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Covenant of Good Faith and Fair Dealing Cannot Add Terms to Contract

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Florida law recognizes the implied covenant of good faith and fair dealing in all contracts, but not to add new or additional requirements into a contract.  A recent Florida case explains how this concept is to be implemented. 

What is the Covenant of Good Faith and Fair Dealing?

In Meruelo v. Mark Andrew of the Palm Beaches_ Ltd.  12 So. 3d 247, 250 (Fla. 4th DCA 2009), the buyers of commercial property failed to seek approval for a specific amount (600,000 square feet) of air-conditioned saleable space.  Had the buyers obtained the approval there was a bonus payment due to the seller. Because the buyers failed to seek approval, the seller contended that the buyers breached the implied covenant of good faith and fair dealing. 

On appeal, the Court held that the provision was not an express duty under the contract but instead a bonus provision, which was voluntary and at the buyers’ discretion.  The addendum to the sale contract did not expressly impose the duty to seek approval for the 600,000 square foot building.  The decision to seek approval under the contract was left entirely to the discretion of the buyers. 

The Covenant of Good Faith and Fair Dealing Does Not Create an Independent Term Of A Contract

The covenant of good faith and fair dealing “must relate to the performance of an express term of the contract and is not an abstract and independent term of a contract which may be asserted as a source of breach when all other terms have been performed pursuant to the contract requirements.” Id

Importantly, the covenant of the implied duty of good faith and fair dealing is not an independent term within the parties’ contract.  Nor can the implied duty be used modify or vary the “specified, unambiguous terms of a contract.”  Id. at 250-51.  The Court is not permitted to change the bargaining power. 

The purpose of the implied duty of good faith, instead, is to protect the parties’ reasonable commercial expectations.  It usually arises where a dispute “is not resolved by the terms of the contract or when one party has the power to make a discretionary decision without defined standards.  Id. at 251.  The “discretion” concept operates where there is an express contractual duty that one party has control over. The implied duty of duty faith then attaches to the performance of a specific or express contractual provision. 

Must Be Breach of An Express Term

Absent an express term of the contract that has been breached, there can be no cause of action for a breach of the implied covenant of good faith and fair dealing. Id.; Snow v. Ruden, McClosky, Smith, Schuster & Russell, P.A.,896 So. 2d 787, 791-92 (Fla. 2d DCA 2005).

Therefore, because the buyers did not breach an express term in the contract, the seller of the property could not assert a breach of a duty that did not exist.

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