Every contractor is obligated to give a good faith effort towards every provision in a contract. Good faith “means honesty in fact and the observance of reasonable commercial standards of fair dealing.” UCC § 1-201(b)(20).
Seidenberg v. Summit Bank
791 A.2d 1068 (N.J. 2002).
Seidenberg’s complaint was dismissed during pleadings and they appealed.
Question
Did the trial court error for dismissing the
Rule
“Neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.”
Holding
The trial court looked at this too narrowly. Reversed and Remanded.
Facts
Seidenbery and Raymond sell insurance plans to employers. They sold the firms to the bank for stock but maintained their ownership. However, the relationship did not go well and the bank ended up resolving the responsibilities of Seidenbery and Raymond.
Seidenbery and Raymond sued saying that the relationships faltered because of the bad faith of the bank.
Analysis
Good faith is that neither party will do anything that destroys or injures the right of the party to receive the fruits of the contract.
Several factors could show that good faith was lacking.
- Bargaining powers
- expectations of the parties
- bad faith or outright dishonesty
Additionally the parol evidence rule should not apply to restrict evidence of good faith.
Additional Notes
UCC 1-201(b)(20) says that all contracts need to be done in good faith. The court here says that there are several factors that could influence if a contract was done with bad faith. The trial court only looked at the bargaining powers, but the other factors are essential to know as well.
If an express term hasn’t been breached, bad faith could still render that term unenforceable.
Good faith and fair dealing means that you need to go into the agreement understanding that the other party expects you to perform with their best interest in mind.
Requirement and Output contracts
A Requirement Contract is “everything you buy, I will produce.” when one party agrees that it will
An Output Contract is “everything you produce, I will buy.” One party agrees that it will buy all of the other parties goods at a contract price. One of the issues here is that if party A produces a vastly more amount normal, party B would be required to purchase the goods.
UCC 2-306(1) Good faith requirements keep parties from taking advantage of the terms of the agreement to harm the other party. In other words, good faith means that the parties guard against any negative surprises.
Actual output means, “how much do you actually need.” The UCC also says that the buyer can put in estimates.
UCC 2-306(2) Best efforts.
Morin Building Products Co. v. Baystone Construction Inc.
717 F.2d 413 (7th Cir. 1983).
Morin won and Baystone appealed.
Question
Was the jury instruction correct about owner job satisfaction as a reasonable person.?
Rule
For things of aesthetic appeal, job satisfaction can be subjective for the buyer. However, when the product is for function, job satisfaction must be objective.
Holding
Ambiguous terms so instruction was correct. Affirmed.
Facts
General Motors hired Baystone to build an extension on their production factory. Baystone hired Morin to do the siding. The siding was subject to the approval of the buyer. When the buyer disapproved, the siding was torn down and a new contractor was hired (whose siding was approved. Baystone failed to pay Morin due to the buyer dissatisfaction and Morin sued for the cost.
Analysis
If the contract said that the siding was for aesthetic appeal, then it would have been subjective as long as there was good faith. Otherwise, it would be objective. the contract was ambiguous and as a result, the objective standard should apply.
Additional Notes
The court says that this needs to have an objective standard. Meaning, even though GM was dissatisfied, they should have been satisfied considering an objective standard.
Restatement 228 – the objective standard is preferred. The purpose of this is not to protect the weaker party but simply to match up expectations.
If this was a matter of aesthetics, then the person has to act in good faith. If it is about commercial use, then it is a reasonable person. The issue here is that this is a satisfaction clause was buried in standard forms. As a result, the contract was ambiguous because the placement of terms was confusing.
It is likely that the rejection was done in bad faith, trying to save a bit of money.
Locke v. Warner Bros., Inc.
66 Cal. Rptr. 2d 921 (App. 1997).
Plaintiff is Locke who lost and appealed.
Question
Did Warner Bros. break the deal by refusing to work with Locke and did Warner fraudulently enter into the agreement without any intent to work with Locke?
Rule
“Honest dissatisfaction.” The party whose approval is required must disapprove with honest dissatisfaction. In other words, in subjective and creative dealings, the disapproval must be made in good faith, not bad faith.
Holding
Both questions should be heard by a jury. Reversed and Remanded.
Facts
Locke and Clint Eastwood developed a romantic relationship. However, over time that relationship deteriorated and Locke sued Eastwood. Warner Bros stepped in and formed a development contract with Locke so she would drop the lawsuit against Eastwood.
The development contract had two provisions. First, it would consider any of the films Locke submitted and inform her of a decision to work on the film within 30 days of submission. Second, if they chose to develop any of those films, Warner could choose to either use Locke as the director or pay Locke a director fee (if they chose another director).
Thus, the issue arises. The contract was signed and Warner considered all the submissions but rejected all of them. As a result, Locke claimed that the contract was made only to solve the issues with Eastwood and Warner had no intention on working with her. Warner countered by saying that they had no obligation to accept any of the films she proposed and instead was obligated to only consider the films. They argue that the films were not developed for artistic reasons.
Ultimately, the trial court determined that the court could not alter the subjectivity of a creative decision by Warner and dismissed the case.
Analysis
There was triable evidence to suggest that the refusal to accept any project was due to bad faith instead of the merits of the project. This was shown by statements from Warner Bros alleging that Warner would not work with Locke. If Warner would not work with Locke because it was Locke, and not because of the project idea, that would be a violation of the contract. The reason why this is so is because the term only called for Warner’s discretion, and did not provide a right to refuse any proposal at any time.
Because there is a triable issue for the breach due to lack of good faith, then there is also a triable issue of fraud.
Additional Notes
This is a case about good faith and fair dealing. She claims that there was no good faith or fair dealing. How so? Locke wants Warner to seriously consider her idea. Warner says that they did everything as required by the contracts.
The rule of law here is that for creative (artistic) work, a rejection can be subjective as long as it is done with good faith. Stated differently: The defendant gets to make a creative decision without a review by the court, but the decision has to be genuine.
So, this case was remanded to determine if Warner gave a genuine review. Warner could have avoided this if they added a provision that said they reserved the right to reject for any reason. Likewise, they could have said, “good faith means we do…”
Geysen v. Securitas Security Services, USA, Inc.
142 A.3d 227 (Conn. 2016).
Geysen is the plaintiff. He won at trial and Securitas appealed.
Question
Whether the employers failure to pay for commissioned work was a violation of public policy.
Rule
If an employee termination was conducted in bad faith to prevent payment for services performed, that is a violation of fair dealing.
Holding
Refusal of commissions was not a violation of statute, but did violate fair dealings.
Facts
The defendant had hired the plaintiff and offered to pay him invoiced commission for the work he brought to the company. This worked for a couple of years until the company discovered improper employment actions. So, there were some accrued but unpaid commissions (commissions that had not been invoiced yet although the work was completed). Consequently, the defendant refused to pay out the commissioned that were not invoiced prior to the end of employment and the plaintiff sued.
The trial court determined that the company did have a responsibility to pay out the commissions to avoid violating a statute to protect private policy.
Analysis
The law in Conneticut allows the employer to determine when wages from commissions are due. Commissions are not due at the time of the sale if there is an agreement between the employer and employee about the due date. In this case, the commission was due upon invoice to the employer. When the invoice was not made in a timely manner, as was the case here, then there is no violation of public policy.
However, if the employee has done the work to obtain commissions and those commissions were denied due to termination (in an effort to avoid payment), then the employee can state a claim. This is to protect against the bad faith of an employer in an “at-will” contract.
Additional Notes
This case is about an at-will position. This means that either party could terminate the contract at any time for any or no reason, just not a bad reason.
So, the plaintiff here claims that he was fired so that he would not have to be paid for the commissions done, but not yet invoiced.
As a result, the question turns to whether the company acted in bad faith to fire the defendant. This may have been a bad decision by the parties, but it did not violate public policy. Thus, the only remedy is if the action was done on bad faith.
The big takeaway from this case is that we could have an at-will employment but it has to avoid bad faith.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
