Engagement / Study Questions: CONTRACTS

ESQ #35
Good Faith – part 2

1. There are two main issues in Dalton v. Educational Testing Service – one pertains to
the basis of recovery (breach of contract) and the other to the measure of
recovery (what remedy is available).
 What precisely is the alleged breach of contract by ETS?

 What remedy does Dalton seek for the alleged breach?

2. Turning first to the alleged breach of contract by ETS – the violation of good faith
and fair dealing implicit in ETS’s contract with Dalton. What is the rule the court
uses to decide whether this implicit contractual duty has been violated? In other
words, how does the court define “good faith?”

3. Does the court decide what ETS must determine with respect to Dalton’s test
scores, or does the court simply identify how ETS must make that determination?
Explain precisely what it is that the court requires ETS to do.

4. The dissenting judge (J. Levine) in Dalton v. ETS states that he and the majority
all agree that ETS “had no duty, express or implied, to investigate the
information submitted by Brian Dalton.” Is that a true characterization of what
the majority opinion concludes?

5. Why does J. Levine conclude that ETS met its contractual obligations to Dalton?

6. Which opinion do you believe offers a better legal analysis of the situation in
Dalton v. ETS, the majority or dissent – and why?

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7. The issue in Third Story Music, Inc. v. Waits is “when an agreement expressly
gives to one party absolute discretion over whether or not to perform, when
should the implied covenant of good faith and fair dealing be applied to limit its
discretion.” What rule does the court use to decide this issue?

8. What was the express term of the agreement in Third Story Music that the court
found explicitly authorized the alleged act(s) of bad faith?

9. How does the implied duty of good faith operate differently in Third Story Music
and in Wood v. Lucy, Lady Duff-Gordon? Why does “good faith” constrain absolute
discretion in the Wood case, but does not constrain discretion in Third Story
Music?

10. Cussler v. Crusader Entertainment, LLC also deals with contractual clauses defining
the level of a party’s discretion.
 What level of discretion did Cussler have with respect to accepting
changes to the screenplay

 What level of discretion did Crusader have with respect to approving

Cussler’s public statements?

11. Does the court in Cussler use the same rule as the court in Third Story Music to
resolve the issue of how the implied duty of good faith interacts with express
contractual allocations of discretionary power?

12. Why did the court find that it was not bad faith for Cussler to fail to even
consider proposed screenplays?

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13. Why did the court find that it was not bad faith for Cussler to make disparaging
statements to the press about Crusader and Sahara, the movie?

14. Why does the court on remand need to make a finding as to which party is
“prevailing” since the appellate court has already foreclosed anyone paying
damages due to a violation of good faith and fair dealing?

15. Based on the rule in both of these cases, when (if ever) would the implied
covenant of good faith and fair dealing constrain party discretion and
performance in and under a contract?