Appeal from Superior Court of Kittitas County. Docket No: 91-2-00236-6. Date filed: 11/30/94. Judge signing: Hon. Michael E. Cooper.
Authored by Frank L. Kurtz. Concurring: Dennis J. Sweeney, Stephen M. Brown.
The opinion of the court was delivered by: Kurtz
KURTZ, J. Does the implied covenant of good faith that is present in every contract apply to a party's exercise of an express and unconditional contract right? In this case, Goodyear Tire & Rubber Co. entered into a dealership contract with Whiteman Tire, Inc., but reserved the right to sell tires in Whiteman's trade area. We are asked to decide whether the implied covenant of good faith required Goodyear to exercise its right to compete so as not to deprive Whiteman of the benefit of its agreement to act as a Goodyear dealer. We hold the covenant does not apply in the circumstances present here.
Whiteman sold tires in central Washington *fn1 for many years as an independent Goodyear tire dealer. When it closed operations, it blamed its demise on competition from Goodyear company stores in the same area, and on a financially unwise expansion of its Wenatchee operations, allegedly forced on it by Goodyear. In response to a suit by Goodyear in 1990 for amounts due and owing on Whiteman's open account, the company counterclaimed for breach of contract, breach of fiduciary duties, violation of the Washington Consumer Protection Act, and tortious interference with its business expectancies. *fn2 The superior court summarily dismissed these counterclaims, citing, among other things, the fact Whiteman's dealer contracts with Goodyear acknowledged Goodyear reserved the right to sell tires in the same trade area. Whiteman stipulated to entry of judgment against it in the amount of approximately $350,000 on Goodyear's cause of action, and appeals the dismissal of its counterclaims. We affirm, save for the dismissal of Whiteman's counterclaim that Goodyear tortiously interfered with the noncompete agreement between it and its former employee, Jack Anthony.
Whiteman's relationship with Goodyear began in 1958. In that year, Whiteman purchased an Ellensburg Goodyear dealer store. It expanded to Wenatchee in 1982 and Othello in 1985. As a dealer, Whiteman purchased Goodyear products on open account. Its assets, accounts receivable and inventory, and the personal guaranties of shareholders, Brent and Jeanette Whiteman, secured the Goodyear account.
During the course of their relationship, Whiteman signed dealer contracts with Goodyear that expressly stated: "Goodyear retains the right to establish its own outlets for the sale of Goodyear Products or to sell Goodyear Products to other customers in Dealer's trade area or elsewhere." *fn3 The contracts also stated they contained the parties' complete obligations and no other obligation could be inferred by other written or oral promises by the parties or their representatives. But according to Brent Whiteman, Goodyear's representatives always assured him it would not solicit customers or interfere in the dealer's general market area so long as Whiteman adequately serviced its customers.
In 1984, Goodyear acquired Lovering Tire Company of Yakima, Whiteman's nearest Goodyear dealer. From that point, the Yakima Goodyear operated as a company store and allegedly sold tires at prices lower than Whiteman's wholesale cost, or at very low profit margins. In addition, salespeople from the Yakima store allegedly solicited Whiteman's customers in Ellensburg and elsewhere. Mr. Whiteman complained to Goodyear's district and regional representatives, who promised to keep Yakima employees from interfering with Whiteman accounts. Nevertheless, the problem continued. Whiteman believed it eventually lost several long-term customers due to Yakima Goodyear's solicitations and price undercutting.
In 1986, Goodyear representatives allegedly pressured Whiteman to expand its Wenatchee operation on the threat Goodyear would otherwise open another store there. Mr. Whiteman states he was concerned the expansion was not a wise financial decision, but felt compelled to do Goodyear's bidding to maintain Whiteman's business operations. After the expansion, Whiteman's real estate rental increased approximately $4,000 a month in the Wenatchee location.
In September 1986, Whiteman's Othello manager, Mr. Anthony, resigned. Shortly thereafter, he went to work for Goodyear's Pasco outlet. According to Mr. Whiteman, Mr. Anthony solicited Whiteman customers within a 30-mile radius of Othello, in direct violation of the noncompete provision of his employment agreement with Whiteman. Whiteman lost several customers as a result. Mr. Whiteman complained repeatedly to Goodyear. As with his complaints about the Yakima store, Goodyear representatives always assured him the interferences would cease. But Mr. Whiteman stated the problems continued, and his company lost significant amounts of money.
Whiteman closed its Wenatchee operations in 1989. Mr. Whiteman believed the closure was directly caused by the forced expansion in Wenatchee and the activities of the Yakima store and Mr. Anthony in Whiteman's trade areas. The company was no longer earning enough to pay its existing obligations to Goodyear. It filed for bankruptcy in 1992.
In 1990, Goodyear sued Whiteman Tire and Brent and Jeanette Whiteman individually, in their capacity as guarantors, for the amount due on the open account. It asked for judgment against Whiteman Bros., Inc., in the amount of $63,285.11, plus interest; and against Whiteman Tire, Inc., and the personal guarantors, *fn4 in the amount of $225,875.13, plus interest. Whiteman answered and counterclaimed that Goodyear's actions constituted (1) a breach of the covenant of good faith implied in its dealer contracts with Whiteman; (2) a breach of fiduciary duties; (3) a violation of the Consumer Protection Act, RCW 19.86; and (4) tortious interference with Whiteman's customer contracts and business opportunities.
Whiteman appeals from the superior court orders granting Goodyear's motions for summary dismissal of its counterclaims. Additional, relevant facts are set forth below, with the issue they concern.
breach of contract Whiteman contends Goodyear had an implied duty to exercise in good faith its contractual right to sell tires in Whiteman's trade area, so as not to deny Whiteman the benefit of its contract to act as a Goodyear dealer. Specifically, Whiteman argues that Goodyear could not use that right to destroy Whiteman's business.
The covenant of good faith applies when the contract gives one party discretionary authority to determine a contract term; it does not apply to contradict contract terms. Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995) Ervin's statement of this distinction is apt:
The duty of good faith and fair dealing applies when one party has discretionary authority to determine certain terms of the contract, such as quantity, price, or time. . . . The covenant may be relied upon only when the manner of performance under a specific contract term allows for discretion on the part of either party. . . . However, it will not contradict ...