Sons of Thunder, Inc. v. Borden, Inc.

• Citation: 690 A.2d 575,148 N.J. 396
• Parties: , 32 UCC Rep.Serv.2d 66 SONS OF THUNDER, INC., Plaintiff-Appellant, v. BORDEN, INC., Defendant-Respondent.
• Decision Date: 11 March 1997
• Court: United States State Supreme Court (New Jersey)

Page 396

148 N.J. 396

690 A.2d 575, 32 UCC Rep.Serv.2d 66

SONS OF THUNDER, INC., Plaintiff-Appellant, v. BORDEN, INC., Defendant-Respondent.

Supreme Court of New Jersey.

Argued Dec. 2, 1996.

Decided March 11, 1997.

Richard L. Bazelon, Philadelphia, PA, for plaintiff-appellant (Bazelon & Less, attorneys; Mr. Bazelon and Helen Heifets, on the briefs).

Peter J. Pizzi, Roseland, for defendant-respondent (Connell, Foley & Geiser, attorneys; Mr. Pizzi and Richard T. Bayer, on the brief).

The opinion of the Court was delivered by

GARIBALDI, J.

This appeal concerns a breach of contract action and is before us as a matter of right. R. 2:2-1(a)(2). The jury held that Borden, Inc., defendant-respondent, breached its contract with Sons of Thunder, Inc., plaintiff-appellant. Borden moved for a judgment notwithstanding the verdict, which the trial court denied. We must decide whether the majority of the Appellate Division properly found that the trial court erroneously denied Borden's motion for a judgment notwithstanding the verdict. 285 N.J.Super. 27, 666 A.2d 549 (1995). We find that the trial court was correct in denying that motion. Therefore, we reverse the Appellate Division.

I

Before examining the facts, it is important to understand that the parties view this appeal differently. Plaintiff believes that Borden breached the contract in two ways: (1) by terminating the contract contrary to the termination clause; and (2) by breaching the implied covenant of good faith and fair dealing in performing the contract. Plaintiff asserts that three corporations, Sons of Thunder, Inc., Sea Labor, Inc., and Sea Work, Inc., all owned and operated primarily by Donald DeMusz, were so interrelated that Borden's course of conduct with each should have been presented to the jury to enable it to determine whether Borden breached the implied covenant of good faith while performing its obligations. The trial court agreed and permitted the case to go to the jury on that basis. The dissent in the Appellate Division also agreed with that position. For Borden and the majority of the Appellate Division, however, the sole issue was whether the implied covenant of good faith and fair dealing can override an express and unambiguous termination clause in a contract. That position focuses only on whether Borden breached the express terms of the termination provision and ignores the fact that a party's performance may breach the implied covenant of good faith and fair dealing even when termination of the contract itself does not violate the termination provision.

With those two views in mind, we present the facts in chronological order.

A.

Initial Dealings--Sea Labor, Inc. and Sea Work, Inc.

Borden owned Snow Food Products Division, a leading producer of clam products, namely Snow's Clam Chowder. Borden obtained shell stock of ocean quahog clams (clams) from its own four-vessel fleet and from independent boats. Borden's policy was to attempt to fill its need for clams from its own boats first and then to obtain clams from independent boats to fill any additional need. The boats delivered the clams to Borden's Cape May Plant, where the shell stock was processed into clam meat. The meat was then shipped to Pine Point, Maine, where the final product was made and canned.

In 1978, Borden hired Donald DeMusz to be the captain of the Arlene Snow, which was one of the four boats that Borden used to harvest clams. In 1983, Wayne Booker, Group Operations Manager in charge of Snow Food Products, Kava Instant Coffee, and 'Bama Food Products, negotiated with and later entered into a charter agreement with DeMusz whereby DeMusz would manage Borden's four boats. DeMusz formed Sea Labor, Inc. to manage Borden's boats. The agreement provided that Sea Labor would receive five cents per bushel of clams harvested by the fleet. DeMusz would still receive captain's compensation for his work on the Arlene Snow.

Around the same time, Borden began to implement a long-considered project called "Shuck-at-Sea," which would enable the fishermen to shuck the clams on the boat and thereby provide a bigger haul of clams per boat trip. Borden developed the project because it would increase the return on its investment through reducing costs, would eliminate disposing of shells and visceral materials on land by returning them directly to sea, and would eliminate the need to drill a new freshwater well at the Cape May Plant. DeMusz was involved in developing the Shuck-at-Sea project. Borden initially planned to place its shucking equipment on the Arlene Snow, but it was too small.

Booker and DeMusz discussed the problem. DeMusz offered to buy a large boat, to rig it to Borden's specifications, and to use it in conjunction with Borden for the Shuck-at-Sea project. Booker determined that an agreement with DeMusz would save Borden money. Moreover, he did not think Borden would generate a high enough return on its investment if it bought the boat itself.

Following a meeting where Booker and other executives approved DeMusz's proposal, DeMusz formed Sea Work, Inc. with two partners. Sea Work purchased and operated a clam-fishing boat named Jessica Lori. Purchasing and rigging the Jessica Lori cost Sea Work $750,000, which it financed through a bank loan. Although DeMusz did not want to "double-rig" the boat, he acquiesced to Borden's demands to do so.

During the negotiations, Booker wrote Herbert A. Southwell, Group General Manager, an inter-company memorandum, describing how a contract with DeMusz would save time and money:

[W]e still have a significant mutual interest with DeMuse [sic]. His principal business will still be in chartering the Snow fleet and in captaining Arlene. He needs a dependable customer for the clams that he catches, either shell stock or meat. If we terminate our agreement with him, he would have a hard time making the payments on his boat.

On July 11, 1984, Sea Work and Borden signed the "Equipment Lease," an eleven-page contract, which provided that Borden would place its shucking equipment on the Jessica Lori in exchange for Sea Work offering to Borden all the clam meat shucked by the Jessica Lori at fifty cents per pound. The lease required the Jessica Lori to offer Borden a minimum of 15,000 pounds of clams each week.

Initially, the equipment was to be installed by the end of 1984. Problems with the equipment developed on several occasions, however, and the Jessica Lori was not functioning as a Shuck-at-Sea vessel until late 1986.

B.

Sons of Thunder, Inc.

In August 1984, Booker and DeMusz began negotiations about DeMusz purchasing a second boat that would provide clams to Borden. If the Shuck-at-Sea project was successful, Borden would want a second vessel shucking at sea. Moreover, a second large boat would give Borden the advantage of receiving clam meat in bad weather because small boats generally cannot go out to sea in bad weather. Finally, Borden wanted to ensure that it received a certain amount of clams if the National Fisheries Advisory Council implemented annual limits on the amount of clams a boat could harvest.

Booker, on behalf of Borden, and DeMusz entered into an oral agreement, which gave DeMusz a long-term supply contract for the second boat. Borden's accounting manager helped DeMusz calculate how many bushels would have to be sold and how much revenue would have to be generated to support DeMusz's financing of the second boat. Booker, with Southwell's knowledge, wrote DeMusz a letter of intent to help DeMusz obtain financing.

DeMusz drafted a one-page contract by himself and sent it to Booker, who approved it with one minor change. According to Booker, the contract memorialized his oral agreement with DeMusz.

DeMusz, along with Bill Gifford and Bob Dempsey, formed Sons of Thunder, Inc. to buy the second boat. Dempsey was the manager of Borden's Cape May Plant and was responsible for buying quahogs for Borden. Dempsey failed to disclose his interest in Sons of Thunder on his annual statements affirming that he had no undisclosed interest in any of Borden's suppliers. Despite his conflict of interest, Dempsey did not appear to favor Sons of Thunder, and the trial court instructed the jury not to consider his undisclosed conflict of interest as part of Borden's defense or as to the issue of fraud.

On January 15, 1985, Booker signed the contract with DeMusz, Southwell approved it, and Borden's legal department initialed it. That contract is the focus of this appeal. The contract was to begin when the boat was ready to operate. The one-page contract provided:

IT IS understood and Agreed to by the parties hereto that Snow Food Products shall purchase shell stock from Sons of Thunder Corp. for a period of one (1) year at the market rate that is standardized throughout the industry. The term of this contract shall be for a period of one (1) year, after which this contract shall automatically be renewed for a period up to five years. Either party may cancel this contract by giving prior notice of said cancellation in writing Ninety (90) days prior to the effective cancellation date.

Sons of Thunder Corp. will offer for sale all shell stock that is landed to Snow Food Products with Snow Food Products having first right of refusal, but it is agreed upon that Snow Food Products will purchase at least 240 cages of ocean quahogs per week or 7,680 bushels of ocean quahogs, with the exception of annual plant shutdown and unforeseen plant shutdowns.

In March 1985, Sons of Thunder bought a boat, which it named Sons of Thunder. The cost to rig and purchase the boat was $588,420.26. Sons of Thunder sought financing from First Jersey National Bank, but was unable to obtain a loan until Booker intervened in the negotiations. Booker told the representative of the bank that DeMusz had a solid relationship with Borden and that although the contract could be terminated within one year, Borden expected the contract to run for five...