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60 Notre Dame L. Rev. 510 (1984-1985)


Every contract contains an implied covenant of good faith and fair dealing which prohibits any contracting party from injuring another party's right to receive the benefits of the agreement. Breach of this implied covenant creates a cause of action in contract. Beginning twenty-five years ago, some courts also recognized a cause of action in tort for breach of this implied covenant in insurance contracts.

In recent years, the California courts, the leaders in the development of “‘contort,”’ have repeatedly faced the issue whether courts should expand its application beyond the insurance context. Resolution of the issue is important because tort treatment enables a plaintiff to recover damages ordinarily not recoverable in a contract action, such as damages for mental suffering, losses not foreseeable at the time of contracting, and punitive damages. In Seaman's Direct Buying Service, Inc. v. Standard Oil Co., the Supreme Court of California recently faced the question: “May a plaintiff recover in tort for breach of an implied covenant of good faith and fair dealing in a noninsurance, commercial contract?” Although the court did not directly answer this question, the court's language indicates that breach of the covenant in a commercial context may create a tort cause of action.


Reprinted with permission of the Notre Dame Law Review.



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