Badgett v. Security State Bank

In 1981, Badgett (plaintiff) received a loan from Security State Bank (Security) for the purpose of purchasing a dairy and entering the dairy business. After Badgett exited and reentered the dairy business, Badgett again decided to retire from the dairy business in early 1986. Badgett had an opportunity to participate in the federal government’s Dairy Termination Program (DTP). The DTP paid dairy producers not to engage in the production of dairy for five years. Badgett considered submitting a bid to the DTP to receive a payment of $1,600,000 as part of the program. On March 3, 1986, Badgett spoke with Joe Cooke, Security’s loan officer, about the possibility of Badgett participating in DTP and using a portion of any payment he received to satisfy his remaining debt to Security. At the time of this conversation, Badgett owed Security $1,500,000. Badgett submitted a proposal to Cooke that stated that Badgett wished to submit a bid to DTP to receive $1,600,000 under the program. Cooke informed Badgett that he would present the proposal to Security’s loan committee. Security’s loan committee refused to consider Badgett’s proposal. Badgett subsequently submitted an unsuccessful bid to DTP. In April 1986, Badgett stopped making payments on his loan with Security. Later that month, Badgett entered a written agreement with Security to sell Badgett’s dairy assets for the purpose of satisfying the debt. In September 1986, Badgett filed suit against Security in Washington state court, alleging that Security breached its implied obligation of good faith and fair dealing by refusing to consider Badgett’s proposal for submitting a bid to DTP. Badgett also alleged that Cooke misrepresented Badgett’s proposal to Security’s loan committee. Security counterclaimed for loan payments due and foreclosure. The trial court dismissed Badgett’s complaint and entered judgment for Security. Badgett appealed. The court of appeals reversed, and Security appealed.