| Court: | US Court of Appeals, 7th Circuit (Posner!) |
| Facts: | JC Penney wants to finance growth, so they enter into a deal with
the GE Pension Trust. They'd sell property to the trust, and
the trust would lease it back to them for 25 years. The Trust
would provide financing for improvements. The two parties would
negotiate "in good faith" about the improvements, and if the
negotiations break down Penney's is allowed to re-purchase
the property for the original price plus 6%.
There are troubles getting funding (from other sources) with a property in Milwaukee (because the people wanting the funds, after all, did not own the place), so they decide to buy the property back, and the trust asks a high price. And then the trust becomes very unresponsive. So now Penney's (Market Street) wants to exercise its right to buy. |
| Posture: | Suit for specific performance (of the sale clause). Judgment at trial for the defendants. Appealed. |
| Issue: | By failing to mention the "buy the property" clause, did the plaintiff effectively prevent the appropriate negotiations from taking place? Was this a violation of the duty of good faith? |
| Holding: | Reversed and remanded for trial. |
| Rule: | The record doesn't show what Penney's believed about whether the trust knew about the clause. This is an issue of fact for the jury to determine. The doctrine of good faith forbids the kind of opportunistic behavior that a mutually dependent cooperative realtionship might enable in absence of the rule. |
| Reasoning: | Obviously the price is advantageous to Penney's, or they wouldn't be trying to compel performance. You'd expect there to be better negotiating on the part of the trust, but at the same time, these parties were in a contractual relationship, no longer at arm's length. Still, just signing a contract doesn't make you a fiduciary caretaker of the other party. All the same, the question really boils down to: did Market Street try to trick the pension fund? |
| Dicta: | |