You are here: / / A CONTRACT WHICH ALLOWS A PARTY “SOLE DISCRETION” TO ASSIGN...
,

A CONTRACT WHICH ALLOWS A PARTY “SOLE DISCRETION” TO ASSIGN A LOAN IS CONSTRAINED BY THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; HERE IT WAS ALLEGED THE ASSIGNMENT WAS PART OF A “BACKROOM DEAL” TO EXCLUDE PLAINTIFF FROM A DEVELOPMENT PROJECT AND BENEFIT FROM A RESULTING WINDFALL; THE BREACH OF THE IMPLIED COVENANT CAUSE OF ACTION WAS REINSTATED BY THE COURT OF APPEALS (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, over a three-judge partial dissent, reversing (modifying) thee Appellate Division, determined the cause of action alleging breach of the implied covenant of good faith and fair dealing should not have been dismissed. The complex facts of the case center around loans and contracts to develop a luxury residential tower. Under the Pledge Agreement at issue the defendant, Apollo, had “sole discretion” to assign a “junior mezzanine loan.” The majority concluded that the “sole discretion” did not override the implied covenant of good faith and fair dealing. Plaintiff alleged the assignment of the loan to “Spruce” was part of a “backroom deal” to push plaintiff out of the project’s capital structure and benefit from a resulting windfall:

We concur with the prevailing view among the Appellate Division departments—that a party’s “sole discretion” with respect to a right does not exculpate that party from complying with the implied covenant with respect to that right. Although “parties to a contract are basically free to make whatever agreement they wish, no matter how unwise it might appear to a third party . . . [t]here exists an unavoidable tension between the concept of freedom to contract . . . and the equally fundamental belief that an enlightened society must to some extent protect its members from the potentially harsh effects of an unchecked free market system” … . In light of those competing interests, “rightly or wrongly, society has chosen to intervene in various ways in the dealings between private parties,” for example by “mandating the express or implicit inclusion of certain substantive or procedural provisions in various types of contracts” … . Indeed, one of those implicit substantive provisions is the implied covenant, which has the primary purpose of ensuring 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,” when that conduct is “inconsistent with the other terms of the contractual relationship,” and yet not negotiated for in advance … .

This doctrine is even more important “where a contract contemplates the exercise of discretion,” or in other words awards one party the freedom to act in ways the contract may not directly foresee … . Accordingly, the implied covenant obligates the party with discretion act in good faith, and “not [] arbitrarily or irrationally,” when “exercising that discretion” … . A promisor’s discretion may not be used to violate a promise that “a reasonable person in the position of the promisee would be justified in understanding w[as] included” … . 111 W. 57th Inv. LLC v 111 W57 Mezz Inv. LLC, 2026 NY Slip Op 03376, CtApp 5-28-26

Practice Point: A contract provision allowing a party “sole discretion” to take certain actions is constrained by the implied covenant of good faith and fair dealing. i.e., a party cannot exercise discretion in a way that frustrates another party’s rights under the contract.

 

You might also like
LAWSUIT ALLEGING THE FAILURE TO PROVIDE SOUND BASIC EDUCATION CAN PROCEED, BUT ONLY WITH RESPECT TO SCHOOL DISTRICTS IN NEW YORK CITY AND SYRACUSE. ​
“Reckless Disregard” Standard of Care Applies to Operators of Street Sweepers in New York City—Standard Explained
BY CLICKING ON CONTRACT TERMS ON HER SMART PHONE, PLAINTIFF AGREED TO ARBITRATE HER PERSONAL INJURY CLAIM AGAINST UBER; PLAINTIFF ALLEGED INJURY AFTER AN UBER DRIVER LEFT HER OFF IN TRAFFIC (CT APP).
SUBSTANCE ABUSE TREATMENT FACILITY OWED NO DUTY TO PLAINTIFF WHO WAS ASSAULTED BY A RESIDENT SHORTLY AFTER THE RESIDENT WAS DISMISSED FROM THE TREATMENT PROGRAM.
Class Action Mechanism Is Available Where the Relevant Statute Imposes a Non-Mandatory Penalty and the Penalty Is Waived by the Class
INTERSTATE SOVEREIGN IMMUNITY IS AN ISSUE WHICH MUST BE RAISED BEFORE THE TRIAL COURT TO BE PRESERVED FOR APPEAL TO THE COURT OF APPEALS; HERE A NEW JERSEY TRANSIT BUS COLLIDED WITH A CAR DRIVEN BY A NEW YORK RESIDENT IN THE LINCOLN TUNNEL AND THE TRIAL WAS HELD IN NEW YORK; ALTHOUGH THE INTERSTATE SOVEREIGN IMMUNITY DEFENSE WAS VALIDATED BY THE US SUPREME COURT IN 2019, THE ISSUE WAS NOT RAISED BEFORE THE TRIAL COURT (CT APP). ​
A MUNICIPALITY OWES A CHILD IT PLACES IN FOSTER CARE A SPECIAL DUTY SUCH THAT THE MUNICIPALITY CAN BE LIABLE FOR A NEGLIGENT PLACEMENT WHICH LEADS TO FORESEEABLE HARM TO THE CHILD (CT APP).
NON-MANDATORY STANDARDS FOR THE GAP BETWEEN A SUBWAY TRAIN AND THE PLATFORM PROPERLY ADMITTED IN THIS SLIP AND FALL CASE; HOWEVER THE EVIDENCE OF PRIOR GAP-RELATED ACCIDENTS SHOULD NOT HAVE BEEN ADMITTED; NEW TRIAL ORDERED (CT APP).

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2026 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy

WHEN DOES A RESTRICTIVE COVENANT RUN WITH THE LAND? WHEN IS A RESTRICIVE COVENANT... HERE THE SORA RISK-LEVEL GUIDELINES DID NOT ADEQUATELY TAKE INTO ACCOUNT DEFENDANT’S...