Every contract contains an implied covenant of good faith and fair dealing. The basic premise is that the party entering into the contract will not do anything that will negatively affect the other party’s contractual rights. Stated differently, the law requires the parties to do all things reasonably contemplated by the terms of the contract to help accomplish its purpose.
In the real estate litigation context, we most often see claims involving a breach of the implied covenant of good faith and fair dealing with purchase and sale disputes. These disputes arise most commonly in the specific performance context where a buyer is alleging that the seller prevented performance and in escrow deposit disputes where a seller is contending that the buyer somehow failed to use good faith and fair dealing in trying to satisfy escrow contingencies before cancelling the purchase and sale contract and seeking a return of their initial deposit.
An example of how a breach of the implied covenant of good faith and fair dealing can come up in the real estate context, consider Jacobs v. Freeman (1980) 104 Cal.App. 3d 177. In Jacobs, the purchase and sale agreement contained a seller’s contingency that conditioned the sale on the approval by the seller’s board of directors. The court of appeals determined that the seller had waived the condition when it failed to submit the contract for review by the seller’s board of directors. The court held that the failure to submit the contract for the appropriate approval was a breach of the covenant of good faith and fair dealing and therefore the seller had waived the condition.
At Schorr Law, we have experience dealing with many types of escrow disputes, including specific performance, failure to return escrow depositions, contract interpretation disputes, and many other disputes.
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