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Stankovits v. Schrager

A-0128-06T2 (N.J. Super. App. Div. 2007) (Unpublished)

CONTRACTS; GOOD FAITH AND FAIR DEALING — Absent a contractual breach, recovery for a breach of the implied covenant of good faith and fair dealing may only be had if the alleged breaching party acts with ill motive and without any legitimate purpose.

Two men were in the business of acquiring, rehabilitating, renting, and selling real estate for profit. The two partners eventually purchased a total of six properties. Initially, they had no written partnership agreement. However, before a purchase in which the defending partner claimed that he had no ability to put any money down toward the purchase price, a one paragraph agreement was signed. It provided that the complaining partner would fund the full purchase price in exchange for reimbursement by the partnership at twelve percent interest. According to their agreement, the defending partner would rehabilitate the purchased property at no expense until both parties were paid in full. The complaining partner stated that although he received monthly payments from the rental income generated by the property, he never received any return of his capital investment, and that the defending partner never sought compensation for the work performed on the property. After disputes arose between them, payments toward the complaining partner’s outstanding loan balances stopped. He then filed a breach of contract claim, as well as one for breach of the implied covenant of good faith and fair dealing. At trial, the jury found that the defending partner had breached the contract and awarded consequential damages.

On appeal, the Appellate Division reversed that award, finding that the complainant had failed to prove a breach of any agreement. The Court had difficulty discerning what conduct on the part of the defending partner might have breached the contract. It noted that the written agreement was silent as to when the complainant was entitled to repayment of his funded amounts, and specifically whether it was to be repaid on a regular basis. The Court believed that the lower court should have dismissed this claim prior to sending the issue to the jury.

The Court also found that the claim of a breach of the implied covenant of good faith and fair dealing should have been dismissed and not sent to the jury. According to the Court, absent a contractual breach, recovery for a breach of the implied covenant may be had only if a defendant had acted with ill motive without any legitimate purpose. According to the Court, the record demonstrated that neither partner had engaged in any bad faith during their relationship.


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