Taylor Equipment, Inc. v. John Deere Co.

GIBSON, LOKEN, R. Before JOHN HANSEN, Judges. Circuit LOKEN, Judge. Circuit (formerly Company John Deere & Co.) subsidiary, Deere Industri- and its John (collectively, Company Equipment al “Deere”), appeal favor dealer, equipment former industrial Deere’s (“Midcon”). Equipment Company Midcon found judgment was entered after implied covenant of Deere breached the dealing when it refused good faith and fair proposed assignment prior approve Midcon’s of its the Dealer without written consent willing buyer, forcing dealership [Deere].” to a Mid- of con’s owners to the business to other sell In the fall of entered into $1,715,000 approved buyers for less. The nearly “agreement principle” to sell all its provided contract that Midcon could dealer Minnesota, Companies assets to Interstate dealership prior assign its “without the (“Interstate”). agreement Inc. This tentative [Deere].” written consent of Because the subject contingencies, was to a number of cannot override ex- this including assignment Deere’s consent to the contract, press term of the and because there rights of Midcon’s dealer to Interstate. proof was Deere failed Though approved Deere had ac- Interstate’s fact,” “honesty in we reverse. quisitions of Deere dealers in Montana and Moines, Iowa, Des 1987 and Deere Background. I. Factual approve it notified Interstate that would not and in- Deere manufactures construction assignment unless Interstate enhanced equipment indepen- it dustrial which sells to strength equity its financial with additional equipment dent dealers who sell or lease the so, capital. Interstate declined to do Deere buy Deere end users. dealers and sell approve assignment, refused to and Mid- parts equipment and used and service cus- through. con’s sale to Interstate fell equipment. tomer Because construction and approval purchasers with Deere’s equipment expensive, pro- industrial Deere dealers, Taylors successor sold most of plan” financing vides its dealers “floor Midcon’s Sioux Falls assets to Midwest Ma- —the piece equip- dealer must take title to a (“Midwest”), chinery, Inc. and most of the ment, $100,000 grader, upon such as a road City Swaney Equipment Sioux assets to Co. delivery inventory, its into but the dealer (“Swaney”), substantially less favorable pay does not until it sells leases the previously terms than Interstate had offered. equipment, pays and it no interest on this credit transaction for the first nine months History. II. Procedural delivery. after Given this financial stake in action, alleg- Midcon then commenced this dealers, prospective its Deere screens deal- ing wrongful cancellation under the South strength adequate capi- ers for financial statute, equipment Dakota dealer S.D.C.L. talization. §§ 37-5-3 and breach long time Deere dealer dealing, covenant of when Falls, Dakota, City, Sioux South and Sioux approve Deere refused to controversy began Iowa. 1990 when counterclaimed, alleging Interstate. Deere $370,- Deere discovered that Midcon had sold iraudulently gov- Midcon had obtained equipment by failing “out of trust” ernment customer discounts. timely pay Deere after the sales. The dealer provided summarily between Deere and Midcon The district court dismissed immediately that Deere could wrongful terminate for Midcon’s cancellation claim because (defined cancelled, cause to include dealership defaults such as was not it but de- selling trust), equipment summary out of judgment and that ei- nied Deere on the breach party ther could terminate without cause of covenant claim. trial Prior to of that claim, upon twenty days one hundred written no- the court severed Deere’s fraud coun- owners, tice. separate granted Deere notified Midcon’s Paul terclaim for trial. It also Taylor, would be Midcon’s motion in limine and Cecelia that Midcon preclude evi- regarding terminated because of these serious defaults. dence Midcon’s sales out of trust However, termination, in lieu of immediate and Deere’s intended termination on the ground Deere advised that it would allow Midcon to that this was irrelevant and good standing up unfairly continue as a dealer in prejudicial for after dismissal of the eighteen Taylors wrongful months while at- cancellation claim. The court ruled tempted buyer. to locate a The contract sole issue trial would be whether provided assigned further “cannot be Deere acted in faith when it refused Midcon’s contract to we should reinstate the claim for approve assignment of if cancellation we reverse Interstate. covenant. our breach Given Taylor not told Paul Although Deere had interpretation controlling Dakota South as-

why it refused to law,3 we need address the first last discovery Deere corre- signment,1 revealed issues. conditioning approval on Inter- spondence equity capital. agreeing to enhance its state Implied III. The Covenant Claim. trial, theory was that this de- At Midcon’s The district court concluded that fact, pretextual Deere had mand was —in “the Court would South its businesses to two forced Midcon to sell duty reasonably in impose on to act [Deere] dealers,” “key Swaney, to fur- Midwest deciding whether to consent to a plan to “rationalize” its ther Deere’s secret dealership review the court’s transfer.” We by eliminating fifty to one dealer network construction of law de Pate state novo. See during 1990’s. hundred small dealers Consultants, Inc., Raising v. National Fund in fact Deere countered that the refusal was (8th Cir.1994). Application 341 20 F.3d upon rational concern based its covenant is a matter of contract ability expand over Interstate’s financial Furniture, interpretation, Cambee’s responded with evi- this fashion. Midcon (8th Rec., Inc., 167, Doughboy 825 175 F.2d equity capital that Deere’s demand dence Cir.1987) law), (applying South jury was unusual and unreasonable. The question we also review de novo. Dirks v. theory.2 obviously pretext credited Midcon’s Ass’n, Inc., Valley Empire Sioux Elec. 450 $1,715,710 jury The awarded Midcon (S.D.1990). 426, N.W.2d 427-28 damages. compensatory $381,240.55 prejudgment awarded interest A. and denied Deere’s alternative motions trial. Court of South Dako judgment as a matter of law or a new (1) recently Dakota law im argues it is ta held that South appeal, On Deere entitled dealing plies on Midcon’s a covenant of judgment as a matter of law (2) claim; every into contract. See Garrett implied covenant the district court BankWest, Inc., 833, n. 7 459 N.W.2d 841 & excluding evidence of Midcon’s sales erred (S.D.1990). fraud, This covenant affords con government out of trust and discount woes; remedies; independent tort subsequent financial tract there is and Interstate’s (3) Moreover, jury “good “good faith is error in the instruction on for its breach. (4) faith”; obligation. improper damages. In its a limitless or language used cross-appeal, argues obligation that must arise from the conditional Midcon putting by Taylor, representatives own actions in pressed Deere foreclosed Deere from its 1. When context, "honesty why ap- party’s it was not told him to ask Interstate which is critical when Indeed, appropriate response proved. since This was an the district court in fact” is issue. had Deere’s communications with Interstate in- introducing evidence of even barred Deere from company’s troubles, that financial in- volved confidential later financial Interstate's formation. have substantiated the concerns for its refusal Deere contended were the reason trial, Early Taylor "when in the Paul testified: dealerships the Midcon put pressure Deere had a certain amount evidentiary rulings left to Interstate. These me, I decided that I would sell the business." one a claim of bad faith with Deere to defend argued thereby opened up Had we not conclud- hand tied behind its back. trust, district court issue of its sales out of but the covenant claim fails ed that Midcon’s breach of ruling. adhered to its earlier motion in limine law, we would have reversed as a matter of ruling free to infer that Deere left ground. remanded for a new trial on "pressured” Taylor part plan of its secret dealers, not had eliminate small because Midcon challenges party the district court's 3. Neither ruling contract. The also breached its dealer law, apply and we do South Dakota decision Taylor precluded explaining why did Deere from sponte. sua See Kostelec not examine that issue option refusing to sell the busi- not have the Co., 1220, 64 F.3d 1224 Swaney pur- v. State Farm Fire & Cas. ness if he found the Midwest and (8th Cir.1995). Finally, ruling offers unattractive. chase 1032 (9th Co., 734, indispensable 753 F.2d 739-40 or it must be Chem. [in contract] Stauffer Cir.1985); parties.” Mfg. the intention of the Cardinal Stone Co. v. Rival

to effectuate omitted). (6th Co., Cir.1982); (quotation The Court F.2d Id. at 841-42 396 Coren swet, Inc., adopted Refrig., for all contracts the defi- Inc. v. Amana Garrett (5th 129, 138 Cir.), denied, “good faith” found South Dakota’s cert. U.S. nition of (1979); “honesty in fact in uniform commercial 62 L.Ed.2d 198 Blalock S.Ct. code— Co., Equip. Mfg. transaction concerned.” Iowa conduct Mach. & Co. v. 57A-1-201(19). (N.D.Ga.1983). F.Supp. 776-78 See also S.D.C.L. Aviation, Inc. v. General Cessna Aircraft Though every contract includes the (W.D.Mich.1988) F.Supp. covenant, every not affect does (implied party’s not restrict a fill is “a method to term. The covenant right annual dealer refuse to renew an “nothing gaps” in a contract. It has to do agreement), part grounds, rev’d in on other actually nego of terms with the enforcement (6th Cir.1990). 915 F.2d 1038 The Deere- tiated” and therefore cannot “block use Midcon dealer contract was terminable actually appear the contract.” terms that party suggests either without cause. This Bank, Everett, F.2d Continental N.A. v. right disapprove assign that Deere’s (7th denied, Cir.), cert. 506 U.S. ment of the contract was intended to be (1992). 1035, 816, 113 121 L.Ed.2d 688 S.Ct. absolute, any because Deere in event would parties have addressed an issue in the Where free to terminate an successor be unwanted contract, to their intent “no occasion divine without cause.4 Cambee’s, supply implied or terms arises.” n. 13. 825 F.2d 175 appeal no-assignment-with- a involves clause, out-approval rather than a termi- Garrett, ap In the Court declined to However, nation clause. have also courts ply implied compel to a the covenant lender apply implied been reluctant to the covenant express to credit when the contract’s extend party’s to block a exercise of its contractual require did not such action. 459 terms right approval. to withhold In v. James Similarly, at 847. that Court has N.W.2d 835, Whirlpool Corp., F.Supp. 806 839 “transplant[ ] refused to the covenant of (E.D.Mo.1992), example, pro- the contract foreign dealing into the soil of rights obligations vided that “[n]one employment-at-will the doctrine.” Breen v. agreement subject under shall be to th[e] Co., 221, & Joint 433 N.W.2d Gear prior ... written without the (S.D.1988). employee 224 A claim that an consent of The court [the manufacturer].” fundamentally was terminated in bad faith is implied held that the covenant did not “over- concept inconsistent with the of at-will em express agreement” ride the terms Therefore, ployment. implied covenant “unmistakably” granted which an unlimited may employer’s not be to restrict used right disapprove assignments. to Id. at 843- v. freedom to terminate. See Western Poff Corp., 44. See also In re Bellanca Aircraft (8th Co., 1189, Nat’l Mut. Ins. 13 F.3d 1191 (8th Cir.1988) (U.C.C. 1275, 850 F.2d Cir.1994) (applying principle in the same obligation imposes not to law). Minnesota unreasonably assign withhold consent to a Applying reasoning, many similar courts right). implied have held that covenant not applied provi Similarly, be to limit a clear contractual v. Hubbard Chevrolet Co. 873, allowing Corp., sion termination of the contract General Motors 873 F.2d 877-78 (5th Cir.), denied, 978, Light Supply without cause. See Grand & cert. 493 U.S. Co., Inc., 672, 506, (1989), Honeywell, 771 F.2d S.Ct. 107 L.Ed.2d 508 the court (2d Cir.1985); Triangle implied Min. Co. held that the covenant had “no role Cambes's, However, agree- we a held that distributor contract F.2d at 175. the Deere-Midcon implied Moreover, silent as to duration contained an cove- ment was not silent as to duration. nant that the distributor would not be terminated many years Midcon had as a Deere dealer in period without cause "for a sufficient to allow recoup which to its initial investment. recoup [the to its investment.” 825 distributor] dispute plied dispute involving over the manufacturer’s a play” to right approve disapprove assign a dealer’s relocation. of a contractual to refusal authority gave GM the “[The contract] ment of a dealer contract. In Kham & disapprove its own approve or relocation for Nate’s Shoes No. Inc. v. First Bank of reasons,” explained; (7th Cir.1990), the court “we decline Whiting, 908 F.2d “ wisdom of the allow a to reevaluate the explained: ‘Good faith’ is a com parties’ choice to leave relocation decisions pact implied to an undertaking reference Id. at 878. See also Tidmore Oil Co. v. GM.” opportunistic advantage way to take in a Cir.) (11th BP 932 F.2d Oil contemplated could not have been at the time (no breach of the covenant where drafting, of [the contract’s] and which there jobber’s supplier approve expan refused to explicitly by par fore was not resolved stating suppli a contract sion under explained ties.” The Seventh Circuit further outlet”), denied, cert. er “must each concept Original Great Amer. Choco 925, 112 L.Ed.2d 279 502 U.S. S.Ct. Cookies, Chip Valley late Cookie Co. v. River (7th Cir.1992): Ltd., Court of South Dakota Were imposes duty, law Contract not to “be holdings in apply these cases to this reasonable,” taking advantage but to avoid setting, fact it is clear that Midcon’s gaps exploit in a contract in order to covenant claim would fail as a of law. matter vulnerabilities that arise when contractual purpose covenant is performance sequential than si- rather parties’ justified expectations. honor Suppose paint multaneous. A hires B to Garrett, 459 at 846. Absent contrac N.W.2d satisfaction, portrait paints his to his Band limitation, right has an absolute tual A in says it and fact is satisfied but he is equipment choose its dealers. Midcon’s deal hope chivvying in the not down the granted express, er contract Deere an unre agreed-upon price_ This ... be right disapprove a as stricted any provision bad because of the signment rights.5 of Midcon’s contract contract was unreasonable and had to be justified gave ex contract term Mideon no provision reformed but because a had been agreeing that pectation Deere was surren dishonestly purpose invoked to achieve a right der its absolute choose Midcon’s contrary to that for which the contract had Instead, no-assignment-with successor. here, been made. The same would be true out-Deere-approval preserved term that assume, may Compa- if ... we the Cookie Massey Tandy Corp., right.6 v. 987 F.2d Cf. ny appropriate [the had tried to the value (8th Cir.1993); 1307, 1309-10 Abbott v. Amo Sigels] canceling had created the fran- Co., 774, 189 88, Ill.App.3d co 249 Ill.Dec. Oil utterly pretext on a ... trivial viola- chise (“the 789, 619 N.E.2d 796 dealers cannot company of the contract that tions complain merely when Amoco exercises the for its would have overlooked but desire pos discretion the dealers allowed Amoco to Sigels’ advantage take of the vulnerable sess”), denied, 557, appeal 153 Ill.2d 191 omitted.) (Citations position. Ill.Dec. 624 N.E.2d 804 interpretation Under this cove-

B. nant, dishonestly if it Deere would be liable approval proposed assignment, a suggest line of that withheld There is another cases role, role, simply im- some albeit a limited for the but not if its decision was unreason- Co., Cunningham Implement within the broad class of contract 5. See Co. v. Deere & dealer fell rights assignable other C7-95-1148, that are not without the (Minn.App., WL No. 697555 "they coupled party's are with consent because 28, 1995) (unpublished): Nov. "Deere left noth- liabilities, relationship person a or ... involve ing implication.... approval] [Denial Camlin, v. al credit and confidence.” Green right.” Deere's contract (1956); see Berliner S.C. 92 S.E.2d F.Supp. Corp. Pillsbury v. Foods provision general 6. The is consistent with con- Inc., Dairies, (D.Md.1986); Jennings v. Foremost principles parties' (N.Y.Sup. tract in that it confirms the 37 Misc.2d Ct.1962) (dealer contract). 235 N.Y.S.2d understanding rights that Midcon's as a Deere Applying Id. at 717. Colo- interpretation is consistent with without effect.” able. This standard, law, that rado the court held adoption of the U.C.C. Garrett’s required that the franchisor not inconsistent with the covenant “honesty in fact.” It is unreasonably pas- In a to act withhold consent. imposition district court’s court, sage quoted approvingly by the district “reasonably.”7 opined in Larese that “the franchi- frankly whether the Su- uncertain We are provision expressly bargain for a sor must Dakota would hold of South preme Court right unrea- granting the to withhold consent not restrict sonably, put to insure that the franchisee is right approval, fol- unlimited contractual disagree. on notice.” Id. at 718. We Light Supply lowing as Grand & cases such Whirlpool, it or whether would and James approval meaning normal clause above-quoted Seventh Circuit deci- follow the agreement is that the Deere-Midcon implied covenant does and hold that the sions right Deere has an unrestricted to withhold of an otherwise abso- bar dishonest exercise honestly. approval, at least if it acts As But we need not right disapprove. lute any drafting treatise will review uncertainty in this case because resolve confirm, parties agree if the to a contract presented no that Deere granted the discretion under such an dishonestly disapproved acted when limited, approval clause should be more their proposed assignment to Interstate. provision stating draftsman will insert “consent to shall not be unrea- upon pretext built Midcon’s case was withheld,” sonably like contract at issue Deere’s stated reason for unreasonableness. Anheuser-Busch, Inc. v. Natural Bev. inadequate equity disapproving —Interstate’s Distribs., (9th Cir.1995). alleged secret reason —a capital —and Feldman, generally Drafting R.A. See dealerships in long plan term to consolidate Effec- A tive Contracts: Practitioner’s Guide 5- key legiti- dealers—-are both the hands of (1996 Supp.). litigation, Unlike draft- J.2[a] approving In- reasons for not mate business ing positive among a contract Midcon had terstate as Midcon’s successor. beneficial, parties contemplating harmonious “dishonesty Deere’s in fact”— no evidence of experienced relations. No draftsman would “opportunistic advantage” an intent to take inserting provision think of to the effect any reason other of Midcon’s need sell permits Party A that “this clause to act choosing in than Deere’s business interests Thus, unreasonably.” we decline to follow dealers, expressly protected in its interests impose Larese because it would an unrealis- Thus, is also entitled to the contract. Deere drafting parties tic burden on who intend to judgment as a matter of law under this inter- approval create an unrestricted clause whose pretation implied covenant. supplanted jury’s will not be a notion of reasonableness. C. upon court relied Larese commercial transactions it does not in “[I]n Dairies, Inc., promote justice

v. 767 F.2d 716 the end to seek strained Creamland (10th Cir.1985), interpretations in for its conclusion the aid of those who do not implied imposed duty protect on covenant themselves.” James Baird Co. (2d Cir.1933) Larese, Bros., reasonably. act F.2d In franchise Gimbel (L. J.). Hand, agreement prohibited assignment Taylor experi- “without Paul justified prior the written consent of’ Creamland and enced businessman who had no ex- any pectation unapproved declared transfer “null and that Midcon’s dealer contract would place jury "subterfuge 7. The district court instructed the and evasions” has no in a case implied fairly strategies required Deere "to act of this kind. Deere’s dealer and its covenant reasonably,” "[s]ubterfuge financial in- and that and eva- evaluation of Interstate's statements obligation good sions violate the faith ... even volved sensitive business information. The court though justi- permitted the actor its conduct to be not have the to find Deere believes should "subterfuge erroneously expanded guilty fied.” These instructions and evasions” because implied beyond "honesty disap- far failed to disclose such information when it the particular, regarding proved assignment fact.” to Interstate. the instruction judgment of second-guess Deere’s choice of the district court is re- permit Mm to Accordingly, Midcon’s versed and the case is remanded with in- Midcon’s successor. implied covenant of structions to enter a favor of for breach of the claim claims, dismissing dealing as a matter defendants all of Mideon’s good faith and fair fails any application of of law under reasonable GIBSON, Judge, R. implied covenant defined Garrett. JOHN Circuit

dissenting. respectfully I dissent. Wrongful Claim. IV. The Cancellation today I believe takes a far argues Midcon that the district too narrow view of South Dakota law with summarily dismissing, without dis erred respect to Deere’s refusal covery, claim that Deere cancelled the its purchasers of Midcon’sbusiness. of S.D.C.L. dealer contract violation say I considering must first that were we pro §§ 37-5-3 37-5-3 and 37-5-4. Section adoption respect of a federal rule with to the equipment manufac vides that a construction good join covenant of I much would “unfairly, regard turer without due today opinion the court’s. with substantial just equities and without to the dealer issue, however, enthusiasm. The far is more any ... franeMse of provocation cancel the narrow; namely, prediction rule that a cause of dealer.” Section 37-5-4 creates applied by would be South Su- damages resulting from a action for preme Court. cancellation. judges The two district involved in tMs argues that Deere could be found summary judgment case demed motions for constructively have cancelled the dealer- respect good to the covenant of with sMps early 1991 when Deere advised that The first issue. such decision was artic- $370,000 out of trust and would Midcon was open argu- ulated court after considerable dealersMps if were not be terminated ment, relying on this court’s earlier decision However, eighteen witMn months. sold Furniture, Doughboy in Cambee’s acknowledged that it contin- Midcon’s brief (8th Rec., Inc., Cir.1987), F.2d based to be an active Deere dealer until June ued on Dakota law. South to Mid- 1992 when the businesses were sold judge, thoughtful The second in a and de- Indeed, Swaney.8 Midcon could west analysis of several Dakota cases tailed South position pursue no other if it wished to take covenant of faith under- implied covenant claim because termi- its court, by the concluded: taken dealersMps have de- nation of the case, stroyed power assign them. In tMs covenant of Midcon’s dealing lan- plain language limits its arises from the 37-5-3 scope guage expressly cancellation.” clause to instances “unfair circumstances, dealersMp agree- in the written In these the district stated inconsistency Dev. properly perceived factual ments. See Nelson v. WEB Water the (S.D.1993) Ass’n, Inc., 507 698 in claims and dismissed a N.W.2d Mideon’s summary judgment fundamentally (reversing grant at on cancellation claim that was good faith issue of breach of contractual odds with the events issue.9 (D.Minn. F.Supp. authority Pillsbury 852 its constructive 8. Midcon has no Int'l, theory. 1989) (no Groseth cancellation Tenneco, Inc., It cites claim un “constructive termination” (S.D.1987), but 410 N.W.2d 159 Washington der Franchise Investment Protection cancelled. there the dealer’s franchise was in fact Act). Groseth, Unlike the dealer in Midcon continued to serve as a Deere dealer after the “constructive reply the first time 9. Midcon's brief asserts for on-going cancellation” and was able to sell busi pursue a claim that that Midcon entitled Buick-GMC, also Inc. v. GMC nesses. See Zeno threatening S.D.C.L. 37-5-2 Deere violated Coach, F.Supp. Truck and However, this claim was not cancellation. (E.D.Ark.1992) (Kansas apply does not statute pleaded complaint in its 'd, nor raised terminations), Midcon's constructive franchise 9 F.3d aff Cir.1993); (8th cross-appeal. v. notice of 1993 WL 470707 Carlock not trans- provided that Midcon could high court deter which dealing where fair agreements to another dealership exist employment contract fer its a valid mined BankWest, Inc.,] ed). express written consent [v. dealer “without Garrett Cf. (S.D.1990)], (holding [833,] contin- [ Industrial.” The instruction N.W.2d of Deere arose because no covenant that no ued: existed). Although the South contracts implied obligation good faith and a has not decided Supreme Court dealing required Deere Industrial fair concludes, case, based this Court similar good faith Midcon and to toward [Int'l, Nelson, Inc. and Groseth on Garrett reasonably fairly and when Midcon re- act (S.D. Tenneco, Inc., 410 N.W.2d 159 permission Industrial’s quested Deere 1987)], that, construing the contract lan dealership agreements in con- assign its here, Dakota Su guage used the South with the sale of Midcon to Inter- nection franchi impose on the preme Court would Companies. state reasonably deciding a to act sor honesty faith in fact Good means dealer to consent to whether concerned. conduct or transaction Larese, [716,] ship transfer. See 767 F.2d Subterfuges and evasions violate the ob- Cir.1985) (10th [ ]. 716-17 good performance ligation of faith continued, reasoning that there The court though even the actor believes its that the clause was no evidence justified. conduct to be arms-length negotiation be- resulted from further that Deere instructed addition, Taylor parties. testi- tween the judg- to exercise its business was entitled long deposition in his after fied ment, judgment and that error business executive, reached, agreements were good lack of was not sufficient establish Griffith, Taylor told “several Gene had dealing. and fair would not be unreasonable times” he disapproving [approving about transfer opinion today first makes ref- The court’s agreements]. dealership adoption to the ease and its erence Garrett judge stated: but then written, language as the contract [U]nder volley federal cases proceeds to loose implied covenant of circuits and other districts hold- from other necessary interpret- an dealing is aid to ing covenant did not restrict ing assignment clause. Plaintiff Mid- employer’s an freedom to terminate em- expectation that de- con had a reasonable will, ployee at or to terminate a contract. good faith and fair fendant would exercise Next, opinion the court’s refers to cases deal- dealing making its decision as to wheth- no-assignment-without-approval ing with the agreements dealership er could be trans- on law from states clauses are based ferred. other than South Dakota. motions, Later, ruling post-trial Finally, the court considers two Seventh judge district referred to the earlier order on cases, No. Kham & Nate’s Shoes Circuit summary judgment the motion for and or- Whiting, Bank 908 F.2d Inc. v. First It dered that should stand. (7th Cir.1990), Original Great rejected argument that the reasons Deere’s Chip Co. v. Riv- American Chocolate Cookie gave approving for not Interstate as Cookies, Ltd., Valley er purchaser presented questions of law rather (7th law, Cir.1992), upon both based Illinois judge, viewing questions than of fact. The right involve exercise of contractual light in the evidence the most favorable disapprove assignment of a dealer con- plaintiff, evi- the held there was sufficient Cookie, From the court reasons that tract. jury could find that dence from which the interpretation of Illi- Circuit’s the Seventh Deere’s not reasonable. actions were point liability if dis- nois law would honestly approval proposed of the obligation withheld was instructed the ap- withholding if of good dealing implied assignment, in the but not the of is contract, proval simply unreasonable. It con- expressed terms of the written interpretation language is consistent arise from the this used or it must be eludes adoption indispensable of the U.C.C. standard with the to effectuate the intention of BankWest, Inc., Sessions, Morton, parties.” 459 N.W.2d Garrett Inc. v. fact,” (S.D.1990), “honesty (9th Cir.1974). is which F.2d inconsistent with the district court’s but is 459 N.W.2d at 841. reasonably. duty act Be- imposition of facts, analysis In its detailed of the Garrett presented it that Midcon cause concludes quotes: dishonestly when that Deere acted an phrase [G]ood ‘excluder.’ It is a assignment, disapproved it (or general meaning without meanings) of court. reverses the district range its own and serves to exclude a wide Notably, in a most the court treats Garrett heterogeneous forms of bad faith. In a fashion, cursory paying no heed to Garrett’s particular phrase context the takes on spe- adoption of discussion of the basis of the meaning, usually only by cific but this is rule, part coupling good faith and Garrett way specific of contrast with the form of to termination of at-will em- with reference actually hypothetically bad faith ruled By failing ployment, inapposite. which is out. carefully the foundation on which examine Summers, (quoting Id. Robert S. Good sits, by failing to consider other Garrett Faith in General Contract Law and the however, precedent, relevant South Dakota Sales Provision Commercial to focus on the central issue of the court fails Uniform Code, (1968)). 195,201 54 Va. L.Rev. Garrett the case—whether the South Dakota courts continues: interpret good faith to the covenant of acting reasonably. incorporate suggests catego- Professor Summers some identify performance ries to bad faith in today concedes that the South The court including: of a contract evasion of the provided an- Dakota courts have clear deal; spirit power of the abuse of to de- Nonetheless, to the issue before us. swer and, compliance; termine interference question diversity there is no but that cooperate with or failure to in the other Dakota, apply must case we the law of South party’s performance. [Summers at 201.] by if been its the issue has not decided (Second) Contracts, Restatement courts, obligation predict our is to the man- And, Comment e. [§ 205] as noted the issue will ner which be decided. Sessions, Morton, supra, good Garrett, pointed which language faith must arise from the used explicitly adopted is the first decision that indispensable or be to effectuate the in- good covenant of faith. Garrett parties. tention of the provisions referred not to the that, though every Id. Garrett held U.C.C., § adopted 1-203 as South Dako- good contains an covenant of ta,10 but also made numerous references to there had been no violation of the covenant (Second) § Restatement Contracts there had been no violation of the because stated: Garrett justified spirit expectations contract or faith is from transaction Good derived parties, power and no abuse of parties. meaning and conduct of the Its compliance, cooper- determine nor failure to emphasizes varies with the context and performance. ate in the Id. at 846. agreed purpose faithfulness to an common Ass’n, justified consistency expecta- with the Nelson v. WEB Dev. Water (Sec- (S.D.1993), party. tions of the other Restatement N.W.2d is further evi- ond) Contracts, 205], Comment a. dence that the South Dakota Court [§ duty good apply But faith is not a limitless or will continue to the doctrine of obligation. implied obligation it did in di- “must faith as Garrett. Nelson “Every "honesty fact in the or transaction contract or within this title im- conduct obligation perfor- poses faith in its concerned.” S.D. Codified Laws 57A-1-201 (1988). mance or enforcement.” S.D. Codified Laws § defined 57A-1-203 Good faith is as permission ably concerning im- with Midcon definition of the

rectly quoted Garrett’s subterfuges and dealing assign, but also that eva- good faith and fair of plied covenant obligation good to the Re- of faith. specifically violate the again referred sions directly by at supported See 507 N.W.2d Contracts. This instruction statement of to and relied court referred d of the Restatement: 698. Comment in its determina- and Garrett Nelson both obli- Subterfuges and evasions violate the of Deere’s ac- reasonableness tion that the good performance of faith in even gation faith issue. good tions is though the actor believes his conduct be of South Court Because of further; justified. obligation goes But the the Restate- reliance on Dakota’s consistent may may be overt or consist of bad faith (Second) Contracts, persuaded I am of ment inaction, dealing may require and fair look further to the the court honesty. complete catalogue A more than ascertaining whether reason- Restatement types impossible, faith is but the of of bad good the definition of falls within ableness following types among those which had are given good lengthy definition faith. The judicial recognized in decisions: eva- been to be all- was not considered faith in Garrett spirit bargain, lack of sion Indeed, Garrett stated inclusive. off, rendering diligence slacking willful con- faith “varies with the meaning good of imperfect performance, pow- of abuse an emphasizes faithfulness text terms, specify with er to and interference consistency purpose and agreed common cooperate party’s in the other or failure to justified expectations of the other with the performance. Garrett, 459 N.W.2d party.” (Second) § of Contracts Restatement phrases the of Contracts Restatement cmt. d. dealing in good of one of con- and enforcement performance I that the district court did not err believe a, 205 comment tracts. Restatement concluding from Nelson and Garrett that meaning good refers discussing the their reliance on section 205 of the Restate- fact, honesty in but continues: support the conclu- ment of Contracts would performance or enforcement reasonableness, along Good sion that with subter- emphasizes faithfulness to evasions, a contract fuges and all terms enumerated in consistency purpose and agreed common comments, prop-: Restatement are issues justified expectations of the other with erly by jury in deter- to be considered variety types of party; it excludes a Further, mining the issue of faith. involving characterized as “bad conduct and Nel- district court’s reliance on Garrett they community violate faith” because son, and in turn the reference of those two decency, fairness or reason- standards of cases to section 205 of the Restatement ableness. Contracts, supports court’s refer- the district Larese, contrary ence to to the extended (Second) § 205 of Contracts Restatement today. arguments made added). (emphasis cmt. a e, specifically referred to Gar- Comment today While the court’s comments concern- rett, obligation defines the farther ing ruling on Midcon’s motion in limine contracts. The faith in the enforcement of preclude regarding Midcon’s obligation good faith “also extends deal- out of trust and Deere’s intended termi- sales unfair, taking ing such as which is candid but nation be but dictum view of its advantage circumstances of the necessitous holding, just a are in order to few words a modification of party of the other to extort why explain I the court also errs believe legiti- goods a contract without for the sale respect. pleaded claim was Midcon’s mate commercial reason.” Restatement counts. The district court dismissed five six (Second) § 205 cmt. e. of Contracts counts, including that for of these termination, urging. at Deere’s At the hear- Finally, it be observed that the court must motion, argued only ing on this Deere’s counsel instructed the to consider not of the franchise had been fairly and reason- that no cancellation whether Deere had acted you alleged, but “that Deere said should buy your business or

find someone else we got never to the we will

will terminate. We did, fact, part, he find terminate because buy his Coun

someone else to businesses.” hap had

sel continued to advocate what

pened resignation in this case was the Thus, buyer was found.

dealer after tried to was the

sole issue

question assignment.

on refusal explained that it excluded the

district light prejudicial because it was fact that Midcon’s termination denying

claim had dismissed. been

post-trial ground, motion new trial on for

the district court referred to this order motions,

pretrial and stated that Deere had

provided argument evidence or new

justify rulings reversal these and there judge trial

fore denied relief. The has wide ruling admissibility

discretion in on the

evidence, and its decisions thereon will not be prejudi

disturbed unless there is a clear and

cial abuse of discretion. Robertson Oil Co. v.

Phillips Petroleum — (8th Cir.1991), denied, —, cert. U.S. I S.Ct. 128 L.Ed.2d 677

would not conclude that the district court

abused its discretion in this matter.

I would affirm the district firmly I

court because believe it to be based predic-

on South Dakota law and an accurate

tion as to how South Dakota courts would

decide the issue before us. America, Appellee,

UNITED STATES

Scotty UDER, Appellant. Joe

No. 95-3513. Appeals,

United States Court of

Eighth Circuit.

Submitted March 1996.

Decided Oct. 1996.

Rehearing Suggestion Rehearing

En Banc Denied Nov.

Case Details

Case Name: Taylor Equipment, Inc. v. John Deere Co.

Court Name: Court of Appeals for the Eighth Circuit

Date Published: Oct 18, 1996

Citation: 98 F.3d 1028

Docket Number: 95-2937, 95-3000

Court Abbreviation: 8th Cir.