Dalton v. Educational Testing Service

Court of Appeals of the State of New York · 1995 · Contracts

ContractsImplied covenant of good faith and fair dealingSpecific performancecontractsgood faithfair dealingcontractual discretionstandardized testing

Facts

Brian Dalton took the SAT in May 1991 and again in November 1991, with his combined score increasing by 410 points. Under the Registration Bulletin Dalton accepted when registering, ETS reserved the right to cancel a score if it had reason to question validity, but it also promised to notify the test-taker and offer options including submitting additional relevant information. After ETS questioned Dalton's November score based on handwriting disparity and told him someone else may have completed his answer sheet, Dalton submitted medical evidence explaining his poor May performance, diagnostic test results consistent with his November score, statements showing his presence at the November test, and a document examiner's report concluding he wrote both answer sheets. ETS ultimately continued to question the score without, as the lower courts found, considering the relevant material Dalton submitted.

Issue

When a contract gives ETS discretion to cancel a test score if it has reason to question validity, but also gives the test-taker the option to submit relevant information, does ETS breach the contract by failing in good faith to consider that relevant information? If so, is the proper remedy release of the questioned score or specific performance requiring good-faith reconsideration under the contractual procedures?

Rule

A contract includes an implied covenant of good faith and fair dealing. Where a contract grants one party discretion, that party may not act arbitrarily or irrationally in exercising it; and when the contract expressly allows the other party to submit relevant information, the decisionmaker must at least consider that relevant material in good faith. However, no duty will be implied that is inconsistent with the contract's terms, so ETS had no duty to conduct an external investigation beyond considering the material submitted.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Northlake Credential Services administers a licensing exam in Seattle. Its candidate bulletin says it may cancel any score if it has reason to question validity, but it also allows a candidate to submit additional relevant information. After Maya Ortiz's score is flagged, the review panel refuses to read any of her submitted materials and relies only on its initial anomaly report.

If Maya sues for breach of contract, which is the strongest argument in her favor?

Explanation. The governing rule is that every contract includes an implied covenant of good faith and fair dealing. When a contract grants one party discretion and expressly allows the other party to submit relevant information, the decisionmaker must consider that material in good faith and may not refuse to do so arbitrarily. The contract does not require proof of misconduct, and no additional duty to investigate externally is implied if inconsistent with the contract.