Livingston v. 18 Mile Point Drive, Ltd.

• Decision Date: 24 April 2009
• Docket Number: No. 2008–622.,2008–622.
• Citation: 972 A.2d 1001,158 N.H. 619
• Parties: Anthony L. LIVINGSTON v. 18 MILE POINT DRIVE, LTD. d/b/a 18 Mile Point Drive Limited Partnership & a.
• Court: New Hampshire Supreme Court

158 N.H. 619

972 A.2d 1001

Anthony L. LIVINGSTON

v.18 MILE POINT DRIVE, LTD. d/b/a 18 Mile Point Drive Limited Partnership & a.

No. 2008–622.

Supreme Court of New Hampshire.

Argued: Feb. 12, 2009.

Opinion Issued: April 24, 2009.

Boynton, Waldron, Doleac, Woodman & Scott, P.A., of Portsmouth (Charles B. Doleac and Heather Neville on the brief, and Ms. Neville orally), for the plaintiff.

Upton & Hatfield, LLP, of Portsmouth (Russell F. Hilliard on the brief and orally), for the defendants.

DALIANIS, J.

The defendants, 18 Mile Point Drive, Ltd. d/b/a 18 Mile Point Drive Limited Partnership, Walker G. Harman and Alfred W. Bowman, Jr., appeal the decision of the Superior Court (Smukler, J.), entered after a bench trial, which ordered specific performance of the option held by the plaintiff, Anthony L. Livingston, to purchase a 1.5–acre lot from the defendants. We affirm.

The record supports the following facts. The plaintiff owned twenty-two acres of land in Meredith, which he agreed to sell to the defendants, with an option to repurchase a 1.5–acre lot. The twenty-two acres had been in the plaintiff's family for many years. Originally, he sought to sell only nineteen acres, keeping three acres for himself on which he planned to build a home. After negotiation, he agreed to sell the entire twenty-two-acre parcel, with an option to repurchase the 1.5–acre lot.

The parties' agreement was memorialized in a purchase and sale agreement (P & S) and a separate option agreement. The P & S granted the plaintiff an option to purchase the 1.5–acre lot for one dollar, and provided that the option would be valid for one year from the date of final subdivision approval.

The option agreement included these same provisions. Unlike the P & S, however, it also provided that it would cost the plaintiff one dollar to retain the option. The option agreement also provided that the one-dollar purchase price of the option would be credited to the purchase price for the lot itself. Thus, the total amount of money the plaintiff was to pay for both the option and the lot was one dollar.

The option agreement specified that if the defendants were unable to deliver a deed to the 1.5–acre lot within five years, they would be required to pay the plaintiff $75,000. It further specified that to exercise the option, the plaintiff was required to give written notice to the defendants by certified mail, return receipt requested, and that the option would become effective upon receipt of this notice.

The parties negotiated the option agreement through their attorneys. Attorney Patrick Wood represented the plaintiff; the defendants were represented by Attorney Stephan Nix.

The closing took place on September 17, 2002. At the closing, the plaintiff said, "I really want this property," and Attorney Wood handed Attorney Nix $1.00, saying something to the effect of, "[L]et's take care of this right now." Attorney Wood wrote "Paid 17 Sept. 2002" next to paragraph five of the option agreement, which pertained to the payment required to retain the option. Attorney Nix wrote "rec by STN 9/17/02" under Attorney Wood's notation, acknowledging receipt.

The plaintiff and Attorney Wood believed that, by paying $1.00 at the closing, the plaintiff had exercised his option to purchase the 1.5–acre lot. The plaintiff believed that when the defendants obtained subdivision approval, the agreement required them to convey the option lot to him.

On September 23, 2004, the plaintiff received a letter from Attorney Nix, which included a copy of the defendants' subdivision plan. The letter informed the plaintiff that the subdivision plan was before the planning board, and promised him that he would receive recorded copies of the plan and its registration with the Attorney General's Office. The letter also stated that upon receipt of the registration with the Attorney General's Office, "the lots will be available for conveyance."

The defendants' subdivision plan was approved on December 21, 2004, and recorded on December 27, 2004. On January 25, 2005, Attorney Nix forwarded copies of the approved plan and registration to the plaintiff. The defendants believed that based upon the option agreement, the term of the plaintiff's option began on December 27, 2004, and ended a year later, on December 27, 2005.

In early 2005, the plaintiff contacted Attorney Wood because he noticed that the defendants had begun conveying lots in their subdivision. In April 2005, Attorney Wood phoned Attorney Nix and sent an e-mail to him asking for an update. Attorney Nix testified that he must have talked to Attorney Wood after the e-mail, but could not specifically recall the conversation and had no notes of it.

Attorney Nix did speak with defendant Harman, however, who told Attorney Nix that it was his position that the defendants had met or exceeded their responsibilities by giving the plaintiff notice of the subdivision approval, and that it was up to the plaintiff to exercise his option. Harman did not believe that the defendants should respond to the e-mail inquiry and assumed that Attorney Wood would call again. Attorney Nix never sent Attorney Wood copies of his correspondence with the plaintiff or copies of the approved subdivision plan.

On June 2, 2006, the plaintiff wrote to Attorney Nix himself, stating that it appeared obvious that the subdivision had been approved and asking why there had been such a delay in conveying the 1.5–acre lot to him. In an August 7, 2006 letter, Attorney Nix informed the plaintiff that his earlier letters had constituted notice of subdivision approval and that the option term had expired, along with the plaintiff's rights thereunder. On September 26, 2006, Attorney Wood sought an extension of the option agreement, which was refused. The plaintiff's lawsuit followed.

The trial court assumed, without deciding, that, as the defendants argued, the plaintiff did not exercise his option to purchase pursuant to the terms in the parties' agreement. Nonetheless, the court ruled that equity required specific performance of the option agreement. The court found that the defendants breached the agreement's implied covenant of good faith and fair dealing when they failed to correct any misunderstanding that the plaintiff had about the status of the option and, specifically, when they failed to respond to Attorney Wood's inquiry in April 2005 as to the option's status.

The court found that the failure to respond to Attorney Wood's inquiry was "a conscious tactical decision based on [the defendants'] belief that it was up to the [plaintiff] to exercise the option and that if he did nothing, such an exercise would probably not happen." The defendants, the court ruled, "failed to speak when they knew or should have known that their silence misl[e]d and damaged the [plaintiff] by inducing him to refrain from acting in accordance with his consistent intent to exercise the option."

On appeal, the defendants first argue that the trial court erred by applying "equitable considerations" to allow the plaintiff to have the benefit of the option agreement, even though he failed to comply with it. The defendants contend that the trial court relied upon equitable principles to relieve the plaintiff of his obligations under the agreement. They imply that the trial court used the implied covenant of good faith and fair dealing to, in effect, rewrite the parties' option agreement. See Olbres v. Hampton Coop. Bank, 142 N.H. 227, 233, 698 A.2d 1239 (1997) (rejecting trial court's implied legal conclusion that good faith required bank to refrain from setting off account until payments were overdue, court notes that "courts cannot make better agreements than the parties themselves entered into or rewrite contracts merely because they might operate harshly or inequitably" (quotation omitted)). To the contrary, here, the trial court merely enforced the implied covenant of good faith and fair dealing when the court ruled that the defendants breached it by acting evasively and not cooperatively with the plaintiff.

In every agreement, there is an implied covenant that the parties will act in good faith and fairly with one another. Richard v. Good Luck Trailer Court, 157 N.H. 65, 70, 943 A.2d 804 (2008). In New Hampshire, there is not merely one rule of implied good-faith duty, but a series of doctrines, each of which serves different functions. Great Lakes Aircraft Co. v. City of Claremont, 135 N.H. 270, 293, 608 A.2d 840 (1992). The various implied good-faith obligations fall into three general categories: (1) contract formation; (2) termination of at-will employment agreements; and (3) limitation of discretion in contractual performance. Id. This case deals with the third category. While the third category is comparatively narrow, its broader function is to prohibit behavior inconsistent with the parties' agreed-upon common purpose and justified expectations, id., as well as "with common standards of decency, fairness and reasonableness." Richard, 157 N.H. at 70, 943 A.2d 804 (quotation omitted).

Although we have not stated so explicitly, our prior cases reveal that we will uphold a trial court's determination regarding the breach of the implied covenant of good faith and fair dealing unless it is not supported by the evidence or is legally erroneous. See Albee v. Wolfeboro Railroad Co., 126 N.H. 176, 179, 489 A.2d 148 (1985) (holding that master's conclusion that no breach of implied covenant of good faith and fair dealing occurred did not constitute legal error); Finlay v. Frederick, 135 N.H. 482, 489, 606 A.2d 1375 (1992) (affirming trial court's determination that party did not breach implied covenant of good faith and fair dealing in light of conflicting trial testimony and trial court's broad discretion to weigh witness testimony at trial); Realco Equities, Inc. v. John Hancock Mut. Life Ins. Co., 130 N.H. 345, 350, 540 A.2d 1220 (1988) (upholding master's finding that party did not breach implied...