author: JUSTICE WEBER JUSTICE SHEEHY, JUSTICE SHEEHY, JUSTICE HUNT,

text:
    JOHN KENNETH FINSTAD, Plaintiff and Respondent, v. THE MONTANA POWER COMPANY, Defendant and Appellant.
    No. 89-06.
    Submitted Oct. 17, 1989.
    Decided Jan. 9, 1990.
    Rehearing Denied Feb. 22, 1990.
    785 P.2d 1372.

      Robert T. O’Leary and Patrick T. Fleming argued, Montana Power Co., Butte, for defendant and appellant.
    John C. Hoyt, Alexander Blewett, III argued, Hoyt & Blewett, Great Falls, for plaintiff and respondent.
   JUSTICE WEBER

delivered the Opinion of the Court.

Mr. Finstad sued Montana Power Company (MPC) in the Ninth Judicial District Court, Glacier County, alleging a violation of the implied covenant of good faith and fair dealing in his termination or constructive discharge. The District Court denied MPC’s motions for a directed verdict which were made at the close of the plaintiff’s case-in-chief and at the conclusion of all testimony. The jury awarded Mr. Finstad $433,500 in compensatory damages. MPC moved for a judgment notwithstanding the verdict and a new trial and the motions were denied. MPC appeals. We reverse.

The determinative issues are:

1. Was there substantial credible evidence to support a conclusion that Mr. Finstad was either actually or constructively discharged?

2. Does the implied covenant of good faith and fair dealing apply to termination following an employer’s offer of a transfer of employment without change in compensation or other benefits where the employee refused the transfer?

Mr. Finstad was employed by MPC for 22 Vz years as a field engineer. For the last 15 of those years, he was stationed by MPC at Cut Bank, Montana. As a field engineer he was in charge of MPC’s oil and gas exploration and production, principally in northcentral Montana and southern Alberta, Canada. Both parties agree that Mr. Finstad was a capable, loyal and devoted employee. Mr. Finstad remained employed in that capacity until June 2, 1982. On that date, despite the urgings of his supervisor in MPC, he refused to accept a transfer from Cut Bank to Butte and his employment ended. Mr. Finstad contends that he was fired. MPC contends that he refused the transfer and chose to leave MPC. Because the facts are critical to this decision, we will later detail the facts which have led us to the conclusion that Mr. Finstad was neither actually discharged nor constructively discharged and that he refused to accept a transfer from Cut Bank to Butte without a change in job responsibilities, earnings or benefits. That transfer is herein described as a lateral transfer.

On May 29,1985, Mr. Finstad filed his complaint against MPC. He alleged that he had been employed for 22% years, with the last 15 in Cut Bank; that his principal responsibilities were all phases of drilling and production problems; that he gave his full loyalty, devotion and energies for the benefit of MPC; and that he was receiving a substantial salary as a petroleum engineer. In addition he alleged that on June 2, 1982 he was informed by officials of MPC that they were eliminating his job assignment and position at Cut Bank “for the stated reason that the Montana Power Company was eliminating future drilling in southeast Alberta and except for workovers and shallow holes, was shifting away from northern Montana to various other areas: all of which is and was false.” (Emphasis supplied.) In addition he alleged that MPC informed him that if he did not voluntarily move to Butte he would be discharged and that the reasons for discharge were false. He also alleged that the policy of MPC was to provide severance pay which had been intentionally withheld; and that MPC had violated the implied covenant of good faith and fair dealing in regard to the “termination or constructive discharge of plaintiff.” The last basic allegation was that the representations made by MPC to Mr. Finstad were knowingly false and designed to eliminate plaintiff from the payroll of the defendant even though he was a long time, loyal and faithful employee.

There was no pretrial order. The jury was thoroughly instructed on the application of the covenant of good faith and fair dealing. However, the special verdict form failed to present the jury with more than one conclusory question on its application. After a 5 day trial commencing May 23, 1988, the jury returned a special verdict in favor of Mr. Finstad. Following is the entire verdict:

“[W]e THE JURY, in the above entitled case, answer the questions submitted to us in this special verdict as follows:

“Question No. 1: Do you find that Defendant, Montana Power Company breached the covenant of good faith and fair dealing owed to Plaintiff and that such breach was a cause of damages to Plaintiff?

“Answer: Yes_No X

“Question No. 2: What is the amount of compensatory damages sustained by Plaintiff?

“Answer: $433,500.00.

“Question No. 3: Do you find that punitive damages should be assessed against Defendant?

“Answer: Yes_No. x ”

Following the denial of MPC’s motion for entry of judgment notwithstanding the verdict and motion for new trial, MPC appealed.

I

Was there substantial credible evidence to support a conclusion that Mr. Finstad was either actually or constructively discharged?

Because of the nature of our holding, we will make a detailed review of essential factual proof. Because this is an appeal from a jury verdict, this Court must view the evidence in the light most favorable to the prevailing party, and determine whether substantial credible evidence in the record supports the jury verdict. Bottrell v. American Bank (Mont. 1989), [237 Mont. 1,] 773 P.2d 694, 46 St.Rep. 561. In the absence of probative facts to support the jury’s verdict, it may be overturned. Jacobsen v. State of Montana (Mont. 1989), [236 Mont. 91,] 769 P.2d 694, 697, 46 St.Rep. 207, 211.

MPC maintains that it did not terminate Mr. Finstad. It contends that the record fails to show either an express termination or a constructive discharge. It also contends that the covenant of good faith and fair dealing should not be applied to a refusal to accept a lateral transfer. The contentions appear more fully in our factual review.

Mr. Finstad maintains that he was fired. Again we will not summarize his contentions further as they appear at length in the testimonial review.

Initially on direct examination, Mr. Finstad testified as to his normal long work days and work years, showing that he worked over 340 days in the calendar year 1980, and emphasizing his lack of vacation and the manner in which he was continually on call. He also testified as to his development of an external casing packer and other exploration techniques which saved substantial monies for MPC. His testimony described his competence and abilities at some length. We note that MPC did not in any way attempt to contradict this evidence. In fact the evidence submitted by MPC established that the supervisors of Mr. Finstad also thought he was extremely capable and well qualified and did their best to encourage him to accept the transfer from Cut Bank to Butte.

Mr. Finstad testified that in May 1981, Mr. Percival called from Butte and offered him the drilling manager job in Butte. In response he said he was pleased with being offered the drilling manager’s job, which was a big promotion. However Mr. Finstad told Mr. Percival that he was interested in staying in Cut Bank for one more year so that his youngest son could graduate from high school. That was acceptable to Mr. Percival and nothing further was said about the drilling manager job.

Mr. Finstad next testified that he received a memorandum from D.K. Percival. He testified that this was the only written memorandum or document which suggested a move to Butte. Following is Exhibit 1, the entire memorandum:

“April 17, 1982
“MEMORANDUM
“TO: Ken Finstad
“cc: Carl Anderson “Pete Madison “John Van Gelder “Bill Roberts “Neil Van De Kop
“RE: Relocation of Companies’ Drilling Supervisor
“Effective July-1, 1982, supervision of all companies’ drilling activity will be located in the Butte office. Carl Anderson has visited with you on the subject and has requested that you move to Butte to assume your duties from this office. As usual, I have not paid much attention to the title that goes with the job, but the job description and content initially will remain much the same as it is at the present time. Neil will remain in Cut Bank to handle whatever part of the workload that is appropriate from that location. We will work out details of office space, communications, etc. required to serve Neil in Cut Bank prior to July 1st.
“You will report to the Chief Petroleum Engineer or Manager-Petroleum Engineering, who will in turn be reporting to Carl. We are now working to fill that position and hope to have that done by July 1, 1982.
“The reason for the re-location is the distinct possibility that we will be pulling out of SE Alberta and that our future drilling, except for post holes and production workovers, is likely to be shifting away from northern Montana to various other areas. As this happens, the unique reason for maintaining your office in Cut Bank will have ended.
“I hope you will accept this transfer. I know it will broaden your experience beyond the field supervision level that you have done well for many years. Should you decide not to make the move, please let Carl know by June 1, 1982, so that he can plan accordingly.
“s/ Don
“D.K. Percival
“DKP:bw” (Emphasis supplied.)

Mr. Finstad testified that on April 14, 1982, prior to his receipt of Exhibit I, Carl Anderson, his immediate superior, visited with him in the MPC office in Cut Bank. Mr. Finstad pointed out that the visit was very brief and that Carl had called and stopped by and visited about a possible Butte move. There was no discussion of the drilling manager’s job.

Next Mr. Finstad testified that on May 3, 1982 he was flying to Red Lodge and Dillon and stopped and talked to Mr. Percival, then president of Entech, a non-utility part of MPC, and with Mr. Anderson. He testified he spent approximately one hour with them and that both of them told him that his job title and work were going to be exactly the same as in Cut Bank. He explained that this meant he would be driving from Butte instead of Cut Bank, and that he wouldn’t be able to accomplish anything since he would be constantly traveling from Butte to northern Montana and southeastern Alberta. He pointed out that Carl Anderson told him that he was going to expand his horizons and probably be traveling to Louisiana and Texas. At trial he pointed out that he had expected to be offered the Drilling Manager job when he went to Butte. He testified that if it had been offered to him, he would have taken it even if it meant moving to Butte. Mr. Finstad testified that at the end of that meeting, he made no response to their suggestion of the move to Butte.

Plaintiff’s Exhibit 1 specified that Mr. Finstad was to let Mr. Anderson know by June 1,1982, as to his decision on the transfer. Mr. Finstad testified that on June 2, 1982, Mr. Anderson met with him at Cut Bank. Mr. Finstad testified that he had received no elaboration about the pull out from southeast Alberta and northern Montana and that he had worked for MPC for 22 years and knew that was the area from which MPC was obtaining the gas. He told Mr. Anderson he didn’t believe that MPC would pull out. Mr. Finstad then testified in more detail as to his thought that if he moved to Butte he would be on the road from Butte to wherever they were drilling and told Mr. Anderson he couldn’t accomplish much while behind the wheel of a car.

Because of the conflicting arguments made by the parties, and in order that the testimony establishing various critical elements is set forth, we will detail substantial parts of the examination of Mr. Finstad. Because of the length of the quotations, we will underscore portions of the examination which appear particularly relevant. The direct examination of Mr. Finstad in relation to the matter of termination shows:

“Q Do you recall Mr. Fleming [counsel for MPC] telling this jury that you would not agree with the decision of the Montana Power Company ¿nd chose not to be employed by it anymore?

“A Yes. :

“Q Tell this jury when you chose not to be employed by the Power Company?:

“A I never did choose not to be with Montana Power.

“Q You heard Mr. Fleming state that no one came into the office and said, You’re fired.

“A Yes.

“Q What did happen?

“A Carl came in that morning about 9:00 and sat down and told me that I would be moving to Butte. Once again, he told me that I would be doing the same things I had been doing in Cut Bank. I tried to point out to him that I just couldn’t keep that pace up. I had recently gotten out of the hospital and I was devoting all of my time, as it was, to Montana Power. And, I just didn’t think it was going to work and we talked for perhaps a half an hour and we neither were making any headway and Carl said, Well, I need to talk to Don Percival.

“Q Did you suggest that he do that?

“A No.

“Q Why did he tell you he needed to talk to Don Percival?

“A I don’t really know.

“Q What were you trying to tell him would happen to the Power Company if they moved you to Butte?

“A I was just simply telling him it wouldn’t be efficient. I didn’t see how I could run that operation out of Butte and drive the miles they expected me to.

“A He came through the door and he said, Give me the keys to your Company car, and he says, Turn in your credit cards, and he said, You can clean out your personal effects from this office.

“Q What did you sayl

“A I said, You mean there aren’t any alternatives to this?

“Q And, what did he sayl “A And, he said, There are none.

“Q Did you say anything else?

“A I said, you know, Isn’t there any compassion left in this Company?

“Q And, what did he say?

“A He said, Well, you know, when Percy puts the knife in, he likes to twist it.

“Q Then, when Carl Anderson came into your office, demanded your credit cards, your key to the office and your car, and told you to clear out of the office, what did that mean to you?

“A Well, that was the end of my career.

“Q Did that mean you were firedl “A Yes. '

“Q Did you resign?

“A No.”

On the matter of moving and choices, Mr. Finstad further testified on direct:

“Q The question was, what did you think would happen if you didn’t move to Butte when Carl suggested that on June 2nd, 19821 “A I had assumed that I would be given an opportunity to do something other than moving to Butte, some other job.

“Q Were you ever told by Carl or Don or anyone else that there was a problem between the Power Company and you?

“A No.

“Q If someone had told you, any of these people that told you, if you didn’t move to Butte, you would have been fired, what would you have done?

“A I would have gone to Butte.”

Mr. Finstad testified with regard to his letter to Mr. McElwain, Chairman of MPC. Following is that Plaintiffs Exhibit 16:

■ “June 21, 1982
“Mr. J.A. McElwain
“The Montana Power Company
“40 East Broadway
“Butte, Montana, 59701
“Dear Joe:
“On June 2, 1982 in a meeting with Carl Anderson, my job as a Senior Petroleum Engineer was terminated after 22 years with Montana Power. The termination was the result of turning down a transfer to the Butte office.
“My reasons for turning down the transfer were multifaceted and explained in detail to Anderson. At the end of the meeting I asked Anderson if there were any options open to me. He told me there were none, and if I chose not to accept the transfer to turn in my car keys and vacate the office at once. Anderson took my car back to Butte that day.
“I sincerely hope that no other 20 year employee will have to suffer the loss of; their job in this uncompromising manner.
“For the loss of job and benefits I believe I am due severance compensation commensurate with my salary and years of employment.
“Yours truly
“s/ J.K. Finstad

(Emphasis supplied.)

On direct examination Mr. Finstad explained that he had used the word “termination” in the letter because the toughest word for him to use was “fired.” Following is the reply from Mr. McElwain to Mr. Finstad, Defendant’s Exhibit 1:

“June 28, 1982
“Mr. Ken Finstad
“111 - 9th Avenue, S.E.
“Cut Bank, MT 59427
“Dear Ken:
“I am in receipt of your letter of June 21 and I am very disappointed that you have come to the conclusion that you did not want to continue working for Montana Power Company as it meant a transfer to the Butte office. We have valued your services very greatly and, as you know, Carl Anderson has on two occasions tried to prevail upon you to try to change your mind. I have reviewed the statements made by you concerning Carl Anderson’s actions and find them not to be substantive to what actually occurred. Your termination was totally your choice because of your refusal to accept an assignment outside of Cut Bank when there was no additional need for your services there.
“Your 22 years of service with Montana Power Company makes you eligible for vested retirement benefits from Montana Power. Because of that fact, the provisions of our severance compensation policy do not allow for consideration of severance termination pay.
“My best wishes to you and your family. I deeply regret your decision not to continue with Montana Power Company in light of the circumstances.
“Very truly yours,
“s/ Joe McElwain
“J.A.M./pg
“bcc. D.K. Percival Carl Anderson

In response to Mr. McElwain, Mr. Finstad further wrote an additional letter, Plaintiffs Exhibit 17:

“July 6, 1982
“Mr. J.A. McElwain
“Chairman
“The Montana Power Company
“40 East Broadway
“Butte, Montana, 59701
“Dear Joe:
“I feel I must continue this dialog because you say review of my statements were not substantive. I will elaborate these statements. I pointed out the Cut Bank office was in the mainstream of activity and it was this nuts & bolts hands on activity that led to the development of an air driving technique that added several billion cubic feet of gas reserves in Northern Montana. The development of 2 stimulation systems that is being used by most operators in South East Alberta developing shallow gas, this in addition to maintaining and developing oil production. I also pointed out that the Canadian Operations being placed back in the rate base, Cut Bank is the logical base of operations providing efficiency and least cost to the rate payer in Montana.
“I questioned Percival’s memo of April 27, 1982 where he states the reason of relocation is the possibility of S.E. Alberta pull out.
“Finally I detailed health problems and asked Anderson how many people have been terminated for not accepting a transfer, and asked was there no compassion involved in light of the circumstances. Anderson replied quote ‘You know Percival he likes to put the knife in and twist it.’
“I am asking one months severance for each year of employment and intend to, if necessary, pursue this matter to the courts, Public Service Commission and media.
“Yours truly,
“s/ J.K. Finstad

(Emphasis supplied.)

Mr. Finstad testified that he talked to Mr. Anderson and Jay Johnson, his supervisor, about doing consulting work with MPC, and that he subsequently did consulting work on wells for MPC.

There was extensive cross examination of Mr. Finstad by the MPC counsel. With regard to the type of a job he did and the attempt by MPC officials to convince Mr. Finstad to move to Butte, he testified as follows:

“Q Nobody, Mr. Anderson or Mr. Percival, ever suggested to you that you weren’t doing a good job, did they?

“A No, sir.

“Q That never came up, did it?

“A No, sir.

“Q Nobody ever suggested that they were firing you because you were doing a terrible job?

“A No.

“Q And, in point of fact, nobody ever said they were firing you, did they?

“A When Carl Anderson came —

“Q I’m asking you, did anyone use the word ‘fire’ to you?

“A No, sir.

“Q And, at the time you met with Mr. Carl Anderson on June 2nd, 1982, did he criticize your job?

“A No.

“Q Isn’t it correct that Mr. Anderson tried to convince you to move to Butte on June 2nd, 1982?

“A Yes, he did.

“Q And, you refused?

“A Yes, I did.

“Q Now, on June 2nd, 1982, you had been told that the office in Cut Bank, Montana was closing; is that correct?

“A Yes. ;

“Q Was the office closed?

“A Yes, it'was.

“Q And, that was after June 2nd, 1982?

“A Yes. '

“Q Has that office ever reopened?

“A No.

“Q In point of fact, they are, to this day, supervising drilling from Butte, Montana?

“A I assume so, yes.

“Q And, have been doing so since June 2nd, 1982?

“A I assume so, yes.”

Because of the significance of Plaintiff’s Exhibit 1, the memo from Mr. Percival, we will detail the cross examination of Mr. Finstad on that exhibit:

“Q Now, let’s go though this line-by-line. ‘Effective July 1, 1982, supervision of all companies’ drilling activity will be located in the Butte office.’ Did you read that?

“A Yes.

“Q Now, that says that effective July 1, 1982, all drilling activity will be located in the Butte office, is that correct?

“A Yes.

“Q Since July 1, has it been located in the Butte office?

“A I assume it has, yes.

“Q You know it has, don’t you?

“A Yes.

“Q ‘Carl Anderson has visited with you on the subject and has requested that you move to Butte to assume your duties from this office.’ Is that a correct reading of that?

“A Yes.

“Q And, Mr. Anderson had, in fact, visited with you, hadn’t he?

“A Yes.

“Q ‘As usual, I have not paid much attention to the title that goes with the job, but the job description and content initially will remain much the same as it is at the present time.’ Is that correct?

“A Yes.

“Q And, you understood that?

“A Yes.

“Q And, you read that?

“A Yes.

“Q ‘Neil will remain in Cut Bank to handle whatever part of the workload that is appropriate from that location.’

“A Yes

“Q Mr. Neil Van de Kop this is referring to, is that correct?

“A Yes.

“Q In fact, he did stay here and handle the workload?

“A I assume he did.

* * *

“Q ‘We will work out details of office space, communications, etc, required to serve Neil in Cut Bank prior to July 1st.’ To your knowledge, were communications and office space worked out for Mr. Van de Kop?

“A I would assume they did.

* * *

“Q ‘You will report to the Chief Petroleum Engineer or Manager — Petroleum Engineering, who will in turn be reporting to Carl.’ Any reason to doubt any portion of that?

“A No.

“Q ‘We are now working to fill that position and hope to have that done by July 1, 1982.’ Did you know what they were doing in that respect?

“A No.

“Q And, that position was Manager of Petroleum Engineering?

“A Yes.

“Q ‘The reason for the relocation is the distinct possibility that we will be pulling out of southeast Alberta,’ I say southeast because it’s SE Alberta, ‘and that our future drilling’ — and, let’s stop after southeast Alberta. On April 27th, 1982, did you have any knowledge what Montana Power Company’s plans were with respect to southeast Alberta?

“A The only plans that I was aware of were the current drilling plans which we were operating under at that time.

* * *

“Q Had you ever participated in any of the discussions about planning, long range planning?

“A Not directly, no.

‘.‘Q In your capacity out here as a Senior Engineer located in Cut Bank in charge of supervision — drilling supervision, you didn’t play any role in that, did you?

“A No, sir.

“Q So, you didn’t know what the plans were?

“A Right.

“Q Now, to the next paragraph, T hope you will accept this transfer.’ That’s what it says?

“A Right.

“Q Do you know what Mr. Percival hoped, do you have any personal knowledge what Mr. Percival, the author of this memo, hoped?

“A Nothing past that he hoped I would accept the transfer.

“Q Did Mr. Percival express that to you and try to talk you into accepting the transfer?

“A Yes.

“Q That’s true, too?

“A Yes.

“Q Every indication is he hoped you would accept the transfer?

“A Yes.

“Q T know it will broaden your experience beyond the field supervision level that you have done well for many years.’ Would you get different experience if you were located in Butte?

“A Not according to the plan they explained to me.

“Q Let’s talk about when you received this. We’ll get on with this. If you would move to Butte and supervise from Butte, you would have been available to participate in various functions, a wider gambit than what you were doing here?

“A I don’t know that.

* * *

“Q ‘Should you decide not to make the move, please let Carl know by June 1, 1982, so that he can plan accordingly.’

“A Yes. 5

“Q Did you, in fact, contact Mr. Anderson on June 1, 19821

“A No. I didn’t.

“Q Why notl

“A I don’t remember.

“Q That was the only request that there was in this memo for you to do, is that correct, other than to relocate in Butte?

“A Yes.

“Q And, you didn’t do either?

“A No.

“Q Now, was there any reason and, I think I have discussed this and I want to make sure I get your answer, was there any reason you didn’t comply with Mr. Percival’s request to contact him by June 1, 19821

“A It may have just slipped my mind.

“Q Did you hope it would go away?

“A No.

“Q Did you write any memos or take any action to deal with this if this was a lie?

“A No, I didn’t.

* * *

“Q When you got this memo, did you make any decision with respect to this memo?

“A The decision I guess I made was that I was going to wait and talk to Carl and hope that something else might be available to me. In fact, from the letter wherein it says just let him know. I didn’t have any idea I was going to be fired.

“Q And, I know you have said that and I appreciate that, go ahead and say it if you want, but you indicated to me you hoped Carl would do that?

“A Well, I had hoped I would be offered some alternative to this and I assumed I would be.

“Q Did you call Carl Anderson and say, I want something else?

“A No. I didn’t.

“Q Let’s go back to this. When you got this, did you decide then you weren’t going to relocate to Butte?

“A I don’t know.

“Q From the main language, Mr. Finstad, and you’re an intelligent man, from the main language of this, what’s the alternative to not accepting the transfer?

“A I didn’t know there were no alternatives.

“Q I’m asking you and trying to get your state of mind why you thought there were .alternatives? What are the alternatives to, T hope you will accept this transfer.’

“A I hadn’t known of anybody ever getting fired for not taking it.

“Q What alternatives do you think you had available from this memo, to either accept the transfer or deny the transfer; is that correct?

“A Yes.

“Q This is pretty clear?

“A Yes.

“Q And, you refused to take the transfer?

“A Yes.

“Q Now, Mr. Finstad, have you ever represented to the Montana Power Company you were willing to relocated from Cut Bank, Montana; do you ever recall representing to the Montana Power Com- party, in any fashion, that you were willing to relocate to some other place other than Cut Bank, Montana?

“A No.”

With regard to whether or not Mr. Finstad should have been allowed to stay in Cut Bank, he further testified on cross examination:

“Q Now, from the time you went to work in Cut Bank, Montana, until June 2nd, 1982, had anybody in the Montana Power Company hierarchy, and I’m talking about hierarchy, Jay Johnson, your immediate supervisor, right up to Joe McElwain, Chief Executive Officer of the Montana Power Company, did anyone ever tell you you would be able to retire in Cut Bank, Montana?

“A No.

“Q No promises to that effect were made?

“A No.

“Q No representations to that effect were made?

“A No.”

Mr. Finstad’s complaint alleged that MPC falsely informed him that they were eliminating his job assignment and position at Cut Bank for the reason that MPC was eliminating future drilling in southeast Alberta. As appears from the above factual quotations, MPC in fact did eliminate Mr. Finstad’s job and position in Cut Bank, and completed all of the work from Butte. In addition, the uncontradicted evidence established that while not known to Mr. Finstad, MPC had negotiated for some time for the sale of all of its Canadian oil and gas properties and had negotiated a sale with all details agreed upon. However, that sale was not consummated because the proposed buyer backed out of the transaction at the last minute when the parties came together in New York City to execute the appropriate papers. The uncontroverted facts therefore establish that these particular reasons as stated in the plaintiffs complaint were not false as he alleged.

It is essential that we first focus on the conclusions which can be drawn from the uncontested facts. Following is a summary of significant facts based upon the uncontradicted evidence in the record:

1. That Mr. Finstad was an excellent employee with more than 22 years experience with MPC.

2. That MPC had chosen to close the Cut Bank office where Mr. Finstad had worked for many years and to transfer those functions to Butte.

3. That MPC did close the Cut Bank office and has continued to function without a person in Mr. Finstad’s capacity in Cut Bank. The functions formerly performed by Mr. Finstad have been handled out of Butte.

4. That Mr. Finstad was offered a transfer from Cut Bank to Butte with the same job description and compensation.

5. That the transfer was first discussed with him by Mr. Anderson on April 14, 1982. Subsequently, by memorandum dated April 17, 1982, Mr. Percival clearly explained the transfer and concluded with the statement that he hoped Mr. Finstad would accept the transfer, that it would broaden his experience beyond the field supervision level and that “should you decide not to make the move, please let Carl [Anderson] know by June 1, 1982, so that he can plan accordingly.” No response was made by Mr. Finstad by June 1, 1982.

6. That on June 2, 1982, Mr. Anderson met with Mr. Finstad and discussed the matter in some detail. Mr. Finstad understood that both Mr. Anderson and Mr. Percival desired that he accept the transfer.

7. That Mr. Finstad refused to take the transfer on June 2, 1982.

A key factual conclusion is that Mr. Finstad chose not to accept the transfer from Cut Bank to Butte. That is not in dispute. Notwithstanding his refusal to accept the transfer, Mr. Finstad contends that he was actually discharged. There are three basic contentions:

1. Mr. Finstad testified that if he had known there was no option other than accepting the transfer, he would have gone to Butte. In itself that is not substantive testimony. The record establishes that Mr. Finstad concluded that he was through when he was asked to turn in his keys and vacate the office. At that point Mr. Finstad had a clear choice. He could turn in his keys and vacate the office as he did. His alternative was to advise Mr. Anderson that he would accept the transfer to Butte if it meant that he was going to lose his job. There is a total absence of any indication on the part of Mr. Finstad that he was willing to do that. It would have been a simple matter for him to have indicated that if it meant a loss of his job, he would of course accept the transfer. Mr. Finstad failed to do that. This leads to a key factual conclusion: it was Mr. Finstad who made the decision to terminate his employment with MPC. All MPC did was honor his decision.

Mr. Finstad’s testimony establishes that he was in telephone and personal contact with various officials of MPC during the days and weeks following June 2, 1982. These afforded continuing opportunities for him to tell MPC that he had changed his mind and would accept the transfer to Butte. There is a total absence of evidence of such action by Mr. Finstad. We conclude that all of the evidence in the record, including the testimony on the part of Mr. Finstad, shows that MPC in fact did not discharge him. We conclude that starting June 2, 1982, and continuing for many days thereafter, Mr. Finstad had opportunities to accept the transfer and chose not to do so. This leads us to another key conclusion: the separation of Mr. Finstad from MPC was the result of his refusal to accept the transfer from Cut Bank to Butte.

2. Mr. Finstad points out that after 22 plus years of employment, he thought some other option or choice would be offered to him. The record establishes that the MPC handbook advised all employees of the possibility of transfer. Mr. Finstad’s testimony established that he was aware of many transfers in the company. From our examination of the record we conclude that the record does not contain any evidence sufficient to establish that MPC was obligated to offer some other choice or option to Mr. Finstad.

3. Mr. Finstad argues that when Mr. Anderson asked him to turn over his keys and vacate his office on June 2, 1982, that constituted an actual discharge. As previously stated, Mr. Finstad refused to transfer with full knowledge that there were no other options available to him. He terminated his own employment.

As further discussed in Part II of this opinion, in Frigon v. Morrison-Maierle, Inc. (Mont. 1988), [233 Mont. 113,] 760 P.2d 57, 45 St.Rep. 1344, this Court pointed out that all of its decisions involving a covenant of good faith and fair dealing have been limited to instances of express employee termination or constructive discharge. In the present case, with the exception of the termination which occurred after Mr. Finstad’s refusal to accept the lateral transfer which is discussed in detail in Part II, we conclude that the record does not contain facts establishing an express discharge or actual discharge.

Next we discuss whether Mr. Finstad was constructively discharged. This issue is more easily resolved. The basic question is whether the record establishes that by action or inaction, MPC has rendered the working conditions for Mr. Finstad so oppressive that resignation was his only reasonable alternative. See Niles v. Big Sky Eyewear (Mont. 1989), [236 Mont. 455,] 771 P.2d 114, 118, 46 St.Rep. 504, 508. We note that a determination of constructive discharge must be supported by more than “an employee’s subjective judgment that working conditions are intolerable.” Snell v. Mon tana-Dakota Utilities Co. (1982), 198 Mont. 56, 65, 643 P.2d 841, 846. As described above, Mr. Finstad did testify that he thought it would be very difficult for him to perform his functions out of the Butte office. The record demonstrates that he argued over this point with his superiors, Mr. Anderson and Mr. Percival. From our careful review of the record, including this evidence, we conclude that Mr. Finstad failed to present any substantial evidence to demonstrate a constructive discharge.

We hold that the record does not contain substantial credible evidence to support a conclusion that Mr. Finstad was either actually or constructively discharged.

II

Does the implied covenant of good faith and fair dealing apply to termination following an employer’s offer of a transfer of employment without change in compensation or other benefits where the employee refused the transfer?

In Frigon, Ms. Frigon contended that even though she had voluntarily resigned, she could raise the covenant of good faith and fair dealing as a tort separate from wrongful discharge and allow the Court to consider whether there had been a breach by the employer’s refusal to give her performance and salary reviews and denying her a merit raise. In response to that contention, this Court held:

“All of the decisions of this Court involving a covenant of good faith and fair dealing have been limited to instances of express employee termination or constructive discharge. The appellant is correct in her assertion that breach of a covenant of good faith and fair dealing is a separate tort from wrongful discharge. The latter is premised on acts by the employer in violation of public policy, while the former is broader, and does not require a public policy violation. Dare, 687 P.2d at 1019-20. However, both Dare and Gates involved employee terminations. Breach of the covenant of good faith and fair dealing was established as a tort separate from wrongful discharge, but applicable only in cases of employee termination.” Frigon, 760 P.2d at 60. The Court concluded that Ms. Frigon had not been expressly terminated and had failed to establish facts to establish constructive discharge. The Court therefore affirmed the decision of the District Court in granting summary judgment to the employer defendant.

MPC argues that because Mr. Finstad’s refusal to transfer did not constitute either an express or constructive discharge, the covenant of good faith and fair dealing should not be applied. MPC argues that to apply the covenant to a transfer situation would make the courts a silent partner in the employment relationship. All transfers would become subject to review by the Court with potentially disastrous results for businesses.

Mr. Finstad argues that this case is not a transfer case because he concluded that he had been fired and therefore had received either an express or constructive discharge. That argument is disposed of by the preceding issue.

The key question is whether or not the refusal of Mr. Finstad to accept the transfer and the resulting termination of Mr. Finstad’s employment by the taking of his keys, having him move out of his office, and terminating his salary, can be classed as an actual discharge for the purposes of invoking the covenant of good faith and fair dealing. We recognize that the termination resulting from the refusal to accept the transfer could be classed as a discharge, depending upon whether emphasis is given to the “quitting” by Mr. Finstad, or the actions of MPC in requesting that Mr. Finstad return his car and vacate the office. However, we conclude that a termination following the refusal to accept a lateral transfer does not constitute an actual discharge for purposes of invoking the covenant of good faith and fair dealing.

It is important that we recognize that the covenant of good faith and fair dealing was not intended to apply to all discharges in every type of employment. Our initial decisions in this area involved employment termination in which the covenant was invoked to protect the “at will” employee from an unfounded or biased discharge. However, for example, the discharge of an employee covered by a collective bargaining agreement would not invoke the covenant. There may be other contractual relationships with a similar result.

In this case we conclude that a boundary should be established beyond which the covenant of good faith and fair dealing should not be applied. We conclude that it is not appropriate that the courts become involved in all employer-employee transactions such as transfers, promotions and demotions. We have previously emphasized that employers must have wide latitude and liberty in making business decisions. It is not the function of the courts to become the arbiter of all relationship decisions between employers and employees. We conclude that it is not appropriate to apply the covenant of good faith and fair dealing to the lateral transfer of an employee.

In accordance with Frigon we hold that the covenant of good faith and fair dealing may not be applied in the present case because of the failure of Mr. Finstad to prove an actual or constructive discharge. We hold that the covenant of good faith and fair dealing does not apply to a termination following the refusal of an employee to accept a lateral transfer of employment.

Ill

As previously mentioned, the first question posed to the jury in the special verdict form was whether or not there hád been a violation of the covenant of good faith and fair dealing. We suggest that in employment discharge and termination cases, if a special verdict form is used of the type herein set forth, it is essential that the jury be required to determine whether there was either an actual discharge or a constructive discharge. Those questions should be answered prior to any consideration of the covenant of good faith and fair dealing.

We reverse the judgment of the District Court and direct the entry of judgment for the defendant.

CHIEF JUSTICE TURNAGE and JUSTICES HARRISON, BARZ and McDONOUGH concur.

JUSTICE SHEEHY,

dissenting:

Nothing is more clearly established in Montana law, that when a trial is by jury, all questions of fact are to be decided by the jury, and all evidence thereon is addressed to them, § 25-7-103, MCA; § 26-1-202, MCA; and that the jury is the judge of the effect and value of evidence addressed to it, § 26-1-203, MCA. Our State Constitution declares the right of trial by jury is secured to all and shall remain inviolate, Art. II Sec. 26, 1972, Montana Constitution. Rule 38(a) Montana Rules of Civil Procedure is a declaration that the right of trial by jury shall be preserved to parties inviolate, in the application of the rules.

In reversing this hard-earned verdict, obtained by a faithful employee against the defendant company from a properly constituted jury, no error can be found by the majority, such as an incorrect instruction of law or an improper ruling of law made by the District Court. Rather, the majority assume seats in the now vacated jury box, and proceed to reverse the earlier jury on the facts.

The reversal is hinged on the majority’s conclusion of fact which directly opposes the jury’s conclusions:

“A key factual conclusion is that Mr. Finstad chose not to accept the transfer from Cut Bank to Butte. That is not in dispute. Notwithstanding his refusal to accept the transfer, Mr. Finstad contends he was actually discharged.” (opinion at 1381.)

Whether Mr. Finstad refused to go to Butte was very much in dispute. The jury in this case decided that Mr. Finstad did not refuse a transfer from Cut Bank to Butte. On disputed testimony, the jury found that the actions of Carl Anderson on June 2, 1982 constituted an actual discharge. At the least it constituted constructive discharge.

The test of whether an employee quit or was discharged is whether the employer’s statements or actions at the time would reasonably lead the employee to believe that he had been terminated and that a formal discharge notice is unnecessary. 48 Am.Jur.2d 750, Labor, § 922.

The test of whether an employee is constructively discharged depends upon reasonable inferences that the employee could draw from the language used. NLRB v. Downslope Industries, Inc., (1982, CA 6), 676 F.2d 1114.

Whether Mr. Finstad quit or was terminated was a matter of hot dispute during the trial. The jury chose to believe Mr. Finstad. He testified as to the meeting of June 2, 1982 as follows:

“Q Did you have any discussion with Carl Anderson concerning your productivity while you were driving from Butte to Cut Bank?

“A I told Carl I couldn’t accomplish much while I was behind the wheel of a car.

“Q And, is that a fact?

“A That’s a fact.

“Q Do you recall Mr. Fleming telling this jury that you would not agree with the decision of the Montana Power Company and chose not to be employed by it anymore?

“A Yes.

“Q Tell this jury when you chose not to be employed by the Power Company?

“A I never did choose not to be with Montana Power.

“Q You heard Mr. Fleming state that no one came into the office and said, You’re fired.

“A Yes.

“Q What did happen?

“A Carl came in that morning about 9:00 and sat down and told me that I would be moving to Butte. Once again, he told me that I would be doing the same things I had been doing in Cut Bank. I tried to point out to him that I just couldn’t keep that pace up. I had recently gotten out of the hospital and I was devoting all of my time, as it was, to Montana Power. And, I just didn’t think it was going to work and we talked for perhaps a half an hour and we neither were making any headway and Carl said, Well, I need to talk to Don Percival. [Percival was Carl Anderson’s superior.]

“Q Did you suggest that he do that?

“A No.

“Q Why did he tell you he needed to talk to Don Percival?

“A I don’t really know.

“Q What were you trying to tell him would happen to the Power Company if they moved you to Butte?

“A I was just simply telling him it wouldn’t be efficient. I didn’t see how I could run that operation out of Butte and drive the miles they expected me to.

“Q In addition to what you were already doing?

“A Right.

“Q Then what happened?

“Q I offered Carl the use of our local microwave telephone which is a direct hook-up to Montana Power’s offices, and he said, No, it’s a private call. And, I said, I could leave the room. And, he said, No, this is a private call.

“Q Did he leave then?

“A Yes.

“Q And, how long was he gone?

“A About 15 minutes.

“Q And, when he came back, what happened?

“A He came through the door and he said, Give me the keys to your company car, and he says, Turn in your credit cards, and he said, You can clean out your personal effects from this office.

“Q What did you say?

“A I said, You mean there aren’t any alternatives to this?

“Q And, what did he say?

“Q And, he said, There are none.

“Q Did you say anything else?

“A I said, you know, Isn’t there any compassion left in this Company?

“Q And, what did he say?

“A He said, Well, you know, when Percy puts the knife in, he likes to twist it.

“Q Then when Carl Anderson came into your office, demanded your credit cards, your key to the office and your car, and told you to clear out of the office, what did that mean to you?

“A Well, that was the end of my career.

“Q Did that mean you were fired?

“A Yes.

“Q Did you resign?

“A No.

“Q Did the thought of resigning ever occur to you?

“A Never.”

The testimony of Carl Anderson, which the jury chose not to believe, is in substantial conflict with Mr. Finstad as to what happened at the meeting of June 2, 1982:

“Q That brings us to on or about June 2, 1982, which this jury has heard an awful lot about. What took place on June 2, 1982 between yourself and Mr. Finstad. If you recall?

“A I had come to Cut Bank the night before and went to the office fairly early, 9:00 or thereabouts and told Ken the time has come and we are making a decision and this is the day we are doing it. We just can’t drag it out any longer. He probably went through the same sort of things, the reasons he didn’t want to come to Butte and my reasons why I wanted him to come, and it finally culminated in Ken and we just couldn’t get to the point, this was it, so I said to Ken, If you are not going to move to Butte, Ken, you may as well give me your car keys and forget about it. Prior to that he said, Well — now, I recall, Well, Carl, I am not going to move to Butte, so let me just clean up the odds n ends we have got going in Cut Bank and I’ll stay here until the end of the month and close the office for you. And, I said, Ken, it isn’t going to be any easier at the end of the month than today. And if you are not going to come to Butte, you might as well give the keys to me.”

There is clearly a conflict in the testimony between the two principal protagonists as to whether Mr. Finstad refused a transfer to Butte. Mr. Finstad said he never refused, while Carl Anderson said he did. The jury resolved that issue of fact. Yet the majority states that Mr. Finstad chose not to accept the transfer from Butte and “that is not in dispute.” It was the principal dispute of the trial.

The jury also relied on further evidence that Mr. Finstad was in fact willing to transfer from Butte, because he called a superior, Jay Johnson on the same day who told Finstad he would try to get him a job; he called Bob Rhodes and Bill Roberts, who are also supervisors, whom Mr. Finstad asked if they could give him any kind of help in getting his job back. Mr. Finstad further testified:

“Q Did you tell any of these people after June 2, 1982, when you were trying to get a job with the Power Company, any of them, Jay Johnson, Robert Rhodes, Bill Roberts, Carl Anderson, Joel McElwain, any of them, that you would not move to Butte?

“A No.

“Q Did you in any way limit the location of your residence if you were permitted to return to work for the Power Company?

“A No I didn’t.”

Finstad also testified that he was willing to reside wherever the Power Company would have asked him to reside without any exceptions.

In other testimony, Percival and Anderson testified that they never discussed with Mr. Finstad the extra travel he would have to undertake to perform his job in Northern Montana if he transferred to Butte; that one of the reasons he would not transfer was because of the health of his wife. Mr. Finstad refuted this testimony through his own evidence about the amount of travel, and the fact that the Power Company would continue to drill extensively in Northern Montana; that the supervision of an engineer was necessary for that continued drilling; and he produced his wife and their son each of whom testified that there was no objection on the part of the family to move into Butte for any reason. In fact Don Percival, the ultimate decision-maker, testified that Mr. Finstad never at any time told him that he would not move to Butte.

There are approximately 700 pages of testimony in this case not counting portions of transcript devoted to the settlement instructions and other matters. The majority have selectively used portions of the testimony to assert that there was no issue in this case of actual discharge or constructive discharge and the majority apparently contend that the jury had no substantial basis upon which to render its verdict. The record is clear that there was indeed substantial evidence supporting the jury verdict and it should be maintained.

The further portion of the majority opinion respecting a breach of the implied covenant in cases involving lateral transfers or proposed lateral transfers is a gratuitous action by this Court not necessary to the decision and is therefore mere dicta. It would however be dangerous dicta if in the future it would be applied as a means for an employer to avoid liability for constructive discharge by a pretended lateral transfer.

I would sustain the jury verdict.

JUSTICE HUNT joins in the dissent of JUSTICE JOHN C. SHEEHY.

ORDER

The petition for rehearing is denied.

DATED this 22nd day of February, 1990.

s/J.A. Turnage, Chief Justice

s/John Conway Harrison, Justice

s/Fred J. Weber, Justice

s/Diane G. Barz, Justice

s/R.C. McDonough, Justice

JUSTICE SHEEHY,

dissenting:

There are points made in the petition for rehearing in this cause that raise substantial questions of law, and deserve more than summary rejection. I will point out two of these.

The petition for rehearing points out that the majority of this Court, sitting in place of the jury, made the following principal factual determinations:

(1) Finstad was not fired, he voluntarily quit.

(2) Finstad made absolutely no attempt to get his job back.

(3) Finstad would not move to Butte.

With regard to those issues of fact, found adversely to MPC by the jury, the court gave instruction offered by MPC as follows:

“Defendant claims that plaintiffs voluntary acts lead to his termination. The defendant has the burden of proving this defense. As to this defense, the defendant has the burden of proving the following:
“(1) That the plaintiff had the opportunity to transfer to Butte, but that he refused to do so.
“(2) That plaintiff’s refusal to move to Butte when requested was the cause of plaintiff’s termination.
“If defendant proves these facts, then there has been no breach of the covenant of good faith and fair dealing and plaintiff is entitled to no recovery.”

Clearly, the jury, through its verdict in this case, found that Finstad never refused to move to Butte, and that this was not the cause of his termination, but that he was fired. It is in the face of that clear instruction, and the clear result by the jury that the majority has made its determinations of fact which are set out above. There has not been in the history of this Court a more clear usurpation of the use of the jury function to determine the facts.

A second point raised by the petition for rehearing and not discussed by the court is what effect should be given to a denial of a new trial by the district judge who tried the case or the alternative motion for judgment notwithstanding the verdict, which motions the District Court denied.

A motion for new trial based on insufficiency of the evidence to support the jury verdict, or the alternative motion for judgment notwithstanding the verdict places before the District Court the very question faced by this Court on appeal as to the sufficiency of the evidence to sustain the jury verdict. In this case, the District Court, having heard all of the evidence, observed the witnesses, and after the jury verdict was returned, denied the motions for new trial and for a judgment notwithstanding the verdict. What effect should this Court give to that decision of the District Court?

With respect to motions for new trial, we have said:

“The District Court has broad discretion to grant or deny motions for new trial and his rulings will not be disturbed on review in the absence of a clear showing of manifest abuse of discretion.” Brothers v. Town of Virginia City (1976), 171 Mont. 352, 558 P.2d 464, 467; Gunderson v. Brewster (1970), 154 Mont. 405, 466 P.2d 589, 593. In spite of the denial of these post-trial motions by the District Court, the majority of this Court, without hearing the testimony of a single witness, or observing the demeanor of a single witness, based on its “factual” review of the evidence, set aside the jury verdict. It is true, as the petitioner for rehearing contends, that this Court, on its own motion, ordered a judgment notwithstanding the verdict in favor of MPC.

These arguments, as well as those raised in our dissent, show that from any legal viewpoint or approach, essentially this Court has no business sitting as a jury when issues of fact have been decided in the District Court. Unfortunately, in this matter, the resolve of the majority is implacable.

JUSTICE HUNT,

dissenting:

I join in the dissent of Justice Sheehy.


source: Caselaw Access Project

author: JUSTICE SHEEHY

license: Public Domain

text:
    In re the MARRIAGE OF LORRAINE ALICE BOURQUE, Petitioner and Respondent, and JOSEPH HENRI BOURQUE, Respondent and Appellant.
    No. 89-166.
    Submitted on Briefs Aug. 17, 1989.
    Decided Jan. 9, 1990.
    Rehearing Denied Feb. 8, 1990.
    785 P.2d 699.

      Eula Compton, Bozeman, for respondent and appellant.
    Linda NcNiel, Bozeman, for petitioner and respondent.
   JUSTICE SHEEHY

delivered the Opinion of the Court.

Lorraine Bourque petitioned the District Court, Eighteenth Judicial District, Gallatin County, seeking modification of the parties’ property settlement. Respondent Joseph Bourque petitioned for a modification of the maintenance agreement. The court granted Lorraine Bourque’s motion for property settlement modification, denied Joseph Bourque’s motion to modify maintenance, and awarded Lorraine Bourque $7,404.25 in maintenance arrearages and education support. Joseph Bourque appeals.

The issues raised by Joseph Bourque are:

1) Whether the District Court erred in awarding Lorraine Bourque house sale proceeds in excess of $30,000.

2) Whether the District Court erred in denying Joseph Bourque’s request that his maintenance obligation be terminated.

Joseph and Lorraine Bourque were divorced in 1980. The parties entered into a support and property settlement that provided that Joseph would pay Lorraine the sum of $500 per month, with yearly increases commensurate with increases in Joseph’s earnings. At the end of eight years, the payments were to be reduced by half, with further reductions allowed to reflect increases in Lorraine’s earnings. Medical and educational costs were also provided to Lorraine, to be terminated upon remarriage, attainment of “ample employment” or the conclusion of eight years from the date of the agreement. Finally, the agreement provided that the parties would divide equally the proceeds from the sale of their house.

Efforts to sell the house for $95,000 were unsuccessful. In 1982, an offer of $70,000 was made for the house. Lorraine Bourque was reluctant to accept the offer until Joseph agreed to modify the property settlement to provide Lorraine with $30,000 from the proceeds, the remainder to go to him. A proposed modification agreement was drafted but apparently never executed. However, an escrow agreement was prepared by Lorraine Bourque’s lawyer, and signed by all parties. An attached exhibit to the escrow agreement provided as follows:

“Prepayments and the balloon payment shall first be used to satisfy the existing encumbrances and the balance to Lorraine Bourque and Joseph Bourque in such a manner that Lorraine Bourque shall have received a total of $30,000.00 from the net proceeds of this sale (including the down payment) and Joseph Bourque shall receive the balance of the net proceeds.”

The escrow agreement itself however assigned the balances on a percentage basis, with Lorraine to receive 72% and Joseph 28%.

Joseph asserts that this 72/28 split contemplated only the monthly payments made by the buyers and not the balloon payment. Buyers made 60 payments totaling $12,180.00. Of this, Lorraine received $8,769.60, or approximately 72%, and Joe received $3,420.00, or approximately 28%.

Problems arose when the purchasers of the Bourque home paid the entire principal remaining, $51,499.59, in August of 1987. The First Security Bank of Bozeman paid out $5,342.75 in miscellaneous costs, leaving $46,156.84 to be divided between Joe and Lorraine. The bank paid Lorraine $33,232.92, or 72% of the balance. Joe was paid the remaining 28%, or $12,923.91. Lorraine had previously been paid $5,000.00 from down payments. The controversy centered on the amount paid to Lorraine. Joseph asserted that Lorraine was to receive only $25,000.00 in the final payment, giving her a total of $30,000.00. Joseph claimed that Lorraine had been overpaid by $8,232.92, and requested Lorraine to remit that amount to him. In a letter to Joseph, Lorraine admitted she had expected a $25,000 payment, but attributed that figure to error by Joseph in the division, and refused to give him the $8,232.92.

Joseph contacted the bank and escrow agent, informing them of the alleged overpayment. The Bank in turn suggested to Joseph to mitigate his damages by withholding maintenance payments due Lorraine. On advice of his attorney, Joseph ceased his maintenance payments to Lorraine. He then moved for a stay of execution of the 1980 decree of dissolution, which was granted on March 8, 1988.

On April 4, 1988, Lorraine Bourque moved for an order of modification of decree, compelling maintenance, medical and education payments, and for attorney’s fees.

Trial was held on September 2 and September 14, 1988, and judgment entered on November 30, 1988. The court ruled the escrow agreement to be a valid modification of the decree of dissolution, and the payments therefore correct. The court also found Joseph owed $7,213.50 in maintenance arrearages and $290.75 in education costs. The court determined that maintenance payments were to be reduced to $343.50 per month as of August 1988. No attorney’s fees were granted. From that judgment, Joseph appeals.

Joseph contends that the District Court erred in awarding Lorraine Bourque more than $30,000.00 from the proceeds of the house sale. The basis of his contention is that the court wrongfully interpreted the escrow agreement and the attached exhibit which provided for a $30,000.00 payout to Lorraine Bourque.

When the issue of modification first surfaced in 1982, the attorney for Lorraine drafted an agreement wherein both parties agreed Lorraine would receive $30,000.00 from the sale, Joseph the remainder. However, no executed copy of this agreement has been found, and cannot, therefore, be relied upon.

Lorraine Bourque’s attorney also drafted the escrow agreement, which the court relied upon. Section II of the agreement is headed “Payments.” Subparagraph B is headed “Unpaid Balance.” Listed under that heading are two checked provisions. One denotes that payments will be made monthly. The second provision checked is “Other.” Typed following is language that a balloon payment of the balance is due July 1, 1988. Directly following is subparagraph C, which provides the method of distributing payments. The heading “Other” appears again, with explanation of how the balance is to be paid: 72% to Lorraine Bourque and 28% to Joseph Bourque. Joseph’s contention that the 72/28 ratio applies only to monthly payments is not borne out by the escrow document. Reference to “Other” appear to speak to the balloon payment, not the monthly payment. The escrow agreement in and of itself is clear. Taken with the attached exhibit, it is not clear. The question then arises: why would Joseph sign a document that has two distinct provisions which cannot be reconciled? The answer is unclear, but it must be considered that 72% ratio was supposed to come to approximately $30,000.00. Unfortunately, the computation did not approximate $30,000,00. $30,000.00 is roughly 65% of $46,156.84, the amount to be divided between the parties.

Faced with this document so lacking in clarity, the District Court attempted to reconcile the irregularities and reach a reasonable interpretation. The court looked to the intent of the parties in entering an agreement to modify the division of property. The modification’s purpose was to serve both parties. Lorraine was to be guaranteed sufficient funds from a substantially lower sale price than she thought otherwise acceptable. Joe Bourque was to get a needed infusion of cash quickly, rather than wait for a buyer to meet the original $95,000.00 sale price.

The district judge took into account that Joseph, though not the drafter of the escrow agreement/dissolution modification, was the instigator of the modification. The court took this and other factors into consideration during its inquiry into the intent of the agreement.

The court specifically found the 72/28 provision to rule, and so discarded the unclear attached exhibit provision. In interpreting the instrument, the court specifically inquired as to the instrument’s intent and its legal consequences, and confine its inquiry as to what was intended in the language of the instrument. This is properly within the court’s scope under §§ 28-2-1613 and 28-2-1611, MCA.

Joseph contends that if the conflicting portions cannot both be taken together so as to give effect to every part of the contract and the intentions of the parties, the modification should be voided and the original 50/50 split contained in the dissolution should rule. However, it is a time-honored maxim of jurisprudence which states “an interpretation which gives effect is preferred to one which makes void.” Section 1-3-232, MCA. Such an interpretation is acceptable if it is reasonable. Section 1-3-233, MCA. The District Court’s interpretation was reasonable, and this Court will not set aside findings by the District Court unless clearly erroneous. Rule 52 (a), M.R.Civ.P.

Joseph next contends that the District Court erred in not terminating his maintenance obligation. Specifically, Joseph contends that ample evidence exists that Lorraine is able to support herself. In addition, he contends her living situation is quasi-marital in nature, and that he should not have to aid in the financial support of her household.

The parties’ 1980 support settlement agreement provided $500 per month to Lorraine Bourque, with annual increases each October 11 as Joseph’s income increased. At the end of the eight years the payments were to be reduced “to a maximum of one-half of the thén current payment.” In addition, those payments were to be reduced as Lorraine’s earnings increased. The District Court halved the support payments as of August 1988 to $343.50 per month.

Joseph contends that the support should be terminated altogether due to changed circumstances. He is now retired and receives $1,189 per month in retirement benefits. He contends that Lorraine Bourque was not forthright with the District Court, and is currently receiving income from $1,700 to $2,000 per month, substantially more than she claimed.

Joseph presents this Court with evidence that Lorraine Bourque altered documents to hide her true income from the District Court. While it appears this charge has some basis in fact, he did not raise an issue of fraud in the lower court proceedings, and this Court will not consider issues raised on appeal for the first time. Wyman v. DuBray Land Realty (Mont. 1988), [231 Mont. 294,] 752 P.2d 196, St.Rep. 621.

Joseph also presented evidence at the lower level that Lorraine Bourque lives with another man in a “quasi-marital” relationship. Lorraine denies this.

Both the parties’ support agreement and the guidelines of § 40-4-208, MCA, provide that maintenance will cease upon remarriage, which has not occurred. The District Court properly retained one-half of the support obligation.

Affirmed.

CHIEF JUSTICE TURNAGE and JUSTICES HARRISON. WEBER, HUNT, McDONOUGH and GULBRANDSON concur.


author: JUSTICE BARZ

text:
    C. PAUL O’BAGY, Plaintiff and Appellant, v. FIRST INTERSTATE BANK OF MISSOULA, Defendant and Respondent.
    No. 89-188.
    Submitted on Briefs Nov. 2, 1989.
    Decided Jan. 9, 1990.
    785 P.2d 190
    Terry A. Wallace, Missoula, for plaintiff and appellant.

      William L. Crowley, Boone, Karlberg & Haddon, Missoula, for defendant and respondent.
   JUSTICE BARZ

delivered the Opinion of the Court.

This is an appeal from an order of the District Court of the Fourth Judicial District, Missoula County, granting respondent’s motion for summary judgment on the issues of bad faith and punitive damages. We affirm.

Appellant C. Paul O’Bagy and his ex-wife, Joy, sold their house in August of 1983 during the dissolution of their marriage. Don and Denise Potter obtained a loan from respondent First Interstate Bank of Missoula the proceeds of which they used to purchase the O’Bagy home. Respondent, through its employee, acted as closing agent for the sale and required the authorization of both appellant and his ex-wife prior to releasing the closing proceeds. Appellant signed the closing papers and requested that the proceeds be applied to a credit card bill with the balance paid to him and his wife.

Joy O’Bagy executed the closing papers the following day and at that time refused to approve appellant’s disbursement plan. Appellant acknowledges that any disbursement by respondent would require the approval of both parties. By letter dated August 11, 1983, Joy’s attorney instructed that respondent transfer the closing proceeds to Insured Titles, Inc. .to be held in trust for the parties pending their agreement as to division of the funds. Respondent did transfer these funds the following day without the authorization or approval of appellant. Insured Titles later released certain funds to Joy’s attorney without obtaining prior authorization from appellant. This fact, however, is not relevant to appellant’s claim against respondent.

In this action brought by appellant for breach of the implied covenant of good faith and fair dealing, the District Court granted respondent’s motion for summary judgment on the issues of bad faith and punitive damages. The District Court found an absence of genuine issues of material fact and held that no implied covenant arose between the parties. The District Court further held that appellant failed to satisfy the causation element of the breach of the implied covenant and that his claim for punitive damages was insufficient as a matter of law.

Appellant first contends that tort actions in general are not properly disposed of on summary judgment. This contention lacks merit. We have previously affirmed summary disposition of tort claims, including those involving breaches of the implied covenant of good faith and fair dealing. Randolph V. Peterson, Inc. v. J.R. Simplot Co. (Mont. 1989), [239 Mont. 1,] 778 P.2d 879, 46 St.Rep. 1463; Tresch v. Norwest Bank of Lewistown, N.A. (Mont. 1989), [238 Mont. 511,] 778 P.2d 874, 46 St.Rep. 1459; Montana Bank of Livingston v. Old Saloon, Inc. (Mont. 1988), [235 Mont. 244,] 766 P.2d 878, 45 St.Rep. 2354; Shiplet v. First Sec. Bank of Livingston, Inc. (Mont. 1988), [234 Mont. 166,] 762 P.2d 242, 45 St.Rep. 1816; Rupnow v. City of Poison (Mont. 1988), [234 Mont. 66,] 761 P.2d 802, 45 St.Rep. 1734; Frigon v. Morrison-Maierle, Inc. (Mont. 1988), [233 Mont. 113,] 760 P.2d 57, 45 St.Rep. 1344; Smith v. Howrey (1987), 227 Mont. 284, 738 P.2d 502; Robinson v. First Sec. Bank of Big Timber (1986), 224 Mont. 138, 728 P.2d 428; Rowland v. Klies (1986), 223 Mont. 360, 726 P.2d 310.

Summary disposition of claims is proper when no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. Initially, the moving party must allege the absence of genuine factual issues. Eitel v. Ryan (Mont. 1988), [231 Mont. 174,] 751 P.2d 682, 684, 45 St.Rep. 521, 524. To prevail, the non-moving party must set forth facts demonstrating a genuine issue exists. Krieg v. Massey (Mont. 1989), [239 Mont. 469,] 781 P.2d 277, 278, 46 St.Rep. 1839, 1840.

Appellant erroneously construes the District Court’s ruling that his claim for punitive damages was insufficient as a matter of law as a conclusion that he suffered no damages as a consequence of respondent’s actions. Appellant’s declared damages were the loss of use of the closing proceeds and the non-payment of the credit card bill. Respondent does not dispute these facts and the District Court made no findings contrary to appellant’s position in this regard therefore it properly rendered summary judgment.

The District Court ruled that no implied covenant of good faith and fair dealing arose between appellant and respondent. This holding is dispositive of the remaining issues. In the absence of respondent’s duty to act in good faith and deal fairly with appellant giving rise to an action in tort, the issues of causation and damages are superfluous.

Appellant asserts the implied covenant arose because a contractual relationship existed between appellant and respondent in that respondent acted as closing agent. We have extended the implied covenant of good faith and fair dealing to transactions between banks and their customers. Noonan v. First Bank Butte (1987), 227 Mont. 329, 740 P.2d 631; First National Bank of Libby v. Twombly (1984), 213 Mont. 66, 689 P.2d 1226; Tribby v. Northwestern Bank of Great Falls (1985), 217 Mont. 196, 704 P.2d 409.

Nonetheless, the implied covenant does not arise in every contractual relationship nor in every transaction involving a bank. Simmons v. Jenkins (Mont. 1988), 230 Mont. 429, 750 P.2d 1067, 1071, 45 St.Rep. 328, 332; Nicholson v. United Pacific Ins. Co. (1985), 219 Mont. 32, 41, 710 P.2d 1342, 1348.

“The covenant . . . arise [s] out of the justifiable expectations of the parties.” Rowland v. Klies (1986) 223 Mont. 360, 370, 726 P.2d 310, 317. Some relationship must exist between the parties before a duty of good faith and fair dealing arises. Simmons v. Jenkins (1988), 230 Mont. 429, 750 P.2d 1067, 1071, 45 St.Rep. 328, 332. In Simmons, the plaintiffs, encouraged by certain misrepresentations of the seller, purchased ranch property in eastern Montana. Simmons, 750 P.2d at 1069. Seller had outstanding loans with defendant bank at the time of sale. Defendant committed itself to loan funds to plaintiffs should seller default on the underlying mortgage. Simmons, 750 P.2d at 1069. Plaintiffs sued seller alleging fraud in seller’s misrepresentation of the number of cattle the ranch would support. Simmons, 750 P.2d at 1069. Plaintiffs further alleged the defendant bank committed constructive fraud by its role in the transaction which plaintiffs characterized as procuring the sale. Simmons, 750 P.2d at 1069.

The District Court found the bank’s agreement to loan funds contingent upon seller’s default did not give rise to a relationship in which a duty of good faith and fair dealing arose. Simmons, 750 P.2d at 1071. “The fact that the bank knew of the [seller’s] negotiations with the [plaintiffs] and held loans secured by the ranch property does not establish a relationship with the [plaintiffs].” Simmons, 750 P.2d at 1071.

Similarly, appellant in the instant case failed to establish the existence of a relationship of the sort giving rise to a duty of good faith and fair dealing, the violation of which would be tortious. Respondent merely held the closing proceeds pending execution of the closing papers by appellant and his ex-wife. The District Court properly found respondent entitled to judgment as a matter of law. We affirm.

JUSTICES HUNT, HARRISON, McDONOUGH and SHEEHY concur.


author: CHIEF JUSTICE TURNAGE

text:
    BERGLUND AND BERGLUND, INC., Petitioner and Appellant, v. CONTRIBUTIONS BUREAU, UNEMPLOYMENT INSURANCE DIVISION, MONTANA STATE DEPARTMENT OF LABOR AND INDUSTRY, and Board of Labor Appeals, Montana State Department of Labor & Industry, Respondents.
    No. 89-354.
    Submitted on Briefs Dec. 1, 1989.
    Decided Jan. 9, 1990.
    784 P.2d 933.

      Brian L. Delaney, Mulroney, Delaney & Scott, Missoula, for petitioner and appellant.
    David Scott, Dept, of Labor & Industry, Helena, for respondents.
   CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

Berglund and Berglund, Inc. (Berglund), appeals a memorandum and order of the District Court for the Fourth Judicial District, Missoula County. That memorandum and order affirmed a decision of the Board of Labor Appeals (Board), which in turn affirmed a hearing officer’s decision that compensation paid for travel expenses to Berglund’s employee truck driver constituted wages reportable to and taxable by the Unemployment Insurance Division (Division). We affirm.

The issue is whether the District Court abused its discretion in affirming the administrative decision.

Berglund is a long-haul trucking company located in Missoula, Montana. It owns one truck and employs one driver.

According to the record, Berglund’s truck driver is paid 10 cents per mile, plus 7 Vi cents per mile for travel expenses. The driver is not required to itemize travel expenses because the travel allowance is based upon the miles he drives. The 10 cents per mile is reported to the Internal Revenue Service as income to the driver and the 7 Vi cents per mile is reported as non-employee compensation. Mrs. Berglund, one of the incorporators, testified that Berglund believed that it had structured this pay plan so that the travel expenses would not be taxed for purposes of unemployment insurance.

After a field audit, an auditor for the Division determined that the compensation Berglund paid its driver for travel expense, at 75 percent of the wages paid, “does not appear reasonable.” He noted that Berglund’s system of payment required no documentation of travel expenses at all and decided that the travel expenses must be included in the wages reportable to and taxable by the Division.

Berglund appealed to the Appeals Bureau of the Department of Labor and Industry and a hearing was held. The hearing officer concluded that travel expenses were within the definition of “wages” in § 39-51-201(17), MCA (1985) (now Subsection (18) of the same statute). He reasoned that the cents per mile for travel expenses should be included as wages, thereby increasing unemployment benefits in the event of unemployment. He cited the duty to construe the Unemployment Insurance Act in favor of the allowance of benefits. See Scott v. Smith (1962), 141 Mont. 230, 241, 376 P.2d 733, 739. The Board adopted the hearing officer’s findings and decision.

Berglund next appealed to the District Court for the Fourth Judicial District. The court recited its limited standard of review of administrative decisions. It found substantial evidence to support the Board’s decision and affirmed.

Did the District Court abuse its discretion in affirming the administrative decision?

Our standard for review of administrative findings of fact is whether they are supported by substantial evidence. In reviewing questions of law, we will reverse if there has been an abuse of discretion. City of Billings v. Billings Firefighters (1982), 200 Mont. 421, 430-31, 651 P.2d 627, 632.

Berglund’s objections are based on the hearing officer’s reliance, in his findings and conclusions, upon § 39-51-201, MCA, and ARM 24.11.808. Neither the statute nor the administrative rule was discussed at the hearing. At the hearing, the parties referred instead to a three-criteria test set out in Division guidelines for whether a travel allowance was subject to unemployment contributions tax. That test had been discussed in correspondence from the Division to Berglund.

The statute and rule relied upon by the hearing officer provide the definition of “wages” for purposes of unemployment insurance. The statute contains a list of items which are excluded from wages. Because travel expenses are not listed as exclusions from wages, the hearing officer concluded that they must be included.

Berglund argues that it was denied its constitutional right to due process because it was not given notice of the criteria which would ultimately be relied upon in making this decision. But both the statute and rule are published. Furthermore, Berglund had several weeks to review the hearing officer’s proposed findings and conclusions, including their legal theories, between the time they were issued and the hearing before the Board.

Berglund argues that the court should have reversed the Board because the Board failed to apply the proper criteria (the three criteria listed in the Division guidelines) in determining whether the travel allowance constituted wages. However, it is undeniable that the statute and administrative regulation apply. If a statute and a rule adopted in conformity therewith conflict, the statute governs. Michels v. Dept. of Social & Rehab. Services (1980), 187 Mont. 173, 177-78, 609 P.2d 271, 273. Therefore, Berglund must ultimately comply with the statute. We conclude that the Board used the correct laws and regulations in determining whether the travel expenses were wages.

Next, Berglund contends that the Board should have been reversed because it “failed to comply with [its] duty to promulgate and make known clear and concise rules and guidelines which would put the public on adequate notice of what is expected of it in order to comply with [defendant’s] policies.” By promulgating the guidelines which Berglund argues would allow its driver’s travel expenses to go untaxed, Berglund maintains that the defendants waived their right to or are equitably estopped from relying on the statute and administrative rule.

Estoppel is not favored and will only be sustained upon clear and convincing evidence. Kenneth D. Collins Agency v. Hagerott (1984), 211 Mont. 303, 310, 684 P.2d 487, 490. Here, Berglund has not shown by clear and convincing evidence the element of equitable estoppel requiring reliance upon a misrepresentation to the relier’s detriment. (See Sweet v. Colborn School Supply (1982), 196 Mont. 367, 372-73, 639 P.2d 521, 524, for the elements of equitable estoppel.) Berglund has not demonstrated by clear and convincing evidence that if the guidelines were applied, it would be in a better position, because Berglund has not shown that it met criteria no. 3 under the guidelines. That criteria required that the amount of travel reimbursement approximated actual expenses as documented on a reasonable basis. Berglund’s truck driver was required to keep no records of travel expenses whatsoever. It is immaterial whether, as Berglund contends, the amount of its payments for travel expenses was within Internal Revenue Service parameters.

The District Court found substantial evidence to support the Board’s findings. It concluded that there had been no abuse of discretion in the law applied. We agree.

Affirmed.

JUSTICES HARRISON, SHEEHY, WEBER and BARZ concur.


author: JUSTICE McDONOUGH

text:
    EVELYN SMITH, f/k/a Evelyn Looney, Plaintiff and Appellant, v. ROBERT SCHWEIGERT, Defendant and Respondent.
    No. 88-544.
    Submitted on Briefs Nov. 21, 1989.
    Decided Jan. 10, 1990.
    785 P.2d 195.

      Richard DeJana, Kalispell, for plaintiff and appellant.
    James C. Bartlett, Hash, O’Brien & Bartlett, Kalispell, for defendant and respondent.
   JUSTICE McDONOUGH

delivered the Opinion of the Court.

Evelyn Smith (Evelyn) appeals from an order of the Eleventh Judicial District granting summary judgment to respondent, Robert Schweigert (Schweigert). We reverse and remand.

Schweigert raises numerous issues for review, including timeliness of the appeal, mootness and the validity of the contract for deed. These arguments are without merit; accordingly we decline to address them. Therefore the sole issue on appeal is:

Whether Schweigert is barred, through the doctrine of collateral estoppel, from reopening a previous judgment of the District Court which determined that a lending agreement evidenced by a warranty deed and contract for deed was an equitable mortgage.

Dan and Evelyn Looney, husband and wife, were the owners as joint tenants, of a certain piece of land. On May 1, 1981, Schweigert and Dan Looney entered into a Memorandum of Intent. The purpose of this memo was to evidence an intent on the part of Dan Looney and Schweigert to enter into a Contract for Deed covering the land. Apparently Schweigert had constructed a building on such property owned by Looneys, and as a result Looneys owed him money. The pertinent portions of the memorandum of intent are as follows:

“WHEREAS, Buyer [Dan Looney] is presently the owner of certain real property located at 271 Riverside Drive, Kalispell, which is the location of Buyer’s business known as ‘Anvil Welding’, and Seller [Schweigert] has done certain construction upon said property for the benefit of Buyer; and
“WHEREAS, Seller has invested certain money in said property for the benefit of Buyer, and the parties are interested in securing that interest for the benefit of Seller; and
“WHEREAS, both parties are working diligently with the staff and officers of the First Northwestern National Bank of Kalispell, hereinafter referred to as ‘bank’, in order to secure financing involving the property in question,
“3. That this agreement is entered into by both parties freely and voluntarily, with the understanding that it is intended to facilitate the completion of the financing arrangement with the bank, and further, it is understood and agreed that this agreement may be specifically enforced by either party in the event of controversy.”

In order to secure the debt, the Looneys conveyed the property by warranty deed to Schweigert. The Contract for Deed was entered into with Schweigert as seller and the Looneys as buyers. Upon payment of the money owed as per contract for deed Schweigert would convey the property back to the Looneys. In case of failure on the part of the Looneys to comply with the contract, a quitclaim deed was placed in escrow to be delivered to Schweigert upon such default and proper notice. The Contract for Deed was executed and signed by both husband and wife on May 6, 1981. In 1982, the Looneys were divorced. The property settlement agreement divided the property into two parcels. According to the agreement, Evelyn retained the portion of property upon which the family home was situated and Dan Looney received the portion upon which his business was located. The agreement also provided that Dan would pay the contract for deed debt.

Dan Looney defaulted on his payments. Schweigert gave notice of default to the Looneys and exercised his rights under the contract, and obtained and recorded the quitclaim deed covering the property held in escrow with the County Clerk and Recorder on June 28, 1985. Dan Looney alone filed a lawsuit against Schweigert on July 8, 1985. In the lawsuit, he maintained that because the warranty deed and Contract for Deed were executed to secure a debt, an equitable mortgage resulted. Consequently, he asserted that Schweigert would have to foreclose on the property as a mortgage and as a result he, Looney, would be entitled to a one-year right of redemption. For reference, see § 71-1-107, MCA, which provides as follows:

“Transfers of interest. (1) Every transfer of an interest in property, other than in trust, made only as a security for the performance of another act is to be deemed a mortgage, except when in the case of personal property it is accompanied by actual change of possession, in which case it is deemed a pledge.
“(2) The fact that a transfer was made subject to defeasance on a condition may, for the purpose of showing such transfer to be a mortgage, be proved (except as against a subsequent purchaser or encumbrancer for value and without notice), though the fact does not appear by the terms of the instrument.”

In order to expedite the matter, Schweigert moved for summary judgment consenting to Looney’s equitable mortgage assertion and asked the court to have the sheriff sell the property and to grant Looney a one-year right of redemption from the sheriff’s sale. The judgment was entered and the sale took place. Schweigert bid in full the amount of the debt or contract purchase price then due, and Looney did not redeem within the one-year time period. On March 31, 1988, a Sheriff’s Deed was issued in favor of Schweigert.

In the meantime on May 13, 1986, Evelyn filed a document entitled “Notice of Failure to Foreclose” which stated that the Decree of Foreclosure had no effect on her rights to the real property, because she was not named as a party in the foreclosure action. According to her theory, the foreclosure action only affected her ex-husband’s interest. Since her right had not been validly foreclosed, she was still entitled to her interest in the property. Based upon this theory, she filed a complaint against Schweigert, seeking partition of her interest in the land.

Schweigert answered the complaint and maintained that her interest had been extinguished when he exercised his rights under the Contract for Deed. He asserted that when he foreclosed on Looney’s interest, he treated it as a mortgage only to prevent delay and litigation. Therefore, that action had no effect upon Evelyn’s interest, which had previously been extinguished. He counterclaimed and sought to have Evelyn removed from the property.

These facts and arguments were presented in motions for summary judgment to the trial court. The trial court found in favor of Schweigert and ordered Evelyn to vacate the property. This appeal followed.

Evelyn argues that Schweigert is barred from foreclosing on her interest in the property. She maintains that when Schweigert elected to foreclose as a mortgage and bid in the sheriff’s sale the full amount due him, he conclusively adjudicated all his interests involved. Therefore he cannot extinguish her interest through the provisions of the contract for deed. She bases her argument upon the doctrine of collateral estoppel.

Collateral estoppel is a form of res judicata. Quite simply, the doctrine “precludes relitigation of issues actually litigated and determined in a prior suit.” Lawlor v. National Screen Service (1955), 349 U.S. 322, 75 S.Ct. 865, 99 L.Ed 1122. It differs from res judicata, in that res judicata bars the same parties from relitigating the same cause of action, while collateral estoppel bars the same parties, or their privies, from relitigating issues which have been decided with respect to a different cause of action. Brault v. Smith (1984), 209 Mont. 21, 679 P.2d 236.

The doctrine has three elements:

“1. The issue has been decided in a prior adjudication and is identical to the one presented.
“2. A final judgment on the merits was issued.
“3. The party against whom the plea is asserted was a party or privity to the party in the prior adjudication.

In Re the Marriage of Stout (1985), 216 Mont. 342, 701 P.2d 729.

Evelyn asserts, and we agree, that each of these elements are established by the facts now before us. In regard to the first element, we note that the controversy here is identical to that adjudicated in the lawsuit filed by Dan Looney against Schweigert. Dan Looney brought suit against Schweigert claiming that the contractual arrangement, as evidenced by the contract for deed, was actually an equitable mortgage. He, therefore, maintained that he was entitled to a one year period of redemption. Schweigert, for whatever reason, agreed with this assertion. He moved for summary judgment and sought to foreclose upon the property as a mortgage. The lower court granted this motion. In granting the motion the court formally adjudicated the controversy. Casad, Res Judicata § 4-10 (1976).

In the present case, Schweigert seeks to advance the same argument — that the arrangement is a valid contractual obligation and is not an equitable mortgage. This assertion, however, was previously adjudicated in the lawsuit with Dan Looney. Hence, the first element is satisfied.

The second element requires that the judgment be based upon the merits of the controversy. A valid and final personal judgment on the merits precludes a later suit on the same claim or cause of action. This preclusive effect is applicable to the elements asserted in the first suit as well as to all elements which could have been asserted. The policy behind this principle, often referred to as “bar,” is to deter the splitting of a single cause of action into more than one lawsuit. Casad, Res Judicata § 4-1 (1976).

In order to decide whether a judgment is “on the merits” one must determine if it conclusively adjudicates the substantive validity of the claim. The claim now before us was determined through summary judgment in the previous suit. Summary judgment is only granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. Such a judgment is on the merits because it conclusively determines a legal issue which is presented by the facts of the case. Therefore, the granting of the motion will serve to bar a later suit on the same cause of action.

The final issue requires that the party against whom the plea is asserted was a party or privity to the party in the prior adjudication. In this case, as in the prior adjudication, Schweigert is the defendant. Thus the third element is satisfied and the determination in the prior lawsuit estops him from further argument on the issue of the existence of an equitable mortgage.

Each of the elements of collateral estoppel is satisfied. The lower court, however, refused to apply the doctrine to the facts of the case. It instead held that Evelyn was equitably estopped from contesting the validity of the foreclosure action. We disagree with the lower court’s ruling. Evelyn was not a party nor is there any evidence to support any theory of estoppel against her. The fact that Evelyn was not a direct party precludes the action from having any binding effect upon her, and the judgment originally rendered is final. Moore v. Capital Gas Corp. (1945), 117 Mont. 148, 158 P.2d 302.

The principles upon which the Anglo-legal system is based require a finality to all judicial decisions. Parties should not be allowed to litigate the same matter over and over again. One fair day in court is enough. Mr. Schweigert was accorded his day in court and the matter was decided. Therefore, he cannot at this late date, contest that valid judgment. See generally Casad, Res Judicata (1976).

In light of these principles, Schweigert cannot now attempt to foreclose Evelyn’s interest through the provisions of the contract for deed. He foreclosed upon the mortgage, his debt was merged into the judgment, and through the sheriff’s sale the judgment and debt against the Looneys were satisfied. He and Evelyn are now cotenants in the subject property. The instant case arose through her complaint seeking partition. We must therefore remand this case to the District Court for further proceedings consistent with this opinion.

CHIEF JUSTICE TURNAGE and JUSTICES HARRISON, HUNT, WEBER, SHEEHY and BARZ concur.