“In the end, only the parties themselves can draft clear, thorough, and workable contracts.”
—Cory Andrews, WLF General Counsel & Vice President of Litigation

Click HERE for WLF’s brief.

(Washington, DC)—Washington Legal Foundation (WLF) today asked the Delaware Supreme Court not to use the implied covenant of good faith and fair dealing to rewrite contracts.

The implied covenant bars contracting parties from exploiting each other in ways that could not possibly have been foreseen when the contract was signed. Delaware’s courts often correctly note that the implied covenant does not override a contract’s explicit terms. Sometimes, however, those courts also say that the implied covenant can be used to create new terms the parties could have, but did not, think to include in their contract. Here a trial court added such terms to an earnout provision in a merger-and-acquisition contract.

WLF’s brief supports reversal of that rewrite and urges the Delaware high court not to let the implied covenant drift too far from the contract’s text. Especially where, as here, the contract is one between sophisticated companies, a court’s core assumption should be that the parties have  negotiated for what they wanted and then wrote it down.

Holding parties closely to their written agreements, WLF’s brief explained, keeps the courts out of the business of trying to “fix” contracts, something they cannot possibly do well. It also discourages implied-covenant litigation. Above all, it benefits the contracting parties by encouraging them to draft well-written contracts.

WLF is grateful to Nicholas E. Skiles of Swartz Campbell LLC for his pro bono assistance in filing of WLF’s brief.