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”In Good Faith” Dealings
by Ron Davis

Part-owners of an Oregon shopping center have apparently forced a tenant to conform to the center’s rules regarding expansions.

The shopping center is Hilfiker Square LLC, and the two parties clashed when the tenant, Thrifty Payless, Inc., announced plans to expand at its location at the center. The center’s part-owners rejected the plans. As a result, the courts were called on to settle the matter.

Of note is that Hilfiker is subject to a declaration that, among other things, restricts where buildings on the property may be constructed. And a declaration may not be modified in any respect, in whole or in part.

There are two important exceptions to that declaration, however. There must gain the approval of the centers prime lessees. And they must have the approval of the owners of any parcels containing 90-percent of the total square footage of existing buildings in the shopping center.

Noting those exceptions, Hilfiker adds that Thrift Payless breached the “implied covenant of good faith and fair dealings. That was when Hilfiker is said to have deprived the company of the benefits of the agreement “consistent with reasonable contract expectations.”

According to Hilfiker, the actions of Thrift Payless have already caused $1,600,000 worth of damages. That amount correspondents to the amounts the proposed building area would be worth if developed as a project.

In response to Hilfiker, Thrifty argued that dismissal of all charges is warranted for two reasons. First, Thrifty Payless pointed out that Hilfiker’s argument fails, at least because “there is no claim that in the 90-percent threshold written agreement, modifications have been met that are at least consistent with reasonable contractual expectations.

Also the claim is controverted by the express terms of the agreement, which grants Thrifty” the absolute right to prevent Hilfiker from building a restaurant at the shopping center.

Of equal importance is Oregon law that imposes a duty of good faith and fair dealings in the performance and enforcement of every contract. The purpose of that duty “is to prohibit improper behavior and ensure that the parties will refrain from any acts that would have the effect of destroying or injuring the rights of the other party to receive the fruits of the contract.”

“Accordingly, at a minimum, it was objectively reasonable for Hilfiker to expect Thrifty to negotiate, reasonably and in good faith, concerning the proposed beneficial to Hilfiker shopping center.

“Because (plaintiff Hilfiker) has set forth facts in the complaint that plausible support the claim that (defendant Thrifty Payless) breached their duty of good faith and fair dealing by unreasonably refusing to negotiate a modification, the motion to dismiss is denied.”

“In sum Hilfiker sufficiently stated a plausible claim for breach of the implied duty of good faith and fair dealings.”

(Hilfiker Square, LLC v. Thrifty Payless, Inc. United States District Court. Oregon.)

Decision: January 2017
Published: February 2017



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