Court Opinion

ID: 9473092
Source: CourtListenerOpinion
Date Created: 2023-08-05 04:19:03.425163+00
Date Added: 2024-06-11T17:43:18.831992
License: Public Domain

FERGUSON, Circuit Judge,
dissenting:
I dissent. The majority correctly concludes that under Massachusetts law a covenant of good faith and fair dealing is implied in every contract. See Fortune v. National Cash Register Co., 373 Mass. 96, 104, 364 N.E.2d 1251, 1257 (1977). The majority, however, then reaches the contradictory conclusion that if, despite this implied covenant of good faith, the terms of a contract make it possible for a party to terminate the contract for motives which would ordinarily constitute bad faith, Massachusetts law requires such a termination to be upheld. This conclusion is contrary to the very notion of good faith and fair dealing.
In Massachusetts, all terms of a contract are subject to the good faith requirement. Thus, the specific provisions in the contract between Balzer/Wolf and Parlex covering termination and commissions from orders or shipments after termination contain an implied covenant of good faith and fair dealing. A termination not made in good faith — in spite of its literal compliance with the wording of the contract — would therefore constitute a breach of the contract. See Fortune, 373 Mass, at 102-05, 364 N.E.2d at 1256-58.
Parlex terminated Balzer/Wolf in accordance with their contract and literally complied with the provisions governing the payment of commissions. Balzer/Wolf, however, contends that Parlex terminated the contract in order to avoid paying substantial commissions which would become due as a result of work already done by Balzer/Wolf. Such a termination would have been in bad faith. See Fortune, 373 Mass, at 105, 364 N.E.2d at 1257-58; RLM Associates v. Carter Manufacturing Corp., 356 Mass. 718, 248 N.E.2d 646 (1969).
Balzer/Wolf asserts that it worked for over a year procuring Hughes Aircraft Company as a customer of Parlex. Contracts for military prime contractors such as Hughes take a long time to develop. First, the contractor must determine whether it can use the proposed product by drawing plans to fit that product and producing models to test prototype parts similar to those which will eventually be supplied to the contractor. Next, the contractor will place a limited test production order. If such an order is satisfactory, the contractor will then place production orders. After Balzer/Wolf had gone through the entire procedure and procured Hughes as a customer of Parlex, but before any of the vast bulk of Hughes’ orders had been received or shipped, Parlex terminated Balzer/Wolf without any stated reasons. In this way Parlex avoided paying any commissions on about two million dollars worth of sales to Hughes. These facts present disputed issues of material fact as to whether Parlex acted in bad faith and whether there was a breach of the covenant of good faith and fair dealing. See Fortune, 373 Mass. at 102-05, 364 N.E.2d at 1256-58.
Thus, although Parlex had a right to terminate the contract in accordance with *776its terms, it had the right to do so only in good faith. Because there are material issues of fact as to Parlex’s good faith in terminating the contract, summary judgment was inappropriate. Balzer/Wolf should be given the opportunity to demonstrate to the trier of fact whether Parlex acted in bad faith. As stated by the Massachusetts Supreme Court in Fortune v. National Cash Register Co., 373 Mass. 96, 364 N.E.2d 1251 (1977), “[i]n our view, the Appeals Court erroneously focused only on literal compliance with payment provisions of the contract and failed to consider the issue of bad faith termination.” 373 Mass. at 105, 364 N.E.2d at 1257-58. The district court must be reversed and the case remanded for a trial because, no matter how strongly the majority may disagree with it, that is the law of Massachusetts.