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Tennessee Trial Court Reversed for Re-Writing Contract

A recent Court of Appeals decision involving a claim for breach of contract related to a flat fee promotion agreement illustrates how Tennessee courts are not permitted, except in limited situations involving non-compete agreements, to re-write contracts or to add terms to contracts.  Here are the basic facts:

  • Gregg wanted to pursue a career in country music
  • Cupit was a producer with a studio
  • Gregg and Cupit entered into a “Production Agreement”
  • The Production Agreement provided that Gregg would pay Cupit a “flat fee” of $100,000 per single for three singles which Cupit would “nationally promote”
  • The Production Agreement provided that the $300,000 would be used at the “sole discretion” of Cupit
  • The Production Agreement provided that Cupit made no guarantees of success because the music business was a “speculative business”
  • Cupit undertook to promote Gregg in various ways, including having its principal give him singing lessons; incurring expenses for Gregg’s appearance on a television show; producing a music video; arranging various performances at country music events; employing a publicist; and having a Cupit employee devote time to communicating with radio stations to promote each song Gregg recorded
  • Gregg never had any success with his career

Gregg sued Cupit for breach of contract. He claimed that, because Cupit could only prove that it had expended an amount on promotion which was far less than the money Gregg had paid it, it had breached the contract.

The trial court held for Gregg. In doing so, it invoked the implied duty of good faith and fair dealing that is, by law, part of every Tennessee contract. It held that Gregg was entitled to an award of the difference between what he had paid Cupit and the amount which Cupit could prove it spent on promotion for Gregg. The amount awarded by the trial court was $223,069.

The Court of Appeals of Tennessee reversed the trial court. While recognizing that Cupit had an obligation to deal with Gregg fairly and in good faith, it found that the trial court’s rationale amounted to it adding terms to the contract. In Tennessee, the duty of good faith and fair dealing does not allow a court to re-write a contract or to add terms to it.

The appellate court pointed out that the Production Agreement was a flat fee agreement that did not require Cupit to spend every dime paid to it by Gregg or to maintain any type of accounting of the monies it had spent promoting Gregg. It also found it significant that the contract allowed Cupit to spend the $300,000 at its sole discretion and that Gregg had acknowledged that the venture was speculate and came with no guarantees of success.

The decision in this case should not be at all surprising for experienced Tennessee breach of contract lawyers. So, what would have made the case a closer call in terms of the alleged breach of the duty of good faith and fair dealing? How about this:  If all of the contract terms were the same, but there was credible testimony from someone in the industry that the money was spent for things that anyone in the industry would know would not help promote Gregg, the result might have been different.  If you keep that scenario and also assume a scenario where Cupit had done much less to promote Gregg, you get even closer to a different result.

The implied duty of good faith and fair dealing can win a case — there is no doubt. I won a major case with it many years ago. It cannot, however, be used to rescue a bargaining party from his or her own bad deal.  If Gregg was truly concerned about how much Cupit would actually spend as opposed to its connections and ability to promote him within the industry, he could have placed a term in the contract which required Cupit to spend a certain amount or a term which required a refund of monies not spent.