Implied Covenant Of Good Faith And Fair Dealing Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Implied Covenant Of Good Faith And Fair Dealing, written in plain English, along with examples of how it is used.

What is Implied Covenant Of Good Faith And Fair Dealing?

In the court of law it is generally believed and assumed that everyone in the contract will act in good faith and deal fairly without breaching contracts deliberately , or avoiding the obligation or maybe interpret the contract differently on purpose thereby breaching the covenant.

History and Meaning of Implied Covenant Of Good Faith And Fair Dealing

Implied covenant of good faith and fair dealing refers to a common law concept that is present in every contract. It is essentially an unwritten rule between the contracting parties that they will not try to unfairly dodge their obligations or destroy the essence of the terms in the contract. The implied covenant requires the parties to act in good faith and deal fairly with each other.

This covenant has its roots in contract law and over time has evolved into a necessary element of every contract. It is now recognized in most U.S. states as well as other countries, although the scope of its application may differ slightly from jurisdiction to jurisdiction.

Examples of Implied Covenant Of Good Faith And Fair Dealing

  1. An insurance policyholder has a valid claim for damages under their policy, but the insurance company repeatedly delays payment or denies the claim to avoid making a payout. This act could be seen as a violation of the duty of good faith and fair dealing.

  2. In an employment contract, the employer fires an employee without cause or a proper investigation, violating the employee's reasonable expectation of treatment in good faith and fair dealing.

  3. A software company terminates the license of one of its customers without any valid reason, knowing that the customer will lose access to its critical business software. This act shows bad faith and violates the duty of good faith and fair dealing.

Legal Terms Similar to Implied Covenant Of Good Faith And Fair Dealing

  1. Good faith: It refers to the honest intent to act without taking any unfair advantage of the other party while carrying out the contractual obligations.

  2. Unconscionable contract: A contract with excessively one-sided or oppressive terms that courts have the power to cancel.

  3. Misrepresentation: It refers to making false statements about information that could have influenced the other party's decision to enter into the contract.