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Badgett v. Security State Bank

    Brief Fact Summary.

    Plaintiff obtained a loan from Defendant. Plaintiff tried to satisfy the loan owed to Defendant by submitting a proposal to the loan officer, indicating his desire to obtain a money from DTP, a federal program. The loan officer informed the loan committee, and the loan committee refused to accept the proposal. Subsequently, Defendant denied the proposal. Plaintiff stopped making payments on the loan and entered into a written agreement with Plaintiff to satisfy the loan. Plaintiff filed suit claiming Defendant breach the duty of good faith and fair dealings. The trial court held for Defendant, dismissing Plaintiff’s complaint. The court of appeals reversed the trial court, holding for Plaintiff. Defendant appealed the court of appeals decision to the Supreme Court of Washington.

    Synopsis of Rule of Law.

    The implied duty of good faith and fair dealings only extends to the specific terms of the contract, not the acceptance of material changes to the contact.

    Facts.

    Plaintiff, Badgett, obtained a loan from Defendant, Security State Bank, to purchase dairy, and thereafter, enter the dairy business. Five years later, Plaintiff chose to retire from the dairy business. Plaintiff participated in the Dairy Termination Program (DTP), a federally run program that paid dairy produced to refrain from engaging in the dairy business for five years. Plaintiff wanted to submit a bid with DTP to obtain $1,600,000, under the program. Plaintiff spoke with Defendant’s loan officer Joe Cookie, about his interest in participating in DTP. Further, Plaintiff stated he would use the proceeds from the program to pay back his $1,500,000 debt to Defendant. Cooke told Plaintiff he would submit the proposal to Defendant’s loan committee. Subsequently, the loan committee denied the proposal, and Plaintiff submitted an unsuccessful bid to DTP. About a month later, Plaintiff refrained from making payments on the loan owed to Defendant and entered a written agreement with Defendant to satisfy his debt. Thereafter, Plaintiff filed suit on the grounds that Defendant breached the implied duty of good faith and fair dealings when Defendant refused to consider Plaintiff’s proposal to DTP. Likewise, Plaintiff contends that Cooke misrepresented his proposal to the loan committee. Defendant filed a counterclaim to obtain the loan payments and foreclosure. The trial court held for Defendant and dismissed Plaintiff’s complaint. Plaintiff appealed, and the court of appeals reversed the trial court’s ruling. Defendant appealed to the Supreme Court of Washington.

    Issue.

    Whether there is an implied duty of good faith and fair dealings only extends to both the specific terms of the contract and acceptance of material changes to the contact.

    Held.

    No, an implied duty of good faith and fair dealings only extends to the specific terms of the contract, not the acceptance of material changes to the contact.

    Discussion.

    Defendant was not obligated to consider Plaintiff’s proposal because an implied obligation of good faith and fair dealings only extends to the specific terms of the contract. Also, if the parties have previously engaged in a prior course of dealing, the prior dealings cannot conflict with the specific terms of the contract because prior dealings are only methods of interpreting the contact. In this case, the loan agreement expressly indicated that Defendant was going to lend Plaintiff money to enter into the dairy business, which would satisfy Defendant’s obligation to Plaintiff. Also, Plaintiff’s argument that Defendant had an additional implied obligation of good faith and fair dealings is improper because the additional obligation would violate an express term of the contract between the parities. Therefore, Defendant did not violate the obligation of good faith and fair dealings because no such obligation existed. The court of appealed ruling is reversed.


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