Good Faith and Fair Dealing Does Not Create Any New Responsibilities
The implied covenant of good faith and fair dealing can take a fairly straightforward contract and turn it on its head. The Eighth Circuit Court of Appeals recently reined the duty of good faith and fair dealing in a bit, however. According to the Eighth Circuit, the implied covenant will not create any new substantive obligations. Instead, it merely “prevents one party from using technical compliance with a contract as a shield from liability when that party is acting for a purpose contrary to that for which the contract was made.”
This is still a very subtle distinction, and leaves a lot of room for debate. The facts of the Eighth Circuit case shed a little more light on what the court meant:
The contract in Mid-America Real Estate Co. v. Iowa Realty Co., Inc. was between two real estate brokers. The plaintiff licensed the use of the defendant’s real estate listing database. Under the terms of the agreement, the plaintiff and defendant also agreed to share every listing entered by either broker into the database. The plaintiff sought an injunction to compel the defendant to enter all of the defendant’s listings in the database, rather than keep some listings for the defendant’s own private use. The Court of Appeals dissolved an injunction granted by the District Court. The contract language only required the defendant to share the listings it had actually entered. The Court of Appeals ruled that the implied covenant of good faith and fair dealing could not create the additional, substantive obligation to actually enter every listing.