I N THE SUPREME COURT OF THE STATE OF MONTANA
STATE B A N K O F TOWNSEND, A MONTANA
CORPORATION,
Plaintiff and A p p e l l a n t ,
vs.
MARYANN ' S , I N C . , a Montana
c o r p o r a t i o n , a n d ARLO B . WESTON
a n d VERNETTA WESTON, h u s b a n d
and wife,
Defendants and Respondents.
Appeal from: D i s t r i c t Court of t h e Eighteenth J u d i c i a l D i s t r i c t ,
I n and f o r t h e County of G a l l a t i n
Honorable Joseph B. Gary, Judge p r e s i d i n g .
Counsel of Record:
For Appellant:
Hooks a n d B u d e w i t z , Townsend, Montana
Thomas A . B u d e w i t z a r g u e d , T o w n s e n d , Montana
For Respondents:
S m a l l , H a t c h and Doubek, H e l e n a , Montana
F l o y d 0 . S m a l l a r g u e d , H e l e n a , Montana
Moore, R i c e , O ' C o n n e l l & R e f l i n g , Bozeman, Montana
Submitted: December 2 , 1 9 8 2
Decided: May 1 0 , 1 9 8 3
Filed:
-
Clerk
Mr. Justice Fred J. Weber delivered the Opinion of the Court.
State Bank of Townsend (Bank) brought this action on a
promissory note executed by defendants Maryanns, Inc. and
Arlo B. Weston (herein referred to as Maryanns) in the
District Court of the Eighteenth Judicial District for
Gallatin County. Maryanns counterclaimed, seeking damages
alleged to have been caused by the fraudulent
misrepresentation of the Rank and the breach of an agreement
to loan money. Following jury trial, judgment was entered
for Maryanns in the amount of $129,484.13 ($150,000.00
verdict less $16,015.87 owing from Maryanns to the Bank and
$4,546.00 attorneys fees). The Bank appeals. We affirm the
judgment in part and reverse as to the balance of the
judgment, returning the cause for new trial.
The issues presented by the Bank are:
1. Was it error for the court to refuse to reduce
Maryanns' damages by 40 percent?
2. Did the court err in refusing to instruct on the
statute of frauds?
3. Was there sufficient evidence to support the verdict
of negligent misrepresentation?
4. Was there sufficient evidence to support the finding
of damages to Maryanns?
5. Was it error to admit Maryanns' Exhibit "AA"?
Arlo and Vernetta Weston are the principal stockholders
of Maryanns, Inc., a corporation. Maryanns operated a
clothing store in Bozeman starting in 1974. In July 1978,
the Westons leased a store building in Townsend from Mrs.
Ragen under a six month's lease with option to purchase
during the lease term; and they also bought certain inventory
and fixtures from Mrs. Ragen.
In August 1978, Mr. Weston went to the Bank to inquire
about borrowing money in connection with the opening of the
Townsend store. Mr. Weston applied for a loan and provided
personal and corporate financial statements. Mr. Weston was
furnished with a corporate borrowing resolution to be adopted
by Maryanns, Inc. On August 29, Mr. Weston returned the
incomplete corporate borrowing resolution to Mr. Wilson, a
bank officer. After a discussion between banker Wilson and
Mr. Weston, Wilson inserted a $50,000 limit in the blank in
the borrowing resolution.
On August 29, 1978, Maryanns, Inc. and Mr. Weston signed
a promissory note for $20,000, the proceeds of which were
deposited in the corporate bank account. On January 3, 1979,
$2,000 was borrowed by a note signed by Mr. Weston. On
January 18, 1979, an additional $7,000 was borrowed under a
note signed by Mr. Weston. In early February 1979, Mr.
Weston notified Mrs. Ragen of his intention to exercise his
option to purchase her building. At that time Mr. Weston
left a check for $20,800 drawn on the Bank for the down
payment with banker Wilson and told Wilson "to give it to
Kathern Ragen when she had the necessary papers that she was
supposed to have ready for the agreement." Upon being
advised that the check was too large, Mr. Weston delivered to
banker Wilson a new check for $17,000 with the same
instructions. On March 8, 1979, Mr. Weston called banker
Wilson and told him that he had received the necessary papers
from Mrs. Ragen and to qive her the check. On March 9, 1979,
Mrs. Ragen picked up the check from Wilson and was unable to
secure payment because there were insufficient funds to cover
the check. On March 13, 1979, Mrs. Ragen gave Maryanns
written notice of her rescission of the lease-option. On
March 19 or March 20, 1979, banker Wilson wrote Mr. Weston a
letter which declared all three notes due and payable
immediately. On April 1, 1979, after Maryanns vacated the
building, the Bank rented the building from Mrs. Ragen, held
a sale of the inventory remaining in the store, and applied
the proceeds to the various notes, leaving a remaining
balance on the notes in the amount of $14,647.78 together
with accruing interest.
The Bank then sued the Westons and Maryanns to foreclose
upon the various security interests given as collateral.
Westons and Maryanns counter-claimed, contending that the
Bank had represented that Maryanns had a $50,000 line of
credit at the Bank and seeking damages. Following trial, the
jury completed special interrogatories and a special verdict,
and judgment was entered for Maryanns in the amount of
$150,000, less $16,015.87 found to be due and owing by
Maryanns to the Bank on the notes, and $4,546.00 attorneys
fees .
Unfortunately it is necessary to comment on the state of
the record before we address the specific issues raised. In
the course of preparation for trial, the court prepared an
extensive pre-trial order which included agreed facts and the
contentions of both the Bank and Maryanns. The substance of
the contentions of Maryanns was that the Bank fraudulently
caused Maryanns to believe the Bank was willing to gra.nt
credit of up to $50,000 and that the Bank knowingly,
willfully, deceitfully and fraudulently failed to inform
Weston that the Bank was not going to advance the money; that
the Bank acted in a fraudulent and precipitous manner in
declaring the notes of Maryanns to be due and payable; and
that as a result of the foregoing, damages were caused to
Maryanns. Under Rule 16, M.R.Civ.P., such an order controls
the subsequent course of the action unless modified at the
trial to prevent manifest injustice. As appears from the
instructions, the theory of Maryanns case was changed during
the course of the trial to one of negligent
misrepresentation. In the absence of an issue of negligent
misrepresentation in the pre-trial order or subsequent
amendment, the District Court should not have allowed the
legal theory of negligent misrepresentation to be presented
to the jury. Sufficient objections were not made to justify
a reversal by this Court. The chanqe in theory during the
course of the trial resulted in confusion as to the law of
the case on the part of the attorneys and the trial court.
Contradictory and confusing instructions were one result. In
addition we have found it almost impossible to analyze the
confused record.
The Bank contends that it was error for the District
Court to refuse to reduce the damage verdict of $150,000 by
40%. The Rank contends that under the form of interrogatory
completed by the jury, the jury determined that the full
amount or total amount of Maryanns' compensatory damages was
$150,000 and that such amount should be reduced by 40%, which
was the jury determination of the percentage of negligence
chargeable to Maryanns. In its order refusing to reduce the
award, the District Court considered the special
interrogatories and the instructions, and in particular
Instruction No. 35. The Court concluded that because of the
wording of the latter portion of Instruction 35, which
provided that damage ahlowed shall be diminished in
proportion to the amount of negligence attributable to the
party recovering, the jury may have considered both the
instruction and the interrogatory and diminished the damages
when it fixed a figure of $150,000. In pertinent part, the
interrogatories which were completed by the jury were as
follows:
"On the defendant's counter-claim against the
plaintiff you will answer the following
interrogatories:
"INTERROGATORY NO. 2.: Did you find that the
plaintiff actually or impliedly represented to the
defendants that it would loan sufficient funds to
make the downpayment to Katherine Hunsaker [Ragen]
for the purchase of the Townsend store? (mark one)
Yes X No
"If your answer is "yes," answer the following
interrogatories.
"INTERROGATORY NO. 3.: Was the plaintiff's
representation intentional or an act of negligence?
(mark one)
Intentional Negligent X
"INTERROGATORY NO. 6. : Were the defendants guilty
of negligence? (mark one)
Yes X No
"INTERROGATORY NO. 7.: If your answer to
Interrogatory No. 6 is "yes," of what percentage
out of 1 0 0 % are the defendants guilty?
"INTERROGATORY NO. 8. : What is the full amount of
defendant's compensatory damages?
Amount - $ 150,000
In addition to the foregoing special interrogatories, the
District Court gave an instruction on contributory
negligence:
"INSTRUCTION NO. 35
"You are instructed that the laws of the State of
Montana provide that contributory negligence shall
not bar recovery in an action by any person or his
legal representative to recover damaqes for
negligencg resulting in death or injury go person
or property, if such negligence was not greater
than the negligence of the person against whom the
recovery is sought, but any damage allowed shall be
diminished in proportion to the amount of
negligence attributable to the person recovering.
Contributory negligence is not a defense to a
willful wrongdoing." (underscoring added)
In considering the motions of the Bank seeking a
reduction of the $150,000 damage figure, the District Court
was presented with juror affidavits by counsel for Maryanns.
Relying on Harry v. Elderkin Mont. I
809, 38 St.Rep. 2076, the District Court refused to consider
the jurors' affidavits, which had been filed by the
defendants with the aim of explaining the jurors1 viewpoint
of the damage award. We affirm the holding of the District
Court with regard to juror affidavits. The following
statements from Harry are pertinent:
"Montana law on the use of juror testimony and
affidavits upon an inquiry into the validity of the
verdict is concisely summarized by Rule 606(b),
Montana Rules of Evidence as follows:
"'Inquiry into validity of verdict or indictment.
Upon an inquiry into the validity of a verdict or
indictment, a juror may not testify as to any
matter or statement occurring during the course of
the jury's deliberations or to the effect of
anything upon his or any other juror's mind or
emotions as influencing him to assent or dissent
from the verdict or indictment or concerning his
mental processes in connection therewith. Nor may
his affidavit or evidence of any statement by him
concerning a matter about which he would be
precluded from testifying be received for these
purposes." Mont. at , 637 P.2d at 813,
38 St.Rep. at 2079.
There are exceptions set forth in Rule 606(b) which are not
pertinent. Juror affidavits are useable where external
influences have been exerted upon a jury or where extraneous
prejudicial information is brought to the jurors1 attention.
In holding that affidavits are not admissible to prove the
thought processes of the jurors, this Court stated:
"Here, the juror affidavit reflects the foreman's
belief that the jury did not understand the
instructions on contributory negligence,
comparative negligence and mitigation of damages.
This case falls into the category of cases
involving internal influences on the jury. We hold
that the District Court abused its discretion in
granting a new trial on the basis of a juror
affidavit which purports to impeach the verdict by
delving into the thought processes of the jurors."
Harry, Mont. at- , 637 P.2d at -813, 38
St.Rep. at 2080.
We hold in this case that it would be improper to consider
the juror affidavits to delve into the thought processes of
the jurors in connection with the completion of the special
interrogatories.
After careful consideration of Instruction 35 and the
other instructions, as well as the special interrogatories,
we have concluded that the law of the case as contained in
the instructions and interrogatories is so inherently
contradictory and confusing that a new trial is required in
justice to both the plaintiff and defendants. As pointed out
by the District Court, the latter portion of Instruction 35
can be interpreted as instructing the jury that any damages
allowed to Maryanns shall be diminished in proportion to the
amount of negligence attributable to Maryanns, even though
Interrogatory No. 8 asks that the jury determine the "full
amount of defendants' compensatory damages." We find it
impossible to determine which standard the jury should have
applied or did apply. This confusion is compounded by the
placement of Interrogatory No. 8, asking the determination of
the compensatory damages, immediately after Interrogatory No.
7, which covers the percentage of negligence on the part of
the defendant. This confusion is enhanced by the reference
in Instruction No. 35 to "negligence resulting in death or
injury to person or property." Obviously this was an
instruction prepared for a different type of case than the
present case, which does not involve either death or injury.
In addition the failure to carefully instruct on negligent
misrepresentation as distinguished from fraudulent
misrepresentation is demonstrated in the first paragraph of
Instruction No. 24, to which the Bank did object:
"In this action defendants and counter-claimants,
Arlo Weston and Maryanns, Inc., seek to recover
damages they claim they sustained as a result of
negligent and fraudulent misrepresentations made by
the Bank . . ."
The remainder of the instruction sets forth the elements of
negligent misrepresentation. The initial sentence only
muddies the clear legal distinction between fraudulent
misrepresentation and negligent misrepresentation.
In a similar manner, Instruction No. 36 makes reference
a number of times to the injuries to the defendant and
plaintiff's negligence as a proximate cause of the injuries
to the defendant, raising the probability of confusion on the
part of the jury in considering the instructions.
Initially the District Court concluded that it was the
function of the judge to apportion damages depending upon the
percentage determined by the jury. Because of the confusion
resulting from the interrogatories and instructions, the
District Court subsequently reversed that conclusion.
We are not able to determine what the iury was
instructed to do by virtue of the interrogatories and
instructions, nor are we able to determine what the jury
actually did. In the absence of adequate objections of
record, we have concluded that this Court may apply the
"plain error" doctrine under which we consider questions
raised for the first time on appeal if the existing error
affects the substantial rights of the parties. Halldorson v.
Halldorson (1977), 175 Mont. 170, 573 P.2d 169. In this case
both parties have a substantial right to instructions which
correctly set forth a legal basis for the assessment of
damages, as well as an understandable method of computing the
amount of such damages.
Rule 51, M.R.Civ.P., does provide that no party may
assign as error the failure to instruct on a point of law
unless he offers an instruction thereon, and this Court
frequently has refused a review on that basis. Nevertheless,
this Court will consider whether parties have been denied
substantial justice by the trial court. As stated in
McAlpine v. Midland Elec. Co. (1981), Mont . , 634
"Normally, the party complaining of error must
stand or fall upon the ground relied upon in the
trial court and objections which are urged for the
first time on appeal will not be considered by this
Court. Bower - Tebbs (1957), 132 Mont. 146, 160,
v.
314 P.2d 731, 739. Nevertheless, this Court has a
duty to determine whether the parties before it
have been denied substantial justice by the trial
court. This Court can, within its sound
discretion, consider whether the trial court has
deprived a litigant of a fair and impartial trial,
even if the parties ignored the mandate of a
statute or an established precedent."
To the same affect is our holding in Kudrna v. Comet Corp.
(1977), 175 Mont. 29, 51, 572 P.2d 183, 195:
"By this decision this Court is not repudiating the
sound rules of practice which require timely,
specific objections to instructions and the full
presentation of issues for review on appeal. On
the facts having carefully reviewed the entire
record, we hold that a serious error which appears
on the face of that record is reviewable, although
not presented by the parties."
Our holding is consistent with the holding in Black v.
Stephens (3rd Cir. 1981), 662 F.2d 181, cert. denied - -
sub nom.
Stephens v. Black (1982), 455 U.S. 1008, 102 S.Ct. 1646, 71
L.Ed.2d 876, in which the Circuit Court explained the problem
with regard to Rule 51 and failure to object and reached a
conclusion which we specifically approve:
"It is true that Rule 51 of the Federal Rules of
Civil Procedure provides that '[nlo party may
assign as error the giving or the failure to give
an instruction unless he objects thereto before the
jury retires to consider its verdict, stating
distinctly the matter to which he objects and the
grounds of his objection.' . . .
In [City of
Newport v. Fact Concerts, Inc. (1981), 453 U.S.
247, 101 S.Ct. 2748, 69 L.Ed.2d 6161, the Supreme
Court recognized that the purpose of Rule 51 is to
encourage counsel to correct errors in the judge's
charge before the trial ends, while these errors
can still be rectified. The Rule seeks to avoid
situations in which an error in jury instructions
would necessitate a new trial, one that could have
been prevented had the error been brought to the
judge's attention before jury deliberations began.
"'Although generally jury instructions will not be
reviewed on appeal if they were not objected to at
trial, we have the discretion to review
instructions sua sponte if the error is fundamental
and highly prejudicial . . . and our failure to
consider the error would result in a miscarriage of
justice.'" 662 F.2d at 206-07.
We also find an inherent error in the instructions and
special interrogatories as submitted to the jury. This
question was analyzed by Justice Sheehy in his dissent in
Harry v. Elderkin, supra. The special interrogatories and
instruction in Harry v. Elderkin are directly comparable to
the above-quoted interrogatories and instruction. As pointed
out by Justice Sheehy, the error arose because the District
Court submitted a special verdict without an instruction
telling the jury how to use the special verdict. In this
case, Instruction No. 35 does conflict with the directions
contained in the special verdict. On retrial, should the
question arise, an instruction similar to that set forth in
the Harry v. Elderkin dissent properly could be used.
Because we are sending the case back for a new trial, it
is appropriate that we comment upon the issue of negligent
misrepresentation. We approve the definition of negligent
misrepresentation as contained in Restatement (Second) of
Torts S552:
' S 552.
I Information Negliqently Supplied - -
for the
Guidance - Others
of
"(1) One who, in the course of his business,
profession or employment, or in any other
transaction in which he has a pecuniary interest,
supplies false information for the guidance of
others in their business transactions, is subject
to liability for pecuniary loss caused to them by
their justifiable reliance upon the information, if
he fails to exercise reasonable care or competence
in obtaining or communicating the information.
" (2) Except as stated in Subsection ( 3 ) , the
liability stated in Subsection (1) is limited to
loss suffered
(a) by the person or one of a limited group of
persons for whose benefit and guidance he intends
to supply the information or knows that the
recipient intends to supply it; and
(b) through reliance upon it in a transaction that
he intends the information to influence or knows
that the recipient so intends or in a substantially
similar transaction.
In considering the definition, we find the following
comment by the authors of the Restatement to be applicable:
"The liability stated in this Section is likewise
more restricted than that for fraudulent
misrepresentation stated in § 531. When there is
no intent to deceive but only good faith coupled
with negligence, the fault of the maker of the
misrepresentation is sufficiently less to justify a
narrower responsibility for its consequences.
"The reason a narrower scope of liability is fixed
for negligent misrepresentation than for deceit is
to be found in the difference between the
obligations of honesty and of care, and in the
significance of this difference to the reasonable
expectations of the users of information that is
supplied in connection with commercial
transactions. Honesty requires only that the maker
of a representation speak in good faith and without
consciousness of a lack of any basis for belief in
the truth or accuracy of what he says. The
standard of honesty is unequivocal and
ascertainable without regard to the character of
the transaction in which the information will
ultimately be relied upon or the situation of the
party relying u.pon it. Any user of commercial
information may reasonably expect the observance of
this standard by a supplier of information to whom
his use is reasonably foreseeable.
"On the other hand, it does not follow that every
user of commercial information may hold every maker
to a duty of care. Unlike the duty of honesty, the
duty of care to be observed in supplying
information for use in commercial transactions
implies an undertaking to observe a relative
standard, which may be defined only in terms of the
use to which the information will be put, weighed
against the magnitude and probability of loss that
might attend that use if the information proves to
be incorrect. A user of commercial information
cannot reasonably expect its maker to have
undertaken to satisfy this obligation unless the
terms of the obligation were known to him. Rather,
one who relies upon information in connection with
a commercial transaction may reasonably expect to
hold the maker to a duty of care only in
circumstances in which the maker was manifestly
aware of the use to which the information was to be
put and intended to supply it for that purpose. ..
"Since the rule of liability stated in Subsection
(1) is based upon negligence, the defendant is
subject to liability if, but only if, he has failed
to exercise the care or competence of a reasonable
man in obtaining or communicating the information.
(See $5 283, 288 and 289). What is reasonable is,
as in other cases of negligence, dependent upon the
circumstances. It is, in general, a matter of the
care and compentence that the recipient of the
information is entitled to expect in the light of
the circumstances and this will vary according to a
good many factors. The question is one for the
jury, unless the facts are so clear as to permit
only one conclusion." S552 (comment) at pp.
127-30.
The Bank contends that the District Court erred in
refusing its proposed instructions on the application of the
statute of frauds. The Bank argues that there was no ability
on the part of the defendants to make the payment of the
claimed amount within one year and that section
28-2-903 (1)(a), MCA applied. The evidence does not support
this contention. While the jury did find that the Bank
actually or impliedly represented that it would loan
sufficient funds to make the down payment for the purchase of
the Townsend store, the evidence does not disclose any terms
of an agreement for payment. In the absence of evidence
showing that the agreement could not be performed within one
year, the statute of frauds is not applicable.
While the evidence does appear sufficient to support the
verdict of negligent misrepresntation and the finding of
damages to the defendant, such conclusion is based upon the
contradictory and incomplete instructions with regard to
negligent misrepresentation. We therefore d.o not
specifically rule on the sufficiency of such evidence in the
absence of adequate and complete instructions on the law of
the case.
The bank contends that it was error to admit Maryanns'
Exhibit "AA" into evidence. The exhibit was prepared by a
certified public accountant who had many years of experience
and had handled the Maryanns store in Bozeman and other
communities. He was tkoroughly familiar with the business
operations and with profits and losses and his testimony
regarding anticipated net income formed the basis for Exhibit
"AA", a ten-year forecast of earnings. Instruction No. 29
detailed the claimed elements of defendants' damages and in
part stated:
"Defendants and counter-claimants claim in this
action that the Bank and its officers have, as a
direct and proximate result of their false,
negligent, fraudulent and wrongful acts and
omissions, caused counter-claimants, Arlo Weston
and Maryanns, Inc., damages in the amount of One
Million Dollars ($1,000,000,00) . This, as claimed
by counter-claimants, is for loss of the clothing
store in Townsend (including inventory and fixtures
owned by them) and for profits they might
reasonably have expected to enjoy from the
operation of said store for the next 10 years; for
the causing of the rescission, by Kathern Ragen, of
her contract to sell the store building to
counter-claimants; for damage to the reputation and
credit rating of counter-claimants with the general
public, and. more particularly with Banks, business
establishments and. wholesalers; and also for the
subsequent closing of the Bozeman store, as a
result thereof."
In addition, Instruction No. 33 was given by the court
regarding damages:
"Damages are recoverable for losses caused or for
profits and other gains prevented by the breach
only to the extent that the evidence affords a
sufficient basis for estimating their amount in
money with reasonable certainty. Damages which are
a matter of mere speculation cannot be the basis of
recovery. Recovery cannot be denied for damages
simply because they are difficult to ascertain."
The instructions adequately establish a standard for
computing damages with reasonable certainty. This answers
the Bank's argument regarding lost profits.
There is substantial evidence to support the elements of
damages in Instruction No. 29. The testimony of the
certified public accountant and the testimony that the
Westons invested between $80,000 and $95,000, together with
evidence regarding the rescission of the Ragen contract,
damage to reputation and credit rating, and subsequent
closing of the stores, all afford an adequate basis for the
conclusions of the jury. We hold that Exhibit "AA" was
properly admitted.
We reverse the judgment of the District Court and remand
We concur:
Chief Justice
.
-
Justices
Mr. Justice Daniel J. Shea will file a separate opinion later.