In this May 2007 blog post I mentioned the dispute between Crusader Entertainment and schlockmeister Clive Cussler. In this post, the ContractsProf Blog provides the latest installment in this gripping saga—an opinion by a California appellate court.
Here’s the bit that caught my eye:
On the key issue in the appeal, the court found that Cussler had a contractual right to review and reject proposed changes to the original Approved Screenplay “for unreasonable reasons … or for no reason at all.” The court rejected Crusader’s argument that granting Cussler such broad discretion rendered the agreement illusory, since Crusader retained the right to produce the film using the Approved Screenplay. In short, because the contract did not require Cussler to act either reasonably or in good faith, he could not be held liable for having failed to do so.
So if a contract governed by California law explicitly grants you the right to behave utterly unreasonably, the other party can’t complain if you take the opportunity to do just that.
How does this play out in other jurisdictions, in the U.S. and elsewhere?
3 thoughts on “Negotiating Around the Duty of Good Faith”
Ken, I believe that an English court would uphold such an express clause as the California appellate court did. I know of no case directly in point but my ‘legal intuition’ (not a perfect yardstick…) says that the decisive factor is ‘freedom of contract’; therefore the clause should be allowed. No public policy counter-argument comes to mind.
I agree with Gil, although I am uncertain whether “the duty of good faith” would be the central issue as the English courts tend not to imply such a duty in ordinary contracts, or at least seem to do so less than some other courts. As a possible, alternative line of reasoning, there have been cases on whether an obligation to obtain consent implies a duty not to unreasonably withhold that consent, eg see British Gas Trading v Eastern Electricity (1996). Generally, I think an explicit right to act unreasonably would be upheld. If we were discussing a clause limiting or excluding liability, then additional policy considerations might come into play.
I agree with Mark regarding both the ‘duty of good faith’ and limitation or exclusion of liability clauses. In the latter case the court would, perhaps, look at the Unfair Contract Terms Act 1977 which imposes the normative standard of ‘reasonableness’ for certain of the above clauses. And, not every contract is caught by the Act. Of course, that Act does not cater for the possiblity that the parties have expressly provided for ‘unreasonable’ performance or discharge of obligations.