During this economic downturn - which some have dubbed the "Great Recession" - California companies have to work especially hard to keep their businesses afloat. Unfortunately, this already difficult task gets even more complex when businesses breach contracts with each other. For example, when a distributor fails to deliver products on time to a retailer, the retailer has nothing to sell on its shelves, which means no revenue for the retailer.
While clear breaches of contracts are easy to spot, such as the example above, there exists another type of breach that is not as obvious - this breach is known as the breach of the implied covenant of good faith and fair dealing in California.
Implied Covenant of Good Faith and Fair Dealing
In every contract there is an implied covenant by both parties not to do anything that will deprive the other party of benefits under the contract. If the cooperation of the other party is needed for successful completion of a contractual obligation, a promise to provide this cooperation and not to do anything that hinders performance will often be implied.
As California case law has stated, this implied covenant of good faith and fair dealing "not only imposes upon each contracting party the duty to refrain from doing anything which would render performance of the contract impossible by any act of his own, but also the duty to do everything that the contract presupposes that he will do to accomplish its purpose." Thus, California law imposes an affirmative duty on both parties to do everything the contract presupposes they will need to do to perform under the contract - even if the obligation is not expressly stated in the contract itself.
When a party to a business contract breaches this covenant of good faith and fair dealing in California, it gives rise to a breach of contract action. However, bringing a suit under this particular cause of action can be quite complex - as such, an experienced business litigation attorney can always advise as to the best way to proceed.