## Facts

- John Deere sold construction/industrial equipment through independent dealers and provided “floor plan” financing, creating significant credit exposure to dealers.
- Taylor Equipment, Inc., doing business as Midcon Equipment Co. (Midcon), operated as a long-time Deere dealer in South Dakota and Iowa.
- Deere discovered Midcon had sold about $370,000 of equipment “out of trust” by not promptly remitting proceeds to Deere as required.
- The dealer agreement permitted immediate termination for default and also allowed either party to terminate without cause on 120 days’ notice.
- The agreement barred assignment of the dealership without Deere’s prior written consent.
- Deere informed Midcon it would be terminated but allowed Midcon to seek a purchaser of the dealership.
- Midcon proposed selling/assigning to a buyer offering a higher price; Deere refused to consent unless the buyer contributed additional equity capital that Deere considered necessary.
- The proposed buyer declined to add capital; Midcon later sold to a Deere-approved buyer for $1,715,000 less than the first offer.
- Midcon sued for breach of the implied covenant of good faith and fair dealing based on Deere’s refusal to approve the initial proposed assignment; a jury awarded damages reflecting the price differential.

## Issues

1. Whether an implied covenant of good faith and fair dealing can restrict a manufacturer’s express contractual right to withhold consent to assignment of a dealership.
2. Whether the evidence permitted a finding that Deere acted without “honesty in fact” in conditioning consent on additional buyer capitalization.

## Decision

- The court reversed the judgment for Midcon and held Deere was entitled to judgment as a matter of law.
- The implied covenant could not be used to negate or rewrite the contract’s express prior-written-consent requirement for assignments.
- Midcon failed to present legally sufficient evidence that Deere’s refusal was dishonest under the applicable good-faith standard.
- The jury’s verdict and $1.715 million damages award were vacated.

## Legal Principles

- The implied covenant of good faith and fair dealing cannot override or contradict an express contractual term allocating discretion to one party.
- In this commercial setting, “good faith” is measured by “honesty in fact”; a discretionary decision is not actionable absent evidence of dishonesty or pretext.
- A party with an express contractual consent right does not owe a duty to maximize the other party’s sale price or act as a fiduciary when protecting its own legitimate financial interests.
- A manufacturer may consider capitalization and credit risk when evaluating a proposed assignee where the contract reserves approval authority.

## Conclusion

Because the dealer agreement expressly required Deere’s written consent to any assignment and the record did not support a finding that Deere acted dishonestly in withholding consent based on capitalization concerns, the implied covenant provided no basis for liability, and Deere was entitled to judgment as a matter of law.


Taylor Equip., Inc. v. John Deere Co., 98 F.3d 1028 (8th Cir. 1996)