Kitchen Krafters, Inc. v. Eastside Bank

No. 88-518

IN THE SUPREME COURT OF THE STATE OF MONTANA

1990

KITCHEN KRAFTERS, INC.,

Plaintiff and Respondent, -

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EASTSIDE BANK OF MONTANA, --i ,. z7

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Defendant, Counterclaimant ' _-,

and Appellant, !--7

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EASTSIDE BANK OF MONTANA,

Third Party Plaintiff, , C-J

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ROBERT W. SCHELL; MARY ANN CLARY, formerly, MARY ANN , . c7

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SCHELL, former wife of ROBERT W.SCHELL; STATE OF -,

MONTANA, EMPLOYMENT SECURITY DIVISION, DEPARTMENT OF

LABOR & INDUSTRY, et al.,

Third Party Defendants.

APPEAL FROM: District Court of the Eiqhth Judicial District,

In and for the County of Cascade,

The Honorable Thomas McKittrick, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Ward E. Taleff argued; Alexander, Baucus & Linnell,

Great Falls, Montana

For Respondent:

Maxon Davis argued; Cure, Borer & Davis, Great Falls,

Montana

Submitted: December 12, 1989

Decided: March 20, 1990

Filed:

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Clerk 1.

Justice R. C. McDonough delivered the Opinion of the Court.

Defendant, ~astsideBank of Montana (Bank) appeals from a jury

verdict rendered in the Eighth Judicial District, Cascade County

in favor of the plaintiff Kitchen Krafters, Inc. (Kitchen

Krafters). We reverse.

The issues on appeal are:

1) Whether itche en Kraftersl claims are barred by the

statutes of limitations.

21 Whether Kitchen Krafters claims are supported by

substantial evidence.

3) Whether the District Court erred in instructing the jury

on causation.

The facts of this case are complicated. In early 1973, Arnold

Wirtz (Wirtz) and Don Morris (Morris) of Kitchen Krafters contacted

Robert Schell (Schell) about purchasing commercial property in

Great Falls, Montana located on 25th Street North. At the initial

meeting, a price of $40,000 was settled upon. Approximately one

week later, Wirtz and Morris were contacted by Bruce ~ i l l e r

(Miller) of the Bank to review a draft of a proposed contract for

deed and escrow agreement naming the Bank as escrow on the

property. The contract for deed had been prepared by Schellls

attorney. Morris and Wirtz were unrepresented.

At the meeting, Wirtz and Morris learned that Schell and the

Bank had negotiated a separate transaction concerning the property.

The Bank loaned Schell $30,000 which was secured by a trust

indenture on the property. The escrow agreement specified that

1

payments made by Kitchen Krafters would be distributed to the Bank

as payments on Schelllsunderlying trust indenture with the balance

going to Schell. The exact wording is as follows:

Special instructions, if any, in addition to the

foresoins: In the event Buyers prepay an additional

$5,000.00 on or before July 1, 1973, upon such payment

there shall be credited against principal an additional

$2,000.00. to-wit: upon payment of additional $5,000.00

principal on or before July 1, 1973, Buyers shall be

credited with $7,000.00 payment; if said $5,000.00

payment made on or before July 1, 1973, this special

instruction becomes automatically void and cancelled.

3. Payments made hereunder are to be distributed as

follows:

Applied first to monthly payments under Trust Indenture

dated March 29, 1973, running to Eastside Bank of Montana

wherein Sellers are Grantors; balance of payments

remitted to Sellers.

4. Terms of prepayment privilege are as follows: (If no

such privilege, so state)

Full prepayment privileges, interest to cease on amounts

prepaid; but prepayment shall not excuse subsequent

monthly payments.

On July 9, 1973, Kitchen Krafters exercised this option and

made the prepayment. Although the payment was made beyond the July

1 deadline contained in the escrow agreement, the parties executed

a waiver and authorized the Bank to accept the payment which was

applied to the contract principal. The Bank did not apply this

payment to Schellts note secured by the trust indenture, however.

Instead the $5,000 was given to Schell who never applied the money

to his debt. Kitchen Krafters was never advised that this payment

was not applied to Schellts note.

As a result of the prepayment, the Bank sent Kitchen Krafters

a revised amortization schedule which shortened the number of

monthly payments from 180 to 125. The amount due monthly remained

the same. Schellls repayment schedule under his trust indenture

remained the same. As a result, Kitchen Krafters was amortizing

its contract for deed at a much faster rate than Schellls debt on

his trust indenture.

Finally, in either 1980 or 1981, the president of the Bank

called Kitchen Krafters and notified them that because the

prepayment had not been applied to Schellls trust indenture, the

property would not be fully released until that underlying

obligation was paid. Kitchen Krafters then contacted Schell who

confirmed that he had not applied the prepayment to the Bank's

note. He also stated that he was financially unable to meet the

obligation. In 1982 Schell filed a petition in bankruptcy that was

subsequently dismissed by the bankruptcy court.

Subsequently, Kitchen Krafters, experienced a number of

setbacks. In September of 1981 Wirtz, who managed the sales and

business end of itche en Krafters, quit and went into direct

competition. Kitchen Krafters continued to meet its obligations

under the contract for deed. On December 23, 1982, Kitchen

Krafters attempted to pay the Bank, as escrow, the balance due on

the contract. This final payment was contingent upon a demand made

by Kitchen Krafters that the trust indenture be released. Under

this condition the Bank refused to accept the payment and the trust

indenture was not released.

r

Kitchen Krafters filed suit against the Bank on February 8,

1983 seeking damages for breach of the covenant of good faith and

fair dealing, constructive fraud, failure to disclose and negligent

misrepresentation. Both parties amended their pleadings on March

18, 1985. On April 4, 1985, the Bank filed a revised amended

answer, counterclaim and a third-party complaint seeking to

foreclose the trust indenture.

Trial commenced on June 20, 1988. The Bank's motion for

summary judgment, based upon the statute of limitations defense,

was denied as was its motion for a directed verdict. On June 28,

1988, the jury returned a verdict in favor of Kitchen Krafters for

$285,000. The District Court entered judgment accordingly and this

appeal followed.

I

The Bank maintains that each of Kitchen Krafters claims are

barred by the statute of limitations. As stated earlier, Kitchen

Krafters brought its lawsuit, which is based in tort, alleging four

causes of action -- breach of the covenant of good faith and fair

dealing, constructive fraud, negligent misrepresentation and breach

of a duty to disclose. We hold that there is not substantial

evidence to support the allegation of constructive fraud and

negligent misrepresentation. This holding will be discussed in

greater detail later in this opinion. However, as a result of this

conclusion we will only analyze the statute of limitations issue

in regard to the remaining two causes.

Each side presents differing theories on how the statute of

limitations should be applied. The Bank relies upon the discovery

doctrine to argue that itche en Kraftersl claims are barred.

According to this theory, the applicable statute of limitations

begins to run once the plaintiff knew or should have known that a

cause of action exists. ~ccordingto the Bank, a dispute exists

as to when Kitchen Krafters discovered the discrepancy between the

amortization on the trust indenture and the contract for deed.

The Bank maintains that it notified Kitchen Krafters of the

discrepancy in January of 1980. Kitchen Krafters, on the other

hand, maintains that it was notified a year later, in January of

1981.

The dispute, it is argued, should have been submitted to the

jury. If the 1980 date is determined to be the date of discovery

then all of Kitchen Krafterst claims would be time barred. The

allegations of breach of the implied covenant of good faith and

fair dealing and the duty of disclosure are both general tort

claims which are subject to a three year limitation. See 5 27-2-

204 (I), MCA; Tynes v. Bankers Life Co. (1986), 224 Mont. 350, 730

P.2d 1115. Therefore, using the Bank's analysis, because Kitchen

Kraftersl claims were not brought until February of 1983, each of

its claims would be barred if the 1980 date of discovery is

accepted.

Kitchen Krafters, for its part, argues that the discovery

doctrine is inapplicable to the case. Instead, theymaintain that

their cause of action was brought as soon as they could validly

assert their claim. According to their argument, they could not

bring a lawsuit until their cause of action fully accrued. In

order for the cause of action to accrue, they must have sustained

an injury. They did not sustain an injury until Eastside refused

to release the trust indenture. This refusal occurred in December

of 1982, and Kitchen Krafters filed its lawsuit in February of

1983. Therefore, they filed their cause of action well within the

statute of limitations.

We agree with Kitchen Krafters' argument insofar as it is

applied to the claim of breach of the duty to disclose. However,

we disagree with this argument as applied to the bad faith claim.

Section 27-2-102, MCA, states:

(1) For purposes of statues relating to the time within

which an action must be commenced:

(a) a claim or cause of action accrues when all

elements of the claim or cause exist or have occurred,

the right to maintain an action on the claim or cause is

complete and a court or other agency is authorized to

accept jurisdiction of the action.

(2) Unless otherwise provided by statute, the period of

limitation begins when the claim or cause of action accrues.

Lack of knowledge of the claim of cause of action, or its

accrual, by the party to whom it has accrued does not

postpone the beginning of the period of limitation.

As the language of this statute makes clear, the statute of

limitations does not begin to run until all elements of a cause of

action are in existence. For example, in a negligence action the

plaintiff must prove four elements:

1) Existence of a duty

2) Breach of the duty

3) Causation

4) Damages.

Thornock v. State, 229 Mont. 67, 745 P.2d 324 (1987). If these

elements are not in existence, the plaintiff could not successfully

bring a cause of action based upon negligence. Therefore, although

one may be able to establish the existence and breach of a duty,

he cannot successfully assert his cause of action until he has

sustained an injury, Heckaman v. Northern Pacific Railroad (1933),

93 Mont. 363, 20 P.2d 258.

Kitchen Krafters' claim based upon breach of the duty to

disclose is based upon the fiduciary relationship between it and

the Bank created by the escrow agreement. As an escrow agent, the

Bank owed a fiduciary duty to Kitchen Krafters. 3 C.J.S. Agency

5 271. This relationship conferred upon Eastside the duty to make

full disclosure of all material facts relevant to the agency. 3

Am.Jur.2dI Agency 5 211. Kitchen Krafters maintains that under

this duty the Bank should have notified them of the problems

surrounding the financial arrangement.

Successful assertion of a cause based upon a breach of a

fiduciary duty, like a negligence action requires the plaintiff to

prove that he has suffered an injury. 3 Am.Jur.2d, Agency 5 337.

No injury occurred until the Bank refused to release the trust

indenture. Therefore, Kitchen Kraftersl cause of action based upon

nondisclosure did not accrue until that time. Kitchen Krafters'

claim was filed less than three months following this refusal. It

was filed within the applicable statute of limitations.

Kitchen Krafters argues that the cause of action alleging the

tort of breach of the implied covenant of good faith and fair

dealing is not barred. Similar to the cause of action described

above, it bases this argument on the fact that it did not sustain

an injury until Eastside refused to release the trust indenture.

Assuming there is a cause of action, we disagree with this

argument. Kitchen Krafters theorizes that the breach of the

implied covenant occurred when the Bank failed to properly apply

the $5,000 prepayment to Schellgs trust and when it subsequently

failed to disclose this misapplication. Using this theory, it is

apparent that the claim of bad faith flowed directly from the

Bank's purported breach of contract. Therefore it is necessary to

determine when Kitchen Krafters had a right to maintain an action

for breach of the escrow agreement.

A breach of contract is a legal wrong independent of actual

damage. A failure to show actual damages and the resulting

inference that none were sustained does not defeat the cause of

action. Sutherland on Damages Vol. I B 11 (3rd Edition 1903). An

action for breach of contract, then does not require that the

plaintiff sustain any damages. Jacobs Sultan Co. v. Union

Mercantile Co. (1895), 17 Mont. 61, 42 P. 109. In light of these

principles, it has long been recognized that the statute of

limitations runs from the time of the breach and not from the time

of injury, or in the absence of fraudulent concealment, from the

time of discovery. Williston on Contracts at B 2025C.

The alleged breach of contract, in this case, occurred in

1973, when the Bank purportedly misapplied the $5,000 prepayment.

The statute of limitations began to run at this time. Since the

tort of bad faith arose (for the purpose of this discussion we are

assuming that the establishment of the tort of the implied covenant

of good faith and fair dealing is retroactive to this time period)

directly from the terms of the escrow contract, the statute

applicable to it began running at the same time the alleged breach

of the escrow agreement occurred. We base this conclusion on

reasoning of the Supreme Court of Illinois which has held that when

a tort arises directly out of a contractual relationship, the

statute of limitations commences to run at the time the contract

is breached. Stevens v. Obryant (Ill. 1979), 392 N.E.2d 935; West

American Ins. Co. v. Sal E. Lobiance & Son Co. Inc. (Ill. 1977),

370 N.E.2d 804. Two reasons are given for this rule:

First, the breach itself is actionable and it encourages

the party to act within [the period of limitations] of

an actionable breach rather than to delay until damages

increase. The rule also recognizes that plaintiff has

chosen to deal with the defendant and that a contract may

be stated in terms to minimize losses from defective

performance .

Aetna Life and Casualty Co. v. Sal E. Lobiance & Son Co. Inc. (Ill.

1976), 357 N.E.2d 621, 624. This rule is in keeping with the

general principles of contract law and the theories behind the

covenant of good faith and fair dealing, which is an implied

provision contained within certain contracts. If the statute of

limitations begins to run at the time of breach of an express

contractual term, then for the sake of consistency, we hold that

this same general rule should apply equally to implied covenants.

The tort of bad faith is subject to a three year statute.

9

Tynes v. Bankers Life Co. (1986), 224 Mont. 350, 730 P.2d 1115.

As stated earlier, Kitchen Krafters did not file its case until

1983. The cause of action alleging bad faith is, therefore,

barred.

We must next determine whether Kitchen Krafters' claims are

supported by substantial evidence. We will not reverse the

findings of a jury unless they are not supported by substantial

evidence. Green v. Wolff (1962), 372 P.2d 140, 427 Mont. 413.

Substantial evidence is defined as that evidence that a reasonable

mind might accept as adequate to support a conclusion. Although

it may be based upon weak and conflicting evidence, in order to

rise to the level of substantial evidence it must be greater than

trifling or frivolous. Christensen v. Britton (Mont. 1989), -

P.2d -, 46 St.Rep. 2223. In short, where a verdict is based upon

substantial evidence which from any point of view could have been

accepted by the jury as credible, it is binding upon this Court

although it may appear inherently weak. Batchoff v. Craney (1946),

119 Mont. 157, 172 P.2d 308.

Four theories of recovery were submitted to the jury--breach

of the covenant of good faith and fair dealing, constructive fraud,

negligent misrepresentation, and breach of the duty to disclose.

We have found that the bad faith claim is barred by the statute of

limitations. Therefore, we need only consider the remaining three

theories relative to substantial evidence. We begin our analysis

with the constructive fraud claim.

In order to sustain a claim of constructive fraud, Kitchen

Krafters must present substantial evidence to prove that the Bank

committed a "breach of duty which without fraudulent intent gains

an advantage to the person in fault or anyone claiming under him

by misleading another to his prejudice or to the prejudice of

anyone claiming under him." Section 28-2-406, MCA.

There is no evidence presented by Kitchen Krafters supporting

the conclusion that the Bank's actions resulted in any advantage

to "it or anyone claiming under it." The claims against the Bank

are based upon the allegation that it wrongfully gave Kitchen

Krafter $5,000 prepayment to Schell rather than applying it to the

trust indenture. The Bank incurred no advantage through this act.

Any benefit was gained by Schell, who was merely a party to the

escrow. He could not be regarded as one I1claimingunder" the Bank.

We therefore hold that the jurylsdetermination that Eastside was

liable for constructive fraud is not supported by substantial

evidence, there being no evidence of an essential element.

The third theory submitted to the jury was negligent

misrepresentation. Kitchen Krafters argues that the Bank was

negligent when it led them to believe that all payments made into

escrow would be applied to the underlying trust indenture. We

disagree.

In State Bank of Townsend v. Maryannls Inc. (1983), 204 Mont.

21, 664 P.2d 295, we adopted the definition of negligent misrepre-

sentation as provided in Restatement (Second) of Torts 5 552.

Proof of negligent misrepresentation requires the plaintiff

establish that:

a) the defendant made a representation as to a past or

existinq material fact;

b) the representation must have been untrue;

c) regardless of its actual belief, the defendant must have

made the representations without any reasonable ground for

believing it to be true;

d) the representation must have been made with the intent to

induce the plaintiff to rely on it;

e) the plaintiff must have been unaware of the falsity of the

representation; it must have acted in reliance upon the truth of

the representation and it must have been justified in relying upon

the representation;

f) the plaintiff, as a result of its reliance, must sustain

damage.

As the first element indicates, the false representation must

relate to a fact already in existence. This did not occur in this

case. The evidence indicated that the Bank told Kitchen Krafters

that all of its payments would dovetail with those due on the trust

indenture. This evidence does not indicate that the Bank

misrepresented any existing facts. This statement only became in

possible error when the Bank later allegedly failed to properly

apply the $5,000 prepayment. Kitchen Krafters cannot, therefore,

successfully assert a cause of action based upon negligent

misrepresentation because it fails to establish the first element.

Accordingly, the jury's findings on this issue are not supported

by substantial evidence.

The final issue submitted to the jury required it to determine

whether the Bank breached a special duty of disclosure. For

guidance on this issue, we refer to 9 551 of the Restatement

(Second) of Torts which states:

9 551. Liability for Nondisclosure

(1) One who fails to disclose to another a fact that he

knows may justifiably induce the other to act or refrain

from acting in a business transaction is subject to the

same liability to the other as though he had represented

the nonexistence of the matter that he has failed to

disclose, if, but only if, he is under a duty to the

other to exercise reasonable care to disclose the matter

in question.

The elements contained in this section are met by the facts

of this case. As an escrow, the Bank was an agent who owed a

fiduciary duty to both Kitchen Krafters and Schell in all matters

affecting the escrow relationship. First Fidelity Bank v. Matthews

(1984), 214 Mont. 323, 692 P.2d 1255. Furthermore in its capacity

as an agent, the Bank had a duty to make full disclosure to its

principals of all material facts relevant to the agency. 3

Am.Jur.2d Agency 5 211. The evidence submitted supports the

contention that this duty was breached.

The Bank possessed the amortization schedules for the contract

for deed and the trust indenture. The jury could find that based

upon this knowledge and its fiduciary duty, it should have

disclosed the payment discrepancy to Kitchen Krafters in a timely

matter. Also a finding could be had that through the Bank's

failure to disclose this information, Kitchen Krafters was induced

to rely upon the representation that the trust indenture was being

amortized at the same rate as the contract for deed. By the time

the Bank finally disclosed this payment discrepancy, it was too

late for Kitchen Krafters to do anything to remedy the situation

because Schell was insolvent and had filed for bankruptcy. We hold

there is substantial evidence to support a verdict rendered against

the Bank in this cause.

I11

The Bank argues that the District Court erred in its

instructions to the jury on causation. The Bank is contending the

lower court erred by instructing on the substantial factor test and

failed to instruct on proximate cause. We agree that the lower

court erred in failing to instruct on proximate cause.

The legal principles surrounding the element of causation have

been set forth in Young v. Flathead County (Mont. 1988), 757 P.2d

772, 45 St.Rep. 1047. This case succinctly sets forth the law on

this subject as it has been developed in Montana. Therefore, we

review the legal principles set forth in Younq.

In determining whether a defendant's breach of duty caused a

plaintiff's injury, one must conduct a two-tiered analysis. First,

one must determine whether the defendant's actions were the cause-

in-fact of the plaintiff's damages. Causation in fact can be

established in one of two ways. Normally, the l'but-forll

test is

used. Under the "but-for" test, causation in fact is established

simply by proving that the plaintiff's injury .would not have

occurred Itbut for" the defendant's illegal conduct. Young, 757

P.2d at 777. Stated differently, the defendant's conduct is a

cause of an event if the event would not have occurred but for that

conduct; conversely, the defendant's conduct is not a cause of the

event if the event would have occurred without it. Prosser and

Keeton on Torts (5th Edition) 3 41.

The "but foru rule serves to explain the great majority of

cases. However, there is one type of situation in which it fails.

If two causes concur to bring about an event, and either one of

them, alone, would have been sufficient to cause the identical

result, some other test is needed. In response to this problem,

the courts have developed the "substantial factor test." Younq,

757 P.2d at 777.

The substantial factor test originated in the Minnesota case

of Anderson v. Minneapolis, St. Paul & Sault Ste. Marie Ry. Co.

(Minn. 1920), 179 N.W. 45. In this case, the defendant negligently

started a fire which combined with other fires of unknown origin

and destroyed the plaintiff Is property. Each of the fires, by

itself, had the ability to destroy the property.

In this type of situation, the "but for1'test was impossible

to satisfy because, as previously stated, any of the fires, acting

alone, could have destroyed the plaintiff's property. The court,

however, refused to absolve the defendant of liability on the

ground that the identical harm would have occurred without his

negligent act. Such a result would prevent the plaintiff from

realizing any recovery. Therefore, the courts have uniformly held

that a defendant's conduct is a cause of an event if it was a

material element and a substantial factor in bringing it about.

Prosser and Keeton on Torts (5th Edition) 4 In short, this

rule dictates that a defendant will not be absolved from liability

simply because the conduct of one or more others would have been

sufficient to produce the same result. If his actions are a

substantial factor in causing the plaintiff 's injury, the defendant

will be held liable.

As the above discussion demonstrates, cause-in-fact is

determined in one of two ways--either through the "but forn test

or the "substantial factor1'test. Once either one of these tests

is satisfied, the plaintiff has established that the defendant's

conduct was the cause in fact of his injury. It is now incumbent

upon him to move to the second tier of the causation analysis and

prove that the defendant's conduct proximately caused his damages.

The laws of physics and Sir Isaac Newton tell us that there

are causes and effects which continue into eternity. Therefore,

in both a philosophical and a real sense, the consequences of a

wrongful act can extend in time for years--perhaps beyond the

defendant's lifetime. For this reason, the courts have found that

sole reliance upon cause-in-fact analysis is undesirable. At some

point within the chain of causation, the law must intervene and

absolve the defendant from liability. Thelen v. City of Billings

(Mont. 1989), 776 P.2d 520, 46 St.Rep. 1108. It was this policy

consideration which led to the development of llproximatell

or

"legal11

cause.

Proximate cause is normally analyzed in terms of

foreseeability. Simply stated, one is only liable for consequences

which are considered to be reasonably foreseeable. Prosser and

Keeton at 5 43. If the consequences of one's wrongful act are not

reasonably foreseeable, then it follows that it was not proximately

caused by that act. Using this analysis, one must look forward

through the chain of causation in order to determine whether the

events which occurred were foreseeable. If they were, the element

of proximate cause is satisfied and liability will attach. Prosser

and Keeton, at § 43.

We must now apply this causation analysis to this case in

order to determine whether the District Courtls instructions to the

jury were proper. The jury was instructed on causation as follows:

Instruction No. 13.

A legal cause of the damage is a cause which is a

substantial factor in bringing it about.

Instruction No. 14.

The defendant's conduct is a cause of the damage if

it helped produce it and if the damage would not have

occurred without it.

Instruction No. 13, although improperly worded, was correctly

given. It is improperly worded due to the fact that the adjective

I1legall1 used before the word llcause.ll

is Legal cause is synonymous

with proximate cause. Young v. Flathead County (Mont. 1988), 757

P.2d 772, 45 St.Rep. 1047. This instruction is an instruction on

the substantial factor test which is part of causation-in-fact, not

proximate cause. Therefore, the word legal should be removed in

order to prevent confusion between proximate cause and cause-in-

fact.

The facts of this case require that the court instruct the

jury on whether the Bank's conduct was a substantial factor in

bringing about Kitchen Krafters' damages. Kitchen Krafters alleged

that the Bank's failure to properly apply the $5,000 payment caused

it to sustain monetary damages through the loss of its business.

The Bank, in reply, has argued that this misapplication did not

cause Kitchen Krafters damages. It argues that Kitchen Krafters'

loss of business was caused instead by outside factors such as a

poor economy.

Kitchen Krafters acknowledges that the poor economy may have

contributed to its demise. However, it steadfastly maintains that

the Bank's conduct combined with these outside influences and as

a result was a substantial factor in bringing about its injuries.

On remand the jury should be presented with a substantial factor

instruction in order to determine whether the results of the Bank's

conduct concurred with other events to cause Kitchen Krafters'

collapse.

Instruction No. 14 is nothing more than a recitation of the

"but forvt

test. The jury had already been instructed on causation-

in-fact through the substantial factor instruction. Therefore,

Instruction No. 14 was superfluous. Moreover, this instruction

cannot take the place of an instruction on proximate cause. In

order to be properly instructed on proximate cause, the jury must

be directed to look forward, through the chain of causation, and

to determine whether events which occurred subsequent to Eastside's

wrongful act were foreseeable. A proper instruction on proximate

cause should be worded as follows:

In order for the defendants negligence (failure to

disclose) to be the proximate cause of the plaintiff's

injury, it must appear from the facts and circumstances

surrounding the accident [the nondisclosure] that the

defendant as an ordinarily prudent person, could have

foreseen that the plaintiff Is injury would be the natural

and probable consequence of the wrongful act.

Kitchen Krafters maintains that the Bank's actions caused the

break up of the corporation. According to their argument, Wirtz

left the corporation as a direct result of Eastside's failure to

release the Schell trust indenture. This may be true. However,

this occurrence may or may not have been a reasonably foreseeable

consequence of the Bank's actions. If this event was foreseeable,

the Bank could be liable for the damages sustained as a result of

his departure. If it was not foreseeable, then this consequence

should be regarded as a superseding intervening event which breaks

the chain of causation as to any damages as a result of his

leaving. In this circumstance the Bank cannot be held liable for

damages resulting from Wirtz's departure.

Due to the failure to instruct the jury on causation, this

case is reversed and remanded for a new trial. Kitchen Krafters

is entitled to assert, as a cause of action, breach of the duty to

disclose. Reversed and remanded with instructions to conduct

proceedings consistent with this opinion.

We Concur:

'

"~hidfJustice

, I, Justices

~ i g t r i c t~ u d s e h o m a sA. Olson

~

sitting for Justice Fred J. Weber

No. 88-518

KITCHEN KRAFTERS, INC.,

Plaintiff and Respondent,

EASTSIDE BANK OF MONTANA,

Defendant, Counterclaimant -d

and ~ ~ ~ e l i a n t , 1 r.l. P

C-',O

,

, PD

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E R

1 C w

EASTSIDE BANK OF MONTANA,

Third Part Plaintiff,

ROBERT W. SCHELL; MARY ANN CLARY, formerly

MARY ANN SCHELL, former wife of ROBERT W.

SCHELL; STATE OF MONTANA, EMPLOYMENT SECURITY

DIVISION, DEPARTMENT OF LABOR & INDUSTRY, et al.,

Third Party Defendants.

IT IS ORDERED that the last sentence of the second complete '

paragraph on page 8 of our opinion, dated March 20, 1990 be revised

to read as follows:

In light of these principles, it has long been recognized

that the statute of limitations runs from the time of the

breach and not from the time of injury, or in the case

of fraudulent concealment, from the time of discovery.

IT IS FURTHER ORDERED that the petition for rehearing is

denied.

DATED this 24' day of April, 1990.

Justices