What Are The Elements Of Breach Of Implied Covenant Of Good Faith And Fair Dealing In New Jersey?

In addition to the express terms of a contract, “every contract in New Jersey contains an implied covenant of good faith and fair dealing.”  Sons of Thunder, Inc. v. Borden, Inc., 690 A.2d 575, 587, 148 N.J. 396, 420 (N.J. 1997); see also Onderdonk v. Presbyterian Homes of New Jersey, 425 A.2d 1057, 1062, 85 N.J. 171, 182 (N.J. 1981).  This means that, even though not specifically stated in the contract, it is implied or understood that each party to the contract must “act in good faith and . . . deal fairly” with the other party “in . . . perform[ing] and . . . enforc[ing]” the terms of the contract.  See Pickett v. Lloyd’s, 621 A.2d 445, 450, 453, 131 N.J. 457, 467, 471-472 (N.J. 1993) (citation omitted).

“To act in good faith and deal fairly, a party must act in a way that is honest and faithful to the agreed purposes of the contract and consistent with the reasonable expectations of the parties.”  N.J. Model Civil Jury Charges § 4.10(J) (2011).  “A party must not act in bad faith, dishonestly, or with improper motive to destroy or injure the right of the other party to receive the benefits or reasonable expectations of the contract.”  N.J. Model Civil Jury Charges § 4.10(J); see also Sons of Thunder, Inc., 690 A.2d at 587; Bak-A-Lum Corp. of Am. v. Alcoa Bldg. Prods., Inc., 351 A.2d 349, 69 N.J. 123, 129-130 (N.J. 1976).

Further, in New Jersey, every contract relating to the present or future sale of goods, and every other contract or duty within the New Jersey Uniform Commercial Code, “imposes an obligation of good faith in its performance or enforcement.”  N.J. U.C.C. § 1-304, 12A:1-304 ; see N.J. U.C.C. §§ 2-102, 2-105(1), 2-106(1), N.J.S.A. §§ 12A:2-102, 12A:2-105(1), 12A:2-106(1).  ” ‘Good faith[]’ . . . means honesty in fact and the observance of reasonable commercial standards of fair dealing.”  N.J. U.C.C. § 1-201(b)(20), N.J.S.A. § 12A:1-201(b)(20).

With respect to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit, ” ‘Good faith’ means honesty in fact in the conduct or transaction concerned.”  N.J. U.C.C. § 5-102(a)(7), N.J.S.A. § 12A:5-102(a)(7).

In the case of a merchant engaged in a transaction in goods in New Jersey, ” ‘Good faith’ . . . means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.”  N.J. U.C.C. § 2-103(1)(b), N.J.S.A. § 12A:2-103(1)(b); see N.J. U.C.C. § 2-104(1), N.J.S.A. § 12A:2-104(1) (defining ” ‘[m]erchant’ “); N.J. U.C.C. § 2-102, N.J.S.A. § 12A:2-102.

If your company wants to bring, or needs a lawyer to defend it in, business litigation and you are located in the New Jersey area, call Attorney David S. Rich at (347) 941-0760.