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What is the covenant of good faith and fair dealing?

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In commercial litigation it often devolves to a dispute over pieces of paper as I’m sure you might understand. But in addition to that there’s a concept that goes back to all Anglo-Saxon and jurisprudence, which is called the Covenant of Good Faith and Fair Dealing. And I sometimes use the example of if you’re negotiating for dairy cows and you enter into a deal and suddenly the deal is closed and suddenly the cows are delivered and they’re all dead. Well, of course, that’s not what you all were contemplating when you were negotiating. So the Covenant of Good Faith and Fair Dealing is that generally people in a contractual relationship will try to operate in good faith. In Massachusetts it’s even a little better than that. You can in certain circumstances prevail simply by showing that there’s a lack of good faith. You don’t even to show bad faith just a lack of good faith. There are significant cases in this regard, they sometimes come to bear in business breakups and partnership freeze outs and it’s a way that you might recover where perhaps the contract doesn’t give you the kind of recovery that you need in writing. But it’s clear that the parties understood that something fundamental was going on in the negotiations, which fundamental agreement was thereafter violated. And that can give a plaintiff a way to recover.

Wellesley, MA attorney Bill Royal explains the covenant of good faith and fair dealing.

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