Opinion ID: 1746712
Heading Depth: 2
Heading Rank: 1

Heading: whether a party to an agreement can act in bad faith if she is exercising a clear contractual right to terminate the agreement.

Text: ¶ 10. In reviewing judgments of the chancery court, [w]e will not disturb the findings of a chancellor when supported by substantial evidence unless the chancellor abused his discretion, applied an erroneous legal standard, was manifestly wrong, or was clearly erroneous. Hamilton v. Hopkins, 834 So.2d 695, 699 (Miss.2003) (citing Cox v. F-S Prestress, Inc., 797 So.2d 839, 843 (Miss.2001); Holloman v. Holloman, 691 So.2d 897, 898 (Miss.1996)). On the other hand, the proper standard of review for issues of contract construction are questions of law that are reviewed de novo. Dixie South Indus. Coating, Inc. v. Miss. Power Co., 872 So.2d 769, 772 (Miss.Ct.App.2004) (citing City of Grenada v. Whitten Aviation, Inc., 755 So.2d 1208, 1214 (Miss.Ct.App.1999)). ¶ 11. All contracts contain an implied covenant of good faith and fair dealing in performance and enforcement. Morris v. Macione, 546 So.2d 969, 971 (Miss.1989). Good faith has been defined as the faithfulness of an agreed purpose between two parties, a purpose which is consistent with justified expectations of the other party. Cenac v. Murry, 609 So.2d 1257, 1272 (Miss.1992). Bad faith has been defined by this Court as requiring a showing of more than bad judgment or negligence; rather, `bad faith' implies some conscious wrongdoing `because of dishonest purpose or moral obliquity.' Univ. of S. Miss. v. Williams, 891 So.2d 160, 170-71 (Miss.2004) (quoting Bailey v. Bailey, 724 So.2d 335, 338 (Miss.1998)). ¶ 12. The Appellants claim that Dr. Limbert cannot have acted in bad faith because she exercised a clear contractual right pursuant to Section 7.2 of the affiliation agreement to terminate the agreement upon sixty days' written notice. The Association contends that Dr. Limbert exercised this termination provision in a manner that violates the inherent covenant of good faith and fair dealing contained therein, thus acting in bad faith. However, the Association offers nothing in the way of evidence of bad faith other than Dr. Limbert's termination of the agreement and the decision to affiliate with another alumni entity. The chancery court based its finding of bad faith on the fact that Dr. Limbert's termination of the agreement was a result of Dr. Limbert's refusal to approve the bylaws that were submitted by the Association because those bylaws did not contain Dr. Limbert's desired procedures for nominating Association officers. Pursuant to Section 5.2 of the affiliation agreement, [5] Dr. Limbert reserved the right for the University Alumni Director to appoint four members of the nominating committee. ¶ 13. In interpreting the terms of a contract, this Court has stated the first step is to apply the `four corners' test, and in doing so the court looks to the plain language of the parties used to express their agreement. Royer Homes of Miss., Inc. v. Chandeleur Homes, Inc., 857 So.2d 748, 752 (Miss.2003) (citing Pursue Energy Corp. v. Perkins, 558 So.2d 349, 352 (Miss. 1990); Pfisterer v. Noble, 320 So.2d 383, 384 (Miss.1975)). Our concern is not nearly so much with what the parties may have intended, but with what they said, since the words employed are by far the best resource for ascertaining the intent and assigning meaning with fairness and accuracy. Id. (citing Simmons v. Bank of Miss., 593 So.2d 40, 42-43 (Miss.1992)). The Association does not argue the termination clause was invalid, or that the affiliation agreement was an invalid contract, or that the contract was signed as a result of duress. To the contrary, both parties negotiated this agreement at arms' length, represented by counsel, and with full knowledge that the agreement provided for termination without cause upon sixty days' notice, as well as approval by Dr. Limbert of the nomination process in the Association's constitution and bylaws. ¶ 14. Article 7, Section 7.2 of the affiliation agreement states in its entirety that [t]his Agreement may be terminated by either party upon at least 60 days written notice. [6] In looking to the clear, unambiguous language of the termination clause, the inescapable conclusion is that Dr. Limbert was exercising her contractual right to terminate the affiliation agreement upon sixty days' notice. This Court has held that a party has not breached the implied covenant of good faith and fair dealing when the party took only those actions which were duly authorized by the contract. GMAC v. Baymon, 732 So.2d 262, 269 (Miss.1999). Thus under the rule promulgated in Baymon, Dr. Limbert could not have acted in bad faith when she exercised a contractual right. By ordering Dr. Limbert to uphold the agreement, the chancellor essentially rewrote the agreement, excluding the termination clause. In doing so, the learned chancellor unfortunately failed to apply the unambiguous language of the contract and, as a result, committed reversible error.