266 = Part Three The Legal Environment of Thunder, Inc J-1997) of Business Relationships Ships and Liability Passing in the Night? FACTS Borden, Inc, owned Snow Food Products Division, a leading producer of clam products. Wayne Booker, manager for Borden, asked Mr. Donald DeMusz to undertake the Shuck-at-Sea program. Mr. DeMusz sub- mitted a proposal that Mr. Booker and other executives approved. ‘An internal company memo from Mr. Booker included the following paragraph along with a description of how Mr. DeMus7’s purchase of a boat would save money: [Wee still have a significant mutual interest zwith DeMuse [sic]. His principal business will still be in chartering the Snow fleet and in captaining Arlene, He needs a dependable customer for the clams that he catches, ether shell stock or mec. If we terminate our agreement with him, he would have a hard time mak- ing the payments on his boat. Mr. DeMusz drafted a one-page contract, and Mr. Booker approved it with one small change. Mr. DeMusz then formed Sons of Thunder, Inc., with Bill Gifford and Bob Dempsey in order to purchase the second boat. ‘The final contract was entered into on January 15, 1985, and included the following provision: ITIS understood and Agreed to by the parties hereto that Snow Food Products shall purchase shell stock from Sons of Thunder Corp. for a period of one (1) year, at the market rate that is standardized throughout the industry. The term of this contract shall be for a period of one (1) year, after which this contract shall automatically be renewed for a period up to five years. Either party may ‘cancel this sont by giving prior notice of said cancelation in writing Ninety (90) days pric cancelation date. Pabaaee Sons of Thunder Corp. will stock ‘t's Toned Sra Fao” St a Sel In March 1985, Sons of Thunder bought a b Sons of Thunder for $588,420.26. ess bow ke ©niusKratartockcon the records show that Borden rer a eeu amount specified in the did not Peoples continued and the relationship contract hen Borden discovered that a $500,000 souret ing error had actually overstated the benefits are ghack-at-Sea program, Borden terminated the corre eMusz, stuck with a boat and a loan and no customer, filed suit, Borden moved for sum- mary judgment on the grounds that it had properly anenised its termination rights. The jury found for Mr. DeMusz, the court of appeals affirmed, and Borden appealed. JUDICIAL OPINION GARIBALDI, Justice The obligation to perform in good faith exists in every contract, including those contracts that con- tain express and unambiguous provisions permit- ting either party to terminate the contract without cause. Borden knew that Sons of Thunder depended ee from its contract with’ Borden to pay tek cane loan. Yet, Borden continuously breached oe ciaaa Ba by never buying the required amount tohonee dort the Sons of Thunder. Borden’s failure ficient ane Contract left Sons of Thunder with insu of Thun seer to support its financing for the Sons Bor ti pcan also aware that Sons of Thunder taken to fina e over loan that Sea Work had ince the rerlgging and purchasing costs » Borden knew that the corpo” © dependent on each other, and that likely fail. ‘d, the other would most The final i of $412,000, apne iS Whether the jury's assessment ‘conrinué?Chapter 1) preach of the implied for 8 : lied coven, ir dealing? We aj ‘ant of ; we cays ard of one yr SHE Himpiege CASE reasonable and fair estimsye ational Drome QUESTIONS es" Moreover, we agree with thopecation waits the nature of the re - DeMusz and Borden. it jg 8 trial court da fits are an * that lost PF! appropriate re 2. Whati medy wh Wil Gira et" en a eae! does “ped ath 3. What ate the damages when there isa lack of faith in the termination of a contract? payer breaches the implied covenant g and fair dealing. f good faith fe ‘Ontracts and Sales: Performance and Remedies 267 tionships between have on termination f good Mutual Settlements on Performa: nce: i and Accord and Satisfaction coer often the obligation to perform is discharged by agreement of the parties. In same cases, the parties substitute someone else for the obligation in an agree” ment called a novation, For example, suppose that before forming a corpora ‘ion, a business owner signed a lease for store premises and then incorporated the business. The landlord agrees to substitute the new corporation as the tenant, All three parties (landlord, owner, and corporation) sign & novation. The owner is excused from individual liability and performance, and the cor- poration is substituted. Note that the Jandlord must agree; the owner cannot discharge his or her performance obligations by unilaterally substituting the corporation. | : ituati ie for payment in full on a In other situations, the parties reach an agreement for P : is rd and satisfaction. The amount they contact such an agreement acl amount sgeeto pay may Beles ‘ue of the contract. The accord and 3 , the va ranties, repairs, and other issues chong of both patties. satisfaction discharges the perfor i er Contract Remedies contract, the nonbreaching party isaval pious inate pat ry ne san Tecover fois dasOe he fe ronbreactin re aw has formulas to Compensatory: di is to pul ch occurred- ry. damages is f rea f every type of con- ect she would have Bee a So Fa ae “ er $15,000 and culate the amount of comPS tosell a eo ld cost to'b “poo it would cost to buy a etForoxample fa sole sg cole fhe extra $ : seller breaches, the buy sg parties are entitled to col- stitute car priced at $160 srnages nose cause of the breach, I tg nation to compensatory tal damage cara buyer he refused to buy, the 1 extra damages, OF to $e" inan 5 eller must run an ad in 0 jamagee « “sls of the ad are incidem'