Even Though Contract Gave the Defendant Discretion to Calculate Losses on Sale, it Was Required to Exercise That Discretion Reasonably

On January 17, 2019, the First Department issued a decision in Lehman Bros. Intl. (Europe)(in administration) v. AG Fin. Prods., Inc., 2019 NY Slip Op. 00364, holding that even though a contract gave the defendant the discretion to take certain acts, it had to exercise that discretion reasonably, explaining:

Despite the discretion afforded to defendant under the parties' agreements to calculate its loss after the agreements had been terminated, plaintiff raised an issue of fact as to whether defendant's loss calculation was reasonable and in good faith as required by the agreements. The court properly considered plaintiff's evidence, including expert reports, in support of its claim that defendant's calculations were not reasonable under the circumstances.

(Citations omitted).

The implied covenant of good faith and fair dealing is an important, if often misunderstood, part of New York law. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where a party is being deprived of the benefits of its contract, even if you cannot point to a specific contract term that is being breached.