(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Argued October 24, 2000 -- Decided June 14, 2001

LaVecchia, J., writing for a unanimous Court.

    The issue in this appeal is whether summary judgment on plaintiffs' claim of breach of the implied covenant of good faith and fair dealing was granted prematurely to the defendant, Amerada Hess Corporation (Hess), because plaintiffs were denied discovery that may have provided evidence of bad faith.

    Plaintiffs have been independent franchise dealers of Hess gasoline since the 1970s. In the early 1980s, Hess changed its gasoline pricing practices from setting the retail price of the gasoline to be charged by the dealers to selling the gasoline to dealers at a wholesale cost and permitting the dealers to mark up the price to cover their operating expenses and to provide a profit. The wholesale cost charged by Hess was based on the dealer tank wagon ( DTW) prices in the marketing area of the dealers' stations. Although the parties' Dealership Agreement gives Hess unilateral authority to set and change DTW prices, plaintiffs contend that Hess breached the implied covenant of good faith and fair dealing inherent in the agreement by setting DTW prices at a level that will not allow the dealers to cover operating expenses, achieve a profit, and compete with other brands of gasoline in the marketplace. Plaintiffs contend that Hess knows its DTW pricing practices will not allow the independent franchise dealers to operate profitable businesses because Hess operates its co-op stations , i.e., stations owned and operated directly by Hess, with pricing policies that permit higher operating expenses than the independent dealers can sustain under the DTW pricing practice. Also, Hess has provided cash subsidies and sold gasoline at reduced prices to certain franchise dealers other than plaintiffs through its dealer assistance program. Plaintiffs claim this preferential pricing practice further demonstrates Hess's knowledge that its DTW pricing practice prevents plaintiffs from operating their franchises profitably.

    Before the trial court granted Hess's motion for summary judgment, plaintiff moved to compel the production of documents examining the performance of both Hess's co-op stations and stations in Hess's dealer assistance program located in the marketing areas of plaintiffs' stations. Specifically, plaintiffs requested any reports that Hess prepared to evaluate, analyze and review plaintiffs' stations, the dealer assistance program stations, and the co-op stations in plaintiffs' marketing area related to performance, costs, volume, margins and profits. Plaintiffs contend this information would have demonstrated Hess's knowledge that the dealer franchises could not be sustained under the DTW pricing practices. This is especially true, plaintiffs claim, in light of the indisputable fact that since the early 1980s Hess's stations have gone from being predominantly run by independent franchisees to being Hess run. Plaintiffs contend that this is information that the trial court should have considered prior to granting summary judgment.

    The Appellate Division affirmed the trial court's grant of summary judgment because the record was devoid of evidence to suggest that Hess's DTW prices were established with any bad faith motive to deprive plaintiffs of any profit, or that the terms offered to other stations interfere with plaintiffs' right to earn a profit.

HELD: Plaintiffs may seek discovery of documents and reports regarding the operation of plaintiffs' stations, Hess's own co-op stations and the dealer assistance program stations to demonstrate that Hess knew that its DTW pricing rendered it impossible for plaintiffs to meet their expenses and perform profitably.

1. A covenant of good faith and fair dealing is implied in every contract in New Jersey. Implied covenants are as effective components of an agreement as those covenants that are express. Although the implied covenant of good faith and fair dealing cannot override an express term in a contract, a party's performance under a contract may breach that implied covenant even though that performance does not violate an express term. In New Jersey, a party to a contract may breach the implied covenant of good faith and fair dealing in performing its obligations even when it exercises an express and unconditional right to terminate. Plaintiffs may successfully assert a claim of breach of the implied covenant by demonstrating bad motive. (Pp. 8-17 ).

2. Courts must respect and give effect to the parties' bargain as expressed in the contract, that is, the right of Hess to set the price of gasoline sold to its dealers. But the discretion afforded under the contract is not unbridled. Performance under the contract is tempered by the implied covenant of good faith and fair dealing and the reasonable expectations of the parties. (Pp. 18).

3. To give full effect to the express term, the Court sets forth the following test for determining whether the implied covenant has been breached . A party breaches the implied covenant of good faith and fair dealing if it exercises its discretionary authority arbitrarily, unreasonably, or capriciously, with the objective of preventing the other party from receiving its reasonably expected fruits under the contract. Such risks clearly would be beyond the expectations of the parties at the formation of a contract when parties reasonably intend their business relationship to be mutually beneficial. They do not reasonably intend that one party would use the powers bestowed on it to destroy unilaterally the other's expectations without legitimate purpose. (Pp. 19).

4. At the same time, the test must recognize the mutuality of expectation and enforce a party's contractual right to exercise discretion in setting prices based on its own reasonable beliefs concerning business strategy. In that setting, an allegation of bad faith or unfair dealing should not be permitted to be advanced in the abstract and absent improper motive. Without bad motive or intention, discretionary decisions that happen to result in economic disadvantage to the other party are of no legal significance. (Pp. 19-21).

5. Plaintiff's bad faith claim is that Hess set its DTW prices with the specific intent to impair the ability of the dealers to compete in the gasoline market or, alternatively, to discourage the franchisees from continuing in the business in order to replace them with co-op stations. Plaintiffs claim they were denied information that would provide circumstantial evidence of this claim. There is a possibility that the information sought by plaintiffs in their motion to compel discovery would raise a jury question on the issue of breach of the implied covenant. If the discovery plaintiff seeks demonstrates that Hess knew from the operations of its own co-op stations and the distressed stations that its DTW pricing rendered it impossible for plaintiffs to meet their expenses and perform profitably, and Hess does not provide an explanation for its pricing that is not arbitrary, capricious, or unreasonable, then plaintiffs will have established a jury question on their claim. (Pp. 21-25).

    The judgment of the Appellate Division is REVERSED, and the matter is remanded to the Law Division for further proceedings consistent with this opinion.

     CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, LONG, VERNIERO, and ZAZZALI join in JUSTICE LaVECCHIA's opinion.
SUPREME COURT OF NEW JERSEY A- 86 September Term 1999

ALBAN WILSON, CHARLES A.
MEYER, and RICHARD S. LOEBER,

    Plaintiffs-Appellants,

     v.

AMERADA HESS CORPORATION and
LEON HESS,

    Defendants-Respondents,

     and

JOHN DOES 1 through 20, and
ABC CORPORATIONS 1 through
20,

    Defendants.

______________________________

        Argued October 24, 2000 -- Decided June 14, 2001

        On certification to the Superior Court, Appellate Division.

        Edward J. Nolan argued the cause for appellants (Brian N. Lokker and Edward J. Nolan, attorneys; Mr. Nolan and Mr. Lokker, of counsel and on the briefs).

        Roger B. Kaplan argued the cause for respondents (Wilentz, Goldman & Spitzer, attorneys; Mr. Kaplan and Richard J. Byrnes, on the brief).
    The opinion of the Court was delivered by
LaVECCHIA, J.
    Plaintiffs, three independent franchise dealers of Hess gasoline, maintain that defendant, Amerada Hess Corporation, violated the implied covenant of good faith and fair dealing in setting gasoline prices notwithstanding a provision in the contract giving defendant unilateral authority to set and change dealer tank wagon (DTW) prices. The trial court granted defendant summary judgment. The Appellate Division affirmed because giving plaintiffs every favorable inference, the record was devoid of evidence to suggest that Hess's