Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

The Implied Covenant in Every Contract - Do You Know Where to Find it?

Author: Scarinci Hollenbeck, LLC

Date: July 29, 2015

Key Contacts

Back

Sometimes agreements are more fickle than the parties involved would like them to be, and should they break the contract, the implied covenant of good faith and fair dealing could serve as a basis for a lawsuit.

This implied covenant has come up many times in both sports and entertainment law. Most recently, the implication of good faith and fair dealing has been the subject of discussions in the Miss USA Pageant. Univision, and later NBC, dropped the pageant, owned by Donald Trump, after the business magnate and presidential candidate made disparaging comments about Mexican immigrants. Trump has filed a lawsuit against Univision, and has threatened one against NBC, because he believes the networks breached the implied covenants of good faith and fair dealing in contracts giving them the right to air the pageant, according to The Hollywood Reporter.

What is an implied covenant of good faith and fair dealing?

This implied covenant comes up in entertainment and sports law, where agreements aren’t always as strong as they could be, and are subject to the behavior of both parties – whom are often placed under societal magnifying glasses due to their celebrity status.

So what is an implied covenant of good faith and fair dealing? Essentially, it is the assumption that when a contract is signed, each party will deal with the other fairly, honestly and in good faith. This means that if one party uses “shifty means” to avoid responsibilities, violates the agreement or denies what the other party understood to be part of the deal, then the implied covenant has been broken. As mentioned, Trump’s pending lawsuit against Univision isn’t the first time this has come up in the sports and entertainment worlds, and it likely won’t be the last.

An alternative to interpreting ambiguous contracts

Smaller-scale implied covenant breaches can lead to legal action as well. Sunny Brenner, a partner at a Los Angeles law office, wrote about good faith and fair dealing in entertainment and sports in the ALM’s Law Journal Newsletters. In the case he described, he represented a film production company that was suing a visual-effects provider. The contract between the two parties required that the effects provider create for the production company “first class digital visual effects.” However, nowhere in the agreement was an explanation given for what exactly these sort of effects would look like.

The provider was not offering the production company the quality effects it had expected, and was asked to invest in upgrades that would essentially allow it to put together the first class effects it promised to provide. However, the effects-provider refused to pay for these upgrades, and arbitrators, reluctant to break down the meaning of “first class digital visual effects,” instead based their decision on the implied covenant of good faith and fair dealing. It was decided that, though the contract didn’t require the effects-provider to invest in upgrades, it did mandate that the company manufacture “first class digital visual effects,” which was only possible through upgrades. Thus, the investments the effects-provider was asked to make were required under the implied covenant of good faith and fair dealing.

The emergence of implied covenants in U.S. contract law

The implied covenant of good faith and fair dealing has become an important part of U.S. contract law. The concept arose in a 1933 case, The Kirke La Shelle Company, Appellant, v. The Paul Armstrong Company et al.

The New York Court of Appeals stated “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, which means that in every contract there exists an implied covenant of good faith and fair dealing.”

Since then, the implied covenant was incorporated into the Uniform Commercial Code, ensuring the concept is recognized in cases across the country. Any agreement in sports and entertainment should be made with the knowledge that there is an implied covenant of good faith and fair dealing. Attempts to get out of or subvert the deal in any way could appear as a breach of that covenant, and lead to legal action.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Common Causes of Partnership Disputes and How to Resolve Them post image

Common Causes of Partnership Disputes and How to Resolve Them

Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]

Author: Christopher D. Warren

Link to post with title - "Common Causes of Partnership Disputes and How to Resolve Them"
President Trump's Termination of Member Gwynne Wilcox post image

President Trump's Termination of Member Gwynne Wilcox

On January 28, 2025, the Trump Administration terminated Gwynne Wilcox from her position as a Member of the National Labor Relations Board (NLRB or the Board). Gwynne Wilcox, a union side lawyer for Levy Ratner, was confirmed to the Board for an original term in 2021 and confirmed again for a successive five-year term expiring […]

Author: Matthew F. Mimnaugh

Link to post with title - "President Trump's Termination of Member Gwynne Wilcox"
How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide post image

How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide

Closing your business can be a difficult and challenging task. For corporations, the process includes formal approval of the dissolution, winding up operations, resolving tax liabilities, and filing all required paperwork. Whether you need to understand how to dissolve a corporation in New York or New Jersey, it’s imperative to take all of the proper […]

Author: Christopher D. Warren

Link to post with title - "How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide"
Gross Lease vs. Net Lease: Understanding the Key Differences post image

Gross Lease vs. Net Lease: Understanding the Key Differences

Commercial leases can take a variety of forms, which is often confusing for both landlords and tenants. Understanding the different types, especially the gross lease structure, is important when selecting the lease that best suits your needs. One key distinction between lease types is how rent is calculated and paid. This article addresses the two […]

Author: Robert L. Baker, Jr.

Link to post with title - "Gross Lease vs. Net Lease: Understanding the Key Differences"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!