implied covenant of good faith and fair dealing definition
a general assumption of the law of contracts, that people will act in good faith
and deal fairly without breaking their word, using shifty means to avoid obligations
or denying what the other party obviously understood. A lawsuit (or one of the causes
of action in a lawsuit) based on the breach of this covenant is often brought when
the other party has been claiming technical excuses for breaching the contract or
using the specific words of the contract to refuse to perform when the surrounding
circumstances or apparent understanding of the parties were to the contrary. Example
an employer fires a long-time employee without cause and says it can fire at whim
because the employment contract states the employment is "at will. " However, the
employee was encouraged to join the company on the basis of retirement plans and
other conduct which led him/her to believe the job was permanent barring misconduct
or financial downturn. Thus, there could be a breach of the implied covenant, since
the surrounding circumstances implied that there would be career-long employment.
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