Implied Covenant of Good Faith – Breach of Contract

South Florida Breach of Contract - State, Federal and Commercial Arbitration Attorney:

Implied Covenant of Good Faith - Breach of Contract:

In Florida, the implied covenant of good faith exists in virtually all contractual relationships. For example, this obligation exists in any agreement governed by the Uniform Commercial Code ("UCC") and cannot be disclaimed in such an agreement. See § 671.203, Fla. Stat. (1999). Numerous cases arising in many varied contexts apply the implied duty of good faith and fair dealing to an obligation that is exercised even with sole discretion. The implied covenant of good faith and fair dealing is designed to protect the contracting parties' reasonable expectations. As a result, the force of this obligation varies with the context in which it arises. The UCC, for example, while prohibiting a disclaimer of the obligation, permits the parties by agreement to "determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable." § 671.102(3). The parties' expectations as to a responsibility that is exercised with "sole discretion" should "reasonably" be more limited than those for a responsibility that is exercised under a higher standard. Nevertheless, sole discretion does not permit a party to make a discretionary decision that violates the covenant of good faith.

For example, various Florida cases have held that: (1) a grant of "absolute discretion" to trustee does not relieve the trustee of duty of good faith; (2) where contract afforded party "substantial discretion to promote that party's self-interest," duty of good faith nevertheless applied; and (3) collective bargaining agreement giving employer sole discretion to discharge employee for failure to perform was subject to duty of good faith.

In summary, Florida's implied covenant of good faith and fair dealing is a gap-filling default rule. It is usually raised when a question is not resolved by the terms of the contract or when one party has the power to make a discretionary decision without defined standards. Where there are no standards for exercising discretion, the implied covenant of good faith protects contracting parties' reasonable commercial expectations.

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