Contracts Week 8 Day 4 PDF

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Contracts Week 8 Day 4 IMPLIED DUTY OF GOOD FAITH AND FAIR DEALING 

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Every contract has implied duty of good faith and fair dealings in its performance and enforcement o Parties cannot disclaim it, even as part of contract Duty is invoked most often o When one party acts in a way that appears to deprive the other of its legitimate expectations under the contract o When one party exercises discretion that is allocated to it by the contract in an arbitrary or exploitative way In a case involving D’s discretion on making decisions, they must use their discretion in good faith or else the court will likely find for P o D cannot ignore a factor that should inform it’s discretion. Consider Dalton, where P provided much evidence that he wasn’t cheating on the SAT, but D said it would not consider his evidence. This is not good faith o Exercise of discretion that seems inappropriate—is it inappropriate bc bad faith? o Proof of “bad motive or intention” is vital to an action for breach of the covenant Good faith is partly determined by what the parties reasonably expected to get under the contract Even in an at-will employment contract, the employer has a duty of good faith and cannot fire the employee for opportunistic reasons Dalton v. Educational Testing Service (1995)

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P is suspected of having someone else complete his SAT, but he provides much evidence contradicting this assertion. D was required by the contract to simply state that the validity of the score was questioned o Since they were more specific, saying they suspected impersonation, they had to consider his evidence in good faith and fair dealing Where D refuses to exercise its discretion in the first instance by declining even to consider relevant material submitted by the test-taker, the legal question is whether this refusal breached an express or implied term of the contract, not whether it was arbitrary or irrational Court says D did not consider the relevant info and therefore did not act in good faith o Therefore it breached contract with P Eastern Air Lines, Inc. v. Gulf Oil Corp (1975)

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Pricing schedule for this contract was tied to price index regulated by government. When price controls made the contract substantially less profitable for D than anticipated, D wanted to back out https://www.quimbee.com/cases/eastern-air-lines-inc-v-gulf-oil-corp Carmichael v. Adirondack Bottled Gas Corp. (1993)

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https://www.quimbee.com/cases/carmichael-v-adirondack-bottled-gas-corp Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center Associates (2005)

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P is lessor of D and operates a tennis club; agreement provided for 25-year term Option for P to purchase the leased property or entering into 99-year lease; P must pay $150k in full up front and notify D before 6 months before the end of the contract; otherwise option lost P tried several times to notify D of intent to purchase, but D never responded; P never paid the $150k Trial court finds that P did not properly exercise its option because it failed to tender the $150k payment; also said that D had no duty to inform P that P failed to correctly exercise the option Appellate division affirms bc P did not act in “strict accordance” w/ contract; also that P’s attempt to tender payment after deadline was not satisfactory. Lease terms provided P no right to cure mistake o Bc D had to duty to inform P of mistake court says D did not breach good faith o bc parties are sophisticated businesses, court will not write more favorable contract than what P had signed P claims D breached duty to act in good faith o Proof of “bad motive or intention” is vital to an action for breach of the covenant P mistakenly believed payment was not due until time of closing Court says D violated good faith; P tried repeatedly to exercise its option, and it was clear to D that P was convinced it had done so effectively; D never requested payment o D admitted in court that it did not want payment because the option was not in D’s economic interest—did not want P to exercise the option o D argues its silence is not tantamount to a delaying tactic or affirmative misrepresentation, which would breach good faith P entitled to specific performance; reverse appellate division, remand to trial court for proceedings consistent w/ this opinion Jordan v. Duff & Phelps, Inc. (1987)

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P is D’s employee and owns stocks which P bought at book value. Employment contract says that, upon P’s termination, he has to sell the stocks back to D at the adjusted book value (current book value) of the preceding December 31st Unbeknownst to P, D was working on a merger where the company would be valued at much more than it currently was; has the effect of raising stock price P found another job and told chairman of the board he was planning on resigning. P did not ask for info about the company or about potential mergers; and D did not offer such info. P resigned o He worked until the end of the year per mutual agreement so he could have his stocks valued according to a more recent date P learns about the merger that took place just a few days after he resigned and then refused to cash his check, demanding his stock back; D refuses, so P sues for damages measured by value of his stock if he had stayed just a few more days The timing of the sale and materiality of the merger information are for the jury to determine Reversed & remanded Dissent o Failure to disclose material info prior to consummation of transaction is fraud only if one has a duty to disclose

Contracts Week 8 Day 4 Bc of their contract, did D have a duty to inform any stockholding employee contemplating resignation about this material information? It doesn’t make sense to say that D had a duty to inform P of the impending merger: bc he was at will D could have simply fired P (of simply refused to let him withdraw resignation)—D could even have informed him of the merger and then immediately fired him (presumably not in bad faith)  If P had greater stock rights, he would have had a lower salary—makes sense bc D can only afford to pay P so much, whatever the “pay” may be Court says firing him is not necessarily bad faith; court says argument can be made that P is indeed the opportunist bc he wants to stick around just for a larger pay out D had no duty to inform P of impending merger 

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