In a contract setting, an implied covenant is an agreement that isn’t specifically stated in the contract terms. Instead, the agreement is simply assumed to be true by both or all parties entering into the contract.
The most common type of implied covenant is the “Implied Covenant of Good Faith and Fair Dealing” in a contract. This type of implied covenant assumes that the parties will generally deal with one another in an honest, forthcoming manner, and won’t resort to deceptive tactics or trickery when negotiating a contract.
Implied covenants can cover a wide variety of different contract matters. They are frequently a major part of real estate contracts as well as employment contracts. For example, an implied covenant can exist with regards to the following matters:
- Good faith in an employment setting
- Marketable title to real estate (i.e., no major defects with the title)
- The condition of habitability of a residential home (i.e., the home is suitable to live in)
- Quiet enjoyment of property
Not necessarily- an implied covenant is basically an agreement between two or more parties to a contract. Generally speaking, both parties are held to the same standards set forth by the implied covenant. For example, with the implied covenant of good faith and fair dealing in a contract, both parties to the contract are expected to exercise the same fairness to one another.
In contrast, an implied warranty sometimes only imposes a duty upon one party, typically the seller or the party supplying the product/services. It is basically a guarantee that the buyer is receiving what is being promised in the contract. For example, the agreement that a residential home is often technically called the “Implied warranty of habitability” and not the implied covenant of habitability (unless the buyer also has a duty to maintain the property in habitable condition).
This will depend on the nature of the subject matter as well as the legal jurisdiction that the violation occurs in. Basically all jurisdictions enforce the implied covenant of good faith and fair dealing in a contract. Thus, a party can usually recover damages for losses if the good faith covenant is violated.
However, different states may have different rules when it comes to specific implied covenants and implied warranties. For example, not all jurisdictions enforce the implied warranty or covenant of quiet enjoyment. It may be necessary to work with a contracts lawyer to determine which set of covenants and warranties are enforced in a particular region of the U.S.
Implied covenant laws are very different from state to state. If you need help drafting a contract, or if you’ve been involved in a contract violation, it may be necessary for you to hire a qualified business lawyer for help. Your lawyer will be able to review the contract and implied covenant laws in your area, to see which rules might affect your claim. Your attorney can also represent you in court during a lawsuit if you need to file for a damages award.