Thank You For Submiting Feedback!
The duty of good faith imposed on parties to a contract limits the authority of a party retaining discretion to interpret contract terms; it does not provide a blank check for that party to define terms however it chooses.
The parties are Donald Scribner and WorldCom, Inc., Scribner's former employer. Scribner owned unvested options to purchase shares of WorldCom stock, which were to become immediately exercisable if WorldCom terminated him "without cause." WorldCom eventually terminated Scribner, not because of shortcomings in his performance, but to facilitate the sale of the division in which he worked. Scribner claimed that his termination was "without cause "and attempted to exercise his options. WorldCom, however, claimed that although Scribner had not been let go for deficient performance, his termination was nonetheless" with cause" for stock option purposes. Scribner sued. Both parties filed motions for summary judgment; the district court granted WorldCom's and denied Scribner's. Scribner appealed.
Can WorldCom, who retains discretion to construe the contract, define the word "cause" to mean something other than its ordinary meaning without informing Scribner that the ordinary meaning is irrelevant?
The circuit court found that under general contract interpretation principles, a termination "with cause" meant a termination due to some fault of the employee. Nothing in the contracts, the context, or the subsequent acts of the parties supported the notion that the word "cause" did not carry its ordinary, performance-related meaning. WorldCom was found to have breached its duty of good faith and fair dealing by disregarding Scribner’s justified expectations under the stock option contracts.