Santoro v. Eagle Crest Estate Homesite Owners Assn.

“When one party to a contract is given discretion in the performance of some aspect of the contract, the parties ordinarily contemplate that that discretion will be exercised for particular purposes. If the discretion is exercised for purposes not contemplated by the parties, the party exercising discretion has performed in bad faith.” Best v. U. S. National Bank, 303 Or 557, 563, 739 P2d 554 (1987).

Plaintiffs appealed the trial court’s ruling that allowed the Eagle Crest Estate Homesite Owners Association, the defendant, to deny the construction of an RV garage on their property. On appeal, Plaintiff argued that neither the covenants, conditions, and restrictions for the Eagle Crest Estate Homesites (CC&Rs) or the committee’s policies and guidelines prohibited oversized RV garages. Plaintiffs argued that the CC&Rs imposed a good faith duty on the committee, and they were actively violating that duty. Defendants argued that the CC&Rs specified that any new construction had to be approved by the committee and they had the power to make the final decision and withhold consent at its discretion. The Supreme Court explained a breach of good faith as, “[w]hen one party to a contract is given discretion in the performance of some aspect of the contract, the parties ordinarily contemplate that that discretion will be exercised for particular purposes. If the discretion is exercised for purposes not contemplated by the parties, the party exercising discretion has performed in bad faith.” Best v. U. S. National Bank, 303 Or 557, 563, 739 P2d 554 (1987). The court held that the denial of the RV garage breached a duty of good faith because it was exercised for purposes not contemplated by the parties. The court vacates and remands.