What are the implied terms in a contract?
As an example, many states recognize that every contract includes an implied covenant of good faith and fair dealing. This means, in general, that the parties agree to act in accordance with reasonable commercial expectations and to treat one another fairly in carrying out their obligations under the contract.
Courts commonly use the implied covenant of good faith and fair dealing when the express terms of the contract are not clear or give unfettered discretion to one of the parties to do, or not to do, a certain act. As an example, a lease may allow for the tenant to sublease a property so long as the landlord gives his or her approval. The lease gives the landlord complete discretion: he can allow the sublease or disallow it.
In this situation, the implied covenant of good faith and fair dealing dictates that the landlord must exercise his or her discretion consistent with the commercially reasonable expectations of the parties and in good faith. He or she cannot act arbitrarily or capriciously but must make the decision based upon good faith, business reasons.
The implied covenant of good faith and fair dealing can be subject to several limitations, however. Normally, it cannot be applied to contradict the express term of the contract. Likewise, it cannot be applied to create new obligations which the parties did not bargain for. The concept is meant to be a “gap filler” that governs areas that are not clear or are left to the discretion of one party.
The law of contracts is normally governed by the state where the parties live. Not all states recognize the implied covenant of good faith and fair dealing. You should consult a lawyer knowledgeable in the state where you live to gain a complete understanding of how the implied covenant of good faith and fair dealing might apply to your contract.