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THE COMPLAINT STATED CAUSES OF ACTION FOR BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALINGS, AS WELL AS PROMISSORY ESTOPPEL AND UNJUST ENRICHMENT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the complaint stated a cause of action for breach of contract based on the implied covenant of good faith and fair dealing. In addition, the Second Department held that the promissory estoppel and unjust enrichment causes of action did not duplicate the breach of contract causes of action:

Even if a party is not in breach of its express contractual obligations, it may be in breach of the implied covenant of good faith and fair dealing when it exercises a contractual right as part of a scheme to deprive the other party of the benefit of its bargain … . “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” … . “Technically complying with the terms of a contract while depriving the plaintiff of the benefit of the bargain may constitute a breach of the covenant of good faith and fair dealing” … .

* * *  “‘[E]ven an explicitly discretionary contract right may not be exercised in bad faith so as to frustrate the other party’s right to the benefit under the agreement'” … . The defendant failed to utterly refute the allegations in the complaint that the defendant terminated the consulting agreement without justification or good cause at a time when the completion of the subdivision of the property was only weeks away, despite the plaintiff’s alleged expenditure of hundreds of hours managing the process over the course of two years, and that the defendant acted in derogation of the consulting agreement, including by selling the property for less than its fair market value.

… Where “there is a bona fide dispute as to the existence of a contract or where the contract does not cover the dispute in issue, a plaintiff may proceed upon a theory of quantum meruit as well as contract, and will not be required to elect his or her remedies” … . JLO Dev. Corp. v Amalgamated Bank, 2024 NY Slip Op 05577, Second Dept 11-13-24

Practice Point: A complaint alleging breach of contract based on a violation of an implied covenant of good faith and fair dealing will survive a motion to dismiss, despite there being no specific provision of the contract which was alleged to have been breached.

Practice Point: Where there is an issue as to the existence of a contract or where the contract does not cover the issue in dispute, the plaintiff may plead promissory estoppel and unjust enrichment, in addition to breach of contract.

 

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