Farris v. Hutchinson

NO. 91-466

IN THE SUPREME COURT OF THE STATE OF MONTANA
1992

CAROL FARRIS ,

Plaintiff and Appellant,

JOHN M. HUTCHINSON, individually
and in the capacity of
COMMISSIONER OF HIGHER EDUCATION,
MONTANA, BOARD OF REGENTS OF
HIGHER EDUCATION,
Defendants and Respondents.

APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Thomas C. Honzel, Judge presiding.

COUNSEL OF RECORD:
For Appellant:
Peter Michael Meloy argued, The Meloy Law Firm,
Helena, Montana
For Respondents:
LeRoy H. Schramm argued, Montana University System,
Helena, Montana
Justice R. C. McDonough delivered the Opinion of the Court.

This is an appeal from an order and entry of judgment of the
First Judicial District Court, Lewis and Clark County, granting a
motion to dismiss in favor of John M. Hutchinson and the
Commissioner of Higher Education. We affirm.
We decide the following issues on appeal:
1. Did the District Court err in dismissing Farris's cause of
action for breach of the implied covenant of good faith and fair
dealing;
2. Did the District Court err in dismissing the wrongful
discharge claim and the claim under the Wrongful Discharge from
Employment Act of 1987; and
3. Did the District Court err in finding appellant had no
entitlement to property under a written contract for a specified
term when the contract is not renewed at the expiration of the
term?
On April 10, 1989, Carol Farris was hired as a gender equity
coordinator by the Commissioner of Higher Education for a federally
mandated affirmative action program for the vocational technical
education system in Montana. Farris alleged in her complaint that
she received objective manifestations of job security when she was
hired. Specifically, she contends that she was told the position
was permanent, even though it was governed by a yearly term
contract. Farris quit her job in Great Falls, sold her home and
moved to Helena for the position.
Throughout the course of her employment, Farris signed three
2
ttproEessional employment contractstt prepared by the Montana
University System. The contracts were term contracts, lasting one
year. The contracts provided for non-renewal with adequate notice.
The last contract was effective between July 1, 1990 and June 30,
1991. Pursuant to the contract, on February 5, 1991, the
Commissioner notified Farris that her contract would not be
renewed. No reason was provided for the non-renewal, nor was one
required under the terms of the contract. Farris filed a complaint
against the Commissioner of Higher Education and the Board of
Regents. The District Court granted defendants' motion to dismiss.
This appeal followed.
In considering a Rule 12 (b)(6) motion to dismiss, the
allegations must be viewed in a light most favorable to the
plaintiff, admitting and accepting as true all facts well-pleaded.
Devoe v. Missoula County (1987), 226 Mont. 372, 374, 735 P.2d 1115,
1116; United States Nat'l Bank of Red Lodge v. DOR (1977), 175
Mont. 205, 207, 573 P.2d 188, 190. Further, a court should not
dismiss a complaint for failing to state a claim unless it appears
beyond doubt that the plaintiff can prove no set of facts in
support of his or her claim which would entitle him or her to
relief. Proto v. Missoula County (1988), 230 Mont, 351, 353, 749
P.2d 1094, 1095, quoting Conley v. Gibson (1957), 355 U.S. 41, 45-
46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80, 84; Marshall v. State (1992),
Mont. , 830 P.2d 1250, 49 St.Rep. 336.
I
Did the District Court err in dismissing Farris's cause of
action for breach of the implied covenant of good f a i t h and fair
dealing?
It first should be noted Farris has not pled an action for
fraud and does not comply with Rule 9 ( b ) of the Montana Rules of
Civil Procedure. The District Court relying on Nordlund v. School
District No. 14 (l987), 227 Mont. 402, 738 P.2d 1299, found that
because the Commissioner did not breach the employment contract,
there could be no breach of the implied covenant. Nordlund at 406,
738 P.2d at 1302. This characterization is not exactly correct.
Under Story v. City of Bozeman (lggo), 242 Mont. 436, 791 P.2d 767,
a breach of the underlying contract is not a prerequisite to a
breach of the implied covenant of good faith and fair dealing.
Farris argues that if she can show objective manifestations of
job security beyond the term contract, she may maintain a breach of
the implied covenant of good faith and fair dealing. Farris relies
on Dare v. Montana Petroleum Marketing (1984), 212 Mont. 274, 282,
687 P.2d 1015, 1020, for the proposition that an employerfs
objective manifestations give the employee a reasonable belief that
he or she has job security. Farris argues that Dare should apply
to employment relationships not covered under the Wrongful
Discharge From Employment Act (Act). Farris also argues that
because the C o m m i s s i o n e r v i e w e d t h e contract a s e x e m p t f r o m t h e

Act, he was able to terminate her "at will, and for this reason
she is an at will employee.

Dare involved an at will employee with no written contract who
was terminated from her job. The position she held was not covered
by an employment handbook, W e held that an employment handbook was
not essential in a cause of action for breach of the implied
covenant of good faith and fair dealing in an at will employment
relationship. Pare at 283, 687 P.2d at 1020. Dare was decided in
1984 prior to the enactment of the Wrongful Discharge From
Employment Act of 1987.
Farris essentially argues that Dare stands forthe proposition
that a violation of an employment handbook is not essential to
maintaining an action for breach of the implied covenant in an at
will situation. Therefore, even though the Commissioner did not
breach his own employment regulations (which in Farris's reasoning
is likened to having no employment handbook) in effect at the time,
this does not bar Farrisls claim. We do not disagree, but such
analysis does not apply here.
On appeal, Farris argues that prior to being hired she was

informed that the Commissioner viewed her position as a permanent
position. Farris, upon accepting the position, sold her house in
Great Falls and moved to Helena. Further, Farris contends she
understood that the signing of the yearly l l t e m lcontracts was
l
merely a formality.
Even admitting and accepting the facts well-pleaded in favor
of Farris, she cannot overcome the Par01 Evidence Rule. Section
28-2-904, MCA, provides:

The execution of a contract in writing, whether the law
requires it to be written or not, supersedes all the oral
negotiations or stipulations concerning its matter which
preceded or accompanied the execution of the instrument.
Here, the consideration of oral negotiations between the
5
Commissioner and Farris prior to the signing of the contracts is
barred by the Parol Evidence Rule. The term contracts embody the
legal agreement between Farris and the defendant. Farris signed
three term contracts each for one year. She was aware that upon
adequate notice the contracts could be non-renewed. We do not
accept her argument that the Commissioner's adoption of the
regulations allowed him to circumvent the Wrongful Discharge From
Employment Act, thus terminating her "at will," therefore mandating
a "just cause" requirement.
As to the alleged representations made after the agreements
were entered into, relative to job performance and terms,
consideration of these would violate 5 28-2-1602, MCA. An
agreement made in writing cannot be altered except in writing or by
an executed oral agreement, and not otherwise. This is the public
policy of the State of Montana. Therefore, in suits of good faith
and fair dealing relative to termination at the expiration of the
term, the alleged implied covenant cannot be in direct
contradiction of the written term contract. See § 28-2-1602, MCA.
Also see Carma Developers (Cal. 1992), 826 P.2d 70, where the
Supreme Court of the State of California recently stated how a
covenant of good faith should be read as follows:
We are aware of no reported case in which a court
has held the covenant of good faith may be read to
prohibit a party from doing that which is expressly
permitted by an agreement. On the contrary, as a general
matter, implied terms should never be read to vary
express terms. (Tanner V. Title Ins. & Trust Co. (1942)
20 Cal.2d 814, 824, 129 P.2d 383; see, Wal-Noon C o r ~ .v.
sill (1975) 45 Cal.App.3d 605, 613, 119 Cal.Rptr. 646.)
"The general rule [regarding the covenant of good faith]
is plainly subject to the exception that the parties may,
 by express provisions of the contract, grant the right to
engage in the very acts and conduct which would otherwise
have been forbidden by an implied covenant of good faith
and fair dealing. . . . [q]This is in accord with the
general principle that, in interpreting a contract 'an
implication ...should not be made when the contrary is
indicated in clear and express words. I 3 Corbin,
Contracts, !j 564, p. 298 (1960). ... [BIAS to acts and
conduct authorized by the express provisions of the
contract, no covenant of good faith and fair dealing can
be implied which forbids such acts and conduct. And if
defendants were given the right to do what they did by
the express provisions of the contract there can be no
breach. (VTR, Incorporated v. Goodyear Tire & Rubber
ComDanv (S.D.N.Y. 1969) 303 F.Supp. 773, 777-778.)

We agree with the analysis in Carrna. No obligation can be
implied which would result in the obliteration of a right expressly
given under a written contract. See Gerdlund v. Electric
Dispensers International (1987), 190 Cal.App.3d 263, 235 Cal.Rptr.
279. The implied covenant applies to both employer and employee
relative to a contract. See Barrett v. Asarco (1988), 234 Mont.
229, 763 P.2d 2 7 . The right of workers to have a contract which is
governed by Montana law and to have their express rights therein
set forth and enforced, also cannot be obliterated by alleged
contradictory objective manifestations supported by oral testimony.
Farris argues that Stark v. Circle K Corp. (1988), 230 Mont.
468, 751 P.2d 162, and Prout v. Sears, Robuck and Co. (1989), 236

Mont. 152, 772 P.2d 288, apply here. In both cases the employee
was an at-will employee and had signed written agreements that they
could be terminated with or without cause. In Stark, the alleged
reason for discharge was insubordination, and in Prout, for
falsification of time sheets. Both discharges were stated to be
for cause. In Stark we allowed the jury to decide whether the
covenant of good faith and fair dealing was breached in view of all
the evidence as to whether or not the employer had cause and had
followed its own policies. In Prout we gave effect to the
written agreements and said the employer could fire without cause
under the agreements, but that if it asserted the termination was
for cause, the employee must have an opportunity to prove that the
cause stated was false; and among the issues there was a factual
question of the falsity of the cause which precluded summary
judgment .
The eventual determination of these factual issues in Stark
and Prout did not and would not contradict the express wording of
the respective agreements. The application of the implied covenant
addressed the interpretation of the words "with cause" and the
discretion of the employer thereunder.
For the reasons stated above, we affirm the District Court on
this issue.
II
Did the District Court err in dismissing the wrongful
discharge claim and the claim under the Wrongful Discharge From
Employment Act?
The District Court found that the language of the contract at
issue was clear and unambiguous. Further it found that non-renewal
was permissible under the contract. Additionally, the District
Court found that the Commissioner followed the defendants'
personnel policies in effect at the time. Relying on Nordlund v .
School District No. 14 (1987), 227 Mont. 402, 738 P.2d 1299, the
District Court concluded the act of the Commissioner was not a
wrongful discharge.
Farris argues that the personnel policies and regulations
allowed the commissioner to deprive her of the remedies available
under the Wrongful Discharge From Employment Act. This is because
the regulations and notice requirements allow the Commissioner to
circumvent the just cause requirement under the Act. Section 39-2-
901, MCA, et seq., contains Montana's Wrongful Discharge From
Employment Act. The purpose of the Act was to set out certain
rights and remedies with respect to wrongful discharge. § 39-2-

902, MCA. The Act was meant to preempt common law remedies. 5 39-
2-913, MCA. Section 39-2-904, MCA, provides in part:
A discharge is wrongful only if:
...
(2) the discharge was not for good cause .. .
(3) the employer violated the express provisions of
its own written personnel policy.
Farris argues that the Act imposed a just cause requirement on all
employment relationships in place of common law remedies. Further,
she argues that the Commissioner, by unilaterally adopting the
regulation authorizing him, with adequate notice, not to renew a
professional contract, violates the public policy of just cause
under the Act. Farris relies on Portable Embryonics v. J. P.
Genetics (1991), 248 Mont. 242, 810 P.2d 1197, for the proposition
that the Commissionerls adoption of these regulations has an
illegal effect because it violates public policy and is therefore
unenforceable.
In P o r t a b l e the defendants were performing bovine embryo
transfers. They were without veterinary licenses in violation of
Montana law. We held that due to the illegality, the entire
contract was void. Portable at 245, 810 P.2d at 1199.
Here the Act itself excludes from the provisions of the Act
the discharge of an employee covered under certain written
agreements. Section 39-2-912, MCA, of the Act provides in part:
This part does not apply to a discharge: . . .
(2) of an employee covered by a written collective
bargaining agreement or a written contract of ern~lovment
for a sgecific term. (Emphasis added.)
The District Court found that the contract in question was a
written contract for a s p e c i f i c term as contemplated under the Act.
Therefore, the Act was not applicable. We agree with the District
Court.

Farris also essentially argues that the Commissioner, by
adopting regulations a l l o w i n g him t o h i r e employees under s p e c i f i c
term contracts, can escape the just cause requirements imposed
under the Act. The effect of t h i s is to t e r m i n a t e an employee by

simply not entering into a new contract. Nothing in our law
forbids the parties here from entering into such a contract where
the contract is exempted from the Act. We have previously upheld
the discretionary rights of employers to non-renew specific term
contracts without a showing of good cause. Leland v. Heywood
(19821, 197 Mont. 491, 497-4530, 643 P.2d 578, 581-582. In addition
no other violations of public policy have been asserted which would
give rise to a wrongful discharge claim.
10
 For the reasons set forth above, we affirm the District Court
on this issue.
I11
Did the District Court err in finding appellant had no
entitlement to property under a written contract for a specified
term when the contract is not renewed at the expiration of the
term?
Farris based her rights as to a property interest on the
breach of the implied covenant of good faith and fair dealing and
wrongful discharge and inasmuch as she failed on these issues, the
question is moot.
For the reasons set forth in the opinion, we affirm the

judgment of the District Court. -

We Concur:

Justices
~usticeWilliam E. Hunt, Sr., dissents.
I dissent. The majority decision of the Court today deals a
devastating blow to Montana workers. Under the holding of this
case, an employer may make significant oral representations to an
employee concerning the terms of the employment, induce the
employee to sign a written contract with provisions contrary to the
oral representations on the basis that the written contract is only
a formality, and then completely avoid all liability for the oral
misrepresentations which induced the employee to sign the written
contract in the first place. The majority opinion prohibits an
employee from even presenting evidence of the wrongdoing,
encourages employers to deal dishonestly with employees, and leaves
a large segment of the working population (destined to grow larger
as employers familiarize themselves with the majority opinion)
without any legal recourse. The decision is not mandated by
existing law and is an unacceptable shift in the balance between
the rights and protections of employees and employers.
This Court must accept as true all facts well-pled by the
appellant in her complaint. Appellant alleges that she was given
objective manifestations of job security beyond the time specified
in the written contract. Appellant argues on appeal that she
relied upon these extrinsic objective manifestations in deciding to
accept employment with respondents. Further, appellant contends
she was told that the written contract of employment, which
contained terms contraryto the extrinsic oral representations, was
merely a formality. Under this factual situation, the matter
should not have been dismissed on respondents' Rule 12 (b)(6) motion
to dismiss. Appellant should have been allowed to present evidence
of the extrinsic oral representations at trial for a determination
of the merit of her claim for breach of the implied covenant of
good faith and fair dealing.
Every contract entered into in Montana, regardless of type,
contains an implied covenant of good faith and fair dealing. Story
v. City of Bozeman (1990), 242 Mont. 436, 450, 791 P.2d 767, 775.
The majority correctly points out that a breach of the underlying
contract is not a prerequisite to a breach of the implied covenant
of good faith and fair dealing. Ston, 791 P.2d at 775. In this
instance, appellant is not alleging a breach of an express
contractual term, but is contending that respondents breached the
covenant of good faith and fair dealing by terminating her
employment in a manner inconsistent with the representations made
to her concerning job security.
In light of the facts in this case and the applicable law, it
is clear that appellant has a cause of action for breach of the
covenant of good faith and fair dealing, but the majority concludes
that all the evidence necessary for appellant to present her case
is excluded by the parol evidence rule found at 5 28-2-904, MCA.
However, 28-2-905(2), MCA, provides an exception to the parol
evidence rule which is relevant in this case. Section 28-2-905(2),
MCA, provides in part that:
This section does not exclude other evidence of the
circumstances under which the agreement was made or to
 which it relates . . . or other evidence to explain . . .
fraud.
Additionally, § 28-2-1611, MCA, provides that:

When, through fraud or a mutual mistake of the
parties or a mistake of one party while the other at the
time knew or suspected, a written contract does not truly
express the intention of the parties, it may be revised
on the application of a party aggrieved so as to express
that intention, so far as it can be done without
prejudice to rights acquired by third persons in good
faith and for value.
The exception to the parol evidence rule for extrinsic
evidence of fraud is well-established and long-standing, not just
in Montana, but throughout the nation. It is clear that:
It was never intended that the parol evidence rule could
be used as a shield to prevent the proof of fraud, or
that a person could arrange to have an agreement which
was obtained by him through fraud exercised upon the
other contracting party reduced to writing and formally
executed, and thereby deprive the courts of the power to
prevent him from reaping the benefits of his deception
and chicanery.
37 Am. Jur. 2d, Fraud and Deceit, § 451. Appellant did not bring
a cause of action specifically alleging fraud. Instead, appellant
brought an action for breach of the implied covenant of good faith
and fair dealing resulting from misrepresentations made by
respondents. In terms of the rationale underlying the fraud
exception to the parol evidence rule, it should make no difference
whether a plaintiff in a given case brings an action based on
misrepresentations under a theory of fraud or breach of the
covenant of good faith and fair dealing. The rationale for the
exception to the parol evidence rule applies equally to both
situations. In either case, there is an allegation that false
representations have been made which can only be proven by evidence
extrinsic to the contract. Sheer necessity dictates such evidence
must be allowed. This is the very essence of the exception to the
parol evidence rule.
On appeal, respondents contend that allowing appellant the
opportunityto present evidence that oral representations were made
which were contrary to the written contract would be nothing short
of a "revolution" in Montana contract law. On the contrary, there
is nothing revolutionary in allowing one party to a contract to
present evidence that material oral misrepresentations induced the
party to enter into the contract. The majority opinion concludes
its discussion of this issue by stating that Ifin suits of good
faith and fair dealing relative to termination at the expiration of
the term, the alleged implied covenant cannot be in direct
contradiction of the written term contract. This statement is
apparently based on the majority's holding that the parol evidence
rule excludes all evidence that would show that in fact
representations were made in contradiction of the written term
contract.
In Nordlund v. School District No. 14 (1987), 227 Mont. 402,
738 P.2d 1299, this Court was faced with a similar factual
situation. In Nordlund, an employee brought suit for breach of the
covenant of good faith and fair dealing following the nonrenewal of
his specific term written contract of employment. We affirmed the
District Court's decision against Nordlund, partially on the basis
that Nordlund could prove no set of facts from which a breach of
the implied covenant could be proven. The par01 evidence rule was
not mentioned by the Court.
In Stark v. Circle K Corporation (1988), 230 Mont. 468, 751
P.2d 162, an employee brought suit for breach of the implied
covenant of good faith and fair dealing in the termination of his
employment. In Stark, there was a written contractual provision
providing that he could be terminated with or without cause. A
jury returned a verdict in favor of Stark. In affirming the jury
verdict, this Court stated that "[wle find the evidence
considerably more than sufficient for the jury to find that Stark
had an objectively reasonable belief that he would be fired only
for good cause." Stark, 751 P.2d at 166. The employer in Stark
argued that oral representations could not overcome the written
contractual provision that the employment could be terminated with
or without cause. This Court's response to that argument is
relevant to the present case. We stated:
It is alleged that the written contractual provision
allowing termination without cause cannot be modified by
oral representations which would give rise to a
reasonable expectation of anything but "at will"
employment. Circle K misunderstands the nature of good
faith and fair dealing.
In Gates v Life o Montana Zmurance Co. (1982), 196 Mont.
. f
178, 638 P.2d 1063 (Gates I), we recognized that the
covenant of good faith and fair dealing is applicable to
employment contracts. The covenant is implied as a
matter of law based on the public policy of this State.
It does not depend on contractual terms for its
existence, nor is the covenant of good faith and fair
dealing subject to contractual waiver, express or
implied. See § 28-2-701(2), MCA. "The duty arises out
of the employment relationship yet the duty exists apart
from, and in addition to, any terms agreed to by the
 parties. l1 Gates v. Lqe of Montana Imurance Co. ( 1983 ) , 205
Mont. 304, 668 P.2d 213, 214, 40 St.Rep. 1287, 1289
.
(Gates II) Despite the express contract, the question of
whether the "covenant of good faith and fair dealing is
implied in a particular case depends upon the objective
manifestations by the employer giving rise to the
employee's reasonable belief that he or she has job
security and will be treated fairly. Dare v. Montana
PetroEeumMarkztingCo. (Mont. 1984), 687 P.2d 1015, 1020, 41
St.Rep. 1735, 1739.
The record demonstrates Stark experienced objective
manifestations reasonably giving rise to a belief of job
security.
Stark, 751 P.2d at 166. The parol evidence rule was not mentioned
in Stark. This same analysis was later applied in Prout v. Sears,
Roebuck and Co. (1989), 236 Mont. 152, 772 P.2d 288. 7: believe
this Court should follow the precedent set in these and other past
Montana cases, as well as the statutory exception to t h e p a r d
evidence rule and allow appellant the opportunity to present her
case.
The application of the parol evidence rule in this case to
exclude the extrinsic oral representations is unduly harsh,
formalistic, and contrary to the very spirit and rationale upon
which the rule is grounded.
Appellant should be able to present her evidence concerning
the alleged breach of the implied covenant of good faith and fair
dealing. If appellant prevails, she is entitled to recover her
contract damages as provided in Storv. Appellant also contends
that according to Storv the employer/employee relationship is a
"special relationship," for which the breach of the covenant may
allow tort damages. While this Court, in Gates v. Life of Montana
Insurance Co. (1983), 205 Mont. 304, 668 P.2d 213, stated that the
employer/employee relationship is similar to the duty to act in
good faith in discharging insurance contractual obligations, we
have not explicitly held that it is a special relationship under
the criteria set out in w. order
In to recover damages in
tort, appellant must satisfy the five criteria set out in Story.
The question of whether a special relationship exists should be
presented at trial in accordance with the guidelines set out by
this Court in Storv wherein we stated that:
If the facts of the special relationship are
undisputed as to whether there is a special relationship,
it is a question of law for the court to decide. If
substantial evidence is presented supporting each and all
of the above essential elements and such evidence is
controverted in whole or in part, there arises
appropriate questions of material fact to be submitted to
the jury. If substantial evidence is not presented in
support of each and all of the essential elements, the
court shall direct there is no special relationship.

The decision to exclude all extrinsic oral representations in
these situations on the grounds that allowing such evidence would
undermine the sanctity and security of written contracts, is both
draconian in nature and altogether unnecessary. A decision which
protects both employers and the sanctity of written contracts,
while still allowing employees some opportunity to seek redress,
could have been fashioned in this case and should have been sought
after by the majority. Employers who have acted honestly and in
good faith with their employees will be protected by our jury
system of trials. Rule 11 sanctions are a mechanism already in
place to protect against suits which are frivolous and without
merit. Contract provisions can assure adequate compensation for
attorney fees and costs to employers prevailing in these actions.
On the other hand, employers who do not conform their conduct to
comply with the covenant of good faith and fair dealing do not
deserve the protection of the law. However, for some unknown
reason, the majority decision extends an absolute protection to
employers who violate the covenant of good faith and fair dealing,
insulating them from all liability for their wrongful conduct.
This result is both unnecessary and unacceptable. I would reverse
and remand for a trial of this matter.

Justice

Justice Terry N. Trieweiler joins in the foregoing dissent of
Justice Hunt.