Showing 2 posts in Implied Covenant of Good Faith and Fair Dealing.
Chancery Confirms that the Implied Covenant Imposes a “Good Faith” Component to an Agreement to Negotiate
The Operating Agreement for an LLC involved in the cannabis industry provided for a five-member board of managers, with one Independent Manager appointed by a process of negotiation between two other managers (the plaintiff in the action and one of the defendants). Under the process set forth in the Operating Agreement, either side could present various candidates until there was agreement, which was supposed to happen within a 180-day period. The parties could also mutually agree to extend the deadline. More ›Share
Chancery Rejects Implied Covenant Claim for Failure to Prove that, Had the Issue Been Negotiated, Both Parties Would Have Agreed
Roundpoint Mortgage Servicing Corp. v. Freedom Mortgage Corp., C.A. No. 2020-0161-SG (Del. Ch. July 22, 2020)
To establish an implied contractual obligation pursuant to the implied covenant of good faith and fair dealing, a party must prove that, even though the contract does not state the term at issue, the parties would have agreed to it had they thought to negotiate it at the time of contracting. Here, the Court of Chancery post-trial denied an acquirer’s implied covenant claim even though the result arguably resulted in unfairness from a financial point of view to the acquirer. As illustrated by this case, unfairness alone to one party does not necessarily prove that both parties would have agreed to the implied term had they thought to negotiate about it. More ›