Centronics v. Genicom

Centronics Corporation ("Centronics") entered into a contract to sell business assets to Genicom Corporation ("Genicom").

• Centronics = seller
• Genicom = buyer

• The goods were books. Disputes were to be arbitrated by a New York accounting firm.

The 2 parties closed the deal on February 13th 1987 with a purchase price of $76,000,000. Genicom placed $5,000,000 in escrow (3rd party) & paid Centronics the balance of $71,000,000.

In March 1987, Centronics revised the balance sheet to $83,000,000.

Centronics went to the arbitrator because Genicom didn't want to pay the revised & higher purchase price.

Centronics sued Genicom for violation of the duty of Good Faith & Fair Dealing.

The trial court found that Centronics was seeking a revision of the contract--not the enforcement of good faith in contract performance. The court ruled in favor of Genicom.

Does a duty of good faith apply to a contract in which a party has the discretion to deprive the other party of a portion of the contract's value?

What is the duty of good faith in contractual arrangements?

Genicom argued that the distribution of funds could take place before the determination of the final purchase price.

Yes. A duty of good faith applies to a contract that invests 1 party with discretion sufficient to deprive the other of a substantial portion of the agreement's value.

Affirmed.

David Souter delivered the court opinion in this case.