When folks enter into agreements, there is usually a faith that the other party will act fairly. This faith of fairness is often not spoken, but implied. When a conflict arises, it is commonly said: “That is not right, it’s not fair. When we entered into this agreement, I never envisioned this…”

In the legal world, this faith that the other part will act fairly is referred to as an implied duty of good faith and fair dealing. Claims for breach of good faith and fair dealing are fairly common in the franchising industry. A franchisor commences an initiative or takes an action against a franchisee. The franchisee, views the initiative or action as adverse, unfair, and not something that was ever contemplated.

That is the case of AMTX Hotel Corporation (AMTX) v. Holiday Hospitality Franchising Inc. (Holiday). AMTX expended $2 million dollars in renovations/remodeling and $200,000 to comply with “Relaunching” in anticipation of renewing their Holiday Inn franchise agreement. Under the 2006 franchise agreement signed by AMTX and Holiday, AMTX’s franchise was ‘not renewable’ and AMTX acknowledged and agreed that the 2006 franchise agreement did not confer upon AMTX ‘any right to renew following the expiration the License Term.’ Holiday, however, ‘promised and represented’ that AMTX’s 2006 franchise agreement would in fact be renewed if AMTX was in compliance with the 2006 franchise agreement.  Holiday also represented that  no other full service full service Holiday Inns were 'set to be licensed' in Amarillo, Texas.  Holiday did not renew AMTX's franchise agreement, but instead granted a franchise to someone else in Amarillo.

AMTX claimed promissory estoppel and breach of good faith and fair dealing.  A Georgia court sided with Holiday.  Promissory estoppel is just what it sounds like.  You are stopped from doing something, because you promised.  The court found that Holiday’s representation and promises were not enough to overcome the written language of the 2006 franchise agreement. The 2006 franchise agreement said that you have no right to renew; therefore, you have no right to renew.

The court when on to say, Georgia law does not rcognize a independent claim of good faith and fair dealing.  In Georgia, you have to point to an actual provision in the contract and affirmatively show that the other party breached that provision.  It is not enough to say "I thought it was implied that you would act fairly and in good faith."

 

Lesson from the Court: Good faith and fair dealing is only enforceable if you can point to something written in the agreement.

Lessons from the Court Room: Good faith and fairness is only enforceable if you can point to it.

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