In New Jersey case law, the implied covenant of good faith and fair dealing is applied in three general ways, each largely unaffected by the parol evidence rule. First, the covenant permits the inclusion of terms and conditions that have not been expressly set forth in the written contract. The covenant acts in such instances to include terms the parties must have intended because they are necessary to give business efficacy to the contract. Second, the covenant is utilized to allow redress for the bad faith performance of an agreement even when the defendant has not breached any express term. And third, the covenant permits inquiry into a party's exercise of discretion expressly granted by a contract's terms.
The employees first became employees when they sold their successful employee benefits business to a bank, with the understanding that the bank would help them build the business and would employ them until they were ready to retire. Instead, the employees alleged, the bank did not help them, preferring to freeze them out of the business, in order to eventually replace them with employees the bank had chosen. The appeals court held that despite the employees' relative sophistication, the trial court acted prematurely in dismissing their claim as precluded by the parol evidence rule. If the employees could show the bank acted in actual bad faith, or exercised its discretion in a manner to frustrate contractual expectations, the employees might recover.
Can a claim of breach of implied covenant based on good faith and fair dealing be dismissed because of the allegations of the case where it is stated that defendant made a contract with another with the intention of exercising his right to terminate such in bad faith?
Plaintiffs' claim of a breach of the implied covenant of good faith and fair dealing is not precluded merely because the parties' possessed equal bargaining power, or because plaintiffs were not financially vulnerable during the contract's formation, or even if the plaintiffs negotiated the contract with the assistance of highly competent counsel. These are factors that the trier of fact may consider in weighing the sufficiency of plaintiffs' claim but they are not the only factors. Also, it was concluded that the parol evidence rule had no impact upon the ability of plaintiffs to substantiate either their claim that they had a reasonable expectation of a continued relationship (notwithstanding the expressed right of Summit to terminate), or their claim that Summit failed to perform its contractual obligations in good faith. And lastly, while the appropriate level of bad faith may be difficult to define and may also vary depending upon the nature of the alleged breach and the type of business engaged in by the parties, plaintiffs' allegations of bad faith and ill motives are sufficient to survive dismissal.