American Express Group & Incentive Services, Inc. v. Forhan

448 N.W.2d 832, 181 Mich. App. 278
CourtMichigan Court of Appeals
DecidedNovember 21, 1989
DocketDocket No. 108184
StatusPublished
Cited by2 cases

This text of 448 N.W.2d 832 (American Express Group & Incentive Services, Inc. v. Forhan) is published on Counsel Stack Legal Research, covering Michigan Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
American Express Group & Incentive Services, Inc. v. Forhan, 448 N.W.2d 832, 181 Mich. App. 278 (Mich. Ct. App. 1989).

Opinion

Per Curiam.

Defendant, William G. Forhan, appeals as of right from a final judgment entered by the circuit court. Forhan challenges a previous order granting partial summary disposition in favor of third-party defendant, American Express Company (amexco). The order Forhan challenges dismissed count m of his countercomplaint which alleged a breach of the implied contractual duties of good faith and fair dealing.

i

Forhan owned and operated a business known as Motivation Planners, Inc. (mpi), which handled group and incentive travelers for large corporations. In 1983, amexco contacted Forhan inquiring whether he was interested in selling the company. Under the acquisition agreement consummated between the parties, Forhan sold amexco 20,000 of the 25,000 outstanding shares of mpi stock in exchange for amexco stock. The remaining 5,000 shares of mpi stock were made subject to the terms of a cross-option agreement wherein Forhan and amexco granted each other respective call and put options for the purchase of the shares. The purchase price for the option shares was to be based on a percentage of mpi’s pre-tax income each fiscal year. After the acquisition, mpi’s name was changed to American Express Group & Incentive Services, Inc (aegis).

An employment agreement was also entered into between mpi and Forhan, wherein Forhan was retained as the company’s president and general manager for a period of years. The employment agreement also contained various requirements pertaining to nondisclosure of client lists, trade secrets, and other confidential information as well as a covenant not to compete.

[281]*281In September, 1986, Forhan ceased the active performance of his duties as president and general manager, but continued as an employee on the payroll. In November, 1986, aegis filed suit against Forhan alleging breach of the employment agreement.

Following the entry of a temporary restraining order, Forhan responded with a countercomplaint against aegis and a third-party complaint against amexco. Forhan’s complaint contained breach of contract counts against both aegis and amexco along with a count for intentional interference with contractual relations which purported to apply to both aegis and amexco. In April, 1987, the counterclaim was amended such that count iii, intentional interference with contractual relations, was replaced with a count alleging breach of implied contractual duties of good faith and fair dealing. Count iii, as amended, applied only to AMEXCO.

Following amendment of the complaint, amexco moved for and was granted partial summary disposition pursuant to MCR 2.116(C)(8) and (10) as to count iii. All other claims were thereafter resolved pursuant to mediation acceptance. Following entry of a final judgment, Forhan appealed to this Court, challenging the trial court’s prior order dismissing count iii of his countercomplaint.

ii

Forhan contends that summary disposition was improperly granted in favor of amexco. Count iii of Forhan’s countercomplaint challenged amexco’s management and operation of aegis in numerous respects and essentially alleged amexco had failed to act in a way designed to maximize aegis’ pretax income. Forhan alleged that amexco’s failure [282]*282to affirmatively attempt to maximize aegis’ pre-tax income amounted to a breach of an implied covenant of good faith and fair dealing implicit in the various agreements.

Amexco, on the other hand, contends that, although New York law may recognize an implied contractual covenant of good faith and fair dealing, such a covenant cannot be applied in a manner inconsistent with the express terms of a contract. Amexco contends that the agreement in this case expressly provided that it had no obligation to provide aegis with any assistance or support, financial or otherwise.

Although amexco’s motion was brought pursuant to MCR 2.116(C)(8) and (10), the court did not indicate on which ground it was granting the motion. However, because amexco submitted several items of documentary evidence in support of its motion and because Forhan responded with affidavits, deposition transcripts, and documentary evidence of his own, it appears the parties and the trial court treated the motion as if brought pursuant to MCR 2.116(C)(10), and, therefore, we will review this case as if decided on that basis.

New York law, which is applicable here, clearly recognizes an action for breach of an implied contractual covenant of good faith and fair dealing:

It is a primary rule of contract construction that where the terms of a written agreement are clear and unambiguous, the intent of the parties must be drawn from the contract language .... This is so because "it is not the function of the courts to remake the contract agreed to by the parties, but rather to enforce it as it exists[.]” ... In achieving that end, due regard must be given the overriding principle that every contract contains an implied covenant of good faith performance and fair deal[283]*283ing .... Moreover, that a specific promise has not been expressly stated does not always mean that it was not intended. "[T]he undertaking of each promisor in a contract must include any promises which a reasonable person in the position of the promisee would be justified in understanding were included[.]” [Havel v Kelsey-Hayes Co, 83 AD2d 380, 382; 445 NYS2d 333, 335 (1981).]

The obligation of good faith and fair dealing is limited, and no obligation can be implied which would be inconsistent with other terms of the contractual relationship. Murphy v American Home Products Corp, 58 NY2d 293, 304; 461 NYS2d 232, 237; 448 NE2d 86, 91 (1983). This limitation was recently discussed by an Illinois federal district court in Istituto Mobiliare Italiano, S p A v Motorola, Inc, 689 F Supp 812, 815 (ND Ill, 1988). Applying New York law, the court stated:

Although a duty to deal fairly and act in good faith may be implicit in the guarantee, this obligation may not conflict with other terms of the agreement. Where two parties enter an agreement according certain rights and privileges to each, courts will not apply the covenant of good faith and fair dealing to impair such rights.

We conclude from the above cases that, although New York recognizes an implied contractual duty of good faith and fair dealing, this duty must relate to obligations implicit in the contract and will not operate to impair rights or privileges expressly provided for, nor will obligations be implied which would be inconsistent with other terms of the contract.

Here, Forhan’s claims that amexco breached implied obligations of good faith and fair dealing were essentially based on amexco’s alleged failure to adequately market, develop, or otherwise pro[284]*284vide support and assistance to aegis in order to maximize pre-tax income.

The key contractual provision applicable here is § 10.02 of the acquisition agreement, which provides:

Financing and Management Assistance; Dividends.

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Bluebook (online)
448 N.W.2d 832, 181 Mich. App. 278, Counsel Stack Legal Research, https://law.counselstack.com/opinion/american-express-group-incentive-services-inc-v-forhan-michctapp-1989.