Court of Chancery Expands Duty To Act in Good Faith
Horizon Personal Communications, Inc. v. Sprint Corp.
, C.A. No. 1518-N, 2006 WL 2337592 (Del. Ch. Aug. 4, 2006).
There is no duty that is more often cited and so little understood as that requiring a contracting party to act in good faith and deal fairly with the other contracting parties. In this case the Court of Chancery exhaustively examined the contract between the parties, determined what was required to act in good faith, and fairly awarded an injunction to preclude a breach of that duty. In doing so, the Court's analysis provides a road map for tracking the duty to act in good faith in the performance of a contract.
The case involved a series of contracts that Sprint had entered into before its merger with Nextel. While the contracts were complicated, basically they worked to prevent Sprint from undercutting the business of entities Sprint had contracted with to "be Sprint" in remote areas where Sprint did not want to develop wireless service on its own. The parties had not thought about the possibility that Sprint would merge with a competitor when they entered into their contracts. When Sprint then tried to offer Nextel services under the Sprint name in the territories assigned to the plaintiff, litigation ensued.
The Court began its analysis by noting the familiar rule that the duty of good faith and fair dealing was not intended to take away the rights governed by the parties' actual contract. However, after finding that their contract did not cover the actual events that later occurred, the Court asked what the parties would have agreed to had they thought to address these new circumstances when they entered into the original contract. Concluding that the key point was whether Sprint's conduct would deprive the plaintiff of the benefits of its bargain and that would have been precluded had the parties thought to address it, the Court granted the plaintiff an injunction against the Sprint competition.