Express Contract Terms and the Implied Contractual Covenant of Delaware Law

Mohsen Manesh 

Delaware law conceives of the implied contractual covenant of good faith and fair dealing (the “Implied Covenant”) in contradictory terms. It is both a gap filler subject to the express terms of a contract and an overriding obligation notwithstanding the express terms of a contract. It is not a judicial license to equitably rewrite bargained for agreements, yet courts may invoke the doctrine to limit express contractual rights when fairness dictates. How can these conflicting conceptions coexist?

The answer lies in an inescapable reality that is left all but unacknowledged by Delaware law: the express terms of every contract must be judicially construed. By eliding this reality, the law obscures the control that Delaware courts exercise over private agreements. Acknowledging the judicial role in contract construction not only harmonizes the Implied Covenant’s conflicting conceptions, but because judicial construction inevitably implicates a court’s idiosyncratic notions of equity and reasonableness, it also reveals a degree of indeterminate judicial discretion inherent in the enforcement of express contractual rights and obligations.