Baker v. Bailey

Facts

Beginning June 1976, Arthur and Emma Bailey (Defendants) lived in a mobile home on their daughter’s property and drew water from the same pipeline that serviced their daughter’s home. In 1982, Defendants’ daughter sold her residence to Grant and Norma Baker (Plaintiffs), but reserved one acre of land surrounding the mobile home for Defendants. Plaintiffs and Defendants entered into a Water Well Use Agreement (Agreement) to ensure Defendants had access to water. The Agreement was made solely for Defendants’ benefit and was to terminate once Defendants ceased to occupy the land. This was done because Plaintiffs wanted some control over future occupants of Defendants’ land. The Agreement did not reflect this reasoning. However, Defendants understood that Plaintiffs would supply water to successive owners if Plaintiffs deemed them acceptable. The Agreement also gave Plaintiffs the right of first refusal. In 1984 Defendants sought to sell their property. Plaintiffs informed Defendants that they would not be transferring water rights to any subsequent owners. Defendants were therefore forced to sell their property for $8,000.00, although the land with water would have been worth about $47,500.00. Plaintiffs then exercised their right of first refusal and purchased the property from Defendants for $8,000.00. Plaintiffs subsequently sued Defendants for unpaid expenses. Defendants countersued for breach of the Agreement. The District Court of the Fourth Judicial District in Minnesota County found Plaintiffs breached the implied covenant of good faith and fair dealing. Plaintiffs appealed.