Implied covenant of good faith and fair dealing
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The Implied covenant of good faith and fair dealing is a general assumption of the law of contracts, that people will act in good faith and deal fairly without breaking their word, using shifty means to avoid obligations, or denying what the other party obviously understood. A lawsuit (or one of the causes of action in a lawsuit) based on the breach of this covenant is often brought when the other party has been claiming technical excuses for breaching the contract or using the specific words of the contract to refuse to perform when the surrounding circumstances or apparent understanding of the parties were to the contrary.
An example of this covenant would be when an employer fires a long-time employee without cause and says that it can fire him or her at its whim because the employment contract states that the employment is "at will." However, the employee was encouraged to join the company on the basis of retirement plans and other conduct which led him or her to believe that the job was permanent barring misconduct or financial downturn. Thus, there could be a breach of the implied covenant, since the surrounding circumstances implied that there would be career-long employment.
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- Another dictionary definition
- Article about a legal action utilizing the covenant
- Discussion of the covenant
- Law firm publications on the covenant
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