Delaware Chancery Court Rejects Minority Members’ Use of Implied Covenant to Seek Higher Transaction Price in Sale of LLC

March 29, 2018

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Numerous jurisdictions recognize that contracts contain an implied covenant of good faith and fair dealing (the implied covenant). Courts have described the implied covenant as “a judicial convention designed to protect the spirit of an agreement when, without violating an express term of the agreement, one side uses oppressive or underhanded tactics to deny the other side the fruits of the parties’ bargain.” Chamison v. Healthtrust, Inc. – Hosp. Co., 735 A.2d 912, 920-22 (Del. Ch. 1999). The implied covenant should not be used to “rewrite [a] contract to appease a party who later wishes to rewrite a contract [it] now believes to have been a bad deal.” Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010). “[O]ne generally cannot base a claim for breach of the implied covenant on conduct authorized by the agreement.” Id. at 1125–26.

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