You signed a contract, and now the other side seems to be draining its value without breaking any clear term. If that sounds familiar, the implied covenant of good faith in a Florida business contract may be the issue.
However, there are two limitations on such claims: (1) where application of the covenant would contravene the express terms of the agreement; and (2) where there is no accompanying action for breach of an express term of the agreement (QBE Insurance v. Chalfonte). Here is how it works, where it shows up, and what records help.
What Is the Implied Covenant of Good Faith and Fair Dealing?
Such claims are subject to two limitations, as QBE Insurance v. Chalfonte explains: (1) where application of the covenant would contravene the express terms of the agreement; and (2) where there is no accompanying action for breach of an express term of the agreement. The Florida Supreme Court set out two limitations on such claims in QBE Insurance v. Chalfonte: (1) where application of the covenant would contravene the express terms of the agreement; and (2) where there is no accompanying action for breach of an express term of the agreement.
Think of a vendor that agrees to deliver on a set schedule. If it meets that schedule on paper but holds up approvals so the buyer loses the benefit of the deal, the covenant may be at issue. The words were followed, but the purpose was not.
If a partner or vendor seems to be draining the value of a deal your company signed, you don't have to sort it out alone. Reach out to Ayala Law PA to talk through the facts of your contract. Talk it through with our team — we can walk you through how a situation like yours is usually handled and what your options are.
How Florida Courts Apply the Covenant to Business Contracts
The same QBE opinion names two limits. First, the covenant cannot be applied in a way that contradicts the agreement’s express terms. Second, a covenant claim fails when there is no accompanying claim for breach of an express term. In practice, a covenant claim usually travels with a breach claim tied to specific contract language.
Fairness-based claims have limits too. In Williams v. Johnson, the Third District explained that an express contract covering the same subject matter bars an unjust enrichment claim arising from that relationship. Quoting Moynet v. Courtois, the Third District Court of Appeal explained in Williams v. Johnson that, given the existence of an express contract covering the same subject matter, “claims arising out of that contractual relationship will not support a claim for unjust enrichment.” So when a written contract governs the dispute, a side claim based on fairness usually won’t replace it.
How a Partner or Vendor Can Undermine a Deal Without Breaking Its Terms
A partner or vendor can undermine a deal by using its own discretion, stalling or holding back cooperation. It can do this while following the written words. Common patterns include:
- Holding back information the other side needs to perform or to collect the benefit.
- Using an approval, scheduling or pricing right in a way aimed at defeating the other side’s reward.
- Delaying performance or reopening settled points again and again until the deal loses its value.
- In vendor and construction work, shifting milestones, payment triggers or sign-off decisions.
- Using control of the business to take an opportunity the contract meant for the other party.
Many owners wait for one dramatic breach. Slow erosion is harder to prove and easier to overlook. Track it from the start, because a pattern shows up in dates more than in any single email.
Partner and Shareholder Disputes Where the Covenant Comes Up
In a Florida LLC, a manager of a manager-managed LLC and a member of a member-managed LLC must discharge their duties and exercise their rights consistently with the obligation of good faith and fair dealing under the LLC standards of conduct. Partners have the same duty under § 620.8404.
The operating agreement statute bars an operating agreement from relieving a person of liability for bad faith, willful or intentional misconduct, or a knowing violation of law. A partnership agreement faces related limits under § 620.8103: it may not eliminate the duty of loyalty, unreasonably reduce the duty of care, or eliminate the obligation of good faith and fair dealing.
A partnership agreement does get some room: it may identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable. Corporate shareholder agreements follow a separate shareholder agreement statute, which can set a way to break a deadlock.
Start with the operating agreement, partnership agreement or buy-sell terms. Then read how the covenant fits with their express provisions.
Vendor, Supplier and Construction Contract Scenarios
In vendor and construction deals, the covenant most often comes up around timing, approvals and payment steps. A supplier may deliver on paper while shaping pricing or quality decisions to cut the buyer’s benefit.
In construction, a contractor or subcontractor may slow approvals, delay inspections, or handle draw requests and change orders in ways that hold up payment or completion. Those tools sit inside the contract. The question is how they were used.
Check the schedules, draw requests, inspection reports, change orders and sign-off notices. Each one shows whether a step happened on time and why.
Time limits matter too. For actions founded on the design, planning or construction of an improvement to real property, § 95.11 sets a four-year period that runs from the date the authority having jurisdiction issues a temporary certificate of occupancy, a certificate of occupancy or a certificate of completion, or the date of abandonment of construction if not completed, whichever date is earliest. When the action involves a latent defect, the time runs from when the defect is discovered or should have been discovered with the exercise of due diligence, but in any event the action must be commenced within 7 years after that certificate or abandonment date.
What the Covenant Does Not Do
The covenant cannot rewrite the deal or override clear express terms. That limit comes straight from QBE. If applying the covenant would contradict the express terms, the claim fails.
A party acting within an express right is not automatically in breach.
Sometimes the parties dispute whether a contract exists at all, or what its terms are.
Not sure what your next step is?
Talk it through with our team — we can walk you through how a situation like yours is usually handled and what your options are.
Evidence and Records That Matter When Assessing a Possible Breach
The signed agreement, any amendments and a dated record of what happened usually matter most. Gather emails, texts, meeting notes, invoices, payment records, change orders and project schedules.
A dated timeline helps most. Write down when the other side’s conduct began, what you asked for, when you asked, and how performance changed afterward. Preserve originals rather than editing or deleting messages.
Your own records matter too. The other side will look at whether you kept your part of the deal. Gather your performance records alongside theirs.
Watch for conduct that looks reasonable on its own but forms a pattern when lined up by date. The strength of the evidence depends on the facts of each contract and dispute.
Related Contract Questions That Often Arise Alongside the Covenant
Side understandings, promises about the future and writing requirements often come up in the same dispute. Each one can change what the parties can actually enforce.
An oral side understanding can complicate what the parties agreed to. § 725.01 bars actions on an agreement not performed within one year unless it is in writing and signed by the party to be charged. Fla. Stat. § 725.01 reads: “unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by her or him thereunto lawfully authorized.” Promissory estoppel doesn’t get around that rule. In DK Arena v. EB Acquisitions, the Florida Supreme Court held that the doctrine may not be used to circumvent the Statute of Frauds.
A promise about future action can also raise a fraud question. In Frutafino v. Dole Chile, the Third District explained that such a promise may be fraud if the promisor had no intention of performing, or a positive intention not to perform, when making it.
Our Florida contract disputes guide covers the broader framework for Tampa-area businesses.
Talk With Ayala Law PA About Your Contract Situation
You may be sorting this out while running a company. You may also be handling it for a business you co-own or manage, after a partner or vendor changed course on you.
Ayala Law PA focuses on business litigation, commercial litigation, contract disputes, shareholder disputes, construction litigation, real estate litigation and international trade litigation. Eduardo A. Maura is responsible for this page. The firm’s office is at 1646 W Snow Ave in Tampa, and it works with businesses in the Tampa Bay area.
To talk through the facts of your contract, call (305) 570-2208 or reach out through the firm’s contact page.
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