In all contracts there is an implied covenant of good faith and fair dealing.  The purpose of the implied duty of good faith is to protect the parties’ reasonable commercial expectations.

This legal concept is fair and just and can often be relied upon by a party to a contract; however, there are limitations.

This duty of good faith and fair dealing must relate to the performance of an express term of the contract.  It is not an abstract and independent term of a contract, which can be asserted to claim a breach when all other terms have been performed pursuant to the contract requirements.

The implied duty of good faith and fair dealing cannot be used to vary or modify a fully specified, unambiguous term of a contract.  A court will not  do that; it will not apply this legal doctrine in that manner.

Sometimes parties to a real estate contract or other contractual dispute seek to claim a breach of contract when things don’t go their way, even though there has been no breach of any particular contract term.  This is not the proper application of this doctrine.

It is more properly raised when there is an express contractual duty or obligation on the part of one party, but such party has sole discretion in complying with such duty, but acts unfairly or in bad faith in carrying out that duty.

One example where application was appropriate, was where a party to a contract agreed to “vigorously pursue… recovery of underpayments” but was given “sole discretion” to determine whether it was a justifiable expense and exercised bad faith in exercising that discretion.

An example where application was not appropriate, was where a buyer of real estate agreed to pay an additional $5 million bonus if the buyer was able to obtain approval to construct 600,000 square feet or more of air conditioned saleable space.  In this instance the contract did not impose on the buyer any duty to seek such approval and therefore there could be no implied duty to act in good faith in seeking such approval.  In other words, there was no express duty to which the implied duty of good faith could relate.

In contractual dispute negotiations, the doctrine of implied duty of good faith and fair dealing can be very useful, but its application must be clearly understood.

– Rulon D. Munns, Esq., is a managing shareholder of Bogin, Munns, & Munns, P.A., a full service law firm with offices in Orlando, Clermont, Kissimmee, Deltona, Daytona Beach, Ocala, Melbourne, Gainesville, and Leesburg, Florida.  He welcomes questions and comments regarding the above and can be reached at rulon@boginmunns.com.

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