Seidenberg v Summit Bank PDF

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Seidenberg v. Summit Bank COURT AND DATE: Superior Court of New Jersey, Appellate Division (2002) PROCEDURAL HISTORY: Trial court: Held That Seidenberg and Raymond were not claiming a breach of the duty of good faith and fair dealing, but were seeking to enforce an oral agreement in violation of the parol evidence rule because it was not contained within the express agreement into which the parties entered. The trial judge also held that, because the parties to the agreement enjoyed equal bargaining power, Summit could not have breached its duty of good faith and fair dealing. ISSUE: Can one introduce parol evidence when claiming that a party breached the duty of good faith and fair dealing?

TRIGGER FACTS: Seidenberg and Raymond (plaintiffs) formed two successful brokerage firms that dealt with insurance benefit plans. The two had worked in the insurance business for several years. They sold their stock to Summit Bank (Summit) (defendant). All parties had the assistance of counsel in reaching the agreement. As part of the agreement to sell, Seidenberg and Raymond remained as executives and were placed in charge of daily operations. The agreement provided that, unless terminated by Summit, Seidenberg and Raymond could expect employment until retirement age. Two years after entering into the agreement, Summit fired Seidenberg and Raymond. Seidenberg and Raymond filed suit. They claimed that Summit ran the brokerage firms poorly, affecting their reasonable expectations of compensation and future involvement in the firms. Seidenberg and Raymond alleged that Summit performed under the contract in bad faith and that their termination was conducted in bad faith. They claim that they “suffered as a result of … Summit’s bad faith” and that Summit’s actions were “wanton and willful and without privilege or right.” Summit filed a motion to dismiss, alleging that Seidenberg and Raymond failed to raise a claim for which relief can be granted. The trial judge granted the motion. The trial judge held that Seidenberg and Raymond were not claiming a breach of the duty of good faith and fair dealing, but were seeking to enforce an oral agreement in violation of the parol evidence rule because it was not contained within the express agreement into which the parties entered. The trial judge also held that, because the parties to the agreement enjoyed equal bargaining power, Summit could not have breached its duty of good faith and fair dealing. Seidenberg and Raymond appealed to the Superior Court of New Jersey.

PLAINTIFF’S MAIN ARGUMENTS: DEFENDANT’S MAIN ARGUMENTS: RULE (the law): One may introduce parol evidence when claiming that a party breached the duty of good faith and fair dealing.

HOLDING + REASONING: Yes. The duty of good faith and fair dealing is implied in all contracts. This duty prohibits either party from doing anything that would destroy or injure the other party’s right to receive the fruits of the contract. When considering whether a party has breached his duty of good faith and fair dealing, whether the parties had equal bargaining power should be considered, but it is not the sole criterion for resolving the claim. The parol evidence rule cannot be applied to prohibit the introduction of evidence that one has breached his duty of good faith and fair dealing. The parol evidence rule prohibits one from introducing parol evidence that contradicts the express terms of the contract. Because the duty of good faith and fair dealing is implied in the contract, it is not an express term. Therefore, one may introduce parol evidence when claiming that a party has breached the implied duty of good faith and fair dealing. There are three distinct circumstances where a party’s breach of good faith and fair dealing are at issue: (1) when a term, not expressly set forth in the contract, must be added because the facts reveal that the parties intended it, (2) when there is concern about a party’s discretion in performing under the contract, and (3) when there is concern that a party may have used a contract term as the pretext for terminating a contract unfairly. A party may introduce parol evidence when one’s duty of good faith and fair dealing are questioned in any one of these three circumstances. Whether a party has breached the duty of good faith and fair dealing depends upon whether the party acted with improper motive. A violation of a “commercially reasonable standard” will demonstrate that a party has acted with improper motive. In the current matter, regarding the parties’ bargaining power, it is clear that both parties were sophisticated and financially strong at the time they entered into the contract. Seidenberg and Raymond stated that they have been in the insurance business for several years and have built two successful brokerage firms. The parties to the agreement were also assisted by competent counsel. However, the bargaining power of the parties is not the determinative factor. Seidenberg’s and Raymond’s case should not have been dismissed on this issue. Regarding the trial judge’s decision regarding the parol evidence rule, it is clear that Seidenberg and Raymond were not seeking to contradict or alter the express terms of the contract. The claim that Summit violated its duty of good faith and fair dealing pertains only to Summit’s performance and termination of the contract. Therefore, Seidenberg and Raymond are permitted to introduce parol evidence on this claim. Seidenberg’s and Raymond’s allegations concern an expectation that the relationship with Summit would last until retirement age. This is an appropriate circumstance for the introduction of parol evidence, because it alleges bad faith in termination of the contract. Seidenberg and Raymond also allege that Summit used insufficient energy in discretionary areas, thus, that there is a concern about Summit’s discretionary performance of the contract. Therefore, Seidenberg and Raymond raise successful claims for which relief can be granted by alleging that Summit breached its duty of good faith and fair dealing in these two particular circumstances. Seidenberg and Raymond additionally allege sufficient facts to show that Summit acted with improper motive. Claiming that they “suffered as a result of … Summit’s bad faith,” and that Summit’s actions were “wanton and willful and without privilege or right” are sufficient allegations of improper motive to raise a claim for which relief can be granted. Accordingly, the trial judge’s dismissal is reversed and the case is remanded for further proceedings....