Brief Fact Summary. A real estate transaction failed to close within a certain amount of time, and as a result, a corporation lost out on a commission. The corporation sued and argued that the transaction not closing by the cut off date was an act of bad faith.
Synopsis of Rule of Law. "Every contract [including those for the payment of commissions to real estate agents] imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement."
When a contract term leaves a decision to the discretion of one party, that decision is virtually unreviewable.
View Full Point of LawIssue. Can a condition be excused if one party "prevent[s] or hind[ers] [ ] its occurrence through a breach of the duty of good faith and fair dealing[?]"
Held. Yes. "[T]he circuit court erred in failing to recognize that a duty of good faith and fair dealing was included in this contract and, therefore, appellee was obligated to not deliberately avoid closing the transaction before August 1, 1996." The court observed first that the term granting the Appellant the right to a commission was a condition precedent. Specifically, the transaction had to occur before August 1, 1996 for the Appellant to receive the commission. The only way a court will become involved in case like this, is if there is a charge of bad faith. The court observed, "[a] party has an implied obligation not to do anything that would prevent, hinder, or delay performance." According to Comment b to section 225 of the Restatement (Second) of Contracts (1981)(the "Restatement"), a condition may be excused if one party "prevent[s] or hind[ers] [ ] its occurrence through a breach of the duty of good faith and fair dealing." Pursuant to §205 of the Restatement, "Every contract [including those for the payment of commissions to real estate agents] imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement."
Discussion. This case offers an interesting discussion of how a good faith requirement is read into all contracts, including contracts for real estate commissions.