Most construction contracts are lengthy written documents detailing each party’s rights and obligations. Some contracts are brief and simply outline requirements. Still others are not reduced to writing at all and consist of a verbal agreement to do certain work at a stated price. But all construction contracts, however lengthy or brief, formal or informal, have one thing in common; they all include a mutual obligation of good faith and fair dealing.
The contract need not state that obligation expressly. The parties may not have even discussed such an obligation during their negotiations. Good faith and fair dealing is part of every contract because the Courts in Massachusetts imply that requirement in every single contract, even when no such obligation is stated.
The obligation to proceed in good faith and to deal fairly in performing contracts is not some peripheral obligation to which the Courts merely pay lip service. It is a substantive obligation which is at the core of every contractual undertaking. That is why good faith and fair dealing is implied into every contract. It means that neither party may do anything to destroy or injure another party’s right to enjoy the benefit of the contract.
A breach of the obligation of good faith and fair dealing involves more than bad judgment, or failure to perform, or negligent conduct. Instead it is conduct that carries an implication of dishonest purpose, conscious wrong doing or breach of some duty motivated by self-interest or ill will.
A party to a contract who refuses to perform as agreed in order to force concessions from the other party, clearly breaches the implied obligation of good faith and fair dealing. Additionally, it is possible to exercise rights permitted under a contract and still breach the obligation of good faith and fair dealing by exercising that right in bad faith. For example, a party who cancels a contract that is terminable at will but does so on unreasonably short notice, motivated by ill will, may be found in breach of the contract.
Breaching the obligation of good faith and fair dealing is a material breach which entitles the other party to compensatory damages. And recent decisional law has ruled that a breach of the contract duty of good faith and fair dealing is sufficient to support a finding of multiple damages and an award of legal fees under c. 93A.
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