CACI 325 Breach of Implied Covenant of Good Faith and Fair Dealing—Essential Factual Elements
California Civil Jury Instructions CACI
325 Breach of Implied Covenant of Good Faith and Fair Dealing—Essential Factual Elements
In every contract or agreement there is an implied promise of good faith and fair dealing. This implied promise means that each party will not do anything to unfairly interfere with the right of any other party to receive the benefits of the contract. Good faith means honesty of purpose without any intention to mislead or to take unfair advantage of another. Generally speaking, it means being faithful to one’s duty or obligation. However, the implied promise of good faith and fair dealing cannot create obligations that are inconsistent with the terms of the contract.
[Name of plaintiff] claims that [name of defendant] violated the duty to act fairly and in good faith. To establish this claim, [name of plaintiff] must prove all of the following:
1.That [name of plaintiff] and [name of defendant] entered into a contract;
[2.That [name of plaintiff] did all, or substantially all of the significant things that the contract required [him/her/nonbinary pronoun/it] to do [or that [he/she/nonbinary pronoun/it] was excused from having to do those things;]
[3.That all conditions required for [name of defendant]’s performance [had occurred/ [or] were excused];]
4.That [name of defendant] [specify conduct that plaintiff claims prevented plaintiff from receiving the benefits under the contract];
5.That by doing so, [name of defendant] did not act fairly and in good faith; and
6.That [name of plaintiff] was harmed by [name of defendant]’s conduct.
New April 2004; Revised June 2011, December 2012, June 2014, November 2019, May 2020
Directions for Use
This instruction should be given if the plaintiff has brought a separate count for breach of the covenant of good faith and fair dealing. It may be given in addition to CACI No. 303, Breach of Contract—Essential Factual Elements, if breach of contract on other grounds is also alleged.
Include element 2 if the plaintiff’s substantial performance of contract requirements is at issue. Include element 3 if the contract contains conditions precedent that must occur before the defendant is required to perform. For discussion of element 3, see the Directions for Use to CACI No. 303.
In element 4, insert an explanation of the defendant’s conduct that violated the duty to act in good faith.
If a claim for breach of the implied covenant does nothing more than allege a mere contract breach and, relying on the same alleged acts, simply seeks the same damages or other relief already claimed in a contract cause of action, it may be disregarded as superfluous because no additional claim is actually stated. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395 [272 Cal.Rptr. 387].) The harm alleged in element 6 may produce contract damages that are different from those claimed for breach of the express contract provisions. (See Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 873, 885 [123 Cal.Rptr.3d 736] [noting that gravamen of the two claims rests on different facts and different harm].)
It has been noted that one may bring a claim for breach of the implied covenant without also bringing a claim for breach of other contract terms. (See Careau & Co., supra, 222 Cal.App.3d at p. 1395.) Thus it would seem that a jury should be able to find a breach of the implied covenant even if it finds for the defendant on all other breach of contract claims.
Sources and Authority
•“There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.” (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658 [328 P.2d 198], internal citation omitted.)
•“ ‘ “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” ’  The covenant of good faith finds particular application in situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith.” (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 371–372 [6 Cal.Rptr.2d 467, 826 P.2d 710], internal citations omitted.)
•“When one party to a contract retains the unilateral right to amend the agreement governing the parties’ relationship, its exercise of that right is constrained by the covenant of good faith and fair dealing which precludes amendments that operate retroactively to impair accrued rights.” (Cobb v. Ironwood Country Club (2015) 233 Cal.App.4th 960, 963 [183 Cal.Rptr.3d 282].)
•“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made. The covenant thus cannot ‘ “ ‘be endowed with an existence independent of its contractual underpinnings.’ ” ’ It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349–350 [100 Cal.Rptr.2d 352, 8 P.3d 1089], original italics, internal citations omitted.)
•“The implied covenant of good faith and fair dealing cannot be read to require defendants to take a particular action that is discretionary under the contract when the contract also expressly grants them the discretion to take a different action. To apply the covenant to require a party to take one of two alternative actions expressly allowed by the contract and forgo the other would contravene the rule that the implied covenant of good faith and fair dealing may not be ‘read to prohibit a party from doing that which is expressly permitted by an agreement.’ ” (Bevis v. Terrace View Partners, LP (2019) 33 Cal.App.5th 230, 256 [244 Cal.Rptr.3d 797], original italics.)
•“The implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation. ‘The covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract’s purpose.’ … ‘In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.’ ” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031–1032 [14 Cal.Rptr.2d 335], internal citations omitted.)
•“There is no obligation to deal fairly or in good faith absent an existing contract. If there exists a contractual relationship between the parties … the implied covenant is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated in the contract.” (Racine & Laramie, Ltd., supra, 11 Cal.App.4th at p. 1032, internal citations omitted.)
•“Although breach of the implied covenant often is pleaded as a separate count, a breach of the implied covenant is necessarily a breach of contract.” (Digerati Holdings, LLC, supra, 194 Cal.App.4th at p. 885.)
•“ ‘[B]reach of a specific provision of the contract is not … necessary’ to a claim for breach of the implied covenant of good faith and fair dealing.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244 [160 Cal.Rptr.3d 718].)
•“ ‘It is universally recognized the scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.’ Violation of an express provision is not, however, required. ‘Nor is it necessary that the party’s conduct be dishonest. Dishonesty presupposes subjective immorality; the covenant of good faith can be breached for objectively unreasonable conduct, regardless of the actor’s motive.’ ‘A party violates the covenant if it subjectively lacks belief in the validity of its act or if its conduct is objectively unreasonable. [Citations.] In the case of a discretionary power, it has been suggested the covenant requires the party holding such power to exercise it “for any purpose within the reasonable contemplation of the parties at the time of formation—to capture opportunities that were preserved upon entering the contract, interpreted objectively.” ’ [¶] ‘The issue of whether the implied covenant of good faith and fair dealing has been breached is ordinarily “a question of fact unless only one inference [can] be drawn from the evidence.” ’ ” (Moore v. Wells Fargo Bank, N.A. (2019) 39 Cal.App.5th 280, 291–292 [251 Cal.Rptr.3d 779], internal citations omitted.)
•“If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated. Thus, absent those limited cases where a breach of a consensual contract term is not claimed or alleged, the only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.” (Careau & Co., supra, 222 Cal.App.3d at p. 1395.)
•“[W]e believe that the gravamen of the two counts differs. The gravamen of the breach of contract count is [cross defendants’] alleged failure to comply with their express contractual obligations specified in paragraph 37 of the cross-complaint, while the gravamen of the count for breach of the implied covenant of good faith and fair dealing is their alleged efforts to undermine or prevent the potential sale and distribution of the film, both by informing distributors that the film was unauthorized and could be subject to future litigation and by seeking an injunction. (Digerati Holdings, LLC, supra, 194 Cal. App. 4th at p. 885.)