Market Street Associates Limited Partnership v. Frey

United States Court of Appeals for the Seventh Circuit · 1991 · Contracts

ContractsGood faith performanceSummary judgmentSpecific performancegood faithopportunismcontract performanceimplied conditions

Facts

A lease allowed the lessee to request financing from the lessor for improvements of at least $250,000; the lessor had to give reasonable consideration and negotiate in good faith, and if negotiations failed the lessee could repurchase the property at a formula price. After Market Street took an assignment of the lease, it sought financing for shopping-center improvements, first from outsiders and then from the pension trust, but its letters did not expressly invoke paragraph 34 at first and the trust denied the request based on its internal policy against loans under $7 million. Market Street then purported to exercise the purchase option under paragraph 34, and the trust refused to sell. The district court concluded that Market Street's failure to flag paragraph 34 both prevented the required negotiations and violated the duty of good faith.

Issue

Did the district court properly grant summary judgment to the pension trust on the theory that Market Street acted in bad faith by requesting financing without clearly alerting the trust to paragraph 34 and then seeking to exercise the purchase option? Also, did Market Street waive any right to trial by filing a cross-motion for summary judgment?

Rule

Under Wisconsin contract law, every contract includes a duty of good faith in performance. That duty does not impose a general fiduciary duty or a broad duty of candor, but it does forbid opportunistic conduct during performance, including deliberately taking advantage of a contracting partner's oversight about contractual rights in a way the parties would have prohibited had they foreseen it. A party that prevents a contractual condition from occurring through its own breach cannot use that nonoccurrence to defeat the other party's rights. Filing cross-motions for summary judgment does not waive the right to trial unless the parties stipulate to final judgment on the summary judgment record.

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

In Phoenix, Desert Arcade LLC leased a shopping plaza from Copper Mesa Retirement Trust. The lease said that if the tenant requested at least $500,000 in expansion financing, the trust had to give the request reasonable consideration and negotiate in good faith; if negotiations failed, the tenant could buy the property at a formula price. Knowing the trust's property manager had never read the old lease file, Desert Arcade sent a financing request that omitted any mention of the lease clause because its manager hoped for a quick rejection that would trigger the buy option.

If the trust later proves those facts at trial, which is the strongest conclusion?

Explanation. The majority treats good faith in performance as forbidding opportunistic sharp dealing, including deliberately taking advantage of a contract partner's oversight about rights under the contract. The absence of an express notice requirement is not dispositive if the tenant intentionally tried to trick the other side during an ongoing contractual relationship. But the remedy is not automatic merely from rejection, and good faith is more than just avoiding affirmative fraud. (Derived from Market Street Associates Limited Partnership v. Frey (1991).)