Can a litigant invoke the implied covenant of good faith and fair dealing to assert rights or duties not otherwise explicitly provided for in a contract? Subject to qualifications, the answer seems to be yes, according to a recent Appeals Court decision in Classic Restaurant Concepts, LLC v. President and Fellows of Harvard College.
The covenant of good faith and fair dealing is implied in every contract. It typically concerns the manner of performance of terms provided for in the contract. The purpose of the implied covenant is to guarantee that the parties remain faithful to the intended and agreed expectations of the parties in their performance.
In the case at bar, Classic Restaurant Concepts, LLC (“Classic”) had leased space from Harvard to operate a restaurant. The lease provided for rent abatement in light of a substantial construction project to renovate Harvard’s Smith Campus Center across the street from the restaurant space. Soon after the commencement of the lease, Classic started to build out the space for the restaurant. Meanwhile, Harvard’s contractor, as part of the Smith Campus Center renovation, began partially closing down the street to vehicular traffic on weekdays. Classic eventually opened the restaurant as the partial street closures continued. The parties then entered into an amendment to the lease, extending the rent abatement period. Several months later, Classic stopped paying rent, shut down the restaurant, and filed a lawsuit against Harvard alleging a number of claims.
On Classic’s claim regarding the implied covenant of good faith and fair dealing, the Trial Court was not impressed with Classic’s argument that the street closures effectively created a war zone, and Harvard unilaterally advanced its own interests and prevented or hindered Classic from reaping substantial benefits of the contract. The Trial Court viewed this as Classic’s attempt to read into the lease a requirement that Harvard would prevent street closures, a requirement that was not negotiated in the contract. The Trial Court noted that Classic was aware of the construction project from the beginning and was aware of the road closures before entering into the amendment to the lease and did not to address road closures. The Trial Court granted summary judgment in Harvard’s favor.
The Appeals Court took a slightly different view, noting that the very phrase “implied covenant” contemplates an obligation that is not express in the contract. If the failure to negotiate an express term were to render the implied covenant inapplicable, the implied covenant would be a nullity, the Court reasoned. The Appeals Court framed the question as not whether Harvard was required to prevent the street closures but whether Harvard was required to refrain from causing the street closure to an extent that would injure Classic’s right under the implied covenant to reap the benefits prescribed by the terms of the lease. As to the latter question, there was a genuine dispute of material facts on the record the Court found, making summary judgment inappropriate. The Appeals Court vacated the judgment with respect to the implied covenant claim.