Brief Fact Summary. As part of a settlement agreement between Plaintiff Locke and movie star Clint Eastwood, Mr. Eastwood agreed to secure a production deal between Defendant Warner Brothers and Plaintiff. The deal was granted to Plaintiff giving her the opportunity to develop movies with Defendant movie studio. Plaintiff alleged Defendant violated the implied covenant of good faith in that they never intended to make any films with her.
Synopsis of Rule of Law. Where a contract confers on one party a discretionary power affecting the rights of the other party, an implied covenant of good faith requires such party to exercise that discretion with good faith and in accordance with fair dealing.
Plaintiff Locke entered into a settlement agreement with movie star Clint Eastwood. As part of that agreement, Mr. Eastwood secured a production agreement between Defendant Warner Brothers movie studio and Plaintiff. The agreement gave plaintiff a “non-exclusive first look deal” which allowed plaintiff to submit to Defendant any picture in which Plaintiff was interested in developing. Defendant had the option to pass on each project which Plaintiff submitted. The agreement also gave Defendant the option to use Plaintiff as a director for one of its movies, or to pay her a fee. Plaintiff was never given an opportunity to develop a movie with Defendant, nor was she afforded the chance to direct a movie. Plaintiff brought suit against Defendant alleging breach of contract for failing to consider her for any projects. Plaintiff further alleged fraud on the part of Defendant for entering into a contract with no intention of honoring the agreement.
On summary judgment, the trial court dismissed Plaintiff’s causes of actions, holding that since Defendant had the option of both passing on Plaintiff’s movie ideas and giving Plaintiff a director role, the Defendant was not required to have a good faith reason for declining to exercise its right to develop her material. The trial court further stated that it’s not the court’s role to substitute its judgment for a film studio’s when the studio is making a creative decision.
On appeal, Plaintiff alleged that Defendant breached the agreement by refusing to consider the agreement in good faith, and that Defendant fraudulently entered into the contract with no intention of honoring the agreement. On appeal, Plaintiff introduced the testimony of a Warner employee who recounted a conversation he had with a Warner executive. In that conversation the Warner executive stated that Defendant was not going to work with her. Plaintiff also introduced testimony from another Warner employee that recounted a conversation in which the employee was told that Warner was not going to make a movie with her.
Issue. Whether the evidence presented raised a material issue of whether Defendant violated the implied covenant of good faith in dealing with Plaintiff.
Held. The Court held that Plaintiff introduced sufficient evidence to call into question whether Defendant, in exercising its discretionary power to refuse to develop a movie with Plaintiff, did so with good faith. The Court held that where one party holds a discretionary power affecting the rights of another, it must exercise such power in good faith. The Court further held that Plaintiff introduced sufficient circumstantial evidence to show that Defendant had no intent to honor the agreement at the time the agreement was entered into.
The Court was quick to note, however, that the implied covenant of good faith will not be used to contradict any express terms of a contract. Thus, where one party’s actions are authorized by an express provision to the contract, no covenant of good faith can be implied to forbid such conduct.
Discussion. Points of Law - for Law School Success
Where the question is one of judgment, the promisor's determination that he is not satisfied, when made in good faith, has been held to be a defense to an action on the contract. View Full Point of Law
This case illustrates how the implied covenant of good faith is interpreted into every contract and that when one party has discretionary power over another party to the contract, such discretion must be exercised with good faith and fair dealing. The Court was quick to note, however, that the implied covenant of good faith will not be used to contradict any express terms of a contract. Thus, where one party’s actions are authorized by an express provision to the contract, no covenant of good faith can be implied to forbid such conduct.