In a business sales contract, the parties are expected to exercise fair dealing with one another when conducting the transaction. This means that the parties should work honestly with one another and refrain from any use of deception or unfairness when negotiating the contract.
This principle is often referred to as the “Implied Covenant of Good Faith and Fair Dealing” in a contract. This means that while the requirement of fair dealing is not explicitly stated in the contract, it’s expected of the parties simply as a matter of course in their business dealings with one another. Some state laws and contract codes do include specific references to the implied covenant of good faith and fair dealing.
There are many ways that the requirement of fair dealing can be violated in a business sales contract. These may include:
- The use of fraud or fraudulent misrepresentation with regards to any of the sales contract terms (such as pricing, quantity of the product, delivery and shipping of the goods, or brand name representations)
- The use of duress or coercion (i.e., using force or undue economic pressure to get the other party to sign the contract)
- Avoidance of contract duties
- Use of illegal actions or conduct to fulfill contract obligations
Since the duty to deal fairly in a contract is an implied covenant and not explicitly stated, violations of this duty can often be subtle and may sometimes go unnoticed.
For example, one party may be trying to “weasel” their way out of performing their contractual duties based on a technicality. These types of violations require vigilance and attention to detail on the part of the non-violating party, so that such breaches don’t go unnoticed.
In most cases, a breach of contract based on a violation of the fair dealing covenant is remedied through a damages award issued to the non-breaching party. The damages award usually covers economic losses so that the plaintiff can recover the fair market value of their benefit from the original contract.
In some cases, the plaintiff may also be able to obtain additional damages for losses not directly caused by the breach, but which stem naturally from the breach of contract (such as additional lost profits). In other cases, the damages award may be reduced if the plaintiff was also found to be in violation.
Lastly, depending on the type of violation, some jurisdictions may allow for remedies that are based on tort principles and not contract principles. This is common in many insurance contract claims, where the insurer has acted in bad faith. The advantage here is that the plaintiff can sometimes recover punitive damages in addition to the damages meant to compensate for economic losses.
Business sales contracts can sometimes be fairly complex. You may wish to contact an experienced business lawyer if you have any legal issues at all involving a business sales contract. Your lawyer can help you draft, review, and edit your contract to ensure that it meets the requirements involving fair dealings. Also, if you’re facing a business dispute over a contract, your lawyer can then represent you in a court of law if you decide to file a lawsuit.