Delaware law imposes on every contract an implied duty of good faith and fair dealing. For those interested in the latest scholarship on this topic, a draft law review article by Professor Mohsen Manesh of the University of Oregon School of Law is required reading. See Mohsen Manesh, Express Contract Terms and the Implied Contractual Covenant of Delaware Law, 38 Del. J. Corp. L. 1 (forthcoming 2013).
Recently, the good professor gave a presentation at the Wilmington Club in Delaware with an overview of his paper on Delaware’s implied covenant of good faith and fair dealing (“Implied Covenant”). He reviewed the Delaware cases on this topic and suggested, respectfully, what I would summarize as the following assessment of the state of the law on the Implied Covenant: There is an indeterminacy that makes it nearly impossible to predict accurately how a court will apply the Implied Covenant in most cases. Highlights of the article:
- Focus of article: the “inescapable reality” that “the express terms of every contract [in Delaware] must be judicially construed.”
- Three goals of article: (i) to explain why and how the Implied Covenant applies; (ii) impose order on a “sometimes contradictory body of case law”; and by doing so, (iii) to “guide courts, litigators and the drafters of contracts to better understand and navigate the oftentimes imprecise contours of this frequently litigated doctrine.”
- Key point: Beyond describing the Implied Covenant as a gap-filler to protect and fulfill the reasonable expectations of the parties, “Delaware law has never defined the precise contours of the doctrine.” (See footnote 32).
- Concluding lines of article: “… no contract, regardless of how tightly or precisely drafted it may be, can wholly account for every possible contingency. Inevitably, some things must be left to the good faith of the parties.” (footnotes omitted).
- A chronology of Delaware cases addressing the Implied Covenant in 2012 (footnote 13)
- A chronology of Delaware cases that have allowed claims based on the Implied Covenant since 2011 (footnote 22)
- Discussion of Delaware cases that discuss when discretion granted by contract may be limited by the Implied Covenant (see, e.g., footnotes 177 and 179 and accompanying text)