Opinion ID: 2631724
Heading Depth: 4
Heading Rank: 1

Heading: Implied Duty of Good Faith and Fair Dealing

Text: Under Colorado law, every contract contains an implied duty of good faith and fair dealing. § 4-1-203, C.R.S. (2005); Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995). A violation of the duty of good faith and fair dealing gives rise to a claim for breach of contract. Cary v. United of Omaha Life Ins., 68 P.3d 462, 466 (Colo.2003). The good faith performance doctrine attaches to contracts to effectuate the intentions of the parties or to honor their reasonable expectations. Amoco Oil Co., 908 P.2d at 498. The duty of good faith and fair dealing may be relied upon when the manner of performance under a specific contract term allows for discretion on the part of either party. Id. Discretion in performance occurs when the parties, at formation, defer a decision regarding performance terms of the contract leaving one party with the power to set or control the terms of performance after formation. Id. The Petitioners represent that determining whether to make budgetary appropriations is left to the discretion of Golden's City Council. Chapter XI of the Golden Home Rule Charter invests the City Council with the duty to adopt an annual budget and budgetary appropriations therein. Section 6.1 of the Charter grants Golden's voters the power to propose any ordinance to the City Council, except [those concerning] budget, capital program, appropriation or levy of taxes or salaries of city officers or employees. Public officials given a duty involving discretion may abuse that discretion if they fail to exercise it. See, e.g., Lamm v. Barber, 192 Colo. 511, 517, 565 P.2d 538, 542 (1977); People v. McNichols, 91 Colo. 141, 143, 13 P.2d 266, 267 (1932); Moody v. Larsen, 802 P.2d 1169, 1171-72 (Colo.App.1990), superseded by statute on other grounds, Ch. 131, sec. 12, § 16-5-209, 2000 Colo. Sess. Laws 451, 454, as recognized in Schupper v. Smith, 128 P.3d 323 (Colo.App.2005). When a public officer fails to exercise duty-bound discretion, [c]ourts . . . will direct an officer to proceed and exercise the discretion vested in him by law. McNichols, 91 Colo. at 143, 13 P.2d at 267. Under Colorado law, the City Council could be expected to exercise its budgetary discretion, regardless of whether the manner of that exercise was favorable to the Developers. Each of the Agreements provides that reimbursement for development costs are subject to annual appropriations by the City. The respective Developers chose to locate new businesses or to expand on existing ones in Golden based on contractual assurances that the City Council would exercise its discretion annually in appropriation of city funds for reimbursement of their development expenses. Included in these expenses were public improvements and infrastructure necessary to development, such as construction of sewage lines. Based on the language of the Agreements, Golden's Home Rule City Charter at the time of contracting, and Golden's implied duty of good faith and fair dealing, the Developers had a reasonable expectation that the City Council would exercise its budgetary discretion in determining whether to appropriate funds annually. The court of appeals found that the implied duty of good faith and fair dealing in the performance of a contract could not confer a vested right on the Developers because a vested right has an independent existence and the statutory duty of good faith and fair dealing is a product of the common law. Parker, 119 P.3d at 563. This interpretation of vested contractual rights was in error. The court cited Ficarra for the proposition that a vested right must have an independent existence. Parker, 119 P.3d at 563. However, in Ficarra we also stated that a vested right may originate from a statute or the common law and it is only once it vests that it is no longer dependent for its assertion upon the common law or statute under which it may have been acquired. 849 P.2d at 15. Our analysis in Ficarra in no way indicates that a vested right cannot originate from the common law. Rather, a right is vested if it survives the repeal of a statute or the abrogation of the common law from which [it] may have originated. Id. at 15-16. A vested right must be a contract right, a property right, or a right arising from a transaction in the nature of a contract which has become perfected to the degree that it is not dependent on the continued existence of the statute or common law. 1A Norman J. Singer, Sutherland Statutory Construction § 23.35 (6th ed.2002). The Developers' reasonable expectations here may have derived from the common law duty of good faith and fair dealing, but their rights to the City Council's exercise of discretion arose from the Agreements, and were therefore independent of the common law.