Summary
holding that even where one party to a contract has discretion with respect to its obligations under the contract, the implied covenant of good faith requires that party to exercise its discretion in good faith
Summary of this case from Dweck Law Firm, L.L.P. v. MannOpinion
2001-07185
Argued March 25, 2002.
September 10, 2002.
In an action, inter alia, to recover damages for breach of contract, the plaintiff appeals, as limited by its brief, from so much of an order of the Supreme Court, Kings County (Steinhardt, J.), dated June 20, 2001, as granted those branches of the defendant's motion which were pursuant to CPLR 3211(a)(7) to dismiss the first, fourth, and fifth causes of action for failure to state a cause of action, and failed to determine that branch of its cross application which was for partial summary judgment on its first cause of action.
Solomon, Zauderer, Ellenhorn, Frischer Sharp, New York, N.Y. (Mark C. Zauderer and Caroline S. Press of counsel), for appellant.
Kramer Levin Naftalis Frankel, LLP, New York, N.Y. (Ronald S. Greenberg and Patricia Eilender of counsel), for respondent.
Before: SONDRA MILLER, J.P., GABRIEL M. KRAUSMAN, GLORIA GOLDSTEIN, BARRY A. COZIER, JJ.
ORDERED that the appeal from so much of the order as failed to determine that branch of the plaintiff's cross application which was for partial summary judgment on its first cause of action is dismissed, without costs or disbursements, as that branch of the cross application remains pending and undecided (see Katz v. Katz, 68 A.D.2d 536); and it is further,
ORDERED that the order is otherwise reversed insofar as appealed from and reviewed, on the law, with costs, those branches of the defendant's motion which were to dismiss the first, fourth, and fifth causes of action are denied, and those causes of action are reinstated.
The plaintiff, 1-10 Industry Associates, owns an 85-year-old complex of buildings on the Brooklyn waterfront, known as Industry City. The defendant, Trim Corporation of America (hereinafter Trim), has leased space in Industry City since 1991. In the fall of 1999, when Trim still had approximately three years left on its leases for space in Buildings 9 and 10 of the complex, a representative of the plaintiff approached Trim's president to discuss the possibility of relocating Trim's operations to a different site. Following several weeks of negotiations, on December 10, 1999, the parties entered into a Letter Agreement that called for Trim to immediately surrender a portion of its space in Building 9 that it used for storage, and relocate that part of its operations to Building 10. In exchange for Trim's agreement to relocate its storage area, the plaintiff agreed to abate Trim's rent for the new storage space for a sixth-month period, and to subsequently charge Trim a rental of $3 per square foot for this space until August 31, 2002, when Trim's leases were due to expire. In addition, the plaintiff agreed to extend Trim's leases for an additional five-year period at a below-market rent of $4 per square foot. In exchange for extending the leases, the Letter Agreement gave the plaintiff the right to completely relocate all of Trim's operations from Buildings 9 and 10 to a "comparable 'reasonably contiguous' facility subject to [Trim's] approval * * * within [Trim's] existing lease term or within their new lease term." After Trim rejected four proposed relocation sites, the plaintiff commenced this action alleging, inter alia, that Trim breached the Letter Agreement by failing to exercise good faith in its refusal to relocate to any of the alternate sites it was offered. Trim responded by moving to dismiss the complaint pursuant to CPLR 3211(a)(7) for failure to state a cause of action, contending that the Letter Agreement afforded it an absolute right to withhold its consent to relocate for any reason or no reason at all. The Supreme Court granted Trim's motion, concluding that the complaint did not state a cause of action to recover damages for breach of contract because the Letter Agreement contained no requirement that Trim act reasonably in deciding whether to relocate its operations, and that the related claims asserted in the complaint must also fail because there was no breach of contract.
On appeal, the plaintiff contends, inter alia, that its first cause of action states a viable breach of contract cause of action based upon Trim's alleged violation of the implied covenant of good faith and fair dealing. We agree. Under New York law, a covenant of good faith and fair dealing is implied in all contracts (see Dalton v. Educational Testing Serv., 87 N.Y.2d 384, 389; Van Valkenburgh, Nooger Neville v. Hayden Pub. Co., 30 N.Y.2d 34, 45, cert denied 409 U.S. 875; Zuckerwise v. Sorceron, Inc., 289 A.D.2d 114). The implied covenant of good faith encompasses "any promises which a reasonable person in the position of the promisee would be justified in understanding were included" in the agreement, and prohibits either party from doing "anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract" (Dalton v. Educational Testing Serv., supra at 389, citing Rowe v. Great Atl. Pac. Tea Co., 46 N.Y.2d 62, 69; Kirke La Shelle Co. v. Armstrong Co., 263 N.Y. 79, 87). Here, although the Letter Agreement did not contain a provision requiring Trim to act reasonably in approving or rejecting proposed relocation sites, Trim had an implied obligation to exercise good faith in reaching its determination (see Dalton v. Education Testing Serv., supra; cf., Collard v. Incorporated Vil. of Flower Hill, 52 N.Y.2d 594). Accordingly, the plaintiff's allegation that Trim acted in bad faith to thwart its right to require Trim to surrender its space in Buildings 9 and 10, thus depriving the plaintiff of an intended benefit of the Letter Agreement, is sufficient to state a cause of action to recover damages for breach of contract based upon violation of the implied covenant (see Zuckerwise v. Sorceron, Inc., supra; Morris v. Putnam Berkley, Inc., 259 A.D.2d 425; Just-Irv Sales v. Air-Tite Bus. Ctr., 237 A.D.2d 793). We therefore reinstate the plaintiff's first cause of action seeking damages for breach of contract, as well as its fourth and fifth causes of action, which are also predicated upon Trim's alleged breach of the Letter Agreement.
S. MILLER, J.P., KRAUSMAN, GOLDSTEIN and COZIER, JJ., concur.