The appellant waste contractor alleged that the respondent municipal district breached a contractual duty of good faith by reallocating waste from a more distant disposal facility to a closer one, thereby preventing the appellant from achieving its target operating profit ratio for 2011.
The majority held that the duty to exercise contractual discretion in good faith requires exercise of discretion in a manner connected to the purposes for which the discretion was granted, and that exercising it unreasonably — meaning in a manner unconnected to those purposes — constitutes a breach.
The majority found that the respondent's reallocation was guided by legitimate objectives of maximizing efficiency and minimizing costs, and was therefore not unreasonable.
The concurring minority agreed the appeal should be dismissed, emphasizing that the standard of review was correctness given the statutory right of appeal, and that good faith cannot be used to create unbargained-for obligations.
The appeal was unanimously dismissed with costs.
