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Self-Dealing Allows Contract Termination
Description In a case involving self-dealing, Appeals court held that a contract could be terminated without observing the thirty-day notice and potential for cure that was allowed in the contract. Breach of the duty of honesty violates the basis of the contract, there is no need to observe the thirty-day termination notice.
Topic Contracts
Key Words Termination, Self-Dealing
C A S E   S U M M A R Y
Facts Owner of a hotel had a management contract with Larken to operate the hotel. The contract contained a termination clause that in event of conflict, there should be notice and the right to cure the problem before termination could occur, on thirty-day notice. Owner ended the contract with Larken for self-dealing without observing the thirty-day period. Larken had kept rebates from long distance phone suppliers, rather than paying them to the owner, and had spent substantial sums of company money on personal goods. District court held that the owner had to allow Larken to attempt to cure by giving thirty days notice.
Decision Reversed. The acts of self-dealing "were so serious that they frustrated one of the principal purposes of the management agreement, which was to manage the hotel in the best interests of the owner and to be honest and forthright in its dealings. Self-dealing is the antithesis of that purpose, and it violates the relationship of trust necessarily underlying such agreements. Larkens breach of its implied duty of honesty and fidelity went to the heart of the contract." The termination clause was irrelevant in this instance.
Citation Larken, Inc. v. Larken Iowa City Ltd. Partnership, 1998 WL 889731 (Slip Copy, Sup. Ct., Iowa)
589 N. w. 2d 700 (Sup. Ct., Iowa, 1999)

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