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Broad. Co. v. Oak Ridge FM, Inc. - 395 S.W.3d 653 (Tenn. 2013)

Rule:

Principles of Tennessee contract law generally conform to established and accepted contract law principles in other American jurisdictions. Absent an express disavowal by the parties, every contract, whether oral or written, generally contains an implied covenant or duty of good faith and fair dealing in its performance and enforcement. Generally, there is an implied covenant of good faith and fair dealing in every contract, whereby 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. Every contract imposes an obligation of good faith and fair dealing between the parties in its performance and its enforcement, and if not expressed by its terms in the contract, it will be implied.

Facts:

Defendant Oak Ridge FM, Inc. contractually agreed for plaintiff *** Broadcasting Company ("DBC") to have a right of first refusal to purchase Oak Ridge FM's WOKI-FM radio station assets. The agreement was assignable by DBC only with the written consent of Oak Ridge FM. When DBC requested Oak Ridge FM to consent to the assignment of the Right-of-First-Refusal agreement to a prospective buyer, Oak Ridge FM refused to consent. Oak Ridge FM also refused to consent to the assignment of the Consulting Agreement and Time Brokerage Agreement, neither of which contained a consent provision. DBC sued Oak Ridge FM and the other defendants, alleging breach of contract and violation of the implied covenant of good faith and fair dealing. The trial court granted the defendants a summary judgment. DBC appealed, and the Court of Appeals vacated the summary judgment. The state supreme court granted the broadcasting company's application for permission to appeal.

Issue:

Can an implied covenant of good faith and fair dealing apply to a non-assigning party's conduct in refusing to consent to an assignment when the agreement does not specify a standard of conduct?

Answer:

Yes

Conclusion:

The Court held that where the parties have contracted to allow assignment of an agreement with the consent of the non-assigning party, and the agreement is silent regarding the anticipated standard of conduct in withholding consent, an implied covenant of good faith and fair dealing applies and requires the non-assigning party to act with good faith and in a commercially reasonable manner in deciding whether to consent to the assignment. Because there were genuine issues of material fact in dispute, summary judgment was inappropriate and the judgment of the Court of Appeals was affirmed. The case remanded to the chancery court.

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