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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: December 31, 2019

Claim for Breach of Covenant of Good Faith and Fair Dealing Dismissed as Duplicative of Breach of Contract Claim

On December 13, 2019, Justice Sherwood of the New York County Division issued a decision in Citigroup Global Mkts. Inc. v. SCIP Capital Mgt., LLC, 2019 NY Slip Op. 33633(U), dismissing a claim for breach of the covenant of good faith and fair dealing as duplicative of a breach of contract claim, explaining:

It is well settled that within every contract is an implied covenant of good faith and fair dealings. The implied covenant embraces a pledge that neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. A breach of the covenant is a breach of the contract itself. The covenant of good faith and fair dealing is breached when a party acts in a manner that, although not expressly forbidden by the contractual provision, would deprive the other party of the benefits of the agreement.

The covenant encompasses any promises that a reasonable person in the position of the promises would be justified in understanding were included. However, the obligations imposed by an implied covenant of good faith and fair dealing are limited to obligations in aid and furtherance of the explicit terms of the parties’ agreement. The covenant cannot be construed so broadly as to nullify the express terms of a contract or to create independent contractual rights. To establish a breach of the implied covenant, the Plaintiff must allege facts that tend to show that the Defendants sought to prevent performance of the contract or to withhold its benefits from the plaintiff.

Here, defendants have failed to allege facts showing that plaintiffs breach an implied covenant which, according to Silverfern, is based on facts alleged in Counterclaim [paragraph] 221. This claim is wholly duplicative of the breach of contract claim with no further or different facts alleged to support it.

(Internal quotations and citations omitted).

The implied covenant of good faith and fair dealing is an important, if often misunderstood, part of New York law. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where a party is being deprived of the benefits of its contract, even if you cannot point to a specific contract term that is being breached.

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Posted in Commercial, Contracts
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