Question: Cavenish Farms owns a potato processing facility Mathiason Farms and
Cavenish Farms owns a potato processing facility. Mathiason Farms and Valley View Farms ("the Growers") are in the business of raising potatoes. In 2005, Cavenish and the Growers entered into contracts whereby each of the Growers agreed to grow 25,000 hundredweight of russet Burbank potatoes on certain designated fields and sell them to Cavenish. The contracts specified that they were for "crop year 2005," and Cavenish agreed to pay a base price of $4.70 per hundredweight for "usable potatoes." The Growers could not sell potatoes grown on the designated fields unless Cavenish first rejected or released them. In November 2005, Cavenish made advance payments to the Growers as required by the contracts. It thereafter became apparent that there were problems with the quality of the potatoes, and the Growers attempted to recondition the potatoes by warming the piles. Cavenish refused to make the next scheduled advance payments due on February 15, 2006. Cavenish inspected two loads of potatoes in late February 2006 and determined that they were not acceptable. On March 31, 2006, Cavenish e-mailed the Growers that it was rejecting the potatoes and sent a formal letter of rejection on April 3, 2006. By that time the potatoes had deteriorated and were unmarketable. Cavenish sued the Growers, seeking return of the advance payments as well as damages for failure to deliver potatoes as promised. The Growers counterclaimed, arguing among other things, that Cavenish had breached the implied covenant of good faith and acted in bad faith by delaying its notice of rejection of the 2005 crop, thereby precluding the Growers from selling the potatoes to another buyer before they totally deteriorated. Cavenish took the position that it had the right under the contract to accept or reject the potatoes at any time up until July 31, 2006, without breaching the contract. Should the court find that Cavenish acted in bad faith in delaying its notice of rejection for more than a month after it had decided to reject the potatoes?
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