A Breach of Good Faith

Breach of Good Faith Contract Signature

Finalizing a contract, especially a complex one, can often require completing numerous challenges. Whether it’s accomplishing dense paperwork, negotiating an agreeable price, or establishing responsibilities, the details within a contract are important and can be strenuous. Often, the parties involved in contract formation want to “win” and ensure the terms are most favorable to their objectives. Despite the pure competitiveness, North Carolina law implies a duty of good faith and fair dealing for those involved in contract formation. With that understanding, can one party enforce the duty of good fair, and fair dealing on their opposing party?

Is Good Faith Enforceable?

In a 2016 decision from the North Carolina Superior Court, Insight Health Corp. v. Marquis Diagnostic Imaging of N.C., LLC, “an agreement to continue to negotiate in good faith could be enforceable, provided that it meets all of the requirements for contract formation under North Carolina law, because North Carolina law already implies in every contract a duty of good faith
and fair dealing.” Moreover, Bicycle Transit Auth., Inc. v. Bell states, “in every contract there is an implied covenant of good faith and fair dealing that neither party will do anything which injures the right of the other to receive the benefit of the agreement.” Therefore, assuming the necessary elements of contract formation have been accomplished, the good faith duty could be
enforced against a party not adhering to their responsibilities.

Contract Formation Elements

So, what does North Carolina require for a valid contract formation? According to Charlotte Motor Speedway, LLC v. Cnty of Cabarrus, “a valid contract requires (1) assent, (2) mutuality of obligation, and (3) definite terms. Stated plainly in Kinesis Adver., v. Hill, “Formation of a valid contract requires an offer, acceptance and consideration.” The decision in Insight Health Corp v.
Marquis Diagnostic Imaging of N.C., LLC further clarified, “in law, an agreement to be bound is called mutual assent and is customarily described as a meeting of the minds.” Consequently, should one of these foundational elements be absent, the duty of good faith would not be enforceable because of the improper contractual formation.

Proving Breach of Good Faith

According to the same Insight Health Corp decision, “a breach of the implied covenant of good faith and fair dealing requires the wrongful intent of a party to deprive another party of its contractual rights.” As such, the key component to establish is wrongful intent. It is important to note that wrongful intent does not encompass simple mistakes, rather it entails intentional acts
taken in bad faith. As stated above, should an agreement between parties fail to accurately capture a meeting of the minds or fail to establish definite terms, such as binding versus non-binding language, then the enforcement of the duty of good faith and fair dealing is unlikely to succeed. If you are experiencing contractual difficulties or have specific questions, please contact
our office for more in-depth information.

Revolution Law Group is located in Greensboro, NC, and serves individuals and small businesses throughout the Triad and surrounding areas. To contact us please visit Revolution.law or call 336-333-7907.

The information included here is for informational purposes only, is not exhaustive of all considerations when creating documents, is not intended to be legal advice, and should not be relied upon for that purpose. We strongly recommend you consult with an attorney and do not attempt to create your own documents.