Discretion Risks

• Author: Robert J. Spjut
• Pages: 171-190

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Discretion Risks

ADVERSE-PARTY DISCRETION HAZARDS

Adverse-Party Discretion

Discretionary acts “involv[e] an exercise of judgment and choice, not an

implementation of a hard-and-fast rule exercisable at one’s own will or

judgment.”1 A decision guided by a rule for which there is but a single

outcome is not discretionary; however, if more than one outcome is

possible and must be accepted by others, then the authority to make the

decision is committed to judgment or discretion. We are here concerned

with the hazard such discretion creates, whatever the reason for its grant.

As described in chapter 5, discretion allows a party, alone or together

with other parties, either

(1) to decide a matter, such as a benefit, task, commitment, or

responsibility for a condition or a contingency for itself or the

other party or

(2) to veto the decision of such party, often by requiring a party’s

consent to such a decision.

1 B’ L D 565 (10th ed. 2014).

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Following are cases that illustrate the types of discretion previously

described:

● Computronics, Inc. v. Apple Computer, Inc.:2 In its contract with its

dealers, Apple, a computer manufacturer, reserved “the right

to appoint other authorized dealers and resellers, and to make

direct sales to anyone at any time without notice or liability to

Dealer.” Apple sold computers to a university at a discount and

allowed the university to sell them to sta and students. The dealer

objected to Apple’s decision. The case illustrates the first type of

discretion: Apple could choose to seek the benefits of direct sales

to universities, even at a discount and even though such sales

competed with the dealer, eroding the dealer’s benefits.3

● Pacesetter Motors, Inc. v. Nissan Motors Corp. U.S.A.:4 An auto dealer

agreed to sell its auto dealership for approximately $500,000 to a

buyer who wanted to move the location. To complete the sale, the

seller had to obtain the manufacturer’s consent, such consent not

to be unreasonably withheld. The manufacturer refused its consent

because the site at which the transferee intended to operate was

too close to another dealer. The dealer sold the dealership to

another buyer for $250,000. The case illustrates the second type

of discretion: the manufacturer could veto the dealer’s decision to

sell, subject to having reasons for doing so.5

One party’s discretion is the other party’s hazard: the former’s decision

has the potential to diminish the latter’s interests in the transaction,

contrary to the latter’s expectations about how such discretion was to

be exercised. As we have seen, the allocation of potential benefits in a

2 600 F. Supp. 809 (W.D. Wis. 1985).

3 When the dealer sued for breach of contract, the court held the quoted language “reserved

to [the manufacturer] itself the broadest possible latitude to sell to whomever it pleased

under whatever terms it chose.” Id. at 813.

4 913 F. Supp. 174 (W.D. N.Y. 1996).

5 The dealer sued the manufacturer for wrongfully withholding its approval, claiming

proximity to an incumbent was not a valid reason for denying consent. The manufacturer

moved for summary judgment, which the court granted. “[The manufacturer] Nissan

clearly possessed the right to evaluate any proposed sale in accordance with what Nissan

deemed to be its best interests. ‘Location’ was expressly stated as being a criterion relevant

to Nissan’s determination that a prospective buyer could meet its obligations under a

franchise agreement.” Id. at 179.

Counterparty Risks

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