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Typically, courts find that a party breaches this rule when they act in ways that obviously undermine the benefits to the other party from the contract or if one party attempts to sabotage another in performing their end of the agreement.
Implied covenant of good faith and fair dealing (often simplified to good faith) is a rule used by most courts in the United States that requires every party in a contract to implement the agreement as intended, not using means to undercut the purpose of the transaction.
A claim for breach of contract generally requires showing the existence of a valid contract, a duty arising out of the contract, a breach of the duty, and damages resulting from the breach.
?Good faith? has generally been defined as honesty in a person's conduct during the agreement. The obligation to perform in good faith exists even in contracts that expressly allow either party to terminate the contract for any reason. ?Fair dealing? usually requires more than just honesty.
Summary. In general, every contract contains an implied duty of good faith and fair dealing, requiring that neither party will do anything that will destroy or injure the right of the other party to receive the benefits of the contract.
?Depending on the contractual context, a duty of good faith may be breached by conduct taken in bad faith. This could include conduct which would be regarded as commercially unacceptable to reasonable and honest people, albeit that they would not necessarily regard it as dishonest.?
As a component of every contract in Canada, a breach of the principle of good faith gives rise to a claim for breach of contract: Bhasin, supra at para. 106. That is to say, if a party acts in bad faith in the performance of the contract, there is no separate or discrete cause of action for which the party can be sued.
The duty of good faith includes a duty not to act in bad faith ? meaning a prohibition on conduct which would be regarded as commercially unacceptable by reasonable and honest people but not necessarily dishonest.