Brief Fact Summary. E.O. Sowerwine, III (Plaintiff), an assignee of an option to purchase certain real estate, brought an action alleging that Mark L. Stockton (Defendant), grantee of deed, wrongfully prevented him from exercising the option. Defendant appeals from decision of the district court holding that Defendant exhibited bad faith in preventing Plaintiff from exercising the option and ordered specific performance on the contract.
Synopsis of Rule of Law. A party may not free himself from liability if he prevents the performance of a condition precedent upon which liability under the contract rests.
Issue. Whether the Defendant violated the implied covenant of good faith in an option contract to repurchase certain real estate?
Held. Yes. Judgment affirmed.
A fundamental principle of contract law is that a promisor may not take advantage of his failure to perform under a contract. If liability under a contract depends on the fulfillment of a condition precedent a person cannot avoid liability by making the condition impossible to fulfill. If the performance of one party is required for the performance of the other party, there is an implied promise by one to perform and for the other to cooperate. This theory is known as the implied covenant of good faith between contracting parties.
Here, it is clear that Defendant tried to hinder the Plaintiff’s exercise of the option to repurchase the real estate. This is evidenced through the Defendant’s failure to give a description of the land, which was required for Plaintiff to obtain financing. Furthermore, Defendant failed to provide Plaintiff with a list of expenses, which was needed to determine the purchase price. Therefore, Defendant purposely tried to prevent Plaintiff in his attempts to exercise the option to repurchase.
Discussion. Good faith means honesty in fact in the transaction concerned. In other words, the parties must demonstrate honesty of intent in order to avoid liability.
A footnote in the case explains that under the option Defendant, had five days after the option was exercised to provide Plaintiff with a description of the five acres he wished to retain. However, Defendant knew that Plaintiff needed this information to secure the loan and that Plaintiff would pay for the expense of having the land surveyed. Defendant still failed to provide the Plaintiff with this information.