A recent Delaware Court of Chancery decision is required reading for anyone who wants to understand the latest and most scholarly restatement of the nuances of Delaware law on the implied covenant of good faith and fair dealing that I have read in quite some time. In Facilities Holdings, LLC v. ASM Global Parent, LLC, C.A.. No. 2025-0670-JTL (Del. Ch. June 24, 2026), the court engages in a deep dive into the subtleties of the one of the two settings in which the implied covenant can apply—namely, when a party invokes the covenant to imply an omitted right or obligation.

I highlighted on these pages the Court of Chancery’s recent decision in Guilbeau v. Footprint Int’l Holdco, Inc. (Del. Ch. April 30, 2026), that conducted a similarly thorough analysis of the second setting where the implied covenant can apply: when a party invokes the covenant to constrain a counter party’s exercise of contractual discretion. The Delaware Supreme Court also recently addressed the implied covenant in Johnson & Johnson v. Fortis Advisors, LLC, 352 A.3d 229, 253 (Del. 2026).

This short blog post only seeks to extract key nuggets of several legal principles and exemplary reasoning with wide applicability, but serious readers should read the whole opinion.

Glimpse Into Basic Facts

The adumbrated basic facts involved a Vendor who had long-term, detailed agreements to provide concessions at stadiums around the world. The Operator at several stadiums was eventually sold to a competitor. In addition to the breach of contract claims, the implied covenant of good faith and fair dealing was asserted to allege that the new Operator, a competitor of the Vendor, sought to facilitate the termination of the agreements by inducing the landlords at the stadiums to withhold consent for extensions of the agreements.

Highlights of Key Legal Principles and the Court’s Reasoning

The court beings with the black-letter law that imposes the complied covenant of good faith and fair dealing on every contract. This blog post focuses only on one of the two different settings when the implied covenant can apply: when a party invokes the covenant to imply an omitted right or obligation. Slip op. at 15. This compares with the second setting where the implied covenant can apply: when a party invokes the covenant to constrain a counterparty’s exercise of contractual discretion.

The court explained that a court must engage in a three-part inquiry when a party seeks to imply a right or obligation:

(1) The court determines whether there is a gap in the contract;

(2) Whether the gap should be filled, and if so;

(3) What term the parties would have agreed to if the issue had arisen at the bargaining table. Slip op. at 15-16.

If all three requirements are met, then the court compares the allegedly wrongful conduct against the implied term to determine whether the implied covenant was breached. Slip op. at 16-17.

Three-Step Inquiry to Determine If Implied Covent Warrants Relief

I. Identifying a Gap

In the first step, the court determines whether: (a) the language of the contract expressly covers a particular issue, in which case the implied covenant will not apply, or (b) whether the contract is silent on the subject, revealing a gap that the implied covenant might fill. Slip op. at 17.

The court instructed that:

“Because the implied covenant is, by definition, implied, and because it protects the spirit of the agreement rather than the form, it cannot be invoked where the contract itself expressly covers the subject at issue.” Id. at 17.

II. Determining Whether a Gap Should be Filled

The court explained that: “If a contractual gap exists, then the court must determine whether the implied covenant should be used to supply a term to fill the gap. Not all gaps should be filled.” Id. at 18. The court also cites to various law review articles that address why parties may favor contractual simplicity over contractual complexity and the reasons why contracts cannot or do not address every eventuality. See, e.g., footnotes 49, 53, and accompanying text.

The court also observed that contract law has many default principles that aid in interpretation and if they fill the gap, there is not need for the court to do so. Id. at 19. In determining whether a gap should be filled, the court quoted from the recent Supreme Court decision in Johnson & Johnson which observed the truism that: “No contract, regardless of tightly or precisely drafted it may be, can wholly account for every possible contingency.” Id. at 22.

One situation that is well suited to the implied covenant through implied contractual terms is when the term or terms sought to be implied were “so basic that no one would have thought to include them in the agreement.” Id. at 23. But the court advised against “resisting hindsight’s seductive acuity.” Id.

III. Supplying an Omitted Term

When the first two requirements are satisfied–that is when a gap both exists and should be filled, the trial court must “analyze whether the parties would have bargained for a contractual term prescribing the conduct that allegedly violated the implied covenant had they foreseen the circumstances under which the conduct arose.” Id. at 24.

The court consulted analogous English law that “has developed helpful answers that go beyond the current state of Delaware jurisprudence.” Id. at 26-27.

Court’s Reasoning

At the motion to dismiss stage, the court determined that it was reasonably conceivable that the parties’ agreement implied a term that prevented the Operator from advocating that a third-party landlord withhold its consent to an extension of the concession agreement. The agreement did not address to what extent the Operator and the Vendor should be involved in obtaining third-party landlord approvals. Id. at 27.

The court discussed the differences between: (i) affirmatively helping; (ii) standing neutral; and  (iii) consciously harming, citing in footnote 84 to a letter from Martin Luther King, Jr. who described the degrees of support, non-support, and hostility civil rights activists encountered and their effects on the success of the movement. Id. at 29.

The vendor in this case only sought an implied term that prevented consciously causing harm, and the court described this as the “center-of-the-fairway for the implied covenant which prevents a party from frustrating the fruits of the bargain that the asserting party reasonably expected.” Id.

Relying on the English concept of the officious bystander, the court reasoned that “if someone observing the negotiations had piped up with the suggestion that the parties needed to expressly prohibit the Operator from secretly advocating that a landlord should withhold its consent, the parties would have responded with a common, “Of course, that’s prohibited!” Id. at 30-31. The court proceeded to analyze five reasons why it was reasonably conceivable that the Operator breached the omitted term in this case.

Notably, the court also emphasized that the alternative theory of pleading allowed for simultaneous claims of breach of contract and breach of the implied covenant at the motion to dismiss stage. Id. at 34-35.

Finally, the opinion also regales the reader with an extensive analysis of breach of contract claims, id. at 36, and the various types of “efforts” clauses, as well as the prevention doctrine, see footnote 147 and pages 56-63. Alas, that lengthy analysis is beyond the scope of this short precis.