CACI No. 325. Breach of Implied Covenant of Good Faith and Fair Dealing - Essential Factual Elements

Judicial Council of California Civil Jury Instructions (2020 edition)

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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
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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
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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].)
• “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.’ ” (Hicks v. E.T. Legg & Associates (2001) 89
Cal.App.4th 496, 509 [108 Cal.Rptr.2d 10], internal citation 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
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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.)
Secondary Sources
1 Witkin, Summary of California Law (11th ed. 2017) Contracts, §§ 822, 824-826
13 California Forms of Pleading and Practice, Ch. 140, Contracts, §§ 140.12, 140.50
et seq. (Matthew Bender)
2 Matthew Bender Practice Guide: California Contract Litigation, Ch. 23, Suing or
Defending Action for Breach of Duty of Good Faith and Fair Dealing, 23.05
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