Can You Unintentionally Contract Away Your Right to Good Faith and Fair Dealing?
Apparently you can. This is undoubtedly an example of all parties believing nothing will ever go wrong and that the parties will always work well together. The following matter was reported in the New York Times, and the case comes to us from California. Also see the Contracts Professor.
For Background, Clive Cussler is a noted fiction writer of adventures, usually involving sunken ships or buried trains, etc. Mr. Cussler entered into a contract with Crusader Entertainment, LLC., giving Crusader the option to produce a movie based on one of Cussler's novels. The dispute involved claims of breach of this contract.
Before the movie was even produced, both parties sued each other, each alleging the other breached their contract. This is not the way to begin a fruitful business relationship.
In summary, Crusader was suppose to begin production within 24 months of exercising the option. However, the film was delayed because the parties argued over the screen play. Reportedly, Cussler consider the screen play, "crap." Cussler insisted that he should write the screen play - Crusader refused to allow him to do so because the actors didn't like his screen play, and he was not a member of the writers guild.
The trial court found in favor of Crusader, and awarded damages of several million dollars based on a finding that Cussler breached the implied contract covenant of good faith and fair dealing.
However, the Court of Appeals found that as a mater of law, the implied covenant of good faith and fair dealing did not apply. The contract provided that Cussler had the right to review and approve the screen play. The Court of Appeals found that Cussler had the contractual right to:
"[R]eject proposed changes to the original Approved Screenplay, "for unreasonable reasons. . . or for no reason at all." (The report is not clear whether this language is in the contract, or it is the courts interpretation of Cussler's contractual rights.) It is hard to believe that Crusader would sign a contract with this specific language, since it invites the very problems they encountered with Cussler.
Crusade argues that the appellate court's interpretation of the contract made the contract illusory, and I think that to some extent that is a good argument. However, the court said that since the contract did not require Cussler to act reasonably, or in good faith, he had no obligation to do so.
The problem with this reasoning is that either there is an implied covenant of good faith and fair dealing, or there isn't. If there isn't, then the courts decision appears logical. If there is, the decision doesn't make sense. Why would parties need to specifically address in a contract an implied obligation that is already deemed part of the contract, unless the parties wanted to specifically exclude the covenant? And who would sign that agreement?
These are the type of cases that make you scratch you head and wonder what people were thinking?
