It has long been understood that parties to a transaction, such as a written contract, have a duty to act in good faith - to act within the "spirit" of the contract, as well as the "letter" of the contract. In legal terms, a duty of "good faith and fair dealing" is imposed by law on all parties to a contract, regardless of the subject matter or terms of the contract. Simply put, one may not always disregard the consequences of its actions on others, even when the conduct in question may be technically permissible under the l etter of a contract.
Recently, the New Jersey Supreme Court strongly reaffirmed this good faith obligation. In Sons of Thunder, Inc. V. Borden, Inc., the Court upheld an award of monetary damages to a party whose contract was terminated, even though the defendant had a clear right to terminate, based on the defendant's bad faith conduct prior to termination. In doing so the Court allowed an award of monetary damages based on expected future profits. Thus, the award effectively superseded the termination clause of the contract.
Sons of Thunder is noteworthy for its unanimous and lengthy discussion of the facts of the case, and its strong reaffirmation of the duty of good faith. This new opinion strikes a note of hope for those who feel they have not received what they bargained for, and serves as a cautionary tale for those who would rely too heavily on the terms of a contract to justify actions that do not comport with fair play.
