The implied covenant prohibits conduct that, while not expressly forbidden, frustrates the other party's right to receive the contract's benefits. It cannot override express terms or create new obligations.
Insurance contracts carry a heightened version.
Alternative Names:
Implied Covenant, Good Faith and Fair Dealing
Why it Matters?
The limitation that the covenant cannot contradict express terms is what defeats most of these claims, since a party exercising a right the contract granted has not breached the covenant regardless of motive. Discretionary provisions are where the claim succeeds, because a party with contractual discretion must exercise it reasonably rather than arbitrarily. In most commercial contexts the claim sounds in contract rather than tort.
Frequently Confused with
Related terms
Frequently asked questions
Can the covenant override express terms?
Where does the claim succeed?
