Locke v. Warner Bros., Inc.

California Court of Appeal · 1997 · Contracts

Contractsimplied covenantgood faith and fair dealingsubjective satisfactiondiscretionary powerdevelopment dealpromissory fraudsummary judgment

Facts

Locke entered into a written agreement with Warner under which she would receive guaranteed compensation for a non-exclusive first-look development deal and a pay-or-play directing deal. Warner paid the guaranteed compensation and provided an office and assistant, but it did not develop any of Locke's proposed projects or hire her to direct any films. Locke produced evidence that Warner executives said the studio was not going to work with her and that the arrangement was 'Clint's deal.' Locke alleged Warner never intended to consider her projects in good faith and entered the agreement only to accommodate Eastwood.

Issue

Whether triable issues of material fact existed as to Warner's alleged breach of contract by refusing in bad faith to consider Locke's proposals on their merits, and as to Warner's alleged fraud in entering the agreement without intending to perform. Also, whether the trial court properly granted summary judgment on Locke's sex-discrimination-based claims.

Rule

When a contract gives one party discretionary power affecting the other's rights, the implied covenant of good faith and fair dealing requires that discretion to be exercised honestly and in good faith. In contracts involving subjective judgment or taste, the promisor's dissatisfaction is not reviewable for reasonableness, but it must be bona fide; a party may not categorically refuse to consider performance while pretending to exercise discretion. The implied covenant cannot prohibit conduct expressly authorized by the contract. Fraudulent intent at contract formation may be proved by circumstantial evidence, including evidence of an absolute unwillingness to perform or a failure even to attempt performance.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

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

In Los Angeles, Blue Mesa Pictures signed a two-year first-look agreement with director Nina Patel. The contract required Nina to submit any projects she wanted to develop to Blue Mesa first, and gave Blue Mesa 20 days to accept or reject each proposal. After discovery began, Nina produced internal emails from the week the contract was signed stating, "Reject every pitch she sends; this deal exists only to calm Rowan."

If Nina sues for breach of contract, which is the strongest argument for denying Blue Mesa's motion for summary judgment?

Explanation. When a contract gives one party discretionary power affecting the other party's rights, the implied covenant requires honest, good-faith exercise of that discretion. In a subjective approval setting involving taste or judgment, a court does not review the reasonableness of the decision, but it may examine whether the dissatisfaction was bona fide. Evidence of a blanket decision to reject all submissions regardless of merit creates a triable issue of bad faith.