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Borden Pays Big Clams for Breach of Good Faith
Description New Jersey Supreme Court affirms judgment of trial court for breach of UCC section 1-203 which imposes the obligation of good faith in the performance of a contract.
Topic Sales
Key Words Good faith, fair dealing, UCC 1-203, expectation damages, breach, bad faith
C A S E   S U M M A R Y
Facts DeMusz, a long time employee of Borden, left Borden to start a company to provide clams exclusively for his former employer. Based on this contract, DeMusz formed Sons of Thunder, to buy a boat in order to fill the clam requirements of his contract with Borden. When Sons applied for the boat loan, Borden vouched for Sons of Thunder with reassurances that the contract was long term and the revenues were sufficient to support the loan. Soon after the boat was ready, management changed at Borden and the new management refused to honor Sons of Thunder's contract during the first four months of operation and invoked the 90 day termination clause in the contract. Demusz testified at trial that the 90 day termination clause was meant to apply only after each year of operation; therefore Sons of Thunder was denied the income and profits that it would have had during the first year of operation. A former Borden executive corroborated DeMusz's testimony. The jury awarded one year's worth of lost sales profits to Borden $412,000 (expectation damages) and $363,292 to cover damages incurred during the four months in which Borden refused to honor the contract. Borden appealed.
Decision The New Jersey Supreme Court affirmed the jury award based on violation of UCC section 1-203: Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement. Further, every New Jersey contract contains an implied covenant of good faith and fair dealing under state common law. Borden failed to perform under the requirements of the contract by repeatedly refusing the quantity specified or to pay the contract price. Borden knew that Sons relied on the contract for repayment of the boat loan. Further, Borden knew not only that the loan was contingent on Bordens's fulfillment of the contract but also told the bank that it supported the loan to DeMuzs. Borden's behavior constitutes bad faith.
Citation Sons of Thunder v. Borden, 1997 WestLaw 104592, Supreme Court of New Jersey (1997)
690 A 2d 575 (Sup. Ct., N. J., 1997)

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