Opinion ID: 773732
Heading Depth: 2
Heading Rank: 5

Heading: Watkins's Claim Of Breach of the Duty of Good Faith

Text: 34 The district court granted summary judgment on Watkins's claim for breach of the implied duty of good faith and fair dealing. As noted above, we review summary judgments de novo. 35 Because the contract between Watkins and Iams is governed by the U.C.C., Ohio law imposes a duty of good faith in its performance. Ohio Rev. Code § 1301.09. The question is whether the renewal provision in the contract implies a duty to negotiate for a renewal in good faith in light of the contract's expiration provision. Few cases discuss the duty to negotiate the extension of a franchise in good faith. In Vylene Enters., Inc. v. Naugles, Inc. (In re Vylene Enters., Inc.), 90 F.3d 1472 (9th Cir. 1996), the franchise renewal clause provided that the franchisee had the right to extend the franchise agreement on terms and conditions to be negotiated within said sixty (60) days. Thus, the court held, 36 although the terms of the renewal provision did not give Vylene a guaranteed right to renew on a determinable basis, the provision obligated Naugles to negotiate in good faith concerning the terms and conditions of a renewal. 37 Id. at 1476. But in Vylene, the franchisee had an explicit right to renewal. The holding of Vylene is justified by the rule that a preliminary agreement may be binding when there is an overall agreement to enter into a binding contract. See United Magazine Co. v. Prudential Ins. Co., 877 F.Supp. 1076, 1081 (S.D. Ohio 1995) (New York law); Alpert v. Kodee Techs.,117 Ohio App.3d 796, 800-01, 691 N.E.2d 732, 735 (1997) (under Ohio law, relevant factors are whether parties manifested intention to be bound, and whether intentions are sufficiently definite to be enforced). In the instant case, there is, on the face of the contract, no manifestation of intent to reach a future agreement, but rather, only a provision that future renewals may be executed on mutually agreeable terms in writing. The case is more similar to cases such as General Motors Corp. v. Keener Motors, Inc., 194 F.2d 669 (6th Cir. 1952). There, a car manufacturer and a dealer agreed that they would execute a contract if the dealer's proposal was acceptable to the manufacturer. The manufacturer promised to give preferential consideration to the dealer's proposal. But the manufacturer retained discretion to decide not to agree if it determined it did not need the dealer's services in the area he proposed to locate his dealership. On these facts, the court held that there was no binding contract. Id. at 675-76. The rule of General Motors applies here, because the contract makes it clear that Iams retained discretion to refuse to renew if the terms proposed were not mutually agreeable. 38 Also, it appears from the face of the contract that none of the terms of the proposed renewal had been agreed upon. As Farnsworth writes: 39 In practice . . . parties do not usually make agreements to negotiate until the negotiations are well advanced . . . There will, of course, be occasional cases in which an agreement to negotiate will have been made at such an early stage of negotiations that a court could properly refuse to enforce it. 40 E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiation, 87 Colum. L. Rev. 217, 268 (1987). Where, as here, the plaintiff can show no promise to make a deal on which it reasonably could have relied, the court will not allow recovery. See id. at 237 n. 73 (citing Reprosystem B.V. v. SCM Corp., 727 F.2d 257, 265 (2d Cir. 1984)). 41 Watkins cites several cases for the proposition that Ohio common law does not permit a party to terminate [a contract] in 'bad faith.' (Br. at 51). But these cases involve unilateral termination by one party, rather than expiration of the contract in accordance with its explicit terms. E.g., Randolph v. New England Mut. Life Ins. Co., 526 F.2d 1383, 1385 (6th Cir. 1975) (clause provided for termination before end of contract by either party on sixty days' notice); Rees v. Bank Bldg. & Equip. Corp., 332 F.2d 548, 550 (7th Cir. 1964) (termination of employment contract with no fixed duration); Zimmer v. Wells Mgmt. Corp., 348 F.Supp. 540, 542 (S.D.N.Y. 1972) (termination of employment contract before expiration of the contract). The contract between Watkins and Iams, on the other hand, was a contract for a fixed duration that terminated without action of either party. For the foregoing reasons, we hold that the district court did not err in granting summary judgment on Watkins's claim for breach of the duty of good faith.