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Posted: February 4, 2014

Landlord’s Alleged Role in Frustrating Achievement of Contract’s Purpose Allows Claim for Breach of Duty of Good Faith and Fair Dealing to Survive Motion to Dismiss

On January 22, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Gelita, LLC v. 133 Second Ave., LLC, 2014 NY Slip Op. 50064(U), refusing to dismiss a claim for breach of the duty of good faith and fair dealing.

Among the many claims brought by the plaintiff that the defendants sought to dismiss was a claim for breach of the duty of good faith and fair dealing. The court declined to dismiss the claim, explaining:

The seven causes of action asserted against the Owner all attempt to arrive at the same legal conclusion — that, as a result of the Premises being unfit for its intended use, plaintiffs are absolved from paying the balance of rent due under the Lease. The Owner’s primary defense is that the Lease explicitly places the burden of building out the Premises and ensuring the suitability of its intended use on plaintiffs’ shoulders. Moreover, as discussed at length in the June Order, the Lease also explicitly disclaims any liability on the part of the Owner for problems arising from such build out or related legal issues, such as regulatory compliance. . . . .

The covenant of good faith and fair dealing in the course of performance is implied in every contract. This covenant embraces a pledge that neither party shall 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 duties of good faith and fair dealing do not imply obligations inconsistent with other terms of the contractual relationship,’ they do encompass any promises which a reasonable person in the position of the promisee would be justified in understanding were included. The duty of good faith and fair dealing may be breached when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other party of the right to receive the benefits under their agreement. However, a claim for breach of the implied covenant of good faith and fair dealing cannot substitute for an unsustainable breach of contract claim. In other words, the covenant of good faith and fair dealing cannot be construed so broadly as to effectively nullify other express terms of the contract, or to create independent contractual rights. Simply put, a plaintiff cannot contend that a defendant has a good faith obligation under a contract when that obligation is expressly disclaimed in the contract itself.

(Internal quotations and citations omitted) (emphasis added).  The court went on to explain that there was a question of fact whether

the Owner [had] committed bad acts in connection with the construction job . . . . Had the Owner done nothing, and left plaintiffs to their own devices, there would be no breach. However, if the Owner had a role in the alleged shoddy construction, the Owner would have played a part in frustrating plaintiffs’ ability to use the Premises and hence would have prevented plaintiffs from reaping the fruits of the contract. . . . Discovery is needed to determine . . . the actual scope of the Owner’s involvement in and responsibility for the alleged shoddy construction.

It is rare to see a claim for the breach of the duty of good faith and fair dealing survive a motion to dismiss. This decision is an example of (alleged) facts establishing such a claim.

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