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

Written by Brian Spiro • July 15th, 2015

Commercial Litigation,  

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. Meruelo v. Mark Andrew of Palm Beaches, Ltd., 12 So. 3d 247, 250 (Fla. 4th DCA 2009).  The covenant of good faith "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 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. 

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. Id.; Snow v. Ruden, McClosky, Smith, Schuster & Russell, P.A.,896 So. 2d 787, 791-92 (Fla. 2d DCA 2005).

In Meruelo, 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. 

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.  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.

This decision stands at the intersection of real property, contract, and probate law.  Frequently, inheritance passes via devises of real and commercial property.  It is important to note the impact that contractual language regarding the sale of real estate, here commercial property, has in the parties’ duties (or lack thereof) under a contract.  Absent the breach of an express term in the contract, there can be no cause of action for breach of an implied duty of good faith and fair dealing. 

Brian Spiro handles litigation throughout the State of Florida.  He can be reached at (561) 842-4868.