06 Nov Legal Definition of Sole Discretion
Companies enter into contractual relationships in which they negotiate unique and absolute rights to make certain decisions, exercise certain options or make choices. I recommend that instead of crossing your fingers and relying on their discretion, you should be more specific about the concern you wish to address at your discretion. (After all, your client is unlikely to simply want to make sure they have the freedom to act in bad faith.) The sole and absolute discretion is essentially an exclusive discretion if the term “absolute” is intended to further clarify the nature of the right granted. A party who suffers or is harmed by the improper exercise of another person`s discretionary rights, or who is prevented from unreasonably benefiting from the consideration of the contract, may bring an action for breach of contract and claim damages. If you give each word its usual meaning in the dictionary, the phrase “unique and absolute discretion” sounds damn alone, absolute, and discretionary. No room for disagreement or legal challenge by non-executive members, right? This means that “exclusive discretionary rights” are limited by the appropriateness of a party in the circumstances and in light of the express wording of the clause. While the contract may give a party complete and complete discretion in making a decision, this does not mean that a contracting party has the green light to make a decision. The LLC may invest in as many private equity funds as the managing member chooses in its sole discretion; provided, however, that no investment is made in funds or other accounts in which the Managing Member holds an interest outside the LLC or in which the Managing Member receives any type of management fee (however designated). In many, if not most, cases, this would be true. But not all. So when is “sole and absolute discretion” not the last word in executive decision-making? Reasonable discretion exists when a party is entitled to exercise its discretion, but is “reasonable” for both parties in the factual circumstances. What`s remarkable about this definition is that “exclusive discretion” gives you the freedom to decide what to do in a particular situation or how to behave. In Today`s General Counsel, the authors use trial examples to illustrate their arguments, concluding that two steps should be taken to ensure the effectiveness of a contractual grant of “single” or “absolute” discretion.
The granting of discretion should be clear and should not be hampered by ambiguous or conflicting rights, and a separate and guaranteed consideration should be provided to avoid arguing that the granting of discretion would render the contract illusory. A Party may not exercise its sole discretion in bad faith or cause malicious harm to the other Party. The addition of discretionary language is an attempt to remove the obligation to exercise discretion in good faith. (For this reason, there is no point in embellishing discretion by referring to reasonable discretion, bona fide discretion, etc. – If you are willing to have your discretion subject to a duty of good faith, you should not play with it at your own discretion.) In terms of semantics, the idea that he can circumvent good faith at his discretion is problematic – if discretion, as expressed by a verb like may, is subject to the duty of good faith, why should discretion, as expressed at his discretion, be able to circumvent it? If you read most of the operating agreements of a manager-managed LLC, chances are you`ll find decision-making authority somewhere in the manager`s “sole and absolute discretion” or in wording that has a similar effect. Sometimes the granting of powers of attorney is usually paid; Sometimes it is limited to certain actions. Would you say that this is discretionary language limited by the duty of good faith and fair dealing, so that the party who does not terminate the termination can challenge the termination if they believe it is due to unfair conduct in bad faith? The first element of this argument is correct – the discretion conferred by the Treaty is limited in that, in general, each Contracting Party would be required to exercise that discretion in good faith. Section 205 of the Restatement (Second) of Contracts states that “every contract imposes on each party an obligation of good faith and equity in its performance and performance.” And Article 1-304 of the Uniform Commercial Code provides that “any contract or obligation under the [Uniform Commercial Code] imposes an obligation of good faith in its performance and performance”. Cases that invoke the duty of good faith “are legion.” 1-5 Murray on Contracts § 90 (2001).
Discretionary language is language that states that a party has the discretion to take or not to take a particular action.