Complex Commercial Litigation
Contract Claims
Every contract includes an implied obligation that neither party will do anything to destroy or injure the other's right to receive the fruits of the agreement. It commonly constrains the exercise of discretion granted by the contract.
It does not create obligations inconsistent with the express terms and generally cannot be used to add duties the parties did not agree to.
Alternative Names:
Good Faith Covenant, Implied Covenant
Why it Matters?
The covenant is the primary tool for challenging conduct that is technically permitted but commercially abusive, such as exercising a termination right or discretionary approval in bad faith. Its limits matter equally: courts routinely dismiss covenant claims that are simply repackaged breach claims or that would override express terms. In insurance the covenant carries far greater weight, forming the basis of bad faith liability.
Frequently Confused with
Related terms
Frequently asked questions
Can the implied covenant add obligations to a contract?
Is breach of the covenant a tort?
