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Racine & Laramie, Ltd. v. Dep't of Parks & Recreation - 11 Cal. App. 4th 1026, 14 Cal. Rptr. 2d 335 (1992)

Rule:

The implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation. The covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract's purpose. In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.

Facts:

Plaintiff concessionaire was operating in a state historic park under a contract with defendant California Department of Parks and Recreation began negotiations with the Department to modify the contract to permit expanded operations. The concession contract, which permitted the concessionaire to run a tobacco shop and wine tasting facility, had a term of 40 years and extended until the year 2014. The concessionaire sought to expand its business to include a restaurant and the on-premises sale of alcoholic beverages, but negotiations ultimately broke down. The concessionaire then brought suit against the Department, alleging a breach of the implied covenant of good faith and fair dealing. A jury found the Department guilty of breaching "the covenant of good faith and fair dealing in its negotiations of an amendment/new contract to the concession agreement" and assessed damages of $592,110 in favor of the concessionaire. The Department sought review of the judgment of the Superior Court of San Diego County (California).

Issue:

Was there sufficient evidence that supported the finding that the state Department had breached the covenant of good faith and fair dealing in its negotiations of an amendment/new contract to the concession agreement? 

Answer:

No

Conclusion:

The court reversed the judgment of the trial court. The court held that the Department had no obligation to negotiate new terms of the concession contract, that its commencement and continuance of negotiations over a long period of time had no effect upon this lack of obligation, and that its assumption of an arbitrary stance at some point in the negotiations could not be a breach of any contract term, including the implied contract terms of good faith and fair dealing. The court held that the implied covenant of good faith and fair dealing was limited to assuring compliance with the express terms of the existing contract and did not apply to negotiations for contract modifications.

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