Civil Model Jury Charge 4.10 J. IMPLIED TERMS COVE IN NJ
Civil Model Jury Charge4.10 J.IMPLIED TERMS COVENANT OF GOOD FAITH AND FAIR DEALINGBILATERAL CONTRACTS
In
addition to the express terms of a contract, the law provides that
every contract contains an implied covenant of good faith and fair
dealing.This
means that, even though not specifically stated in the contract, it is
implied or understood that each party to the contract must act in good
faith and deal fairly with the other party in performing or enforcing
the terms of the contract.[2]
To
act in good faith and deal fairly, a party must act in a way that is
honest and faithful to the agreed purposes of the contract and
consistent with the reasonable expectations of the parties.[3]A
party must not act in bad faith, dishonestly, or with improper motive
to destroy or injure the right of the other party to receive the
benefits or reasonable expectations of the contract.[4]
There can be no breach of the implied covenant of good faith and fair dealing unless the parties have a contract.[5]Additionally,
the implied covenant of good faith and fair dealing may not override an
expressly granted right under the contract.For example, an
implied covenant of good faith and fair dealing may not override an
express provision in the contract giving one party the right to
terminate the contract and the partys motive in terminating the contract
under such circumstances may be irrelevant.[6]A party must still, however, act in good faith in the performance of the contract until the termination actually takes place.[7]Thus,
even though the party complies with the express contract term entitling
him to terminate the contract, he may still be in breach of the
covenant of good faith and fair dealing if he fails to act in good faith
and deal fairly until the contract is actually terminated.
There
are many forms of conduct that might constitute a violation of good
faith and fair dealing, but each case is fact-sensitive.[8]In
order for you to find that there has been a breach of the implied
covenant of good faith and fair dealing in this case, the plaintiff must
prove to you that the defendant, with no legitimate purpose:1)
acted with bad motives or intentions or engaged in deception or evasion
in the performance of contract; and 2) by such conduct, denied the
plaintiff of the bargain initially intended by the parties.[9]
The plaintiff in this case claims that the defendant breached the implied covenant of good faith and fair dealing by [give brief statement of plaintiffs claim of breach].To prevail on this claim, the plaintiff must prove each of the following three elements by a preponderance of the evidence:
First, the plaintiff must prove that some type of contract existed between the parties.[10]There can be no breach of the covenant of good faith and fair dealing unless the parties have a contract.
Second,
the plaintiff must prove that the defendant acted in bad faith with the
purpose of depriving the plaintiff of rights or benefits under the
contract.
Third, the plaintiff must prove that the defendants conduct caused the plaintiff to suffer injury, damage, loss or harm.I will now discuss each of these elements separately.
Was there a contract between the parties?
You must first determine whether some type of contract existed between the plaintiff and the defendant.[11]
1.Express or Implied Contract
[Instruct the jury on the legal principles that apply to the particular contract.See Model Civil Jury Charge 4.10E.]
If
you find that a contract existed between the parties, you must then
determine whether the defendant violated the implied covenant of good
faith and fair dealing.
Did the defendant act in bad faith with the intent to deprive the plaintiff of rights or benefits under the contract?
As
to this element, you must decide whether the defendant acted with bad
faith to interfere with the plaintiffs right to receive the benefits of
the contract.Proof of bad motive or intention is essential
to a claim that the defendant has violated the covenant of good faith
and fair dealing.
In
considering what constitutes bad faith, you should consider a number of
factors, including the expectations of the parties and the purposes for
which the contract was made.You should also consider the
level of sophistication between the parties, whether the parties had
equal or unequal bargaining power, and whether the defendants action
involved the exercise of discretion.
Keep
in mind, however, that bad faith is not established by simply showing
that the defendants motive for his/her actions did not consider the best
interests of the plaintiff.Contract law does not require parties to behave thoughtfully, charitably or unselfishly toward each other.[12]
In
order for the plaintiff to prevail on his/her claim, you must
specifically find that bad faith motivated the defendants actions.A
defendant who acts in good faith on an honest, but mistaken, belief
that his/her actions were justified has not breached the covenant of
good faith and fair dealing.[13]
Whether the defendants conduct caused the plaintiff to suffer injury, damage, loss or harm
The
plaintiff must also prove that because of the defendants actions, the
plaintiff was unable to realize the benefits of the contract [describe the specific losses alleged by the plaintiff].
In
summary, if you find that the plaintiff has proven by a preponderance
of the evidence: (1) the existence of some type of contract; (2) that
the defendant, although acting consistent with the contracts terms,
acted in bad faith with the intent to deprive the plaintiff of his/her
reasonable expectations under the contract; and (3) the plaintiff
sustained injury or loss as a result of such action, then you must find
for the plaintiff.
If
you find that the plaintiff has failed to prove any of these elements
by the preponderance of the evidence, you must find for the defendant.
[1]See
Chapter Two, Employment Law Charges, for model charge regarding the
Covenant of Good Faith and Fair Dealing in the context of an employment
contract See Charge 2.15.
[2]See Sons of Thunder, Inc. v. Borden, Inc., 148N.J.396 (1997);Pickett v. Lloyds, 131N.J.457, 467 (1993);Onderdonk v. Presbyterian Homes,85N.J. 171, 182 (1981);Bak-A-Lum Corp. v. Alcoa Bldg. Prods. Inc., 69N.J.123, 129-130 (1976);Assn Group Life, Inc. v. Catholic War Veterans, 61N.J.150, 152 (1972);Palisades Properties, Inc. v. Brunetti,44N.J.117, 130 (1965).
[3]TheU.C.C.addresses
the issue. Every contract or duty within this Act imposes an obligation
of good faith in its performance or enforcement.N.J.S.A. 12A:1-203. Good faith is generally defined as honesty in fact in the conduct or transaction concerned.N.J.S.A.12A:1-201(19).
Good faith in the case of a merchant means honesty in fact and the
observance of reasonable commercial standards of fair dealing in the
trade.N.J.S.A.12A:2-103(b). Although theU.C.C. governed inSons of Thunder, Inc.,supra,the Court stated that the common law duty also influenced the Courts analysis.Sons of Thunder, Inc. v. Borden, Inc., supra, at 420-421.
[4]Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center Assoc., 182N.J.at 230-231 (2005);Wilson v. Amerada Hess Corp., 168N.J.236, 251 (2001) (citations omitted);Sons of Thunder, Inc. v. Borden, Inc.,supra,at 420.See alsoWade v. Kessler Institute,172N.J.327 (2002);Palisades Properties, Inc. v. Brunetti, supra, at117.
[5]Wade v. Kessler Institute, supra,
at 345 (expressly emphasizing there can be no breach of the implied
covenant of good faith and fair dealing in the absence of a contract).
[6]SeeSons of Thunder, Inc. v. Borden, Inc.,supra,at 417 (We agree...that the implied covenant of good faith and fair dealing cannot override an express termination clause);Id.at
423 ([W]here the contractual right to terminate is express and
unambiguous, the motive of the terminating party is irrelevant. . . .As
stated previously, we agree with that view of the law); see alsoPrudential Stewart Realty v. Sonnenfeldt,285N.J. Super. 106, 110 (App. Div. 1995),certif. denied, 143N.J.(1996)
(party does not breach implied duty of good faith and fair dealing, in
exercising contractual right to terminate after six months, regardless
of partys motives);Karls Sales & Service, Inc. v. Gimbel Bros., Inc., 249N.J. Super. 487, 495 (App. Div. 1991),certif. denied, 127N.J.at 548 (1991).
[7]Sons of Thunder, Inc. v. Borden, Inc.,supra,at
419 (although the duty does not trump an express termination clause,
the court still must determine whether ... [party] performed its
obligations in good faith.);Id.at 421-424 (party with express termination right must still perform contract in good faith and fairly).
[8]Price v. New Jersey Manufacturers Insurance Company, 182N.J.
519 (2005) (an insurance company, as the dominant party, has an even
greater obligation than the insured to act in good faith; it must not
put technical encumbrances or hidden pitfalls in the way of
unsophisticated customers that would undermine their reasonable
expectations.);Silvestri v. Optus Software, Inc., 175N.J.113
(2003) (a subjective standard that governs satisfaction clauses in
employment contracts obliges the employer to act honestly in accordance
with his duty of good faith and fair dealing, but genuine
dissatisfaction of the employer, honestly held, is sufficient for
discharge.);Wilson v. Amerada Hess Corp., supra, at 251 (in
action by gasoline company franchisees against the franchisor and
supplier of gasoline products, the plaintiffs alleged that the defendant
had breached the implied covenant of good faith and fair dealing in the
performance of the parties contract provision whereby defendant had the
unilateral right and discretion to set the price for the gasoline.The Court held that the discretion afforded toHessunder the contract was not unbridled discretion.Rather,Hesss
performance is tempered by the implied covenant of good faith and fair
dealing and the reasonable expectations of the parties. [A] party
exercising its right to use discretion in setting price under a contract
breaches the duty of good faith and fair dealing if that party
exercises its discretionary authority arbitrarily, unreasonably, or
capriciously, with the objective of preventing the other party from
receiving its reasonably expected fruits under the contract.);R.J. Gaydos Insurance Agency, Inc. v. National Consumer Insurance Company, 168N.J.255
(2001) (a common law cause of action for breach of the implied duty of
good faith and fair dealing cannot be brought when that claim is based
solely on allegations that the defendant violated theFair Automobile Insurance Reform Act).
See also,Wood v. New Jersey Manufacturers Insurance Co., 206N.J.562
(2011) (Plaintiff, a mail carrier, filed the underlying personal injury
action after she was attacked and seriously injured by the insureds
dog.Plaintiff rejected the insurers $300,000 settlement
offer, but repeatedly asserted that she would have accepted a settlement
near the $500,000 policy limits.Plaintiff, replying onRova Farms Resort, Inc. v. Investors Insurance Co. of America, 65N.J.474
(1974), placed the insurer on notice that if she recovered a verdict in
excess of the policy limits, she would look to the insurer for the
excess.The trial resulted in a verdict in the Plaintiffs favor in excess of the policy limits.The insureds assigned theirRova Farmsclaim to the Plaintiff and she then brought a declaratory judgment action.The
Appellate Division did not reach the issue of the right to a jury
trial, leaving it on remand to the discretion of the trial court.The
Supreme Court granted certification limited to the question of whether
an insureds claims of bad faith are to be decided by a judge or jury.The Supreme Court found that regardless of the label that the Plaintiff put on the action,Rova Farmsbad faith claim was a breach of contract claim and, thus, it was an action at law triable to a jury).
[9]InBrunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center Assoc.,supra,
the plaintiff, a tennis club tenant, failed to properly exercise the
express terms of an option agreement to purchase the occupied premises
from its commercial landlord.Plaintiff sued, alleging that
the landlords evasive tactics caused the tenant to lose its option to
buy the tennis club under the lease.In finding that the
landlord had breached the covenant of good faith and fair dealing, the
Supreme Court clarified the proof standards for a breach of good faith
and fair dealing claim:Proof of bad motive or intention is vital to an action for breach of the covenant.Id.at 225.The
Court also stated that the party claiming a breach must provide
evidence sufficient to support a conclusion that the party alleged to
have acted in bad faith has engaged in some conduct that denied the
benefit of the bargain originally intended by the parties.Id. atWilliston on Contracts, Sec. 63:22.Finally,
the Court sets forth a general rule that subterfuges and evasions in
the performance of a contract violate the covenant, even if the actor
believes his conduct to be justified.Id. atRestatement (Second) of Contracts, Sec. 205, comment d (1981).
[10]For
example, the contract could involve the employers obligation to pay
commissions, fringe benefits, bonuses, or other compensation.It could also be a contract to employ the individual for a certain period or a contract arising out of an employee handbook.
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