Seidenberg v. Summit Bank – Case Brief
Seidenberg v. Summit Bank, 348 N.J. Super. 243, 791 A.2d 1068 (N.J. Super. Ct. App. Div. 2002).
Facts: Seidenberg and another plaintiff (Ps) sold their insurance brokerage business to Summit Bank (D). In exchange they received 445,000 shares of stock in Summit Bank’s parent corporation and were to continue as executives of the brokerage firms. The employment agreements acknowledged the joint obligation to work together, and provided that Ps and D would formulate a joint marketing program to provide the brokerage firm with access to D’s marketing resources.
D later terminated Ps and Ps brought suit for breach of contract, contending that D had failed to honor its obligations regarding joint marketing, thereby impacting negatively Ps’ expected compensation and future involvement. Ps claimed that their allegations gave rise to an inference of bad faith and that D had never been committed to developing the business with Ps, and that D had merely sought to acquire Ps’ business to operate it themselves.
All claims except Ps‘ claim of a breach of the implied covenant of good faith and fair dealing were settled. The lower court dismissed the remaining claim, holding that the sellers sought to use parol evidence to prove an oral agreement made beyond the four corners of the written contract. Ps appealed.
Issues: 1) Must a court allow parol evidence in determining whether a breach of the covenant of good faith has occurred? 2) Is a claim under the implied warranty of good faith and fair dealing negated merely because the claimant had equal bargaining power, had engaged counsel, or was not financially vulnerable when negotiating the agreement?
Holding and Rule: 1) Yes. A court must allow parol evidence in determining whether a breach of the covenant of good faith has occurred. 2) No. A claim under the implied warranty of good faith and fair dealing is not negated merely because the claimant had equal bargaining power, had engaged counsel, or was not financially vulnerable when negotiating the agreement. These are factors which the trier of fact may consider in weighing the sufficiency of plaintiffs’ claim but they are not the only factors.
The covenant of good faith and fair dealing is contained in all contracts and mandates that neither party do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.
While the bargaining power and sophistication of the parties must be viewed as significant, it is not the sole criterion by which this claim must be resolved. The parol evidence rule prohibits the introduction of oral promises which tend to alter or vary an integrated written instrument. A parol agreement which contradicts the express words of a written contract necessarily is ineffectual and evidence of it inadmissible. Parol evidence may be admitted in order to provide understanding of the parties’ intentions. The parol evidence rule does not come into play until the true intentions of the parties is determined. The rule cannot inhibit the application of the implied covenant of good faith and fair dealing because that covenant is contained in all contracts made by operation of law.
There are limits and the implied covenant of good faith and fair dealing cannot override an express term in a contract. The implied covenant can require that a contracting party act in good faith when exercising discretion in performing its contractual obligations. It may occur that a party will be found to have breached the implied covenant even if the action complained of does not violate a pertinent express term.
In this case Ps do not seek to contradict or alter any express term in their written contract, but rather question D‘s good faith in both its performance and termination of the contract. To determine what is considered a good faith performance, the court must consider the expectations of the parties and the purposes for which the contract was made. It would be difficult, if not impossible, to make that determination without considering evidence outside the written contract. Therefore, in determining whether a breach of the covenant has occurred, a court must allow for parol evidence.
Ps‘ allegations of bad faith and ill motives are sufficient to survive dismissal.