Breach of contract (settlement agreement concerning shares of stock); The implied covenant of good faith & fair dealing; Hammond v United of Oakland, Inc

Holding that the implied covenant of good faith and fair dealing could not sustain plaintiff-shareholder’s breach of contract claim, the court reversed the Court of Appeals’ decision to the contrary. The parties agreed to use a formula to calculate the redemption price of plaintiff’s stock shares in defendant-ski resort. When the formula produced a negative redemption price, plaintiff sued the resort and its CEO alleging they refused to use an alternative formula in breach of the parties’ contract. The trial court allowed plaintiff’s claim to proceed, finding questions of fact remained as to whether the implied covenant of good faith and fair dealing could sustain it. The Court of Appeals affirmed, relying on the implied covenant of good faith and fair dealing. On leave, the court found that because the parties “‘unmistakably expressed their respective rights’ regarding redemption-price calculation, the Court of Appeals erred by holding that defendants were contractually obligated to use a different formula under the implied covenant of good faith and fair dealing.” The parties “agreed to an unambiguous formula to calculate . . . plaintiff’s redemption price. And the phrase ‘unless otherwise agreed by the Parties’ created no discretionary duty or obligation to depart from this agreed-upon formula.” The Court of Appeals’ “holding to the contrary effectively transformed the implied covenant of good faith and fair dealing into an independent cause of action that may be asserted in the absence of an underlying contractual duty or obligation. Because this surpasses the scope of the implied covenant as laid out in Court of Appeals precedent, the panel erred by holding that plaintiff stated a valid claim for breach of contract on that basis.” Remanded to the trial court.