The duty of good faith and fair dealing applies to both the performance and the enforcement of the contract. Applies to Both Performance & Enforcement of the Contract (1998) 67 Cal.App.4th 779.) (bank’s addition of an entirely new term to credit card account holders by sending a notice of change of terms requiring ADR along with their account statements was not “objectively reasonable” even though account agreement gave bank unilateral and non-negotiable right to change every aspect of performance required under it). The essence of the good faith covenant is objectively reasonable conduct. If the contract is between merchants, good faith is defined as both honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. Good faith is defined as honesty in fact in the conduct or transaction concerned. The precise nature and extent of the duty imposed depends on the contractual purposes. The covenant of good faith and fair dealing may be used to aid in the construction of a contradictory and ambiguous contract. (2000) 23 Cal.4th 390.) Contradictory and Ambiguous Contracts The implied covenant of good faith and fair dealing imposes reciprocal duties on both parties to a contract. ![]() BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49.) The Implied Covenant Imposes Reciprocal Duties on Both Parties The covenant imposes on each party to the contract the duty to refrain from doing anything which would render performance of the contract impossible by any act of his own, and also the duty to do everything that the contract presupposes that each party will do to accomplish its purpose. “The general rule is plainly subject to the exception that the parties may, by express provisions of the contract, grant the right to engage in the very acts and conduct which would otherwise have been forbidden by an implied covenant of good faith and fair dealing.” ( Id.)ĮLEMENT 2: Duty of Good Faith and Fair Dealing There, the Court allowed for the buyer to receive deposit of an aborted boat purchase because the contract gave buyer express discretion to cancel for any reason. Porthole Yachts, Ltd., the court refused to invoke the doctrine of good faith and fair dealing to limit discretionary powers expressly granted in a contract. City and County of San Francisco (1990) 225 Cal.App.3d 38).) Conflicts with a Contract’s Express Grant of Discretionary PowerĬourts cannot imply the covenant of good faith and fair dealing if it conflicts with a contract’s express grant of discretionary power, unless the literal reading of the provision would render the contract illusory and unenforceable, contrary to the parties’ clear intention. The covenant of good faith and fair dealing is, by definition, an implied contract term it has no relation to any statutory duties which may exist. ![]() ![]() Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107.) Implied Covenant Has No Relation to Any Statutory Duties ![]() The covenant is implied to protect the express covenants of the contract, not to protect a general public policy interest that is not directly tied to the contract’s purpose. Implied Covenant Functions to Protect Express Covenants of the Contract There is no implied covenant of good faith and fair dealing during pre-contractual negotiations. No Implied Covenant of Good Faith and Fair Dealings During Negotiations Department of Parks & Recreation (1992) 11 Cal.App.4th 1026.) AFFIRMATIVE DEFENSES ELEMENT 1: Valid ContractĪn action for breach of the implied covenant of good faith and fair dealing requires an underlying agreement of some sort (contract, letter of intent, preliminary agreement to use best efforts to agree, etc.).
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