NO. 91-632
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
MARK STORY d/b/a
MARK STORY CONSTRUCTION,
Plaintiff, Respondent and
Cross-Appellant,
-vs-
CITY OF BOZEMAN and Jut424 1993
NEIL MANN, ck ..
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,:
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, c. "
CLERK O F S t I F E E ? , I E COURT
Defendants, Appellants and STA'TE OF MOluTAM4
Respondents on Cross-Appeal.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Jeffrey Sherlock, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
J. Robert Planalp and Steve Reida (both argued);
Landoe, Brown. Planalp & Braaksma, Bozeman, Montana
For Respondent:
Gregory 0 Morgan, (argued) Attorney at Law, Bozeman
.
Montana
Submitted: March 25, 1993
Decided: June 24, 1993
Filed:
Justice Karla M. Gray delivered the Opinion of the Court.
Appellants City of Bozeman and Neil Mann appeal from a final
judgment following a jury verdict in the Eighteenth Judicial
District, Gallatin County, and from an order denying post-trial
motions. Mark Story cross-appeals. We affirm in part and reverse
in part.
We phrase the issues as follows:
1) Were the damages awarded against the City for breach of
contract and/or breach of the covenant of good faith and fair
dealing excessive and speculative or duplicative?
2) Did the District Court err in limiting the City's cross-
examination of Story?
3) Does 1 2-9-305(5), MCA (1985), bar Story from recovering
against Neil Mann individually?
4) Did the District Court properly instruct the jury?
5) Did the special verdict form comply with Rule 49(a),
M.R.Civ.P.?
6) Did the ~istrict'
Court err in permitting retrial of the
issues of reformation, defamation and constructive fraud?
This case arises from a dispute over a construction contract
between Mark Story Construction (Story) and the City of Bozeman
(the City). In the early autumn of 1985, the City distributed bid
schedules for the construction of the Durston and Valley View water
mains. On Schedule I, the Durston water main, the unit measure for
type 2 pipe bedding material was listed as "CYu (cubic yard), the
customary unit measure for such material. On Schedule 11, the
2
Valley View project, a typographical error listed the unit measure
for type 2 pipe bedding material as "CF" (cubic feet). Story bid
$25.00 per unit on both schedules. On September 30, 1985, the City
awarded Story the construction contract. The engineering firm of
Thomas, Dean, and Haskins (TD&H) was awarded the engineering sub-
contract.
On October 9, 1985, Doug Daniels, the project engineer from
TD&H, discovered the typographical error and left a telephone
message for Story explaining the error. He followed the message
with a letter. The City claims that Story returned Daniels' call
the next day and assured the City that he meant to bid the schedule
11, type 2 pipe bedding material in cubic yards. Story denies this
conversation took place. Story signed and returned the contract
with "CF" listed as the unit measure of type 2 pipe bedding
material on Schedule 11. On November 12, 1985, the City executed
the contract without changing the unit measure.
The minutes of a preconstruction meeting held November 21,
1985, do not contain any discussion of the error. Shortly after
the meeting, Story began purchasing supplies for the project. When
Story received his first pay estimate dated December 20, 1985, the
disputed pipe bedding material was listed at $25 per cubic yard.
Story crossed this out and wrote in "CF" before returning it to the
City. The City recognized that Story had made the change but paid
Story under pay estimate $1. Because work had not started, Story
had not used any pipe bedding material; consequently, the City did
not pay for pipe bedding material at either "CY" or "CF."
The City then issued a change order to change the contract to
read "cubic yardsn instead of "cubic feet" for the pipe bedding
material in Schedule 11. Story refused to sign the change order.
Story similarly crossed out "CYM on the second pay estimate dated
February 18, 1986.
Story began work on the project on March 3, 1986, but halted
after a week due to wet, muddy conditions. Story worked
sporadically and submitted three requests to the City for
extensions of time on the contract; the City did not rule on the
requests immediately. When he returned the third pay estimate
dated April 29, 1986, he attached a signed statement setting forth
his position regarding the unit measure of the type 2 pipe bedding
material on Schedule 11.
On May 9, 1986, a TD&H engineer informed city engineer Neil
Mann (Mann) that Story had completed 46% of the work, but 86% of
the time on his contract had elapsed. Mann wrote to Story's bond
company, Balboa Insurance Company (Balboa), and relayed this
information. Balboa then wrote to Story, referenced Mann's letter,
and encouraged him to finish the project. Story walked off the job
on June 9, 1986, with Schedule I1 nearly finished but Schedule I
untouched.
On June 12, 1986, the City granted 23 of the 48 days Story had
requested for an extension, and announced its intention to enforce
the $450 per day liquidated damages clause of the contract. On
June 16, 1986, Balboa canceled Story's bond. After the City
submitted a claim on the bond, Balboa paid out $96,070.50 for
completion of the project. Story did not accept the final pay
estimate due to the ongoing dispute.
Story filed suit on December 12, 1986, for breach of contract,
breach of the covenant of good faith and fair dealing, and
defamation. In the first trial, the jury awarded Story $360,000 in
tort damages for breach of the covenant and $13,236 in contract
damages. In Story v. Bozeman (1990), 242 Mont. 436, 791 P.2d 767,
(Story I), we concluded that the special verdict form used was
misleading and remanded for a new trial. We also clarified the law
regarding the covenant of good faith and fair dealing, concluding
that a breach of the covenant is a breach of the contract and that
only contract damages are due unless the parties have a special
relationship. Storv I, 791 P.2d at 775-6.
After remand, Story amended his complaint to add a claim of
intentional interference with contractual relations against Mann.
Following the second trial, the jury awarded Story $850,000 in
damages for breach of contract and/or breach of the covenant of
good faith and fair dealing against the City. It also awarded
$100,000 in damages against Mann for intentional interference with
contractual relations. In its judgment on the verdict, the
District Court assessed interest against both Mann and the City
pursuant to g 25-9-205, MCA.
The City then moved for judgment notwithstanding the verdict
or, alternatively, for a new trial. The City argued, among other
things, that Mann was immune from judgment and that substantial
evidence did not support the verdicts against Mann and the City.
In its order on post-trial motions, the court amended the final
judgment to preclude the accrual of interest against the City if
the City paid the judgment within two years, pursuant to 5 2-9-317,
MCA. The District Court denied all other post-trial motions. This
appeal follows.
Were the damages awarded against the City for breach of
contract and/or breach of the covenant of good faith and fair
dealing excessive and speculative or duplicative?
At the eight-day jury trial, Story presented the following
figures concerning the damages claimed:
Loss incurred because of forced sale
of equipment
Future lost profits 1986-1996
Amount due on contract with the City
- Loss of credit and reputation
Story's expert economist, Arlen Smith (Smith) testified regarding
the first two elements of damages; Story testified regarding the
last two elements. The jury awarded Story $850,000 in damages
against the City for breach of the contract and/or breach of the
covenant of good faith and fair dealing.
The City makes two primary arguments concerning the proof of
damages: that the damages claimed were excessive and speculative
and that they were duplicative. Regarding its first contention,
the City phrases the issue as whether the jury verdict of $850,000
is excessive and speculative, and argues that no evidence supports
the verdict. It concedes, however, that evidence of record exists
to support the verdict; therefore, we construe the City's argument
to be that the proof of damages on which the jury award was based
was speculative and excessive. Story initially responds that the
City did not object to the testimony at trial or otherwise
adequately preserve either argument for appeal. Accordingly, we
focus on this threshold matter.
At trial, Smith testified specifically, and without objection,
regarding the amount of damages for lost future profits and loss
caused by forced sale of equipment. The District Court also
admitted Smith's two economic reports detailing his analysis of
Story's damages without objection. Story testified regarding his
calculation of the amount due on the contract without objection.
The City did not mention the issue of speculative damages in its
opening or closing arguments, did not raise the issue in its post-
trial motions, and did not refer to "speculative or excessive
damages" in any colloquies of record with the court.
It is elementary that unless a party urging error has made
timely objection to evidence or testimony at the trial level, it
will not be considered by this Court on appeal. Sikorski v. Olin
(l977), 174 Mont. 107, 113, 568 P.2d 571, 574. In Sikorski, the
plaintiff testified to $10,550 in damages, and the jury awarded
$10,000. On appeal, the defendant argued, as the City does here,
that the proof of damages was speculative and could not form a
basis for the jury's damage award. Sikorski, 568 P.2d at 574. We
refused to consider the defendant's argument, stating:
[w]hile the computations offered may have been subject to
the objection that they were speculative in nature, we
refuse to consider the matter for the first time on
appeal.
Sikorski, 568 P.2d at 574. We face the identical situation here.
The City wholly failed to object to the amount of damages presented
by Smith and Story. It cannot now claim that Story's proof of
damages was speculative and excessive.
The City claims it adequately preserved its objection by
raising the issue of speculative damages for lost future profits in
its trial brief. We disagree. The City submitted a combined trial
brief and motion in limine prior to trial. In the portion entitled
"trial brief--evidentiary issues anticipated," the City asserted
that Smith's upcoming testimony regarding lost future profits
appeared to be speculative. However, the City did not solicit a
ruling from the court at any time on the issue of speculative
future losses. We conclude, therefore, that including the issue of
speculative future losses in its trial brief did not preserve the
City's objection regarding Story's "excessive and speculative"
proof of damages.
If the City had included the issue of speculative future
damages in its motion in limine, and the District Court had ruled
on the question, the objection would have been adequately
preserved. See Barrett v. ASARCO, Inc. (1990), 245 Mont. 196, 205,
799 P.2d 1078, 1083-84. Of course, that preservation only would
have applied to Smith's testimony regarding lost future damages;
the City can point to no objection to Smith's testimony regarding
loss incurred from forced sale of equipment or Story's testimony
regarding the amount due on the contract. Nonetheless, the City
did not include this issue in its motion in limine and, therefore,
it failed to preserve its objection for appeal.
Additionally, the City argues that it preserved its objection
for appeal by seeking to exclude Smith's testimony in its motion in
limine and by objecting prior to the start of testimony. However,
the City made both of these objections on the basis of sur~rise
because it had received Smith's updated report only one week before
trial. The District Court, prior to testimony, orally overruled
the City's objection, concluding that most of Smith's information
and forthcoming testimony was the same as in the first trial. The
City did not appeal this ruling.
This Court will consider on appeal only objections made at
trial that are timely and specific. Kizer v. Semitool, Inc.
(1991), 251 Mont. 199, 207, 824 P.2d 229, 234. A party complaining
of error must stand or fall upon the ground relied upon in the
trial court; objections that are urged for the first time on appeal
will not be considered by this Court. State Dep't of Highways v.
DeTienne (1985), 218 Mont. 249, 256, 707 P.2d 534, 538. We
conclude that the City's objection to Smith's testimony on the
basis of surprise does not preserve its objection to the
speculative and excessive nature of the testimony. Therefore, we
decline to address the question.
The City's second argument regarding Story's proof of damages
is that the $850,000 contract/covenant damages awarded to Story
were duplicative. Specifically, the City claims the damages for
loss caused by forced sale of equipment duplicate the damages for
lost future profits. It also contends that because the first three
elements of Story's proof of damages totalled approximately
$715,000, and the jury awarded Story $850,000, the jury apparently
awarded approximately $135,000 for loss of credit. According to
the City, the amount for loss of credit duplicates the amount for
lost future profits.
As detailed above, the City did not object to Smith's
testimony or reports on the basis that the damages he offered were
duplicative. The City also did not object to Story's testimony or
exhibits regarding the amount due on the contract, and made only a
"relevance" objection to his testimony regarding loss of credit.
Nor was the City's argument that the contract damages are
duplicative included in its post-trial motions. This argument is
a "new theory of the case" advanced on appeal. Therefore, we
decline to consider it. Weaver v. Graybill, et al. (1990), 246
Mont. 175, 179, 803 P.2d 1089, 1092-3; Vandalia Ranch v. Farmers
Union Oil & Supply (1986), 221 Mont. 253, 259, 718 P.2d 647, 651.
As a final matter, we note that the City made the following
appeal to the jury in closing argument:
And I want you to think particularly about the quality of
the expert testimony on damages and Arlen Smith. I'm
just going to boldly say that nobody, but nobody could
make any real sense out of Arlen Smith's presentation to
you. If you want hundreds of thousands of dollars, you
better explain it better than that. And if you really
understand something, I think it can be explained simply.
And our position with Max Simmons [the City's expert] is
to simply say that we are not going to try to recompute
this flawed system that he has. We will show you that he
didn't do it right and you shouldn't rely upon it. And
when it comes to proving somebody's damages, remember who
has the burden to do that. It's not--we don't have it as
the City or Neil Mann. It's not our duty to prove Mark
Story's damages. It's his.
This argument, although properly made to a jury, is entirely
distinct from the City's argument on appeal and, therefore, in no
way preserved its present contention that Story's proof of contract
damages was flawed a matter of law. The City's closing argument
addresses the jury's province, as a fact-finder, to weigh the
credibility and reasonableness of Story's proof of damages. It
does not eliminate the City's duty to object to testimony it now
contends was improper. See Moore v. Hardy (1988), 230 Mont. 158,
163, 748 P.2d 477, 481.
We hold that the City did not preserve its objections to
Story's proof of contract damages.
Did the District Court err in limiting the City's cross-
examination of Mark Story?
The City claims it should have been allowed to cross-examine
Story regarding his performance on prior jobs. Story contends that
the District Court correctly limited the City's cross-examination
of Story when its improper motive of impeaching his character
became obvious. After a lengthy in-chambers discussion on the
relevance of Story's past performances, the District Court ruled
that the City could question Story about disputes over final
payment on two previous jobs, but it could not question him about
problems with his performance that were not relevant to Balboa's
cancellation of Story's bond on the Bozeman job.
On issues of relevance, the trial court has wide discretion
and will not be reversed except in cases of manifest abuse of that
discretion. Martin v. Laurel Cable TV, Inc. (1985), 215 Mont. 229,
232-3, 696 P.2d 454, 456-7. In making its ruling, the District
11
Court carefully considered the relevance and the prejudicial effect
of the testimony sought by the City. We cannot conclude that the
District Court's evidentiary ruling constituted a manifest abuse of
discretion.
Does 5 2-9-305(5), MCA (1985), bar Story from recovering
against Mann individually?
Throughout this litigation, the City relied on 5 2-9-305(5),
MCA (1985), in arguing that Mann should be dismissed from the
action as an individual defendant or, in the alternative, that
Story was precluded from recovering against him. Section 2-9-
305(5), MCA (1985), reads:
Recovery against a governmental entity under the
provisions of parts 1 through 3 of this chapter
constitutes a complete bar to any action or recovery of
damages by the claimant, by reason of the same subject
matter, against the employee whose negligence or wrongful
act, error or omission or other actionable conduct gave
rise to the claim. In any such action against a
governmental entity, the employee whose conduct gave rise
to this suit is immune from liability by reasons of the
same subject matter if the governmental entity
acknowledges or is bound by a judicial determination that
the conduct upon which the claim is brought arises out of
the course and scope of the employee's employment, unless
the claim constitutes an exclusion provided in (b)
through (d) of subsection (6) .
In interpreting 5 2-9-305(5), MCA (l985), we must give the
language its plain meaning. Stansbury v. Lin (Mont. 1993), 848
P.2d 509, 511, 50 St.Rep. 251, 252. The City argues that because
it has always taken the position that Mann's actions in writing the
letter to Balboa (the Balboa letter) were within the course and
scope of his employment pursuant to the second sentence of 5 2-9-
305(5), MCA (1985), the District Court should have dismissed Mann
as an individual defendant. We disagree.
The first sentence of subsection (5) clearly prohibits an
action against a governmental employee based on the same subject
matter if recovery has been obtained previously from the
governmental entity. Stansburv, 848 P.2d at 511. In Stansbury,
the plaintiff settled with the governmental entity and later sued
the governmental employee individually. Stansburv, 848 P.2d at
511. We concluded that the settlement constituted a "recovery"
from the governmental entity under the statute which barred a later
action against the employee. Stansbury, 848 P.2d at 511.
Absent such a recovery from the governmental entity, 5 2-9-
305(5), MCA (1985), does not bar the filing of an action against
the governmental employee. Here, unlike Stansburv, the earliest
such "recovery" could be said to exist against the City is at the
time of jury verdict. Nothing in 5 2-9-305, MCA (1985), provides
immunity from suit for Mann under these facts. The question
remains, however, whether the statute bars recovery from Mann.
The first sentence of 5 2-9-305(5), MCA (1985), provides that
recovery against a governmental entity constitutes a complete bar
not only to any action but also to any recovery of damages by the
claimant, by reason of the same subject matter, against the
employee whose actionable conduct gave rise to the claim.
Therefore, we examine the pleadings and posture of Story's case to
determine whether the recovery against Mann and the recovery
against the City arose from the same subject matter.
Story's amended complaint contained five counts. Counts I and
I1 set forth Story's breach of contract and breach of the covenant
of good faith and fair dealing claims against the City. Mann's
actions in writing the Balboa letter served as a factual basis for
both Counts I and 11. In Count V, Story set forth his claim for
intentional interference with contractual relations against Mann
individually. This claim also was based, in part, on the Balboa
letter.
Story continued to present this theory of the case throughout
the litigation. In Story's opening argument, counsel explicitly
referred to the Balboa letter as a basis for both the claim against
the City and the claim against Mann. In closing argument, counsel
argued Story's claim for breach of the covenant against the City by
stating, "was it honest and fair to send the letter to the Balboa
Insurance Company?" In explaining the individual claim against
Mann, counsel argued:
This is a case where you've got an opportunity to say to
Neil Mann, Itwedon't appreciate your conduct in sending
that letter to Balboa Insurance Company and you should be
as liable for that injury as the City of Bozeman is."
And by doing that, you will send a message out there to
the community. You will tell the community and the
people who are government workers here that they have
some personal responsibility to be fair and honest, in
fact, and they can't hide behind the fact that they work
for the government.
Finally, the jury instructions set forth the elements for breach of
contract, breach of the covenant of good faith and fair dealing and
vicarious liability, allowing the jury to hold the City responsible
for Mann's actions.
Based on the above presentation of Story's case, we conclude
that the jury likely awarded damages against Mann and the City for
the same subject matter--the Balboa letter. Although 5 2-9-305(5),
MCA, is not a model of clarity, one clear purpose behind the
statute is to preclude a claimant from recovering from both the
governmental entity and the governmental employee for the same
conduct. Story 'lrecovered"from the City for the damages caused by
the Balboa letter when the jury rendered its verdict. We conclude
the double recovery awarded by the jury is barred by the plain
language of 2-9-305(5), MCA (1985), and on that basis, the
separate award of $100,000 against Mann for intentional
interference with contractual relations must be stricken from the
judgment.
Story asserts that 5 2-9-305, MCA (1985), is unconstitutional
because it allows the governmental entity to grant an employee
immunity from liability merely by acknowledging that the conduct
was in the course and scope of the employee's employment.
According to Story, this allows a governmental entity to determine
unilaterally if a plaintiff can recover punitive damages and
interest on the judgment. He characterizes this as an
unconstitutional limitation on the right of recovery.
As detailed earlier, we base our decision to strike the
damages against Mann on the first sentence of 5 2-9-305(5), MCA
(1985), not the second sentence which forms the basis for Story's
argument. Given the structure of the case as presented by Story,
the statute bars double recovery for the same subject matter--the
Balboa letter; the City's acknowledgment that Mann acted within the
scope of his employment has no effect on this outcome under 5 2-9-
305(5), MCA (1985). We decline, therefore, to address the effects
of the second sentence of 5 2-9-305(5), MCA (1985), on a different
factual and procedural scenario.
The City also raised other issues on appeal regarding the
evidence presented and the instruction given on intentional
interference with contractual relations. Because we have
determined that 5 2-9-305(5), MCA (1985), bars Story from
recovering damages against Mann on the record before us, we need
not address those issues. For the same reason, we do not reach
Story's cross-appeal relating to the running of interest on the
award against Mann.
Did the District Court properly instruct the jury?
The City raises four separate but interrelated issues
concerning the instructions given by the District Court. It
contends that the District Court erred in instructing the jury on
reformation of contract, on actual and constructive fraud, on the
covenant of good faith and fair dealing, and on liquidated damages.
When examining whether certain jury instructions were properly
given or refused, we must consider the jury instructions in their
entirety and in connection with other instructions given and the
evidence introduced at trial. Feller v. Fox (1989), 237 Mont. 150,
156, 772 P.2d 842, 846. Moreover, refusal of a proposed
instruction does not prejudice a party if the subject matter of the
instruction is not applicable to the facts or not supported by the
evidence introduced at trial. Webcor Electronics v. Home
Electronics (1988), 231 Mont. 377, 381, 754 P.2d 491, 493. Keeping
16
these principles in mind, we set forth each argument in greater
detail and examine each in turn.
REFORMATION OF CONTRACT
The City argues that the District Court erred both in refusing
its offered instruction on reformation of contract, and in giving
the instruction offered by Story on that subject. The City's
proposed instruction was a recitation of 5 28-2-1611, MCA,
Montana's reformation statute, which permits reformation for fraud,
mutual mistake, or mistake of one party known or suspected by the
other party (unilateral mistake). Story contends that the
instruction was properly refused because the City did not present
sufficient evidence to submit "reformation based on fraud or
unilateral mistake" to the jury.
Section 28-2-1611, MCA, specifies unilateral mistake as the
"mistake of one party while the other at the time knew or
suspected." In interpreting 5 17-901, R.C.M. (1947), (the
identical predecessor to 5 28-2-1611, MCA), we stated that the
right to reform a contract for unilateral mistake does not lie for
the party who knew of the mistake in the contract; rather, it
belongs to the aggrieved party who is laboring under a mistake
known or suspected by the other party. Schillinger v. Huber
(1958), 133 Mont. 80, 85, 320 P.2d 346, 348. We apply those
principles to the City's evidence.
The City asserts that the following facts support its claim
for unilateral mistake:
-Story signed the contract knowing it contained the
typographical error;
.Story knew the City had identified the documents as
being in error: and
-Story signed anyway and claimed there was no mistake.
Throughout the litigation, the City has consistently asserted that
Itour basis for the reformation claim is the typographical error;
Story knew or should have known it was supposed to read CY.I1
The City's argument regarding unilateral mistake is flawed.
The City knew of the typographical error when it executed the
contract. Doug Daniels testified that he discovered the mistake on
October 9; the City executed the contract on November 12, knowing
it read "CF" instead of "CY." As such, the City cannot claim that
it was laboring under a mistake that the contract read "CY."
Pursuant to Schillinqer, the party who knows of the mistake cannot
seek to reform the contract based on unilateral mistake. Because
the law of unilateral mistake does not apply to the City's
evidence, we conclude that the City was not entitled to an
instruction for reformation based on unilateral mistake. See
Webcor, 754 P.2d at 493.
The City's proposed instruction also allowed for reformation
based on fraud. The City maintains on appeal that "fraud by Story
was a primary theory of the City's case;I1 yet it does not cite any
authority regarding fraud or even describe which representation of
Story's constitutes the basis for this theory. As best we can
glean from the City's arguments, it asserts that Story's alleged
statement to Doug Daniels that "he intended to bid cubic yardsw
forms the basis for its claim of fraud.
In this regard, we note that on appeal, the City asserts that
"Story fraudulently stated that it [the typographical error] would
not be a problem." We find no evidence of record to support this
assertion. Story's testimony does not support it. Doug Daniels
testified in this trial, the first trial, and his deposition only
that Story told him that "he intended to bid cubic yards."
Furthermore, Daniels testified that it was his own impression from
the phone call that it would not be necessary to change the
contract and that the typographical error had been resolved; he did
not testify that Story stated that the error would not be a
problem. Therefore, taking the City's evidence as true for
purposes of our analysis, the only basis for its fraud claim is
Story's representation that he "intended to bid cubic yards."
A district court need not instruct on fraud unless a question
of fact is raised on each of the nine elements. First Bank (N.A.)-
Billings v. Clark (l989), 236 Mont. 195, 201, 771 P.2d 84, 88. The
nine elements of fraud are:
A representation;
Falsity of the representation;
Materiality of the representation;
The speaker's knowledge of the falsity of the
representation or ignorance of its truth;
The speaker's intent that it be relied upon;
The hearer's ignorance of the falsity of the
representation;
The hearer's reliance on the representation;
The hearer's right to rely on the representation; and
Consequent and proximate injury caused by the
reliance on the representation.
Wiberg v. 17 Bar, Inc. (1990), 241 Mont. 490, 496, 788 P.2d 292,
295. Here, the City failed to establish a prima facie case of
fraud; at very least, evidence regarding elements 4, 5, 7, and 8 is
completely lacking in the record. As such, we conclude that the
City was not entitled to an instruction for reformation based on
fraud.
Based on our determinations that the City did not present
sufficient evidence to warrant an instruction on reformation based
on either unilateral mistake or fraud, we conclude that the
District Court did not err in refusing the City's proposed
instruction.
The City also argues that the District Court erred in giving
Story's proposed instruction for reformation of contract based on
mutual mistake. That instruction read:
A contract may be reformed where the party seeking
reformation has established by clear, convincing and
satisfactory proof that:
1. There was a prior understanding of the parties;
2. The parties executed a written contract:
3. Somewhere and sometime between the understanding
reached and the actual creation of the written
instrument, a mistake occurs in reducing to writing the
agreement both parties intended;
4. The mistake relates to something contemplated by the
parties ;
5. The mistake is mutual; and
6. The correction sought is that the executed instrument
does not reflect the actual and true understanding of the
parties.
If you find all the above factors and you find that the
Defendant did not acquiesce in the price, you may reform
the contract to express the true understanding of the
parties.
The City's main contention regarding this instruction is that
it did not allow reformation for unilateral mistake or fraud. We
have determined that the City was not entitled to an instruction
for reformation based on unilateral mistake or fraud. Mutual
mistake is the remaining statutory basis for reformation and the
instruction correctly identifies the factors required to reform a
contract based on mutual mistake. See McSweyn v. Musselshell
County (1981), 193 Mont. 525, 531, 632 P.2d 1095, 1098.
The City additionally argues that the instruction given
required a higher burden of proof than is required by our cases. It
claims that the proper standard of proof is a preponderance of the
evidence, citing Reilly v. Maw (1965), 146 Mont. 145, 405 P.2d 440.
We disagree. Reilly concerned an actual fraud claim for damages,
and the standard for overcoming the presumption that someone acted
in good faith is a preponderance of the evidence. Reilly, 405 P.2d
at 445. However, a party urging reformation of a contract must
overcome a stronger presumption that the writing contains the final
agreement of the parties and expresses their real purpose and
intent. Voyta v. Clonts (l958), 134 Mont. 156, 166-7, 328 P.2d
655, 661; McSweyn, 632 P.2d at 1099. The correct standard for
reformation is clear, convincing, and satisfactory proof. McSwevn,
632 P.2d at 1099.
In sum, we conclude that the District Court properly refused
the City's proposed instruction because it had not presented
sufficient evidence to support its theories of unilateral mistake
and fraud as a basis for reformation of contract. Additionally,
the instruction given by the District Court on reformation
correctly stated Montana law and, thus, was properly given.
ACTUAL AND CONSTRUCTIVE FRAUD
The City also argues that the District Court erred in refusing
its proposed instruction Nos. 15, 26, 27 and 28, which concerned
the City's claims of actual and constructive fraud. The District
Court directed a verdict for Story on the City's fraud claims at
the close of testimony. It did not instruct the jury regarding
these claims.
If the party claiming actual fraud does not present a prima
facie case on the nine elements of fraud, a directed verdict is
proper. McGregor v. Cushman/Mommer (1986), 220 Mont. 98, 104, 714
P.2d 536, 540. We concluded above that the City did not present a
prima facie case of fraud. Therefore, the District Court did not
err in directing a verdict against the City on actual fraud.
The City also disputes the District Court's refusal of its
instruction on constructive fraud, which was a recitation of 5 28-
2-406, MCA:
Constructive fraud consists in:
(1) any breach of duty which, without an actually
fraudulent intent, gains an advantage to the person in
fault or anyone claiming under him by misleading another
to his prejudice or to the prejudice of anyone claiming
under him; or
( 2 ) any such act or omission as the law especially
declares to be fraudulent, without respect to actual
fraud.
The City has failed to prove or even assert the existence of
any breach of a duty gaining an advantage to Story or any act or
omission declared fraudulent by law, as required by 5 29-2-406,
MCA . The City failed to establish a prima facie case of
constructive fraud and, therefore, was not entitled to an
instruction on that subject. See Wiberq, 788 P.2d at 295.
We hold that the District Court did not err in refusing the
City's proposed instruction Nos. 15, 26, 27 and 28 on actual and
constructive fraud.
MUTUAL BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING
In answering Story's amended complaint, the City
counterclaimed for breach of contract and breach of the covenant of
good faith and fair dealing against Story. It based this
counterclaim on its assertion that Story used fraud and deceit to
capitalize on the typographical error. The City argues that the
District Court erred in refusing its proposed instruction on the
mutual breach of the duty of good faith and fair dealing, which
stated:
If both parties have breached the implied covenant of
good faith and fair dealing, neither can recover on it.
The City cites the case of Los Angeles Coliseum Comm'n v. N.F.L.
(9th Cir. 1986), 791 F.2d 1356, in support of its instruction.
In Barrett v. ASARCO, Inc. (1988), 234 Mont. 229, 238, 763
P.2d 27, 33, we relied on the Ninth Circuit Court of Appeals1
decision in Los Anqeles Coliseum in determining that the covenant
of good faith and fair dealing was a Ntwo-way" street. Barrett,
763 P.2d at 32. We stated that, in the employment context, an
employee who breaches his or her duty of good faith and fair
dealing may not then complain of unfair dealing by the employer.
However, we quoted the Ninth Circuit's caveat in Los Anaeles
Coliseum that this rule has a narrow application, and stated:
We emphasize that our ruling does not embrace a broad
rule whereby any two breaches of the implied good faith
promise by opposing contracting parties constitute
"offsetting penalties" which cancel each other out:
rulinq ap~lies only to factual contexts such as the
present one, where both breaches concerned the same issue
and occurred durinq one episode of the contractual
relationship.
Barrett, 763 P.2d at 33 (emphasis added). Neither Los Anqeles
Coliseum nor Barrett supports the broad statement of law offered by
the City in its proposed instruction.
We conclude, therefore, that the District Court did not err in
refusing the City's proposed instruction on mutual breach of the
covenant of good faith and fair dealing.
LIOUIDATED DAMAGES
The City asserts that the District Court erred in refusing to
instruct the jury on its claim of liquidated damages. James
Wysocki, Bozeman City Manager, testified that the contract between
Story and the City contained a $450 per day liquidated damages
clause. He further testified that, because the job was finished 87
days later than provided in the contract, the City assessed $39,150
against Story pursuant to the clause. At the close of evidence,
the District Court granted Story's motion for a directed verdict on
liquidated damages and refused to instruct the jury on the issue.
The City correctly asserts that, in Morgen & Osgood Constr.
Co. v. Big Sky of Montana (l976), 171 Mont. 268, 557 P.2d 1017,
this Court upheld a liquidated damages clause in a construction
contract. It then asks us to reject the burden set forth in Morqen
for a party seeking to recover under such a clause--implicitly
conceding that it did not meet that burden--in favor of a different
standard from a landlord-tenant case. We decline to do so.
In Montana, liquidated damages clauses in contracts are
generally prima facie void. Section 27-2-721(1), MCA; Morqen, 557
P.2d at 1019; Weber v. Rivera (Mont. 1992), 841 P.2d 534, 537, 49
St.Rep. 969, 971. We have previously explained that to come within
the statutory exception to this rule, facts must be alleged and
proved that the damages would be extremely difficult or
impracticable to ascertain and that the damages assessed are a
reasonable estimate of the probable damages or are reasonably
proportionate to the actual damages sustained at the time of the
breach. Morqen, 557 P.2d at 1020-1; Weber, 841 P.2d at 537. The
party seeking to enforce the liquidated damages clause carries the
burden of proving these factors. Moruen, 557 P.2d at 1020.
Wysocki was the only witness who testified for the City
regarding the liquidated damages clause. He did not testify that
damages would be difficult to ascertain or that the $450 per day
penalty was a reasonable estimate of the damages actually suffered
by the City. We conclude, therefore, that the City did not meet
its burden under Morqen and the District Court correctly refused to
instruct the jury on liquidated damages.
Did the special verdict form comply with Rule 49(a),
M.R.Civ.P.?
The special verdict form, as completed by the jury, read as
follows:
1. Did the City of Bozeman breach the contract with Mark
Story and/or breach the covenant of good faith and fair
dealing.
25
2. If yes, what are Mark Story's damages against the
City of Bozeman. $ 850,000
3. Did Neil Mann interfere with Mark Story's contractual
relations with Balboa Insurance Company.
Yes X No -
4. If yes, what are Mark Story's damages against Neil
Mann. $ 100,000
5. Did Mark Story breach the contract with the City of
Bozeman and/or breach the covenant of good faith and fair
dealing.
Yes No -
6. If yes, what are the City of Bozeman's damages.
$ 8.035.63
This Court uses a three-part standard to determine the
adequacy of a special verdict form under Rule 49(a), M.R.Civ.P.:
1) whether, when read as a whole and in conjunction with
the general charge, the interrogatories adequately
presented the contested issues to the jury;
2) whether the submission of the issues to the jury was
fair; and
3) whether the ultimate questions of fact were clearly
submitted to the jury.
Kinjerski v. Lamey (1981), 194 Mont. 38, 41, 635 P.2d 566, 568.
The City contends that the District Court violated Rule 49(a),
M.R.Civ.P., because the special verdict form did not include the
issues of fraud and unilateral mistake, the City's primary theories
for reformation of the contract. We have determined that the City
did not present sufficient evidence to warrant an instruction on
unilateral mistake or fraud. If the evidence does not support a
claim, the district court should not allow a jury to consider the
claim on a special verdict form. R.H. Grover, Inc. v. Flynn Ins.
Co. (1989), 238 Mont. 278, 284, 777 P.2d 338, 341.
Applying the Kinierski test, we conclude that the special
verdict form, when combined with the jury instructions, adequately
presented the contested issues to the jury. The jury was able to
consider the City's reformation argument under Instruction No. 14,
which stated:
The Defendants assert that the Plaintiff should not be
compensated under Schedule 11, Item No. 1, Type 2 Pipe
Bedding in Place at $25 per cubic foot because the
contract should be reformed.
Further, Instruction No. 15, which was set forth in our discussion
of the preceding issue, explicitly provided for reformation based
on mutual mistake. The jury had the opportunity to consider the
City's theory that both parties intended to bid "CY" and could have
adjusted the damages awarded accordingly. Lastly, the ultimate
question of whether either party had breached the contract or the
covenant of good faith and fair dealing was presented to the jury.
We hold that the special verdict form did not violate Rule
49(a) , M.R.Civ.P.
Did the District Court err in permitting retrial of the
issues of reformation, defamation and constructive fraud?
Prior to trial, the City moved for summary judgment on its
claims of reformation and contract damages, claiming that those
issues were determined conclusively in the first trial. It also
moved for summary judgment on Story's claims of constructive fraud
by the City and defamation. The District Court denied the City's
motion. The court allowed Story to present evidence on his claims
of defamation and constructive fraud against the City, which the
City now claims unduly prejudiced the jury. The City asserts that
because this Court's opinion in Storv I does not address the issues
of constructive fraud, defamation and reformation, the District
Court erred in permitting Story to retry them. We disagree.
In Storv I we stated:
The City of Bozeman appeals a jury verdict against it .
. . .
. We reverse and remand for retrial . . . Story has
raised several issues on cross-appeal, none of which we
need discuss because of our grant of a new trial.
Story, 791 P.2d at 769, 776-7.
When a new trial is granted, the parties are returned to the
position they occupied before the trial. O'Brien v. Great Northern
R.R. Co. (1966), 148 Mont. 429, 441, 421 P.2d 710, 716. A judgment
of the supreme court ordering a new trial opens anew all questions
in the case. Mattock v. Goughner (1893), 13 Mont. 300, 301, 34 P.
36, 36. In Zavarelli v. Might (1989), 239 Mont. 120, 125-6, 779
P.2d 489, 493, we remanded for further proceedings, and explained:
On remand, the trial court may consider or decide any
matters left open by the appellate court, and is free to
make any order or direction in further progress of the
case, not inconsistent with the decision of the appellate
court, as to any question not presented or settled by
such decision. The issues are generally open on a
retrial when a case is reversed and remanded for further
proceedings. If the mandate speaks only in the light of
the special facts found, the trial court is at liberty to
proceed in all other respects in the matter, that,
according to its judgment, justice may require.
Although in Zavarelli we did not specifically remand for a new
trial, as we did in Story I, the rationale expressed is equally
applicable to the case before us. In Story I, we remanded for a
new trial; we did not "save" certain correct portions of the
judgment or remand with limiting instructions. The City appealed
from the district court judgment in Storv I; its current argument
is particularly incongruous in light of the City's broad closing
request in its appellate brief in Storv I that the judgment entered
against the City be set aside and a new trial ordered.
We conclude that the District Court did not err in permitting
retrial of the issues of constructive fraud, defamation and
reformation.
Affirmed in part, reversed in part, and remanded for entry of
a modified judgment striking the $100,000 award against Neil Mann.
Chief Justice
Ld&+ ChVzL
June 24, 1993
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
J. Robert Planalp
Landoe, Brown, Planalp & Braaksma
P.O. Box ONE
Bozeman, MT 59771-0001
Gregory 0. Morgan
Attorney at Law
P.O. Box 1530
Bozeman, MT 59771-1530
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA