The Covenant Of Good Faith And Fair Dealing Can Turn A Small Case Into A Big One.

Most non-lawyers understand the basics of a breach of contract claim. The two sides make a deal, and if one side does not honor his obligations, the other side can sue for damages.

The problem with a contract claim, from a practical point of view, is that the damages are limited. Basically, you can get what you lost based on the contemplation of the parties at the time the contract was formed. For instance, if you contract to provide a service, you provide it, and the other side does not pay, you can sue for the value of those services. Depending on the contract, you might get interest on that money, and you might get back some or all of your attorney’s fees.

But that’s it. If the contract provides for future exchanges of services for money, which are now lost to you, you might or might not get something for that. You don’t get money for pain and suffering. You don’t get damages for the ripple effect that runs through your business. You can’t get punitive damages, even if the other side’s conduct was particularly egregious. Sometimes, the result of all this is that, from a cost-benefit point of view, it doesn’t make sense to file your lawsuit. The attorney’s fees and costs may even exceed what you stand to win.

However, most non-lawyers do not know about another legal concept that arises in a contract setting. Every contract includes an implied term – in other words, not an express term of the contract – requiring compliance with the covenant of good faith and fair dealing. The covenant says that neither side can do anything, whether expressly prohibited in the contract or not, which destroys the other side’s fundamental reason for entering the contract.

For instance, we are doing a case right now regarding an employment-type contract gone bad. A ran a series of stores offering a service. A wanted to open a new store. So A entered a 2-year contract with B under which, if B made the new store successful, B would get a 49% interest after two years. The store was successful. But after one year, A terminated the contract with B. The termination was arguably permitted by the express terms of the contract, which required no reason for termination. But the effect of the termination was to deprive B of his main reason for entering the contract, namely, getting the vested ownership interest after two years. This amounts, potentially, to a breach of the covenant of good faith and fair dealing, even though permitted by the express terms of the contract.

The real significance of the resulting claim for breach of the covenant is that, increasingly under Arizona law, B can now claim not just contract damages, but what are called tort damages. In other words, he can claim future lost profits, pain and suffering, and even punitive damages. Suddenly, a lawsuit that might not have been worth bringing becomes more than worth it.

This is not something that laymen would know about. But both A and B would have benefitted by going to see an attorney specializing in fraud or business litigation at the very outset. There, they would have learned about the covenant, which may end up determining the outcome of this case.

TIPS FOR LANDLORDS WITH NEW TENANTS

Some landlords hold multiple properties and have been doing so for years. These individuals often know the law as well as most landlord-tenants lawyers.

But the greater number of landlords own one or two rental properties, and this number will grow as the economy declines, making purchase and sale of homes more difficult. This group lacks the sophistication of the first group and is much more likely to walk into rental traps. I have both represented and litigated against these individuals, and this article represents my attempt to identify some of their more common problems.

Let go of the attitude of many inexperienced landlords, especially those who used to live in the rental home, that the house belongs to them and they can darn well do what they want with it. For instance, you cannot just go on the property when you want to. You must give 48-hour notice, except in the case of emergency or requested repair or clear abandonment. You have no other right of entry, and there are sanctions under the Landlord-Tenant Act.

Be sure to take photos of the premises before the new tenants move in. And make sure you give them a move-in inspection list. If you do not, you will have a difficult time attributing end-of-term damage to the tenants. It would be wise to take your own photos of the damage the tenants allege in their inspection list, and if you repair any of that damage, make sure you retain proof of doing so.

If the tenants attempt to exercise any of their rights under the L-T Act, be careful about trying to evict them, because the sanctions for retaliation are substantial. If you attempt to evict, make sure your case against the tenants is slam dunk.

At the end of the term, when you do your inspection, make it as close to the move-out date as possible and be sure to give the tenants notice so that they can attend.
If the tenants demand their security deposit back, make sure your response is postmarked no later than 14 days thereafter. Some judges require that the tenants’ demand be written, but the statute does not say that, so the wise move is to honor any demand for the deposit. You must move quickly so that the estimates for repair of damage are dated prior to your response.

If there are clauses in the lease that call for the parties’ initials, make sure those places are initialed. For instance, I’ve seen more than one landlord lose the right to attorney’s fees he/she would otherwise have had because these boxes were not initialed.

This is not a complete list. The wise moves would be to have a L-T lawyer review your lease before using it and to keep that lawyer on retainer for future questions.

SOME TIPS FOR TENANTS MOVING IN

My tenant clients – like most my clients – come to me too late in the game. Often, they have done things during the tenancy, or failed to do other things, which make my defending them almost impossible.

On the other hand, I recognize that few people have money trees, and no one likes to go to a lawyer until they feel they have no choice.

So this article represents my attempt to give some of the advice I would give if the tenant did come to me at the beginning of the term.

Never rely on oral communications with the landlord (or his/her property management company). I know that’s the way we all do it in normal life. But oral promises get denied a lot in court. If you have a significant oral conversation with the landlord, memorialize it afterwards with an email.

If the landlord gives you a move-in inspection list, pay careful attention and be detailed in filling it out. If there is a dispute at the end of the term, this will be critical since it will be compared with the move-out inspection list. And take photos of all the problems you note. If the landlord does not give you a move-in list, do not ask for one. He is required to provide it to you, and if he does not, he will have a harder time charging you for alleged damage at the end of the lease.

Problems going to the habitability of the house (like roofs, plumbing, AC and heat) are the landlord’s responsibility. But when they arise, be sure to give the landlord written notice. Although the law does not require you to do so, I have had clients penalized in court for not doing so because the judge decides on his own that notice should have been given.

If the problem continues and the landlord does not take care of it, and you want out and have another place to go, there is a specific notice you have to give. It must be written and it must identify the problem and it must say that the problem must be fixed in five days or the lease is terminated. If the landlord does not fix it in that time, you are not responsible for any further rent or penalties and you get your deposit back (though the landlord may fight it).

Check out the neighborhood before you rent. You are not going to be able to hold the landlord responsible if it turns out to be a bad one.

Also, before signing the lease, read it. I know the usual lease is an intimidating document, but it will serve you later to know what it says. Look especially at some of the following clauses: Who is responsible for utilities, yard maintenance, pool upkeep? If there are big trees, are you responsible if they die? What are the provisions for subleasing? You cannot just move someone in because you want to. And never allow a drug user to move in. What deposits are refundable and which are non-refundable? If they are not marked non-refundable, they are refundable. What are the provisions regarding pets and pet damage? Landlords like to blame things on pets.

This is not a complete list of important points for tenants moving in. But these are some of the issues which frequently cross my desk.

HOW AGGRESSIVE SHOULD YOUR LAWYER BE?

Most people looking for a lawyer, because a fight is brewing, have never had any prior involvement with a lawyer. You would be surprised how many of these new litigants come in with impressions formed from movies and TV. But the media depiction of lawyers is about as accurate as the media’s depiction of everybody else . . . not very accurate.

So what should you be looking for when you think you might need a lawyer.

Many think they should be looking for the most “aggressive” lawyer they can find. After all, “litigation is war”, right? And you need a ferocious warrior. At some point, litigation does become war, so it is true you need someone who is capable of taking the gloves off when that time comes.

But it is well into litigation before the process becomes war-like, and very few cases get very far into that stage of the process. For the most part, litigation is more about relationships than it is about war, and your lawyer, if he/she is going to be effective, must be capable in that area as well.

So take a look at the relationships in your life. What works and what does not? Do you vibe to people who are extremely knowledgeable, able to talk at length about any subject, and always sounds right? Or do you gravitate to the person who listens to what you have to say and then speaks to what you have to say rather than just his/her own thoughts? If your lawyer cannot hear you, and feel your situation, get away, even if that person is “impressive”.

And when confrontation arises in life, what seems to work? If you want someone to do something for you, does it work better to pin that person in a corner and browbeat them? Or is it more effective to stand by your position but back off enough for the other person to have the freedom to make his/her own choice about what you want? Not many – or any – people respond well to being cornered. It is the same in law: unless your goal is simply to get your rocks off, you’re far more likely to get the result you want by respecting the other person’s point of view as well. Good lawyers know this.

Law is a people business. Both between attorneys and their clients, and between opposing parties. Pick your lawyer like you pick the people you want to keep around you in life.

WHAT DO YOU DO WHEN THE OTHER GUY BREACHES YOUR CONTRACT

WHAT DO YOU DO WHEN THE OTHER GUY BREACHES YOUR CONTRACT

When the other side breaches its contract with you, what are your legal remedies? There are three. Breach of contract, rescission and specific performance. Which one or ones are available to you depend on circumstances and the value of the subject of the contract.
Breach of Contract
The contract you signed to buy the car said the car had 30,000 miles. It turns out the car has 45,000. This is not enough of a discrepancy to want to unload the car, but it does mean the car has less value than you paid for. Or your company buys 1000 widgets. 90 of them are defective and unusable. There is no point in sending back all 1000, but you want to be compensated for the 90 bad ones. In short, situations where you don’t want to repudiate the whole contract, but you want to be compensated to the extent the other side fell short on some portion of its promised performance.
Your remedy is breach of contract. What can you recover? The value of the defective items, interest if it applies, consequential damages (like the costs of shipping back the 90 bad widgets and possibly lost profits), reasonable attorney’s fees and court costs. You cannot recover for any emotional distress or inconvenience caused by the whole incident.
Rescission
Let’s say the car you bought which you thought had 30,000 miles actually has 100,000 miles. Now the discrepancy is so great that you effectively received an entirely different car than you thought you were buying. You don’t want money for the difference: you want the car returned to the seller and all your money returned. Or let’s say there are 600 faulty widgets, you were buying them to resell to a regular buyer, but that buyer refuses to receive lots of less than 500. Effectively, the 1000 widgets are useless to you. You want them all sent back and all your money returned.
This total repudiation of the contract is called rescission. Because the remedy is more extreme than breach of contract, you will have to show the court that the value of the deal has been completely or almost completely destroyed for you. If you win, you get back all your money, minus any damage you may have done to the car or widgets, plus interest if it has been a while, consequential damages, reasonable attorney’s fees and court costs.
Specific Performance
Let’s say you ordered 1000 widgets, but the seller, citing some excuse, only provides you with 400. You still need 500 at least to satisfy your buyer. You don’t want to just rescind because that would not enable you to satisfy your buyer. Rather, you want to force your seller to provide you with the other 600 widgets.
What you want is specific performance. Essentially, you are asking the court to issue an order forcing the other side to fully perform. In addition, you can get your consequential damages (which may or may not include costs incurred with your buyer) along with reasonable attorney’s fees and costs.
Understand that this is a very elementary explanation. Do not try to pursue any of these claims without a lawyer. The short term savings of doing it yourself will undoubtedly result in a much larger loss in the long term when you lose.

TRYING TO EVICT THE DISORDERLY RESIDENTIAL TENANT

Here are some of the important points to know if you are either a landlord trying to evict a tenant whom you consider to be a threat or a disruption to the neighbors, or you are a tenant who is accused of those things by a landlord trying to evict you.

The extreme case

The most extreme case is that where the tenant is alleged to be engaging in conduct involving actual or imminent danger of serious damage to persons or property.  In ARS 33-1368, the Residentail Landlord-Tenant Act identifies several specific acts: illegal use of a weapon, homicide, prostitution, gang activity, drug making/selling/possessing, threatening or intimidating, assault, and nuisance.  But the protection is not limited to these specific activities.

In one of these instances, the landlord can give notice for immediate termination of the lease (as opposed to 5 or 10 days).  He does that by filing a complaint and having it served on the tenant.  The court will set the hearing for three business days from the filing of the complaint.  If the landlord prevails, the tenant will be ousted in 12-24 hours.  The landlord willl get his attorney’s fees and costs as well.  Even though the landlord does not have to give notice before filing the complaint, he must attach to the complaint a notice informing the tenant just which of the acts stated above he is accused of committing.

The less extreme case

The lower level involves violations of ARS 33-1341, which states the general requirements for tenants under any lease.  It covers such things as keeping the premises safe and clean, not destroying or defacing any of the property, and refraining (and preventing the tenant’s guests) from disturbing the neighbors’ peaceful enjoyment of the premises.

Unlike in the extreme case, the landlord who claims a violation of ARS 33-1341 must give five days written notice to the tenant before filing a complaint.  If the tenant remedies the problem within those five days, the 5-day notice is voided, and no complaint may be filed.  However, if that tenant survives the first 5-day notice but thereafter commits the “same or similar” act, the landlord may give a 10-day notice of the filing of a complaint.  The statute does not provide for the tenant to escape this second notice by attempting to correct the situation.

What issues are likely to arise at the trial?

More often than not, the matter is decided by the tenant’s failure to show up in court, either because the landlord’s charges are accurate or because the tenant cannot afford a lawyer.  The tenant who tries to represent himself will invariably lose, even when he has facts on his side.

Recently, I had a case involving many of the issues discussed above.  In this case, I represented the tenant.

The complaint against my client claimed she had engaged in assault, disturbing the neighbors, intimidating the neighbors and the manager, and driving recklessly in the parking lot with a child.

According to my client, there were two incidents.  In the first one, my client, returning from taking out the garbage, was confronted by a neighbor who apparently had never liked my client.  There were only words exchanged.

The second incident, however, was more involved.  My client had had a male friend staying with her for a few days.  At the end of the stay, the two got into some sort of argument.  The man became enraged, grabbed my client’s 3-year-old daughter, got into my client’s truck, and threatend to go to the airport, leaving the child there as he flew away.  My client went to the truck and managed to wrestle the child away.  She and the child locked themselves in the apartment while the man yelled and banged on the door.  At this point, the manager walked up, and she and the man exchanged words, though my client could not tell what they were saying.  Once the manager left, my client calmed the man down, got the two of them and the child into the truck, and drove the man to the airport.

The case settled before trial, which is almost always the best result for everyone.  But had we gone to trial, I would have made the following argbuments, which might or might not be relevant to other tenant-landlord litigation, depending on the particular facts.  First, the requirement that tenants are responsible for controlling their guests must be read reasonably.  In this case, just how much can a woman with a small child do to contol an enraged man? I think she handled the situation, by getting him off the premises, about as well as any woman could.  Second, for the landlord’s action to succeed, the violation of 33-1341 must actually endanger someone’s health and safety.  Where is the evidence of that here?  Third, under the language of the statute authorizing the eviction, the landlord only prevails if the tenant should reasonably have expected the incident and, despite that knowledgte, did nothing to prevent it. Where is the evidence that she knew the man’s tantrum was coming?

Landlord-Tenant: What Do I Do When My Landlord Gets Foreclosed On?

All over the Valley, tenants are being confronted by landlords or their property managers informing the tenants that the house or apartment has been sold, that the tenants have to get out immediately, and that, if they don’t, the sheriffs will usher them out.

“There oughtta be a law . . .”, as they say, putting these people in jail. This sort of bullying is not only cruel in its effect on tenants, who are put into panic by these representations, but it is deceitful because, as these landlords and managers know full well, the foreclosure does not mean the tenant has to move.

One of the first and best things done by President Obama when he got elected was to push through the Landlord-Tenant Relief Act. Because it was rushed through in response to the housing crisis, it is not particularly well-written. But it is clear about some things, including the following:

First, if you have a written lease and you are in integrity with that lease (which usually means that you’ve paid the rent) at the time of the auction/sale, you are permitted to stay in that property until the end of the lease term. The new owner is entitled to your rent, but you don’t have to leave. The only exception is if the new buyer intends to occupy the property. But even in that event, you don’t have to move out upon auction or sale: they must give you written 90-day notice.

Most of the homes which go to foreclosure are not bought by anyone: rather, they go back to the lender. The lender does not qualify as an owner-occupier, so it cannot kick you out. And of the people who do buy at these auctions, virtually all of them are investors, rather than occupiers. So they can’t throw you out either. The fact that they might want to sell to an owner-occupier is irrelevant.

Second, if you do not have a written lease and are month-to-month, you still do not have to move until the new buyer gives you written notice, and you have ninety days from the date of that notice.

Word to the wise. A lot of tenants, when they get notice that the landlord is in default, stop paying their rent. Big mistake! You are protected by the Obama Act only if you are up to date in your rent. The one thing you do need to do if your landlord goes into default is keep a written record of your payments so that you can protect yourself when the new owner takes over

Landlord-Tenant: When Is It OK To Leave Early?

Most tenants move fairly often. There are no real roots holding the tenant where she is, and lots of reasons arise to move on. A bad apartment . . . a new job . . . a new boyfriend . . . you name it. Few tenants who come to see us have been in the premises for even a year before they want or need to leave.

But be careful why and how you leave. Do it for the wrong reason or in the wrong way and you are liable to leave wearing a judgment in the thousands which will haunt you for some time, as well as a black mark on both your credit and the landlord lists (which will make it difficult for you to rent again).

The instances when the Landlord-Tenant Act clearly permits you to leave early are when the condition of your living space falls in violation of building codes relating to health and safety (e.g., mold), or when your living space is not “fit or habitable” (e.g., overrun with scorpions), or when the common areas outside your living space are not “clean and safe”, (e.g., broken glass and gangs), or when basic services (electric, plumbing, heating, A/C, etc.) are not in “good and safe working order”, or when there are not “appropriate receptacles” for trash, or when there is not a “reasonable” supply of running or hot water.

But watch out for two things . . .

First, you cannot leave without giving 5-day, written notice to the landlord of the problem and your intent to leave. You can go only after the landlord fails to remedy the problem in those five days. But if you have done it right and for the right reason, your rental obligation ends on the fifth day, and you are entitled to the return of your security deposit (less acceptable deductions).

Second, notice that the events justifying your leaving are not matters of convenience but rather matters of urgency, like losing your air-conditioning in the summer or being drowned by multiple roof leaks. Every woman should be able to have a working refrigerator, but the lack of one does not make the premises uninhabitable. For this sort of thing, you will have to use the self-help statute, which lets you subtract for this sort of problem after notice and up to a certain amount, but does not allow you to leave.

[This is a short summary, and is not meant to be a substitute for going to see an attorney who represents residential tenants.]

LANDLORD-TENANT: When Is It OK For The Tenant To Leave Early?

Most tenants move fairly often.  There are no real roots holding the tenant where she is, and lots of reasons arise to move on.  A bad apartment . . . a new job . . . a new boyfriend . . . you name it.  Few tenants who come to see us have been in the premises for even a year before they want or need to leave.

But be careful why and how you leave.  Do it for the wrong reason or in the wrong way and you are liable to leave wearing a judgment in the thousands which will haunt you for some time, as well as a black mark on both your credit and the landlord lists (which will make it difficult for you to rent again).

The instances when the Landlord-Tenant Act clearly permits you to leave early are when the condition of your living space falls in violation of building codes relating to health and safety (e.g., mold), or when your living space is not “fit or habitable” (e.g., overrun with scorpions or bedbugs), or when the common areas outside your living space are not “clean and safe”, (e.g., broken glass and gangs), or when basic services (electric, plumbing, heating, A/C, etc.) are not in “good and safe working order”, or when there are not “appropriate receptacles” for trash, or when there is not a “reasonable” supply of running or hot water.

But watch out for two things . . .

First, you cannot leave without giving 5-day, written notice to the landlord of the problem and your intent to leave.  You can go only after the landlord fails to remedy the problem in those five days.  But if you have done it right and for the right reason, your rental obligation ends on the fifth day, and you are entitled to the return of your security deposit (less acceptable deductions).

Second, notice that the events justifying your leaving are not matters of convenience but rather matters of urgency, like losing your air-conditioning in the summer or being overrun by bedbugs (which chemicals can’t kill).  Every woman should be able to have a working refrigerator, but the lack of one does not make the premises uninhabitable.  For this sort of thing, you will have to use the self-help statute, which lets you subtract for this sort of problem after notice and up to a certain amount, but does not allow you to leave.

LITIGATION: If I Hire A Lawyer and Bring a Lawsuit, What Will Happen?

Most people have never hired an attorney or gone to court for anything more serious than a traffic ticket. The process of litigation looks as mysterious to most people as fixing a car or coaching a chess team looks to me. Maybe this will help a little.

 

A civil case usually has six main stages: (1) pre-litigation negotiation; (2) the filing of initial pleadings; (3) disclosure and discovery; (4) dispositive motions; (5) trial; and (6) appeal. This process can be stopped if the parties settle which, statistically, happens more often than not.
Pre-litigation Negotiation
Because litigation is burdensome, not only financially but in other ways as well, most lawyers will attempt to negotiate a settlement before filing the lawsuit. In my experience, these attempts succeed well under 50% of the time, generally because both parties are still emotionally upset about what was “done to them”. I will sometimes forego this step in those instances where the other side seems to be a bully or a conman: those parties generally have to be punched with a lawsuit before they will take my client seriously.
Initial Pleadings
The plaintiff (the party which initiates the lawsuit) files a Complaint stating why the court has jurisdiction, alleging the key facts underlying the dispute, and the legal claims those facts give rise to.
The defendant (the other party) must then file an Answer which answers the statements made in plaintiff’s Complaint. The defendant may, at the same time, allege any claims he has against the plaintiff. Because you know the facts, you will have to work with your lawyer during the pleading period.
Disclosure and Discovery
A little over a month after the pleadings are completed, both sides have to file their mandatory disclosure. This is a process pretty much unique to Arizona. Both sides are required to state their legal claims, describe their factual position, state their position with respect to damages, identify their witnesses (lay and expert) and any witness statements, and produce all relevant documents. Again, you will have to work closely with your lawyer with respect to the disclosure.
Then, the parties enter the discovery period during which both sides use various discovery tools – interrogatories, requests for admission, requests for documents, request to inspect, depositions – to gain evidence for their own case and to force the other side to expose its case before trial. This period can be lengthy as the two sides fight over what they have to produce. This period can also get expensive if there are numerous depositions, especially if those depositions involve expert witnesses.
Dispositive Motions
In most cases that have gone this far, one or both sides will file a motion – usually a motion for summary judgment – which basically asks that Court to hold that the evidence so favors the moving party’s case that there is no point in letting the case go to the jury. This might be because the evidence is overwhelmingly one-sided or because some point of law prohibits the other side from winning under the facts that have surfaced during discovery. Many times, these motions end the case (except for appeal), even though most judges are reluctant to take a case away from the jury.
Trial
This is when you get to see the samurai in your lawyer. I have done trials as short as a few hours and as long as two months. By the time you get out of discovery, your lawyer will have a good idea how long trial will go, but it is impossible to tell now with any certainty. The keys to that trial will probably be your lawyer’s preparation (I find I spend 3-5 hours on preparation for every hour in trial) and the relationship you establish with the jury (do they like, trust, and believe you?).
Appeal
If you lose at trial or in summary judgment, your attorney will discuss with you your prospects on appeal. There are many bases for appeal, so we cannot generalize now. Depending on the case and the complexity of the issues, it could take quite a while before you get a ruling on your appeal.

Settlement
Increasingly, courts are ordering mandatory settlement conferences after a certain number of days have passed since the pleading stage. This is not bad: you are not forced to settle, and the settlement judges are often very experienced and qualified. Sometimes, the parties will on their own, especially early in the case, seek out mediation before an experienced lawyer or retired judge at which the mediator will take turns talking to the parties and their lawyers in an effort to settle the case. We have had a lot of good experience with mediation.