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Manning v. Lithium Technology Corporation

A-2389-10T4 (N.J. Super. App. Div. 2011) (Unpublished)

CONTRACTS; GOOD FAITH AND FAIR DEALING — Parties are not bound by what they think, but rather by what they say, meaning that there is no contract if people have not agreed on the terms of such a contract and, in the absence of a contract, there is no implied covenant of good faith and fair dealing.

An employee originally began working as his company’s Director of Process Development. Eight years later, he signed a three-year employment contract for the positions of Executive Vice-President, Chief Operating Officer, and Chief Technical Officer. His contract did not contain a “signing bonus” and it only had a provision allowing termination “for cause,” or if he became totally disabled or died. It did not have any provision for early termination for any other reason. The contract was approved by the company’s board of directors.

The employee claimed that he signed a new, three-year superseding employment contract a year later but could not produce either a signed or unsigned copy of that contract. The company claimed that the original contract was never renewed or extended and it had no other contract with this employee. There was no question that about two years after the original contract was signed, the company’s Chief Executive Officer and the employee discussed a possible salary increase. At about the same time, there were also discussions about changes to the company’s management structure and the possibility of a “new employment contract appointing [the employee] as President” and Chief Operating Officer. Specific terms, such as compensation or duration, were never discussed. The employee discussed the proposed new contract with an individual who was about the join the company as its Chief Financial Officer. He was told by that person that the company was preparing a contract for the incoming officer and “that there would be a similar contract drawn up” for the existing employee. The incoming officer was not involved in the negotiations or in any contract drafting and never saw a draft.

Apparently by mistake, the company’s attorney sent the existing employee a draft of the incoming officer’s contract. It included a signing bonus; it gave the incoming officer “full authority and responsibility” for the company’s financial affairs, and included a termination provision calling for a substantial payment if the incoming employee were fired without cause.

The employee never received a copy of his own contract, but believed that the company’s board had approved both his contract and the contract for the incoming, new employee. The board’s minutes never reflected such approval. Eventually, the board adopted a resolution appointing the existing employee as President and Chief Officer at a substantial salary increase. The time came when the company thought that the employee should step down from his offices but still remain as Chief Technical Officer. Eventually, the board made those organizational changes and then shortly thereafter, the employee was fired and told that his salary would continue for about nine more months.

The employee sued his former employer, “alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment.” He also made various other claims against the company and one of its officers. Basically, he “alleged that he had a three-year contract through about the same time as his salary would end in connection with his firing.” The lower court dismissed all claims against the company, finding no contract other than to appoint the employee as Vice President and Chief Operating Officer with the stated annual salary which contract the company did not breach.

The employee appealed, but unsuccessfully. The Appellate Division conducted a standard contract analysis, holding that “[a] contract arises from offer and acceptance, and must be sufficiently definite ‘that the performance to be rendered by each party can be ascertained with reasonable certainty.’ ... If the parties agree on central terms and further manifest an intention to be bound by those terms, they have created an enforceable contract. ... Thus, ‘there must be an unqualified acceptance of the offer in order for there to be a contract. ... Where the parties do not agree to one or more central terms, however, courts generally hold that the agreement is unenforceable.” Basically, the Court recited: “Parties are not bound by what they think, but rather by what they say. ... In the absence of a contract, there is no implied covenant of good faith and fair dealing.”

Based on that analysis, the Court looked at the record and agreed with the lower court that “[n]o reasonable juror could conclude that the parties had a binding contract that included termination without cause provision.” According to the Court, there was “no dispute that the Board had to approve an employment contract.” It then found that because the board “never voted on or passed a resolution approving” the contract, there was no such contract and therefore there was no implied covenant of good faith and fair dealing. The Court felt that it was clear from the board’s resolutions “that the parties only had a binding contract as to [the employee’s] position and salary.”

As to the negligent misrepresentation claim, the Court pointed out that negligent misrepresentation is a tort and “nder New Jersey law, a tort remedy does not arise from a contractual relationship unless the breaching party owes an independent duty imposed by law.” Here, the Court found no such independent duty holding that the contract between the parties “defined the full scope of the duty owed to [the employee].”

As to the employee’s tortious interference claim against one of the company’s employees, the Court pointed out that such a claim may only be made against persons “who are not parties to the relationship” and “if an employee or agent is acting on behalf of his or her employer or principal, then no action for tortious interference will lie.” In sum, the Court a upheld the ruling of the lower court.

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