Story v. City of Bozeman

Decision Date03 May 1990
Docket NumberNo. 88-504,88-504
Parties, 12 UCC Rep.Serv.2d 359 Mark STORY, d/b/a Mark Story Construction, Plaintiff and Respondent, v. CITY OF BOZEMAN, and Neil Mann, Defendants and Appellants.
CourtMontana Supreme Court

Bruce E. Becker, Donald R. Herndon, argued, Herndon, Harper and Munro, Bozeman, for defendants and appellants.

Gregory O. Morgan, argued, Bozeman, for plaintiff and respondent.

TURNAGE, Chief Justice.

The City of Bozeman appeals a jury verdict against it in this suit for breach of a construction contract. The jury awarded plaintiff Story $360,000 in tort damages for breach of the covenant of good faith and fair dealing and $13,236 in contract damages. Story cross-appeals. We reverse and remand for retrial.

The appellant raises two interrelated, dispositive issues. The first issue is whether the District Court erred in refusing to grant defendants' motion for a new trial because the special verdict form was inadequate. The second is whether breach of the covenant of good faith and fair dealing gives rise to tort damages in a breach of contract action.

In November 1985 Story successfully bid to construct two water mains for the City of Bozeman (City). The evidence at the one-week trial showed that there was an error in the City's bid schedule form where it gave the engineer's estimate of the amount of pipe bedding material needed for one of the two water mains. The bid schedule asked for a price on 120 "C.F." (cubic feet) of pipe bedding material. (The contract provided that if more material were needed, the successful bidder would be paid extra.) The evidence at trial indicated that the bid schedule should have read "C.Y.," for cubic yards, and that the other contractors who bid on the project assumed cubic yards. Story testified that he bid under a good faith assumption that only 120 cubic feet of pipe bedding material were estimated as needed on the main, as indicated on the bid schedule. This affected the amount of his bid on that item by a factor of 27, and was undoubtedly one reason he had the low bid on the contract. The City's position was that Story knew all along that the "C.F." was a typographical error and that he bid a rate which would be appropriate for cubic yards but that he was holding out to be paid at a cubic foot rate as a bargaining chip. Story and the City had correspondence and discussions about this matter, but they never resolved it.

Story's construction company began working on the water mains in March of 1986. Story made several requests to the City for time extensions on the job, due to bad weather. The City did not immediately approve or disapprove these requests. It maintained at trial that the weather was normal for that time of year in Bozeman and that most of the requests were not justified. Story contended at trial that, contrary to the advice of the private engineering firm on this project, defendant city engineer Neil Mann was holding the requests for extensions of time as leverage to force Story to accept the City's position on the pipe bedding material. The City eventually approved some of the extensions of time but disapproved most.

The City presented evidence that Story's company did shoddy work on a pipeline which had to be dug up and redone and that at one time during this project, Story moved his crew and equipment to Manhattan, Montana, to work on another project. Story testified that the City had not provided him with appropriate bench marks where the pipe was mislaid and that it was too wet to work on the project in Bozeman at the time he did the work in Manhattan. The City also presented evidence that Story's workers alienated landowners adjacent to the building site by trespassing on and damaging their property. Story testified that the City's easement was not wide enough for this job. In May, Mann wrote to Story's surety on his performance bond, expressing concern that the water mains were not being completed on time. Story's bonding was cut off. In June, Story terminated the contract.

In December of 1986, Story filed his complaint in District Court and in January 1987 filed an amended complaint. The complaint alleged that defendants breached their contract with Story, that they acted in bad faith, and that the letter written by Neil Mann to Story's bonding company was defamatory. The City's answer denied all wrongdoing and affirmatively alleged a typographical error in the contract. The City counterclaimed against Story for reformation and breach of contract.

Using a special verdict form proposed by Story and modified by the court, the jury Several post-trial motions were filed by each party. The court denied all such motions, and this appeal followed.

found that both the City and Mann breached the covenant of good faith and fair dealing. It found no defamation in the letter from Mann to Story's surety. It found that there was a [242 Mont. 441] mutual mistake in the contract, and that the contract should be reformed to correct that mistake. It also found that Story acquiesced in the mistake. The court entered judgment against the City for $373,236 plus costs.

SPECIAL JURY VERDICT FORM

Did the District Court err in refusing to grant defendants' motion for a new trial because the special verdict form was inadequate?

The jury verdict form did not comply with this Court's decisions on the implied covenant of good faith and fair dealing. In actions in which allegations of breach of a covenant of good faith and fair dealing are based upon a contractual relationship between the parties, this Court has recently required a finding of breach of contract as a condition precedent to consideration of breach of the covenant of good faith and fair dealing. E.g. Montana Bank of Circle v. Ralph Meyers & Son, Inc. (Mont.1989), 769 P.2d 1208, 1214, 46 St.Rep. 324, 331; Nordlund v. School Dist. No. 14 (1987), 227 Mont. 402, 406, 738 P.2d 1299, 1302.

However, in this case, the main issue, other than defamation, was whether the contract was breached and by whom. This issue would have to be decided before any award of damages. In the pretrial order, both Story and the City listed whether the contract had been breached as an issue to be litigated at trial.

The record reveals that the discussion and redrafting of the special verdict form took place after a long day of trial, lasting from 7:30 a.m. until after 10:00 p.m. The City's proposed special verdict form, while not a model of clarity, did include at interrogatory numbers 6 and 8 the questions, "Did the City of Bozeman breach its contract with Mark Story?" and, "Did Mark Story breach his contract with the City of Bozeman?" The court specifically rejected the City's special verdict form. The special verdict form used, which was modified by the court from the form offered by Story, does not include any question at all as to whether the contract was breached. It does not ask whether the breach arose from a violation of an explicit contract term or whether the breach arose from a violation of an implied covenant of good faith and fair dealing. The City objected that the verdict form was not logically organized and was confusing to the jury. The City did not, however, object on the specific grounds that the special verdict omitted the issue of breach of contract.

For the benefit of the reader, we reprint the special verdict with the jury's answers:

SPECIAL VERDICT

We the jury, duly impaneled, answer the questions submitted to us in this Special Verdict as follows:

QUESTION NO. 1: Did the City of Bozeman breach the obligation of good faith and fair dealing arising out of the Contract with Mark Story?

ANSWER: Yes X No

QUESTION NO. 2: Did Neil Mann breach the obligation of good faith and fair dealing arising out of the Contract with Mark Story?

ANSWER: Yes X No

QUESTION NO. 3: Is the May 13th, 1986 letter from Mann to Balboa (Exhibit No. 130-A) false and defamatory?

ANSWER: Yes No X

If your answer is "yes" then move on to the next question. If your answer is "no" then skip to Question No. 6.

QUESTION NO. 4: Is the May 13, 1986 letter from Mann to Balboa (Exhibit No. 130-A) privileged?

ANSWER: Yes No

QUESTION NO. 5: If your answer to any of Questions 1, 2, or 3 is "yes" then write in below the damages, if any, Mark Story incurred as a result of these actions. If your answer to 3 or 4 is "no" $360,000.00

you may not consider damages for defamation.

QUESTION NO. 6: Was there a mutual mistake on Schedule II, Item No. 1, of the Bid in the Contract?

ANSWER: Yes X No

If your answer is "no" then skip to Question No. 11.

QUESTION NO. 7: Did the City of Bozeman acquiesce in the mistake?

ANSWER: Yes No X

QUESTION NO. 8: Is the City of Bozeman "estopped" from claiming mistake?

ANSWER: Yes No X

QUESTION NO. 9: Has the City of Bozeman "waived" its right to claim mistake?

ANSWER: Yes No X

QUESTION NO. 10: Should the Contract be reformed to read so that Item No. 1 on Schedule II reads C.Y. instead of C.F.? If your answer to either Question 7, 8 or 9 is "yes" then the Contract may not be reformed.

ANSWER: Yes X No

QUESTION NO. 11: Did Mark Story acquiesce in the mistake?

ANSWER: Yes X No

If your answer is "yes" then skip to Question No. 14.

QUESTION NO. 12: Is Mark Story "estopped" from claiming Contract damages?

ANSWER: Yes No

If your answer is "yes" then skip to Question No. 14.

QUESTION NO. 13: Has Mark Story "waived" his claim for Contract damages?

ANSWER: Yes No

If your answer is "yes" then skip to Question No. 14.

QUESTION NO. 14(A): If you find that there was mutual mistake and if you find that the answers to No's 11, 12 and 13 are "No" then answer Question No. 15.

QUESTION NO. 14: If you found that there was a mutual mistake and if you find that the answers to No's 11 or 12 or 13 are "Yes" then Mark Story cannot recover damages for Type II Bedding.

However, if the contract was breached by the City in other...

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