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.
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 LawIssue. 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. 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.