Court Opinion

ID: 9584744
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:52:20.569763+00
Date Added: 2024-06-11T15:14:46.399601
License: Public Domain

MATTHEWS, Chief Justice,
dissenting.
While I agree with the majority that Illinois law “favors the provisions of an express no-cause contract over potentially conflicting demands of the implied covenant [of good faith and fair dealing],”1 that type of contract is not at issue in this case. If this contract creates a right to terminate for no cause, the right exists because of a legal inference, not because that right is explicitly stated. I believe that a different legal inference should be drawn: that either party could terminate the contract for no cause if the reason for termination was consistent with the parties’ reasonable expectations.2
This reading is consistent with the implied covenant of good faith and fair dealing as expressed in section 205 of the Restatement' (Second) of Contracts: “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.” The Supreme Court of Illinois has adopted a similar rule: “Every contract implies good faith and fair dealing between *1268the parties.3 A review of Marbindell and the Illinois Appellate Court cases cited in the majority opinion gives me no reason to think that Illinois law respecting the covenant of good faith and fair dealing is inconsistent with the Restatement’s discussion of the covenant.
According to the Restatement, good faith enforcement “emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.”4 One type of violation recognized by the Restatement is the “abuse of a power ... to terminate the contract.”5 As authority for this comment the Restatement draws on various types of eases, including those involving franchise terminations.6
The covenant of good faith and fair dealing was discussed in Dayan v. McDonald’s Corp.,7 a franchise termination case involving Illinois law. The court reviewed its understanding of Illinois law regarding the covenant in terms materially indistinguishable from the Restatement:
As the above authorities demonstrate, the doctrine of good faith performance imposes a limitation on the exercise of discretion vested in one of the parties to a contract. In describing the nature of that limitation the courts of this state have held that a party vested with contractual discretion must exercise that discretion reasonably and with proper motive, and may not do so arbitrarily, capriciously, or in a manner inconsistent with the reasonable expectations of the parties.[8]
Dayan confirms my view that the termination clause in the present case — since it does not state that the contract may be canceled without cause — should be construed to incorporate the covenant. Quoting with approval from a Utah case which held that the implied covenant of good faith limited the power of the franchisor to terminate a franchise agreement without good cause where, by its terms, the franchise was terminable upon sixty days written notice to the franchisee, the court in Dayan stated:
when parties enter into a contract of this character, and there is no express provision that it may be cancelled without cause, it seems fair and reasonable to assume that both parties entered into the arrangement in good faith, intending that if the service is performed in a satisfactory manner it will not be cancelled arbitrarily. [9]
The parties in this case could have agreed on a termination provision which expressly stated that cancellation could be on any basis whatsoever, reasonable or unreasonable, just as they could have adopted a termination provision which required cause. They did neither. Instead, they left the provision open to differing interpretations. It is therefore logical to infer that the parties intended to operate in an atmosphere of good faith and fair dealing, and that the covenant applies.
The majority opinion dismisses the significance of Dayan by reading into it an artificial limitation.10 But Dayan gives no indication that its holding is limited to cases involving franchises, and there is no logic to such a rule. Franchise cases are not a special subcategory of contract law, but merely a type of contract case that reflects an imbalance of power between contracting parties. The Restatement of Contracts uses franchise cases as appropriate examples to illustrate general rules of contract law.11 Similarly, the “unilateral power[]” *1269of the franchisor is not a significant distinguishing element. The problem is that the franchisee — the economically weaker party — must spend large amounts to begin business and then is at risk of losing the investment based on the decision of the franchisor — ’the economically stronger party. The problem is not sblved by giving the weaker party a similar power of termination. In other words, to use the Dayan parties as an example, Dayan’s vulnerability to termination of his franchise by McDonald’s is hardly changed by giving him the power to terminate the franchise. This is the situation in the present case.12
While it would be sufficient to end the analysis here, the following observations concerning the covenant’s application to the facts of this case seem worth making.
Determining the reasonable expectations of contracting parties is not necessarily an easy task. Contract language must be considered along with the parties’ discussions and the purposes of the contract.13 And it may be useful to ask what the parties would have done had they considered the precise issue when the contract was formed. The Supreme Court of Delaware addressed this recently in DuPont v. Pressman:14
The Covenant is best understood as a way of “implying terms in the agreement.” It is a way of “honoring the reasonable expectations created by the autonomous expressions of the contracting parties.”
One method of analyzing the Covenant is to ask what the parties likely would have done if they had considered the issue involved. “[I]s it clear from what was expressly agreed upon that the parties who negotiated the express terms of the contract would have agreed to proscribe the act later complained of ... had they thought to negotiate with respect to that matter?” [T]he Covenant “is a stab at approximating the terms the parties would have negotiated had they foreseen the circumstances that have given rise to their dispute.”
Both parties knew that Saucy Sisters must undergo expensive renovations in order to serve United. Saucy Sisters claims a cost of $600,000. We might ask what the parties would have done had Saucy Sisters asked United whether United could terminate the contract either soon after start up or at any time during the three-year term solely because a competitor offered better terms. I think the answer would have been that United would forego that power. Had United asserted the right to terminate to get better terms, there likely would have been no contract. Saucy Sisters would probably not have spent what for it was a small fortune had United overtly reserved the right to make a better deal during the three-year period.
Most cases invoking the obligation to perform in good faith can be synthesized using the following principle: a party performs in bad faith by using discretion in performance for reasons outside the justified expectations of the parties arising from their agreement. Distinguishing allowed from disallowed reasons — opportunities forgone from opportunities preserved on entering a contract — will often be easy. But the distinction will be difficult in some cases. Specific disallowed reasons may be inferred from the express contract terms in light of the ordinary course of business and customary practice, in accordance with the usual principles of contract interpretation. It is not hard to infer from a fixed contract price, for example, that the parties have forgone opportunities to take advantage of market price fluctuations.[15]
Thus, in my view, early termination by United motivated by a desire to contract with *1270a competitor on better terms would have contradicted the justified expectations of Saucy Sisters.
In light of the foregoing, I believe that summary judgment in favor of United was therefore correctly denied. Whether particular conduct qualifies as good faith is a question of law for the court.16 But whether United in fact acted with an impermissible motive was properly a question for the jury.17 No question has been raised as to whether the jury was correctly instructed. I would therefore affirm the judgment on the question of liability.18

. See 3A Arthur Corbin, Corbin on Contracts § 654A, at 114 (1999 Supp.).

. Martindell v. Lake Shore Nat’l Bank, 15 Ill.2d 272, 154 N.E.2d 683, 690 (1958).

. Restatement (Second) of Contracts § 205 cmt. a (1981).

. Id. at cmt. e.

. See id., Reporter's Note to § 205, cmt. e.

. 125 Ill.App.3d 972, 81 Ill.Dec. 156, 466 N.E.2d 958 (1984).

8. Id. 81 Ill.Dec. 156, 466 N.E.2d at 972 (citations omitted).

. Id. (quoting Seegmiller v. Western Men, Inc., 20 Utah 2d 352, 437 P.2d 892 (1968)).

. Op. at 1266.

. See Restatement (Second) of Contracts § 205, Reporter's Note to cmt. e (1981) (citing various franchise and non-franchise cases to illustrate concept of good faith in enforcement).

. The court also dismisses the rule as described by Seegmiller as dictum. Op. at 1266 n.31. While it is true that the holding in Seegmiller rested on other grounds, the language does reflect the general rule accepted by Illinois courts.

. See Steven J. Burton & Eric G. Andersen, Contractual Good Faith: Formation, Performance, Breach, Enforcement § 2.3 (1995).

. 679 A.2d 436, 443 (Del.1996) (citations omitted) (alteration in original).

15. Burton & Anderson, supra, § 2.3.3 at 57.

. 3A Corbin on Contracts § 655B, at 116-17 (1999 Supp.).

. See id.

.United also raises a question as to whether the damage award is consistent with Illinois law. Given my dissenting position, I have not addressed this question.