A legal dispute between Paramount Pictures and a group of financers highlights some of the things that can wrong when two sides enter into a financing contract. The financers – a group called Melrose 2 out of New York City – agreed to back several Paramount movies in exchange for 25 percent of forthcoming revenue. The movies involved in the deal are big hits, including Mission Impossible 3, Blades of Glory and the Transformers series. Melrose 2, however, claims that it is not getting its fair share.
Melrose 2 believes that Paramount is underreporting its profits, thereby cutting Melrose 2 out of the money that the financers claim they are due. Having provided $375 million in financing to Paramount, Melrose 2 says that it has not yet had a dollar of profit despite the films’ bringing in $7 billion in revenue. Paramount counters that the fraud charges are untrue. It says that movies like Transformers 3 are still in the early stages of their earning potential and that it has not hidden any money in an attempt to shortchange Melrose 2.
The lawsuit levies several charges against Paramount. Breach of contract is the common charge when one party to a contract is not happy with the other side, but another, related charge that Melrose 2 is bringing is breach of the covenant of good faith and fair dealing. Most courts read this covenant as implied in every contract into which parties enter. The covenant says that the parties to the contract should deal with each other fairly and in good faith. No party should act in a way that harms the ability of another party to receive the benefits of the contract.
Have you had to sue another company for breaching the covenant of good faith and fair dealing?
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