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The Resurrection of the Implied Covenant of Good Faith and Fair Dealing in the Alternative Entity Context?

Fall 2013
Jason C. Jowers
ABA Business and Corporate Litigation Newsletter

Although either a limited liability company agreement or a limited partnership agreement may eliminate or modify default fiduciary duties under Delaware law, neither may eliminate the implied contractual covenant of good faith and fair dealing. See 6 Del. C. § 18-1101; 6 Del. C. § 17-1101. Generally speaking, the implied covenant inheres in every contract, and prohibits parties from engaging in arbitrary or unreasonable conduct that would deny the other the benefits of the bargain. See, e.g., Winshall v. Viacom Int'l, Inc., 55 A.3d 629, 636 (Del. Ch. 2011). Despite this general language barring arbitrary and unreasonable conduct, Delaware courts typically "will only infer contractual terms to handle developments or contractual gaps that the asserting party pleads neither party anticipated," and will imply only terms the parties themselves would have contracted for had they anticipated the unforeseen developments. Gerber v. Enter. Prod. Holdings, LLC, 67 A.3d 400, 421 (Del. 2013) overruled in part on other grounds by Winshall v. Viacom Int'l, Inc. - A.3d - 2013 WL 5526290 (Del. Oct. 7, 2013).

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