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The non-occurrence of a condition of a duty is said to be "excused" when the condition need no longer occur in order for performance of the duty to become due: It may be excused by prevention or hindrance of its occurrence through a breach of the duty of good faith and fair dealing. Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. This legal principle also applies to contracts providing for the payment of commissions to real estate agents.
On August 1, 1994, Guillaume Motorsports, Inc., represented by its president and sole stock-holder Todd Williams, agreed to lease real property in Bentonville to Kenneth Bower and Kay Bower. The lease gave the Bowers an option to purchase and provided for the payment of a commission to Cantrell-Waind & Associates, Inc., the real estate broker in this transaction. The Bowers chose to exercise the option to purchase, and they anticipated closing at the earliest possible date. Soon after this, Williams approached Mr. Bower and offered to credit him with one-half of Cantrell-Waind’s $15,200 commission if he would agree to delay closing until after August 1, 1996. Mr. Bower declined this offer. Closing occurred on August 14, 1996, and the commission was not paid. Cantrell-Waind filed a complaint against Guillaume Motorsports on August 12, 1996, for breach of contract. Guillaume Motorsports’ moved for summary judgment on the ground that it was under no obligation to close the transaction before August 1. The trial court granted summary judgment, and held that Guillaume Motorsports had no obligation to Cantrell-Waind to arrange for a closing date that would have entitled Cantrell-Waind to a commission and said that the real estate commission was "clearly avoidable" by Guillaume Motorsports. Cantrell-Waind appealed.
Did the circuit court err in failing to recognize that a duty of good faith and fair dealing was included in this contract and, therefore, Guillaume Motorsports was obligated to not deliberately avoid closing the transaction before August 1, 1996?
The court agreed with Cantrell-Waind that the trial judge erred in his interpretation of the applicable law and found that there were genuine issues of material fact that needed to be tried. The court found that the terms of the contract provided that a commission would be due only if closing occurred before a date certain. This was a condition precedent in the contract. When a contract term left a decision to the discretion of one party, that decision was virtually unreviewable. However, the courts could become involved when the party making the decision was charged with bad faith. The court held that the trial court erred in failing to recognize that a duty of good faith and fair dealing was included in this contract. Therefore, the buyers were obligated to not deliberately avoid closing the transaction before a certain date.