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Scope and Content of good faith duty

Case: Centronics Corporation v. Genicom Corporation (1989; NH)

Procedural History: Superior court granted summary judgment to buyer.

Facts: K btwn the parties provided for arbitration of any dispute + escrow
deposit of a portion of the price claimed by the seller pending final valuation.
Seller sought an escrow distribution in an amount that the seller claimed was more
that the eventual purchase price. When buyer refused, seller charged the buyer
with breach of implied covenant of good faith.

• Facts:
○ Centronics is selling assets to Genicom
○ They don’t agree on value of the assets
○ K - They agree to have an arbitration, and meanwhile, a portion of the
money is held in escrow until value is determined by arbitrator
○ Escrow is $5million + an Adjustment Amount (a defined term in the K, the
amount equal to Centronics proposed revision of the purchase price, in excess of
the preliminary purchase price)
○ Agreeing its $5million. They are disagreeing the actual value of the
assets. The Adjustment Amount is the difference of the actual value in excess of
the $5million.
○ During arbitration, Centronics wants the money that’s undisputed from the
escrow account - the $5million is undisputed
§ b/c the value is at least $5million, and they would pay this amount
§ Centronics really needs money - they are over a barrel
○ Genicom refuses, and Centronics brings suit.
• Issue:
○ Centronics alleged that Genicom breached covenant of good faith b/c they
wouldn’t release the $5million from escrow.
○ Genicom says if Centronics agrees to a lower total price, then they will
release the $5million
○ Recapture - refers to what did you lose in negotiations, that you now are
trying to get back b/c you have the other party over the barrel - opportunism. One
a K is under way, taking advantage of the other party.
§ Genicom trying to recapture something they lost in negotiations
• Outcome:
○ Pg 666 - Judge says K is clear - no duty to release escrow until
arbitration is over
§ Look at business purposes -
§ Parties want arbitration to go quicker.
□ Incentive to speed up arbitration - no one gets any money until
arbitration is over. So no one is dragging their feet.
□ So when arbitration goes more quickly, they both get part of
their money back more quickly.
○ Just because you realize you made a bad bargain, doesn’t mean you can
change it.