                                    No.     88-504
               IN THE SUPREME COURT OF THE STATE OF MONTANA
                                          1990


MARK STORY, d/b/a MARK
STORY CONSTRUCTION,
              Plaintiff and Respondent,


CITY OF BOZEMAN, and
NEIL MANN,
              Defendants and Appellants.



APPEAL FROM:           District Court of the Eighteenth Judicial District,
                       In and for the County of Gallatin,
                       The Honorable Joseph B. Gary, Judge presiding.


COUNSEL OF RECORD:
              For Appellant:
                       Bruce E. Becker, Bozeman, Montana
                       Donald R. Herndon argued, Herndon, Harper and Munro,
                       Bozeman, Montana
              For Respondent:
                       Gregory 0. Morgan argued, Bozeman, Montana
                                ,


                                                  Submitted:   October 17, 1989
                                                               May 3, 1990
Filed :
           Cd
     C L E R K OF SU



                                     ,*   Clerk
Chief Justice J. A. Turnage delivered the Opinion of the Court.

     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 defendants1 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 I1C.F.l1 (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
llC.Y.,ll cubic yards, and that the other contractors who bid on
       for
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 llC.F.nwas 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 typograph-
ical 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 found that both the City and Mann breached
the covenant of good faith and fair dealing.      It found no defama-
tion in the letter from Mann to Story's surety.        It found that
there was a 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.
     Several post-trial motions were filed by each party.        The
court denied all such motions, and this appeal followed.
                    SPECIAL JURY VERDICT FORM
     Did the District Court err in refusing to grant defendants1
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:OO p.m.   The City's proposed special
verdict form, while not a model of clarity, did include at inter-
rogatory numbers 6 and 8 the questions, !'Did the city of Bozeman
breach its contract with Mark Story?I1 and, "Did Mark Story breach
his contract with the City of Bozeman?I1 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 llyes"then move on to the next
question. If your answer is "noI1 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 "yes1'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 "nott you may not consider
damages for defamation.


     QUESTION NO. 6:    Was there a mutual mistake on
Schedule 11, Item No. 1, of the Bid in the Contract?
    ANSWER:    Yes     X           No
     If your answer is I1nol1
                            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 "estoppedl1
from claiming mistake?
      ANSWER:   Yes                    No    X
     QUESTION NO. 9: Has the City of Bozeman Itwaived"
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 I1 reads C.Y.
instead of C.F.?   If your answer to either Question 7,
8 or 9 is I1yesltthen 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 I1yesltthen skip to Question No.
14.
     QUESTION NO. 12:    Is Mark Story llestoppedll
                                                  from
claiming Contract damages?
      ANSWER:   Yes                    No
      If your answer is ltyesl1then skip to Question No.
14.

     QUESTION NO. 13: Has Mark Story "waivedn his claim
for Contract damages?
      ANSWER:   Yes                    No
      If your answer is I1yesw 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 "No1'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 llYesll
                              then Mark Story cannot recover
     damages for Type I1 Bedding.
          However, if the contract was breached by the City
     in other respects, you may consider damages for Mark
     Story for other contract breaches.
          QUESTION NO. 15 : What contract damages, if any, are
     due Mark Story?


          QUESTION NO. 16: Has Mark Story's further perfor-
     mance of the contract been excused by the conduct of the
     Defendants?
          ANSWER:   Yes            NO       X
          QUESTION NO. 17: How much, if any, should the City
     of Bozeman recover on its Counter-claim against Mark
     Story?
          $   nothinq
          The Court will enter the proper judgment based upon
     the above answers.
          DATED this      23   day of March, 1988.
                                           Bruce E. Ivey
                                        Foreperson
     The very first question on the special verdict form was, "Did
the City of Bozeman breach the obligation of good faith and fair
dealing arising out of the Contract with Mark St~ry?~'
                                                     This sounds
in tort and does not adequately and clearly ask the jury to decide
whether or not the contract was breached by a breach of the
covenant of good faith and fair dealing.        Next the jury was asked
whether defendant Neil Mann had breached the covenant and then
several questions about whether defendants had defamed Story. Then
in Question No. 5, the jury was asked the amount of damages
suffered by Story.     In answer to Question No. 6, the jury found
that there was a mutual mistake as to the amount of pipe bedding
material.    Therefore, the jury found no breach of contract by the
City as to the amount of pipe bedding material.       As one of the
final questions on the special verdict form, the jury was asked the
amount of contract damages to Story, without being asked whether
the City had breached the contract. The jury awarded Story $13,236
in contract damages.    In response to the next question, the jury
answered, inconsistently, that Story's further performance of the
contract had not been excused by the conduct of defendants.
     Special verdicts are governed by Rule 49 (a), M.R.Civ.P., which
states as follows:
            Special verdicts.    The court may require a
            jury to return only a special verdict in the
            form of a special written finding upon each
            issue of fact. In that event the court may
            submit to the jury written questions suscep-
            tible of categorical or other brief answer or
            may submit written forms of the several spe-
            cial findings which might properly be made
            under the pleadings and evidence; or it may
            use such other method of submitting the issues
            and requiring the written findings thereon as
            it deems most appropriate. The court shall
            give to the jury such explanation and instruc-
            tion concerning the matter thus submitted as
            may be necessary to enable the jury to make
            its findings upon each issue. If in so doing
            the court omits any issue of fact raised by
            the pleadings or by the evidence, each party
            waives his right to a trial by jury of the
            issue so omitted unless before the jury re-
            tires he demands its submission to the jury.
            As to an issue omitted without such demand the
            court may make a finding; or if it fails to do
            so, it shall be deemed to have made a finding
            in accord with the judgment on the special
            verdict.
The dissent claims that we ignore this rule.
       Rule 49(a) first states that the special verdict must contain
a finding upon each issue of fact. As demonstrated in the pretrial
order, the parties to this case recognized that whether the
contract had been breached was an important issue of fact. Yet the
special interrogatories drafted at the eleventh hour completely
leave this question out.
       The dissent is correct in stating that Rule 49(a) also
requires that a party wishing to claim error predicated on the
omission of an issue must demand the issue's submission to the jury
before the jury retires.      At least one United States Court of
Appeals has held that, under the federal rule from which our Rule
49(a) is taken, a party may preserve its objection by proposing a
special verdict form including the issue which is rejected    or   by
objecting to a proposed special interrogatory.       See Stewart    &

Stevenson Services, Inc. v. Pickard (11th Cir. 1984), 749 F.2d 635,
641.    The purpose of either method is to direct the court's
attention to the omitted issue.    We adopt the Eleventh Circuit's
holding.    In this case, the City proposed a special verdict form
which included the issue of breach of contract.         The City's
proposed special verdict form was rejected. The City also objected
to the court's special verdict form on the grounds that the
organization of the questions was not logical and would be
confusing to the jury.
     The    special   verdict   form   was   internally   inconsistent,
confusing, and misleading to the jury.       We hold that the District
Court erred in refusing defendants1 motion for a new trial because
of inadequacy of the special verdict form.

                      GOOD FAITH AND FAIR DEALING
     The parties contest the appropriate role of the implied
covenant of good faith and fair dealing in a breach of contract
action.    Their arguments, the jury verdict form, and the damages
awarded by the jury exhibit some confusion over that role.         The
jury awarded Story $13,236 in contract damages for an unspecified
breach of the contract and $360,000 in tort damages for the City's
breach of the obligation of good faith and fair dealing.          This
great disparity between contract and tort damages is symptomatic
of a common problem in the use of the bad faith tort in contract
litigation; the "tort tail1' has begun to wag the Itcontract dog."
Because of this and other problems, we believe this is an ap-
propriate time to review the current state of the law and to make
mid-course corrections.
    The concept of good faith and fair dealing has a venerable
history in the law of commercial contracts.       It first appears in
classical Roman law and by the eighteenth century was a well
established principle of English contract law imbuing commercial
relationships with the common religious and moral principles of the
time .   E.   Farnsworth, Good Faith Performance and commercial
Reasonableness under the Uniform Commercial Code, 30 U. Chi. L.
Rev. 666, 669-70 (1962-63).    In early twentieth century America,
courts first implied the covenant in commercial contracts which,
due to the imprecision of the business environment, required that

some term be left to the discretion of one of the parties.      The
implied covenant prevented one party from taking advantage of that
discretion to deprive the other of the benefit of the contract.
See e.g. Loudenback Fertilizer Co. v. Tennessee Phosphate Co. (6th
Cir. 1903), 121 F. 298, 303 (holding that the manufacturer could
not interpret ltrequirementslr purchase from the contract supplier
                            to
only when the market price exceeded the contract price). Courts
used the covenant as a Itgap filler" to interpret agreements to
cover situations not anticipated in the writing.      See e.g. Kirke
La Shelle Co. v. Paul Armstrong Co. (N.Y. 1933), 188 N.E. 163, 168
(holding that under a contract entered prior to the advent of
lltalkies,ll
          rights to a screen play included rights to the motion
picture).     Use of the covenant became so common that it was
codified in the Uniform Commercial Code.      See 1 R. Anderson,
Uniform Commercial Code, 5 1-201:82 (3rd ed. 1981).    In all cases,
the remedy was the same; breach of the covenant or implied contract
term was breach of the contract.
     Later, the courts began to imply a duty of good faith and fair
dealing in liability insurance contracts when insureds sue their
insurers for abusive claims settlement practices.         The courts
relied on the new tort version of bad faith because the insurance
policies gave the    insurer absolute discretion in       settlement
precluding suits for breach of contract. Compare e.g. Rumsford
Falls Paper Co. v. Fidelity   &   Casualty Co. (Me. 1899), 43 A. 503,
506 (no breach of the expressed contract terms) ; Hilker v. Western

Automobile Ins. Co. (Wis. 1931), 235 N.W. 413, 414 (breach of the
implied covenant).   More recently, some jurisdictions implied the
covenant in employment contracts to protect at-will employees from
wrongful discharge and, in the absence of an express contract,
allowed tort recovery.   See Fortune v. National Cash Register Co.
(Mass. 1977), 364 N.E.2d 1251, 1256. The tort remedy has also been
allowed when the parties had a special relationship.        See e.g.
Commercial Cotton Co. v. United Cal. Bank (Cal. App. 1984), 209
Cal.Rep. 551, 554.
     Montana's interpretation of the covenant of good faith and
fair dealing has paralleled that of other jurisdictions, except
that its trend in recent cases has been to treat the breach of the
covenant as a tort. Montana recognizes that an insurer's statutory
duties create a duty of good faith and fair dealing sounding in
tort and running to both the insured and third-party claimants.
Britton v. Farmers Ins. Group (1986), 221 Mont. 67, 72, 721 P.2d
303, 306; Fode v. Farmers Ins. Exchange (1986), 221 Mont. 282, 285,
719 P.2d 414, 416; Klaudt v. Flink (1983), 202 Mont. 247, 252, 658
P.2d 1065, 1067; First Security Bank of Bozeman v. Goddard (1979),
181 Mont. 407, 420, 593 P.2d 1040, 1047. Prior to enactment of the
Wrongful Discharge From Employment Act in 1987, Montana followed
other states in upholding common-law tort actions for bad faith
discharge.   Dare v. Montana Petroleum Marketing Co. (1984), 212
Mont. 274, 282, 687 P.2d 1015, 1020; Gates v. Life of Mont. Ins.
Co. (1983), 205 Mont. 304, 307, 668 P.2d 213, 215.     Montana has
also recognized the bad faith tort in special relationships when
the stronger party abuses its superior position.         Tribby v.
Northwestern Bank of Great Falls (1985), 217 Mont. 196, 211-12, 704
P.2d 409, 419 (bank's reckless disregard of depositor's rights) ;
Morse v. Espeland (1985), 215 Mont. 148, 152, 696 P.2d 428, 430-
31   (attorney s fee agreement) ; First Nat '1. Bank in Libby v.
Twombly (1984), 213 Mont. 66, 73, 689 P.2d 1226, 1230 (bank's
improper recovery on a promissory note).
     Montana, however, has also used the bad faith tort in a manner
uniformly rejected by all other jurisdictions.         Montana has
recognized the tort of bad faith in the typical arms-length
contracts.   See Dunfee v. Baskin-Robbins, Inc. (1986), 221 Mont.
447, 455, 720 P.2d 1148, 1153 (franchise agreement);   McGregor v.
Mommer (1986), 220 Mont. 98, 108, 714 P.2d 536, 543 (sale of
business).
        In the seminal case of Nicholson v. United Pacific Ins. co.,
we adopted this tort remedy in the commercial setting to deal with
a particular type of problem.     The parties in that case entered a
lease agreement which provided that the plaintiff would remodel a
Helena, Montana, office to the defendant's satisfaction.      During
the remodeling the defendant decided to forego the new office.
Instead of efficiently breachingthe lease agreement and paying the
plaintiff contract damages, the defendant attempted to force the
plaintiff to breach by repeatedly denying satisfaction with the
remodeling. Nicholson, (1985) 219 Mont. 32, 34-35, 710 P.2d 1342,
1344.     This Court affirmed tort damages against the defendant
noting that each party to a contract has a justifiable expectation
that the other will act in a reasonable manner in the performance
or efficient breach of a contract.        When one party used its
discretion to arbitrarily, capriciously or unreasonably deprive
the other party of the benefit of the contract, those expectations
were violated.     Nicholson, 219 Mont. at 41-42, 710 P.2d at 1348.
     Montana stands alone in allowing the bad faith tort in any
type of contract.       Apparently California is the only     other
jurisdiction to have applied the theory to commercial contracts,
Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (Cal.
1984), 686 P.2d 1158, 1167, but it quickly limited the tort action
to cases of special relationships, Quigley v. Pet, Inc. (Cal. App.
1984), 208 Cal.Rep. 394, 403; Price v. Wells Fargo Bank (Cal. App.
1989), 261 Cal.Rep. 735, 741.
       The problems caused by contaminating common contract litiga-
tion with tort damages are well recognized.      See e.g. S. Ashley,
Bad Faith Actions, 5 5 11.02 and 11.03 (1984); Comment, Commercial
Bad Faith; Tort Recovery for Breach of Implied Covenant in Ordinary
Commercial Contracts, 48 Mont. L. Rev. 349, 369-73 (1987) (authored
by Glenn E. Tremper).         Primarily, the specter of tort damages
upsets the concept of efficient breach. Parties have traditionally
been   free to breach their contract and pay contract damages
whenever performance was not economically efficient. The relative-
ly simple calculation of whether it is more profitable to breach
a contract and pay damages rather than to perform is now compli-
cated by the possibility of more indefinite tort damages. It is
true that efficient breach is rarely efficient; the winning party
must pay the cost of recovering contract damages. T. Diamond,    The
Tort of Bad Faith: When, If At All, Should It Be Extended Beyond
Insurance Transactions?, 64 Marq. L. Rev. 425, 439-43 (1981) .   This
problem, however does not support tort damages.          In written
contracts, the parties can avoid this inequity by providing in the
contract for an award of costs and attorney's fees to the prevail-
ing party.   See   §   28-3-704, MCA.
       As with damages, the evidence in cases involving contracts
becomes more speculative when tort actions are allowed.     Contract
litigation cases are now routinely accompanied by bad faith tort
claims opening the litigation to evidence far beyond the tradition-
al contract issues.   Instead of concentrating on pertinent issues
such as offer, acceptance, breach, and mistake, the jury is faced
with evidence of moral wrongdoing and punitive damages--evidence
that may be misleading and inflammatory in contract litigation.
     Since first recognizing the cause of action in 1979, First
Security Bank of Bozeman v. Goddard (1979), 181 Mont. 407, 420,
593 P.2d 1040, 1047, this Court has decided more than twenty bad

faith cases.   As the tort became more prevalent in all contexts,
this Court's interpretations have evolved to limit its over-use.
In wrongful discharge cases, we held that the covenant arises only
when the employer's objective manifestations give the employee a
reasonable belief that he or she has job security. Dare v. Montana
Petroleum Marketing Co. (1984), 212 Mont. 274, 283, 687 P.2d 1015,
1020.   In Nicholson we stated that the covenant of good faith and
fair dealing does not arise in every contract, but instead depends
on the justified expectation of the parties created by their
particular contractual relationship. Even when the covenant arose,
it was breached only by an arbitrary, capricious or unreasonable
violation of those expectations.   Nicholson, 219 Mont. at 41-42,
710 P.2d at 1348.     We have also held that claims based on an
insurer's bad faith refusal to settle must await determination of
the underlying liability issue to prevent prejudice to the insurer.
Fode v. Farmers Ins. Exchange (1986), 221Mont. 282, 287, 719 P.2d
414, 417.   Most recently, we have adopted the position that the
covenant cannot be breached unless the contract is also breached.
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.
      The legislature has also reacted to the prevalence of bad
faith torts.   In 1987, it restricted wrongful discharge actions,
Wrongful Discharge from Employment Act, ch. 641, 1987 Mont. Laws
1764, and punitive damages, Act Approved April 27, 1987, ch. 627,
5 2, 1987 Mont. Laws 1722.    In actions arising out of contract,
the legislature also banned punitive damages, Act Approved April
27, 1987, ch. 627, 5 1, 1987 Mont. Laws 1722, and damages for
emotional distress, Act Approved April 15, 1987, ch. 488, 5 1, 1987
Mont. Laws 1195. While the latter provisions may not apply to the
separate tort of bad faith, they do indicate that such damages are
not always appropriate in contract actions.    Most importantly, in
§   28-1-211, MCA, the 1987 Legislature defined the standard of
conduct under the implied covenant as honesty in fact and the
observance of reasonable commercial standards--the same standard
applied to merchants under the Uniform Commercial Code.         Act
Approved April 20, 1987, ch. 571, 5 1, 1987 Mont. Laws 1431.     We
are persuaded that it is time to reassess the covenant of good
faith and fair dealing and to provide more workable guidelines for
the future.
       In the typical contract case the Nicholson reasoning is still
sound, but the Nicholson tort remedy is excessive.          The Uniform
Commercial Code provides a more workable model for most contracts
not covered by specific statutory provisions.         The Code states,
"Every contract or duty within this code imposes an obligation of
good faith in its performance or enforcement."        Section 30-1-203,
MCA.   l1   'Good faith1 in the case of a merchant means honesty in fact
and the observance of reasonable commercial standards of fair
dealing in the trade."       Section 30-2-103(1)(b), MCA.   A party who
breaches the covenant may be denied the benefit of a relevant Code
provision or the breach may be deemed a breach of the contract. 1
R. Anderson, Uniform Commercial Code, 9 1-203: 14 (3rd ed. 1981 &

1989 Supp.).      This Court believes that the Uniform Commercial Code
model should be extended to cover all contracts and that the bad
faith tort should be used only when the parties have a special
relationship.
       We hold that every contract, regardless of type, contains an
implied covenant of good faith and fair dealing.        A breach of the
covenant is a breach of the contract.       Thus, breach of an express
contractual term is not a prerequisite to breach of the implied
covenant.        For every contract not covered by a more specific
statutory provision, the standard of compliance is that contained
in   §   28-1-211, MCA:
              The conduct required by the implied covenant
              of good faith and fair dealing is honesty in
              fact and the observance of reasonable commer-
              cial standards of fair dealing in the trade.
This is the same standard as applied to merchants under the Uniform
Commercial Code. Each party to a contract has a justified expecta-
tion that the other will act in a reasonable manner in its perfor-
mance or efficient breach.      When one party uses discretion con-
ferred by the contract to act dishonestly or to act outside of
accepted commercial practices to deprive the other party of the
benefit of the contract, the contract is breached.
         In the great majority of ordinary contracts, a breach of the
covenant is only a breach of the contract and only contract damages
are due.
             For breach of an obligation arising from
             contract, the measure of damages, except when
             otherwise expressly provided by this code, is
             the amount which will compensate the party
             aggrieved for all the detriment which was
             proximately caused thereby or in the ordinary
             course of things would be likely to result
             therefrom.   Damages which are not clearly
             ascertainable in both their nature and origin
             cannot be recovered for a breach of contract.
Section 27-1-311, MCA.       In common contract actions, tort-type
damages are not available for breach of the implied covenant of
good faith and fair dealing.       They are, however, available for
traditional contract-related torts such as        fraud, fraudulent
inducement, and tortious interference with a contract.
       The tort of bad faith may still apply in exceptional cir-
cumstances. It serves to discourage oppression in contracts which
necessarily give one party a superior position.     The legislature
has codified the tort's most common applications.      See Wrongful
Discharge from Employment Act,      5 5 39-2-901 through -914, MCA;
Unfair Trade Practices Act (Insurance) 5 5 33-18-101 through -1005,
MCA.    The tort remedy may also be available in contracts involv-
ing special relationships which are not otherwise controlled by
specific statutory provisions.    To delineate those special rela-
tionships we adopt the following essential elements from California
case law.
            (1) the contract must be such that the parties
            are in inherently unequal bargaining posi-
            tions; [and] (2) the motivation for entering
            the contract must be a non-profit motivation,
            i.e., to secure peace of mind, security,
            future protection; [and] (3) ordinary contract
            damages are not adequate because (a) they do
            not require the party in the superior position
            to account for its actions, and (b) they do
            not make the inferior party llwholell;
                                                 [and] (4)
            one party is especially vulnerable because of
            the type of harm it may suffer and of neces-
            sity places trust in the other party to per-
            form; and (5) the other party is aware of this
            vulnerability.
Wallis v. Superior Court (Cal. App. 1984), 207 Cal.Rep. 123, 129.
       If the facts of the special relationship are undisputed as to
whether there is a special relationship, it is a question of law
for the court to decide.    If substantial evidence is presented
supporting each and all of the above essential elements and such
evidence is controverted in whole or in part, there arises ap-
propriate questions of material fact to be submitted to the jury.
If substantial evidence is not presented in support of each and all
of the essential elements, the court shall direct there is no
special relationship.
     In special relationship contracts, the standard of conduct is
the same as that for other contracts--honesty in fact and obser-
vance of reasonable commercial standards of fair dealing in the
trade. Section 28-1-211, MCA.   In contracts involving the special
relationships that we have delineated, supra, if the standard of
conduct required by the implied covenant of good faith and fair
dealing as defined in 5 28-1-211, MCA, is violated, the duty of
good faith and fair dealing is breached. In addition to recovering
damages for breach of contract, the aggrieved party may also
recover tort damages.
     A special jury verdict form, such as that used in the present
case, must present the jury with a consistent and logically ordered
progression of issues reflecting the above analysis. When contract
breach is alleged, the form must first direct the jury to determine
if an express term of the contract was breached or if the implied
covenant of good faith and fair dealing was breached.   If the jury
answers affirmatively, it may then consider contract damages.     If
the court, or the jury upon proper questions, as the case may be,
has found that a special relationship exists between the contract-
ing parties, and the jury has found the implied covenant was
breached, the jury may then consider tort damages.
                            FEE AGREEMENT
     Story has raised several issues on cross-appeal, none of which
we need discuss because of our grant of a new trial.    The City has
also raised several other issues.      The only one which we will
address is a question of statutory construction.       The issue is
whether Story's counsel filed his "notice of fee agreement1' in a
timely manner under 5 2-9-314, MCA.     He filed it after entry of
judgment.
     Section 2-9-314(1), MCA, provides:
            When an attorney represents or acts on behalf
            of a claimant or any other party on a tort
            claim against the state or a political sub-
            division thereof, the attorney shall file with
            the claim a copy of the contract of employment
            showing specifically the terms of the fee
            arrangement between the attorney and the
            claimant.
The statute says nothing about when the copy of the contract of
employment must be filed.    It merely tells where to file it.   We
hold that there is nothing in the statute to preclude the District
Court's decision that the fee agreement was timely filed.
     Reversed and remanded.




We concur:
Justice John C. Sheehy, dissenting:


                                 I.
     The majority opinion is an example of scurrying through the
record to find a bone to pick on which to base a reversal. The
excuse for reversal is flimsy, and that is putting the best
possible face on it.
     The theme of the reversal is that the special verdict form did
not first require the jury to find a breach of contract as a
condition precedent to finding a breach of the covenant of good
faith and fair dealing.        That theme ignores the specific
instructions of the District Court to the jury, the submission by
defendants of the same form of special verdict, and the provisions
of Rule 49(a), M.R.Civ.P., which provisions the reversal ignores
where they particularly apply.
     When a district court submits a special verdict on an issue
of fact to be decided by the jury, the District Court must give an
instruction telling the jury how to employ the special verdict.
State Bank of Townsend v. Maryann's, Inc. (1983), 204 Mont. 21, 32,
664 P.2d 295, 301. The District Court precisely followed that rule
in this case.
     The first question submitted to the jury was:
     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
     In instructing the jury on this subject, the court utilized
instructions that were proposed by the defendants. The District
Court accepted and gave defendant's proposed instructions no. 18
and 19, which respectively became court's instructions no. 33 and
34. Those instructions were as follows:

                         INSTRUCTION NO. 33
       There is a covenant of good faith and fair dealing
       implied into the contract between the City of Bozeman and
       the plaintiff which is measured by the justifiable
       expectations of the parties. The covenant of good faith
       and fair dealing is violated if the justifiable
       expectations of one party is exceeded by arbitrary,
       capricious, or unreasonable conduct by the other party.

                             INSTRUCTION NO. 34

       You must first find that the party breached the contract
       before you can consider whether the covenant of sood
       faith and fair dealins should be implied and if you find
       that the covenant should be implied, vou mav then
       consider whether the party breached the implied covenant.
       (Emphasis added.)
       In addition to the foregoing instructions directing the jury
first to find a breach of the contract before it could find a
breach of the obligation of good faith and fair dealing, the court
carefully instructed the jury as to what a I1breachl1of contract
was:

                             INSTRUCTION NO. 21

       You are instructed that you must determine the nature and
       terms of the promises in the contract between the parties
       and further determine whether or not the promises
       contained in the contract have been fully performed by
       them.

       The failure, without legal excuse, to perform any promise
       which forms the whole or part of a contract is called a
       llbreachll contract.
                of
       Thus we have a situation where the defendant's view of Montana
law applying to implied covenants of good faith and fair dealing
was    accepted   by   the   court   and   given   to   the   jury   in   the
instructions.   The court instructed the jury that it must first
find that the defendant's breached the contract before the jury
could consider whether the covenant of good faith and fair dealing
was implied, and whether it was breached.     The jury was further
told what constituted a breach of contract.
     This case marks the first time, as far as I am able to
discover, that a district court has been held in error by this
Court for properly instructing a jury as to how the jury should
employ and answer a special interrogatory.    In instruction no. 1,
the District Court told the jury in this case    It.   . .   you are to
consider all the instructions as a whole, and to regard each in the
light of all the others.   The order in which the instructions are
given has no significance as to their relative importance.I1
     In so instructing the jury as to how to answer question no.
1, the District Court faithfully followed the requirement of Rule

49(a), M.R.Civ.P., in part as follows:

     ...   The court shall give to the jury such explanation
     and instruction concerning the matter thus submitted as
     may be necessary to enable the jury to make its findings
     upon each issue  ..  .
     The second reason for this dissent is that the format followed
by the District Court in submitting question no. 1 is precisely the
format that was suggested by defendants in their submitted special
verdict form. Attached to this dissent as an exhibit is a copy of
the special verdict form submitted by the defendants.        It will be
seen in that form that the first two questions proposed by the
defendants related to pipe bedding material        involved in the
contract between the City of Bozeman and Mark Story. Question no.
3, however, is in almost the same language of question no. 1 which
the court used. Thus, whether the District Court utilized the form
submitted by the defendants or the form submitted by the plaintiff,
in each event, the jury would have been led immediately to the
question of the breach of covenant of sood faith and fair dealins.
-



The majority on this Court hold the District Court in error for
following exactly the format for interrogatories submitted by the
defendants.
     The    majority   opinion   is mistaken   in   stating   that   the
redrafting of the special verdict form took place after a long day
of trial, lasting from 7:30 a.m. until after 10:OO p.m.        That is
not true.   The majority have not read the record accurately. What
did happen was that the jury, at the close of all the evidence, was
excused in the afternoon of Tuesday, March 22, 1988. The court met
with counsel in chambers after the jury was excused from 3:00 p.m.
until 7:00 p.m. of March 22, 1988, at which time they considered
the instructions and the special verdict form which had been
offered.    At that time, the only special verdict form offered for
the court's consideration was that supplied by the plaintiff.        The
District Court judge examined the special verdict on March 22, and
suggested modifications.    The court and counsel adjourned at 7:00
p.m. that evening.     The next morning the court and counsel met
again in chambers at 7:30 a.m., and made a record as to the rulings
of the District Court on the instructions, and on the special
verdict.    It was only at this time that the defendants presented
any form of special verdict.    Sometime after the settlement of
instructions (the record does not disclose the hour), the District
Court read the instructions to the jury and counsel argued.     The
jury retired to find a verdict and in the evening in the course of
their deliberations sent out three questions for answer by the
court. The District Court, by telephone conference, discussed with
counsel the three questions, none of which related to the implied
covenant of good faith and fair dealing, and revised the special
verdict form accordingly.   This revision did occur
in the evening of March 23, 1988, but it did not pertain to
Question No. 1.   Thereafter, the jury returned its verdict in the
form of special interrogatories.
     In ruling on the motion for a new trial, the District Court
gave a further reason for denying the objections of the defendants
to the jury verdict form, saying:

    (2) Special verdict forms submitted to the jury were
    confusing, unnecessarily complex, caused the jury to
    consider liability theories in an incorrect order, and
    unduly emphasized plaintiff's theories of recovery. On
    that objection, the Court points out that the Court
    requested interrogatories to be submitted by counsel and
    after thorough deliberation the instructions were settled
    on the 22nd day of March, 1988, from approximately 3:00
    p.m. until 7:00 p.m. The Court convened again at 7:30
    a.m. on the 23rd day of March, 1988, for the purposes of
    settling instructions and it was not until that time that
    the Defendants brought in a proposed form of special
    verdict. The Court examined the special verdict form
    submitted by the Plaintiff the day before and requested
    certain modifications. After considering both forms of
    the special verdict, the Court elected to use that form
    prepared by the Plaintiffs and rejected that prepared by
    Defendants because of the untimeliness of the filing of
    the same. Additionally, the Court found the Plaintiff's
    form more logical. The Court denies the Motion for a New
     Trial based upon the alleged deficiencies of the special
     verdict form.
     It is an unjustifiable imposition upon the District Court to
hold it in error in the circumstances thus described.        It is more
unjustifiable when the defendants' proposed special verdict form
only followed the format of the form already proposed by the
plaintiff.
     It should be but is not      important to this Court and to the
decision that the defendants in this case never specifically told
the District Court their objections to the special verdict form on
the ground that the question of breach of contract should have been
submitted first.      When the District Court,         formulating the
special verdict, at the session on the morning of March 23, 1988,
finally settled on the form to be used, the defendant made only
this objection:

     MR. HERNDON: Let the record show that the Court, and
     essentially   plaintiff's    counsel, have      redrafted
     plaintiff's version of the special verdict to which the
     defendants objected as being confusing, with a clear bias
     toward the plaintiff and a clear prejudice toward the
     defendants, and it misleads the jury as to the proper
     application of the instructions.
     The foregoing is nothing more than a general objection,
worthless because it does not state with particularity where the
court is in error.     This Court ought to apply the same test to
objections   to   a   special   interrogatory   that   is   applied   to
instructions, as set out in Rule 51, M.R.Civ.P.:

     . . .  Objections made shall specify and state the
    particular grounds on which the instruction is objected
    to and it shall not be sufficient in stating the ground
     of such objection to state generally that the instruction
     does not state the law or is against the law, but such
     ground of objection shall specify particularly wherein
     the instruction is insufficient or does not state the
     law, or what particular clause therein is objected to

See Ahmann v. American Fed. Sav.   &   Loan Ass'n. (1988),   235    Mont.


     Rule 49 (a), M.R. Civ. P., properly construed, requires that a
specific objection be made to the Court.     It provides in part:

     ...    The court shall give to the jury such explanation
     and instruction concerning the matter thus submitted as
     may be necessary to enable the jury to make its findings
     upon each issue. If in so doing the court omits any
     issue of fact raised by the pleadings or by the evidence,
     each party waives his right to a trial by jury of the
     issue so omitted unless before the jury retires he
     demands its submission to the iurv.      As to an issue
     omitted without such demand the court may make a findins;
     or if it fails to do so, it shall be deemed to have made
     a findins in accord with the judsment on the special
     verdict.
     The first time that the defendants notified the District Court
that they objected to the special verdict form because it did not
first require a finding of breach of contract was in their Motion
for New Trial filed April 1, 1988.
     A proper rule regarding objections to special verdicts is set
out in H. J. Baker and Bro. v. Organics, Inc. (R.I. 1989) ,   554   A. 2d
196, 201, which held that a party objecting to a special verdict
must have submitted an interrogatory for the jury to the Court, and
must object to the Court's failure to include the requested
interrosatorv before the Court submits its own version to the jury.
     Under the instructions given by the Court as to question no.
1, absolutely no prejudice occurred to defendants, because in order
to   answer        "yes1' to   question   no.   1,   the   jury,   under   the
instructions, had first to find a breach of contract.              The reason
given by the majority for reversal, on this record is, again,
f 1imsy   .
        In another context, the majority opinion states that the award
of $13,236 in contract damages to Story is inconsistent with the
jury's finding in answer to question no. 16 that Mark Story's
further performance under the contract had not been excused by the
conduct of the defendants.          The finding of contract damages for
breach, however, is completely in accord with instruction no. 22
given to the jury, which stated:

                               Instruction No. 22

     A party to a contract is excused from further performance
     by the breach of failure or performance of the other
     party only when that breach is so great as to defeat the
     objects of the contract. A breach which is incidental
     and subordinate to the main purpose of the contract and
     may be compensated in damases does not justify
                  -

     termination and the injured party is still bound to
     perform his part of the agreement. (Emphasis added.)
     Thus, in awarding, damages to the plaintiff for breach of
contract, without excusing his further performance, the jury acted
consistently with the instructions and in accordance with law.


     When we read the second portion of the majority opinion, a
light dawns as to the reason for the reversal on this thin record.
The majority have a higher agenda, one beyond the appeal in this
case:         the implied reversal of Nicholson v. United Pacific Ins.
Co. (1985), 219 Mont. 32, 710 P.2d 1342.     They use the vehicle of
this case, weak as it is, to work their purpose.
     There is no issue raised in this case from the parties or the
record as to the concept of the implied covenant of good faith and
fair dealing in contracts.   The law applying to this subject used
by the District Court was that supplied bv the defendants.       That
application by the District Court has become the law of the case.
Without briefs on the issues, and without notice to the Bar in
general, the majority opinion accomplishes the following results:

     1. The implied covenant of good faith and fair dealing
     attends every contract.
     2.  The tort of breach of the implied covenant arises
     only in I1special relationship^.^
     3.   Where no special relationship exists, the only
     available damages are contract damages, regardless of how
     egregious the conduct of the wrongdoing party is and
     regardless of the tort involved.

     It is inconsistent of course to hold that the implied covenant
of good faith and fair dealing attends every contract, and then to
limit damages for a breach of the implied covenant to contract
damages, unless a    llspecial relationshipI1 exists between     the
contracting parties. The implied contract does not depend for its
existence upon express terms in the underlying contract.         The
implied covenant comes into being upon considerations of justice
and fairness imposed by law, and the implied covenant exists
whether or not the parties assented to it.    Thus its breach is not
a breach of contract, but is a tort, and has always been so
defined. McGregor v. Mommer (1986), 220 Mont. 98, 108, 714 P.2d
536, 543, ("a breach of this implied covenant which results in
damages can thus give rise to an action in tortu); Dunfee v.
Baskin-Robbins, Inc. (1986), 221 Mont. 447, 455, 720 P.2d 1148,
1153, ("In a commercial setting, we now have held that where the
conduct   of   one   party   unreasonably   breaches   the   justifiable
expectations of the other party, an action in tort            result^^^).
Applying contract damages to the tort of breach of the implied
covenant is a perversion of the historical difference the law has
always perceived in damages arising from breach of contract and
those arising from tort.
     Five justices presently on this Court unanimously agreed to
Nicholson v. United Pac. Ins. Co., supra. In that case, this Court
stated:
     While we decline to extend the breach of implied covenant
     to all contract breaches as a matter of law, as
     California has done, we agree with the statement in
     Ouiqlev, supra, that the tort resulting from this breach
     depends on some impermissible activity.      The Montana
     cases discussed above focus on the action of the
     breaching party in the relationship to find a breach of
     the implied covenant, not just the existence of a breach
     of contract.

    At this point a helpful distinction should be noted
    between an intentional breach or one motivated by self-
    interest, giving rise to only contract damages, and the
    action which would give rise to a breach of the implied
    covenant, resulting in tort damages. Historically, a
    party to a contract generally had the right to breach or
    pay damages rather than perform.      The non-breaching
    party, theoretically, is "made wholeu from the damages
    paid following the breach and thus still receives the
    benefits from the agreement.
          8tContract law is based in part on the
          assumption that certain intentional breaches
          are to be encouraged. Permitting parties to
          breach their contracts promotes an efficient
          economy, at least when the gains for the
          breach exceed the expected pecuniary injuries
          of the promisee. I'
     Diamond, The Tort of Bad Faith Breach of Contract: When,
     If At All, Should It Be Extended Beyond Insurance
     ~ransactions,64 Marquette Law Review, 425, 453 (1981).
     But whether performing or breaching, each party has a
     justifiable expectation that the other will act as a
     reasonable person. Neal v. Farmers Insurance Exchange
     (Cal. 1978), 21 Cal.3d 910, 148 Cal.Rep. 389, 582 P.2d
     980. The nature and extent of an implied covenant of
     good faith and fair dealing is measured in a particular
     contract by the justifiable expectations of the parties.
     Where one party acts arbitrarily, capriciously, or
     unreasonably, that conduct exceeds the justifiable
     expectations of the second party.      The second party
     should then be compensated for damages resulting from the
     other's culpable conduct.
219 Mont. at 41-42, 710 P.2d at 1348.
     What a far cry from the enlightened opinion in Nicholson is
the decision today of the majority of this Court.
     Nicholson provides us with a good example of the effect of the
majority opinion in this case.   Nicholson was a building owner in
downtown Helena who had entered into a lease agreement with United
Pacific Insurance (UPI) for office space.     The lease agreement
contained provisions that Nicholson confer with UP1 about the
renovation of the office building space, and that the final plans
for renovation were subject to mutual approval.
     As the work progressed, Nicholson found it increasingly
difficult to get approval from UP1 of his renovation project.    He
continuously sent plans, conferred with their architects, and
finally lost communication altogether with the company officers.
Nicholson sent a final revised plan of renovation to UP1 and three
days later received a    letter from UP1 rescinding the lease
agreement.    ~icholsonfiled a complaint after notice of default
against UPI, and during discovery, learned that a Ivsecretvv task
                                                          UP1
force had made recommendations about reorganizing the company, the
effect of which would be to transfer the Helena office to Salt Lake
City, Utah.    Nicholson argued that when UP1 realized this, it
became intransigent and threw obstacles hoping to cause him to
breach the lease agreement.     Based on these facts, Nicholson
contended that UP1 had rescinded the lease without justification.
Nicholson spent sums in excess of $98,000 in remodeling.          Upon
Nicholsonvs suit, the jury returned a verdict in his favor for
compensatory damages of $211,105 and exemplary damages of $225,000.
     If the opinion in this case had been in effect when Nicholson
came before this Court, then Nicholson should have lost completely
on breach of the covenant.          Under the majority opinion, if
applicable, no vvspecial
                       relationshipvv
                                    existed between Nicholson and
UPI, and his damages would be, if any, limited to what the majority
describe as an "efficient breach.     Needless to say, the only party
for whom such a breach would be "efficienttv
                                           was UPI.
     The sentence in the majority Opinion (slip opinion, p. 20)
that "breach of an express contractual term is not a prerequisite
to breach of the implied covenantvvis an interesting reversal,
without saying so, of Montana Bank of Circle v. Meyers   &   Son (Mont.
1989), 769 P.2d 1208, 1214, and Nordlund v. School District No. 14
(1987), 227 Mont. 402, 406, 738 P.2d 1299, 1302.      No longer does
this Court require a breach of the underlying express contract
terms before the obligation of good faith may be considered by the
jury.    Thus the majority abandon the reason for which in the first
place they reverse this case.        In the forepart of the their
Opinion, the majority see evil in the special verdict form because
the jury was not first required to find an underlying breach of the
express terms of the contract.    Now, such a finding is needless.
It demonstrates again the flimsiness of the grounds for reversal
in this case.
     What the majority have done in this case is to abrogate any
remedy    for arbitrary, capricious or egregious conduct by       a
contracting party, upon issues not raised in this file nor on the
record and without notice to the Bar in general.    The reversal of
the hard-won verdict obtained by Mark Story in this case is a joke.
Under the limitations of the majority opinion, he will never again
be justly compensated by any jury.
     Please register my strong dissent to the uncalled-for result
in this case.                       ,- 7
                                     .-




   I concur in the foregoing dissent of Justice Sheehy.
           EXHIBIT A to dissent of Justice John C. Sheehy
     (Special verdict form submitted by defendants on the morning
the case was submitted to the jury.)
                                  SPECIAL VERDICT
     We, the jury, duly impaneled to try the above entitled cause,
answer the questions submitted to us in this Special Verdict as
follows:
QUESTION NO. 1:
     Did the contract between Mark Story and the City of Bozeman
fail to state the true intention of the parties with respect to the
units of Type 2 Pipe Bedding material, in place in Item 1 of
Schedule I1 of the Group Watermain Project by reason of fraud,
mistake of one party while the other at the time knew or suspected
that the written contract did not truly express the intention of
the parties?
     ANSWER:
               (write l1yesl1or I1noN

     If you answer llyesll to Question No. 2.
                        go
     If you answer I1nol1 to Question No. 3.
                         go
PUESTION NO. 2:
     Did the City of Bozeman and Mark Story intend that the unit
quantity of Type 2 Pipe Bedding in place to be I1C.F.l1meaning cubic
feet or "C.Y." meaning cubic yards in item 1 of Schedule I1 of the
Group IV Watermain Project in the contract between the parties?
     ANSWER:   "C.F." was intended
                                         (write l1yesUor I1not1
                   Y
                I1C.   .   was intended
                                          (write llyesll I1nol1
                                                      or

QUESTION NO. 3:
     Did the City of Bozeman breach the implied covenant of good
faith and fair dealing in its contract with Mark Story?
     ANSWER:
                (write I1yes1l I1nol1
                             or
QUESTION NO. 4:
     Does the May 13, 1986, letter from Neil Mann to Balboa
Insurnce Company (Exhibit 130 A) contain false and defamatory
statements concerning Mark Story?
     ANSWER :
                (write llyesll I1nol1
                            or
     If the answer is I1nol1skip Question No. 5 and go to Question
No. 6.
QUESTION NO. 5:
     Is the May 13, 1986, letter from Neil Mann to Balboa Insurance
Company (Exhibit 130 A) privileged?

    ANSWER:
                (write I1yes1l "nov1
                             or
OUESTION NO. 6:
     Did the City of Bozeman breach its contract with Mark Story?
          ANSWER:
              (write llyesll llnoll
                          or
9UESTION NO. 7:
     Is Mark Story entitled to any additional compensation for the
work done or the materials furnished under the terms of the
contract with the City of Bozeman?
          ANSWER:
              (write "yesI1 or l1noIg
QUESTION NO. 8:
     Did Mark Story breach his contract with the City of Bozeman?
     ANSWER:
               (write I1yesl1or I1nol1
OUESTION NO. 9:
     Is the City of Bozeman entitled to recover liquidated damages
from Mark Story under their contract dated November 12, 1985?
          ANSWER:
               (write llyesll "nof1
                           or

OUESTION NO. 10:
     Is the City of Bozeman entitled to recover damages for the
cost of repairs to the Valley View Golf Course necessitated by Mark
Story trespassing outside of the working easement provided by his
contract with the City of Bozeman?
     ANSWER:
               (write "yesI1 or llnoll
OUESTION NO. 11:
      id Mark Story acquiesce in the error in the contract
concerning whethr the unit quanity of Type 2 Pipe Bedding in place
was "C.F.", meaning cubic feet or llC.Y.ll
                                        meaning cubic yard?

     ANSWER:
               (write "yes1'or l1noI1
QUESTION NO. 12:
                                 3
     Did the City of Bozeman acquiesce in the error in the contract
concerning whether the unit quantity of Type 2 Pipe Bedding in
place w.as "C. F. meaning cubic feet or llC.Y. meaning cubic yards?
           ANSWER:
               (write "yesI1 or tlnoll
QUESTION NO. 13 :
     Is Mark Story llestoppedll
                             from claiming contract damages?
           ANSWER :
               (write I1yest1 "nov1
                            or
QUESTION NO. 14:
     Is the City of Bozeman 'lestoppedll from claiming contract
damages?
     ANSWER:
               (write l1yesl1or ltnol1
QUESTI0:N NO. 15:
     Has Mark Story "waived" his claim for contract damages?
           ANSWER :
                      (write lfyesll llnoll
                                  or
QUESTION NO. 16:
     Has the City of Bozeman "waivedn its claim for contract
damages?
           ANSWER :
                      (write I1yesr1 l1non
                                   or

QUESTION NO. 17:
     Has Mark Story failed to mitigate his damages, if any?
           ANSWER:
                      (write       or
QUESTION NO. 18:
       Has the City of Bozeman failed to mitigate its damages, if
any?
            ANSWER :
                           (write I1yesl1 ltnoll
                                         or
QUESTION NO. 19:
       State the total damages recoverable by Mark Story, d/b/a/ Mark
Story construction from the City of Bozeman.
            ANSWER:    $


QUESTION NO. 20:
       State the total damages recoverable by the City of Bozeman
from Mark Story, d/b/a Mark Story Construction.
            ANSWER:    $

DATED this         day of March, 1988.

                                        FOREPERSON OF THE JURY
