In a significant Delaware Court of Chancery decision, the court has delivered what legal experts are calling a landmark analysis of the implied covenant of good faith and fair dealing.
The case, Facilities Holdings, LLC v. ASM Global Parent, LLC, decided on June 24, 2026, offers the most comprehensive restatement of Delaware law on the subject seen in years.
The ruling specifically addresses one of the two settings in which the implied covenant can apply, focusing on when a party invokes the covenant to imply an omitted right or obligation.
The basic facts involve a Vendor holding long-term, detailed agreements to provide concessions at stadiums around the world, with the relevant Operator eventually sold to a competitor.
Beyond breach of contract claims, the implied covenant was invoked to allege that the new Operator, itself a competitor of the Vendor, sought to facilitate termination of agreements by inducing landlords to withhold consent for extensions.
The court established that every contract carries an implied covenant of good faith and fair dealing, setting out a precise three-part inquiry for when a party seeks to imply an omitted right or obligation.
The first step requires the court to determine whether there is a gap in the contract, the second asks whether that gap should be filled, and the third addresses what term the parties would have agreed to at the bargaining table.
On the question of identifying gaps, the court stated clearly that “the implied covenant is, by definition, implied, and because it protects the spirit of the agreement rather than the form, it cannot be invoked where the contract itself expressly covers the subject at issue.”
The court also drew on the recent Delaware Supreme Court decision in Johnson and Johnson v. Fortis Advisors, LLC, quoting the principle that “no contract, regardless of how tightly or precisely drafted it may be, can wholly account for every possible contingency.”
The ruling noted that one situation well suited to the implied covenant is when terms sought to be implied were “so basic that no one would have thought to include them in the agreement,” while cautioning against “resisting hindsight’s seductive acuity.”
When the first two requirements are satisfied, the trial court must “analyze whether the parties would have bargained for a contractual term prescribing the conduct that allegedly violated the implied covenant had they foreseen the circumstances under which the conduct arose.”
The court drew a meaningful distinction between three possible stances a party might take: affirmatively helping, standing neutral, and consciously harming, citing in a footnote a letter from Martin Luther King, Jr. regarding degrees of support encountered by civil rights activists.
The Vendor in this case sought only an implied term preventing conscious harm, which the court described as the “center-of-the-fairway for the implied covenant which prevents a party from frustrating the fruits of the bargain that the asserting party reasonably expected.”
Applying the English legal concept of the officious bystander, the court reasoned that if an observer had suggested the parties needed to prohibit the Operator from secretly advocating against landlord consent, “the parties would have responded with a common, ‘Of course, that’s prohibited!'”
The court also confirmed that alternative pleading rules permitted simultaneous claims of breach of contract and breach of the implied covenant to proceed together at the motion to dismiss stage.