Good Faith And Fair Dealing

Implied Duty

Implied Duty Of Good Faith

When a party or business you entered into a business contract frustrates your efforts to benefit from that contract, it may be time to seek justice. This is why the duty of good faith and fair dealing code exists. Every state has a way to enforce this duty to ensure that business runs smoothly but there is no uniform standard on how states determine a breach of contract. 

In Texas, the scope of what is considered a breach is so narrow that you have to thoroughly evaluate each contract and ensure there are available protections in case there is a breach. Contact a business law attorney to learn more about good faith and fair dealing.

What Is The Meaning Of Good Faith And Fair Dealings

Implied Duty Of Good Faith And Fair Dealing

Good Faith And Fair DealingParties that get into a contract are bound by an implied duty of good faith and fair dealings.  This implied duty requires parties bound by a contract to act reasonably when performing or enforcing their contractual rights. 

They should stick to the terms of the contract when carrying out their contractual obligations.  Parties are also required not to act in a way that impairs or inhibits the other party’s ability to benefit from the contract. For example, an implied duty of good faith and fair dealings protects customers of insurance companies because there is a great imbalance of power involved. 

Any wronged party can file a claim against the party that failed to fulfill their obligations. But the success of such a claim depends on the jurisdiction and other circumstances.

Factors You Need To Consider When Filing A Breach Of Contract Claim

Duty Of Fair Dealing

Courts do not have to base their decision on whether there was a breach of contract or not on the terms of the contract. They can imply obligations that were not specified in the contract itself. Courts will look at the circumstances under which the contract was drafted, the terms of the contract, and other factors. 

  • The terms of the contract:  The terms of the contract specify the implied duty from which the court implies obligations. 
  • Context: This refers to the circumstances surrounding the drafting of the contract. It is important to consider past dealings between the involved parties and their conduct in those past dealings. 
  • Special relationship through a contract: This involves the relationship between the parties bound by the contract and how that relationship can help the court find a breach. But this does not apply to normal commercial transactions.
  • Employer and Employee context:  Since an employer does not owe a duty of good faith and fair dealing to their employee because the employee can simply find alternative employment. 

Other Factors To Consider

Breach Of Good Faith

A court may decide that a party bound by a contract has breached their implied duty by misusing their discretionary power to deny the other party their rights, or accomplish other goals that are not in the contract. While implied duty does not prevent parties bound by a contract from acting in their own best interests, the courts may rule against a party if that party acted in their self-interest but not within the boundaries set by the contract. 

You May Also Be Interested In…

  1. Texas Special Appearance
  2. Equitable Remedies For Breach Of Contract
  3. Litigation And Arbitration

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