## Facts

- A commercial property was subject to a long-term sale–leaseback arrangement that included a tenant-favorable purchase option at a formula price well below later market value.
- The option mechanism was tied to proposed tenant improvements: after submitting plans and seeking landlord financing, the tenant could obtain a right to purchase if the landlord refused to finance.
- The leasehold interest, including the option provision, was assigned to Market Street Associates Limited Partnership (tenant).
- William C. Frey, as trustee for the owner/landlord, held title subject to the lease and had not negotiated the original lease terms.
- Market Street sought financing for improvements and communicated with Frey about financing without expressly calling attention to the option clause or its consequences.
- Frey responded without providing financing and without addressing the option.
- Market Street treated the response as a refusal to finance and attempted to exercise the bargain purchase option.
- After learning the option would require a sale far below market value, Frey declined to convey, and Market Street sued to enforce the option.

## Issues

1. Whether the implied covenant of good faith and fair dealing can limit a party’s attempt to exercise an express contract option when that party may be exploiting the other side’s ignorance or mistake about the contract’s operation.
2. Whether a party’s strategic silence about a contract term, in circumstances suggesting the counterparty is mistaken and the party intends to profit from that mistake, can constitute bad-faith performance under Wisconsin law.
3. Whether disputed facts about knowledge, intent, and commercial reasonableness made summary judgment improper.

## Decision

- The Seventh Circuit reversed the district court’s grant of summary judgment for Frey and remanded.
- The court did not decide that Market Street acted in bad faith as a matter of law.
- The court held that a factfinder could reasonably conclude Market Street knew Frey was unaware of the option trigger and shaped its communications to induce an unwitting refusal to finance.
- Because intent and context were material to whether Market Street’s conduct violated the duty of good faith, the record presented triable issues not suitable for summary disposition.

## Legal Principles

- Wisconsin law implies a covenant of good faith and fair dealing in contract performance and enforcement.
- Good faith constrains opportunistic conduct that, while arguably consistent with the contract’s literal terms, seeks a windfall by exploiting the other party’s known mistake or vulnerability.
- Contract law generally imposes no broad, free-standing duty to disclose favorable terms; however, in context, good faith may require correcting a counterparty’s material misunderstanding when silence is used to profit from that misunderstanding.
- The implied covenant is not a license to rewrite the contract or rebalance the deal; it functions as a performance standard and gap-filler consistent with reasonable contractual expectations.
- Whether conduct is bad faith often turns on fact-bound questions of knowledge, purpose, and business context, frequently precluding summary judgment.

## Conclusion

The Seventh Circuit held that enforcing an express bargain purchase option could be limited by the implied duty of good faith if the option holder tried to trigger it through calculated silence aimed at exploiting the owner’s mistaken understanding, and it remanded because the tenant’s intent and the surrounding commercial context raised genuine issues for trial.


Market St. Assocs. Ltd. P’ship v. Frey, 941 F.2d 588 (7th Cir. 1991)