What is Good Faith and Fair Dealing and where does not it not Apply?

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The words ‘good faith’ and ‘fair dealing’ are vehemently thrown about when there is a dispute.  But, what is good faith?  What is fair dealing? And, is it something that applies to everything and everywhere?

 

Good faith and fair dealing are implied covenants.  Good faith and faith dealing do not have to appear in the franchise agreement or any agreement to be enforced.  Implied means it is understand to be included and applicable to the agreement.

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Per Black Law Dictionary, good faith is defined as:

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A state of mind consisting in (1) honesty in belief or purpose, (2) faithfulness to one’s duty and obligations, (3) observation of reasonable commercial standard or fair dealing in a given trade or business, or (4) absence of intent to defraud or seek unconscionable advantage. 

Fair dealing is defined by Black Law Dictionary as:

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(1) The conduct of business with full disclosure usu. by a corporate officer to the corporation. (2) A fiduciary’s transacting of business so that, although the fiduciary’ might derive a personal benefit, all interested persons are fully appraised of the potential and of all other material information about the transaction.

When a dispute arises between the franchisor and franchisee, the first step is to review the franchise agreement.  Look at the covenants, obligations, rights outlined in the agreement.  Sometimes, the provisions in the agreement are fuzzy or there may be issues that arise between the franchisee and franchisor that are not covered or discussed in the franchise agreement.

 

Either way, good faith and fair dealing is something discussed and highlighted.  It is the ‘it is not fair’ arguments:  ‘You can’t do that.’  It includes the: ’that is not what we agreed to’ argument.  And, the ‘You did not disclose that’ when I bought the franchise.

 

What would happen if those claims of good faith and fair dealing were not available?  Hence the class action MYERS V. JANI-KING OF PHILA., INC. in the third circuit court.  In this class action law suit:

 

Plaintiffs allege, on behalf of themselves and all others similarly situated, that Defendants sold them rights to Defendants' cleaning services franchise, and that the franchise agreements that secured those rights were, in reality, illegal employment agreements.

In count 4 of the franchisee’s multi-count complaint, the franchisee claimed a breach in the covenant of good faith and fair dealing.  The case was being heard in Philadelphia and franchisor asserted Texas law applied to the franchise agreement.  The court, looking at both Texas and Pennsylvania law, found that both states did not recognize good faith and fair claims in relation to franchisor and franchisee disputes.

 

Where are franchisor and franchisee left, if they cannot assert ‘good faith’ and ‘fair dealing’ arguments?  Where is the class action of MYERS V. JANI-KING OF PHILA., INC. without the count alleging a breach of ‘good faith’ and ‘fair dealing?’  The franchisees are left to the actual word, promises, and obligations in the franchise agreement.

 

When enforcing a franchise agreement, knowing the state laws regarding franchise agreement is important.  It can make difference as to a claim is dismissed or successful.

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