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Simple English definitions for legal terms
implied covenant of good faith and fair dealing
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A quick definition of implied covenant of good faith and fair dealing:
The implied covenant of good faith and fair dealing is a rule that says everyone in a contract has to do what they agreed to do and not try to cheat the other person. This rule applies to all contracts, even if it's not written down. It's hard to understand because it depends on the situation, but basically, it means being fair and not trying to trick someone. For example, if a famous athlete agrees to let only one company use their picture on products, the company has to actually make and sell those products so the athlete can make money. This rule is important because it helps make sure people keep their promises and don't try to take advantage of others.
A more thorough explanation:
The implied covenant of good faith and fair dealing is a rule that requires all parties in a contract to act in good faith and not use means to undermine the purpose of the transaction. This rule applies to the performance of a contract and is automatically included in any contract without being stated. However, it does not apply to the negotiation of the contract.
For example, if a famous athlete signs a contract with a company allowing only that company to use their image on products in exchange for a part of the profits, the company must make and sell those products even if the contract does not explicitly say so. This is because the athlete only makes a profit if products are sold, which implies that the company must make and sell the items.
The key part of this rule is fairness, and it can be difficult to determine whether a party is attempting to avoid performance or if there was a misunderstanding. Courts must analyze each case to determine whether a party has breached the implied covenant of good faith and fair dealing.