 (1981). But whether performing or breaching, each party has a justifiable expectation that the other will act as a reasonable person. Neal v. Farmers Insurance Exchange (1978), 21 Cal.3d 910, 148 Cal. Rptr. 389, 582 P.2d 980. The nature and extent of an implied covenant of good faith and fair dealing is measured in a particular contract by the justifiable expectations of the parties. Where one party acts arbitrarily, capriciously, or unreasonably, that conduct exceeds the justifiable expectations of the second party. The second party should then be compensated for damages resulting from the other’s culpable conduct.”
219 Mont. at 41-42, 710 P.2d at 1348.
What a far cry from the enlightened opinion in Nicholson is the decision today of the majority of this Court.
Nicholson provides us with a good example of the effect of the majority opinion in this case. Nicholson was a building owner in downtown Helena who had entered into a lease agreement with United Pacific Insurance (UPI) for office space. The lease agreement contained provisions that Nicholson confer with UPI about the renovation of the office building space, and that the final plans for renovation were subject to mutual approval.
As the work progressed, Nicholson found it increasingly difficult to get approval from UPI of his renovation project. He continuously sent plans, conferred with their architects, and finally lost communication altogether with the company officers. Nicholson sent a final revised plan of renovation to UPI and three days later received a letter from UPI rescinding the lease agreement. Nicholson filed a complaint after notice of default against UPI, and during discovery, learned that a “secret” UPI task force had made recommendations about reorganizing the company, the effect of which would be to transfer the Helena office to Salt Lake City, Utah. Nicholson argued that when UPI realized this, it became intransigent and threw obstacles hoping to cause him to breach the lease agreement. Based on these facts, Nicholson contended that UPI had rescinded the lease without justification. Nicholson spent sums in excess of $98,000 in remodeling. Upon Nicholson’s suit, the jury returned a verdict in his *461favor for compensatory damages of $211,105 and exemplary damages of $225,000.
If the opinion in this case had been in effect when Nicholson came before this Court, then Nicholson should have lost completely on breach of the covenant. Under the majority opinion, if applicable, no “special relationship” existed between Nicholson and UPI, and his damages would be, if any, limited to what the majority describe as an “efficient breach.” Needless to say, the only party for whom such a breach would be “efficient” was UPI.
The sentence in the majority opinion (slip opinion, p. 20) that “breach of an express contractual term is not a prerequisite to breach of the implied covenant” is an interesting reversal, without saying so, of Montana Bank of Circle v. Meyers & Son (Mont. 1989), [236 Mont. 236,] 769 P.2d 1208, 1214, and Nordlund v. School District No. 14 (1987), 227 Mont. 402, 406, 738 P.2d 1299, 1302. No longer does this Court require a breach of the underlying express contract terms before the obligation of good faith may be considered by the jury. Thus the majority abandon the reason for which in the first place they reverse this case. In the forepart of the their Opinion, the majority see evil in the special verdict form because the jury was not first required to find an underlying breach of the express terms of the contract. Now, such a finding is needless. It demonstrates again the flimsiness of the grounds for reversal in this case.
What the majority have done in this case is to abrogate any remedy for arbitrary, capricious or egregious conduct by a contracting party, upon issues not raised in this file nor on the record and without notice to the Bar in general. The reversal of the hard-won verdict obtained by Mark Story in this case is a joke. Under the limitations of the majority opinion, he will never again be justly compensated by any jury.
Please register my strong dissent to the uncalled-for result in this case.