IMPLIED COVENANT OF GOOD FAITH & FAIR DEALING ATTACHES TO EVERY CONTRACT

Implied Covenant of Good FaithThere is an implied covenant of good faith and fair dealing in every contract.  Meruelo v. Mark Andrews of Palm Beach, Ltd., 12 So.3d 247, 251 (Fla. 4th DCA 2009).  “Its purpose is to protect the reasonable expectations of the contract parties.”  Snow v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 896 So.2d 787, 791 (Fla. 2d DCA 2005). 

 

A breach of this implied covenant of good faith and fair dealing is not really an independent cause of action. This is because the implied covenant of good faith and fair dealing attaches to the performance of a contractual provision.  Snow, 896 So.2d at 791.   Thus, if a contractual provision has not been breached, there has not been a breach of the implied covenant of good faith and fair dealing.  Id.  The implied covenant of good faith and fair dealing cannot override the express terms the parties agreed to in a contract.  Id.

 

For example, in Avatar Development Corp. v. De Pani Const., Inc., 834 So.2d 873 (Fla. 4th DCA 2002), a developer terminated a stucco subcontractor.  The subcontractor sued the developer.  The trial court held that the developer violated the implied covenant of good faith and fair dealing by terminating the subcontractor.  The Fourth District reversed because the implied covenant is not a tool to override the agreement of the parties:

 

The trial judge found that Avatar[developer]  violated the implied covenant of good faith and fair dealing in terminating the contract pursuant to Article 67. However, the covenant of good faith cannot be used to create a breach of contract on Avatar’s part, where there was no breach of any express term of the contract. As this Court explained in Indian Harbor Citrus, Inc. v. Poppell, 658 So.2d 605 (Fla. 4th DCA 1995), an implied covenant of good faith cannot be used to vary the unambiguous terms of a written contract and when parties negotiate “a fully specified, unambiguous contract, this court is not at liberty to change their bargain.” Id. at 607. The “duty of good faith must relate to the performance of an express term of the contract and is not an abstract and independent term of a contract which may be asserted as a source of breach when all other terms have been performed pursuant to the contract requirements.” Hosp. Corp. of Am. v. Fla. Med. Ctr., Inc., 710 So.2d 573, 574 (Fla. 4th DCA 1998). The language of Article 67 was plain and unambiguous: Avatar could terminate the contract at any time for any reason. It was a valid contract with an enforceable termination clause. 

Avatar, 834 So.2d at 875.

 

Typically, the implied covenant of good faith and fair dealing comes into play “when a question is not resolved by the terms of the contract or when one party has the power to make a discretionary decision without defined standards.”   Speedway SuperAmerica, LLC v. Tropic Enterprises, Inc., 966 So.2d 1, 3 (Fla. 2d DCA 2007) quoting Publix Super Markets, Inc. v. Wilder Corp. of Del., 876 So.2d 652, 654 (Fla. 2d DCA 2004).  

 

For example, in Speedway SuperAmerica, a landlord refused to give its tenant consent to assign a commercial lease. The lease provided that the tenant could not assign the lease without the prior written consent of the landlord and that any assignment without the landlord’s consent would be void allowing the landlord, at its discretion, to terminate the lease.  Here, the tenant assigned the lease even after the landlord refused to provide its written consent to the assignment.  The trial court ruled that the landlord had the unfettered right to refuse to provide its written consent and the tenant’s assignment constituted a material breach of the lease entitling the landlord to retake possession of the leased space.  The Second District reversed because the discretion the landlord had in providing its written consent (without any defined standards as to when the landlord would or would not provide such consent) was subject to the implied covenant of good faith and fair dealing to protect the contracting parties reasonable commercial expectations.

  

The bottom line is that a claim that a party violated the implied covenant of good faith and fair dealing will fail without proving that the party actually violated an express contractual provision.  This claim, however, is not a vehicle to rewrite contractual performance obligations and will not be used to supersede what the parties agreed to.  It can be used when the contract gives a party a discretionary obligation (such as to act reasonably, or gives the party the power to do something at its option) that has no defined standards.  In such circumstance, a party can argue the other party breached the contract by breaching the implied covenant of good faith and fair dealing by not exercising or exercising such discretionary obligation in good faith, thereby impacting the reasonable expectations of the contracting parties.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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