Podcast Companion — Episode 21: Good Faith and Fair Dealing

Pairs with InglésLegal Podcast, EP21

A contract can be perfectly worded and still be performed unfairly. Episode 21 covers the Implied Covenant of Good Faith and Fair Dealing — a duty that exists in every contract, whether the parties wrote it down or not.

The Concept

Most common law jurisdictions imply a covenant of good faith and fair dealing into every contract: neither party may act to destroy or injure the other party’s right to receive the benefits of the agreement. This isn’t a freestanding obligation to be “nice” — it’s a gap-filling doctrine that prevents one side from exploiting discretion the contract gives it in a way that defeats the other party’s reasonable expectations.

Crucially, good faith cannot override or contradict express contract terms. It fills gaps and constrains discretion; it doesn’t rewrite the deal.

Applied Example

A distribution agreement gives the supplier discretion to set delivery schedules. If the supplier deliberately delays deliveries specifically to force the distributor into missing its own sales targets — purely to justify termination — that discretion may be exercised in bad faith, even though nothing in the contract was technically violated.

Key Expressions from This Episode

Implied covenant
Meaning: an obligation the law reads into a contract even though the parties never wrote it explicitly.
Spanish equivalent: pacto implícito

Discretion
Meaning: contractual latitude given to a party to decide how to act within agreed limits.
Spanish equivalent: discrecionalidad

Reasonable expectations
Meaning: what a party could fairly anticipate receiving from the deal, based on its purpose and terms.
Spanish equivalent: expectativas razonables

Professional Tip

When a contract grants one party broad discretion — over pricing, scheduling, approvals, or termination triggers — anticipate that a court may still ask whether that discretion was exercised honestly and consistently with the contract’s purpose. Document the business rationale behind discretionary decisions; it’s often the difference between “tough but fair” and “bad faith.”

Why It Matters

This doctrine is the safety net underneath every contract’s express terms. For lawyers advising on long-term or discretion-heavy agreements, understanding where good faith applies — and where it stops — helps you draft narrower discretion clauses and defend broader ones when they’re challenged.

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For the full discussion, including a good-faith performance clause, listen to Episode 21 — Good Faith and Fair Dealing — on the InglésLegal podcast.