Implied contractual covenants should be stated explicitly

Certain contractual principles are considered “implied,” so-called because one need not state them explicitly to trigger their application.  These include the duty of good faith, the duty of fair dealing, and (in some contexts) the duty to make and maintain agreements and settle disputes.  Given their existence of by implication, many lawyers think that explicitly referring to them in a contract may be redundant.  But in FMLS Holding Co. v. Integris BioServices, LLC, the Delaware Chancery court’s analysis of a breach of contract claim suggests that an expressly stated obligation to not act in bad faith may provide more protection than relying on the background duty to act in good faith alone.  There, the purchase agreement required the acquirer to use“commercially reasonable efforts” to achieve an earnout and to not take any actions in “bad faith” that would undermine achieving the earnest. 

Reading the case, it’s notable how heavily the court relies on the the parties’ explicit “promises” via the good faith provision to work to achieve the earnout, particularly given how dismissive some courts are of breach of contract cases premised on the breach of the implied good faith covenant, often suggesting some unspecific degree of egregiousness is necessary for a plaintiff to avail itself of the covenant. But FMLS suggests that it may be worth making implied covenants more explicit, particularly if the implied covenant is key to receiving an ancillary post-closing payment. 

Full case here: https://courts.delaware.gov/Opinions/Download.aspx?id=355240