Cengage Advantage Books: Foundations of the Legal Environment of Business 3rd Edition by Marianne Jennings

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Sons of Thunder, Inc. v. Borden, Inc. 690 A.2d 575 (N.J. 1997)
Ships and Liability Passing in the Night?
Facts
Borden, Inc., owned Snow Food Products Division, a leading producer of clam products. Wayne Booker, a manager for Borden, asked Mr. Donald DeMusz to undertake the Shuck-at-Sea program. Mr. DeMusz submitted a proposal that Mr. Booker and other executives approved.
An internal company memo from Mr. Booker included the following paragraph along with a description of how Mr. DeMusz's purchase of a boat would save money:
[W]e still have a significant mutual interest with DeMuse [sic]. His principal business will still be in chartering the Snow fleet and in captaining Arlene. He needs a dependable customer for the clams that he catches, either shell stock or meat. If we terminate our agreement with him, he would have a hard time making the payments on his boat.
Mr. DeMusz drafted a one-page contract, and
Mr. Booker approved it with one small change.
Mr. DeMusz then formed Sons of Thunder, Inc., with
Bill Gifford and Bob Dempsey in order to purchase the second boat. The final contract was entered into on January 15, 1985, and included the following provision:
IT IS understood and Agreed to by the parties hereto that Snow Food Products shall purchase shell stock from Sons of Thunder Corp. for a period of one (1) year, at the market rate that is standardized throughout the industry. The term of this contract shall be for a period of one (1) year, after which this contract shall automatically be renewed for a period up to five years. Either party may cancel this contract by giving prior notice of said cancellation in writing Ninety (90) days prior to the effective cancellation date.
Sons of Thunder Corp. will offer for sale all shell stock that is landed to Snow Food.
In March 1985, Sons of Thunder bought a boat, the Sons of Thunder for $588,420.26.
For most weeks, the records show that Borden did not buy the minimum amount specified in the contract. Problems continued and the relationship soured. When Borden discovered that a $500,000 accounting error had actually overstated the benefits of the Shuck-at-Sea program, Borden terminated the contract.
Mr. DeMusz, stuck with a boat and a loan and no customer, filed suit. Borden moved for summary judgment on the grounds that it had properly exercised its termination rights. The jury found for Mr. DeMusz, the court of appeals affirmed, and Borden appealed.
Judicial Opinion
GARIBALDI, Justice
The obligation to perform in good faith exists in every contract, including those contracts that contain express and unambiguous provisions permitting either party to terminate the contract without cause.
Borden knew that Sons of Thunder depended on the income from its contract with Borden to pay back the loan. Yet, Borden continuously breached that contract by never buying the required amount of clams from the Sons of Thunder. Borden's failure to honor the contract left Sons of Thunder with insufficient revenue to support its financing for the Sons of Thunder.
Borden was also aware that Sons of Thunder was guaranteeing every loan that Sea Work had taken to finance the rerigging and purchasing costs for the [boat]. Thus, Borden knew that the corporations were dependent on each other, and that if one company failed, the other would most likely fail.
The final issue is whether the jury's assessment of $412,000, approximately one year's worth of additional profits, for the breach of the implied covenant of good faith and fair dealing was a reasonable verdict. Specifically, can a plaintiff recover lost profits for a breach of the implied covenant of good faith and fair dealing? We agree with Judge Humphreys that the jury's award of one year's additional profits "is a reasonable and fair estimate of 'expectation damages.'"
Moreover, we agree with the trial court that lost profits are an appropriate remedy when a buyer breaches the implied covenant of good faith and fair dealing.
Case Questions
1. Explain the nature of the relationships between Mr. DeMusz and Borden.
2. What impact does "good faith" have on termination of a contract?
3. What are the damages when there is a lack of good faith in the termination of a contract?