Legal Memorandum: Breach of Implied Covenant Claims in VI

Issue: Under the law of the Virgin Islands, what must a plaintiff establish to prevail on a claim of breach of the implied covenant of good faith and fair dealing?

“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”  Restatement (Second) of Contracts § 205.  “Good faith is defined in Uniform Commercial Code § 1-201(19) as ‘honesty in fact in the conduct or transaction concerned.'”  Id., cmt. a.  “Good faith” may vary in different contexts, but good faith performance “emphasizes faithfulness to an agreed common purposes and consistency with justified expectations of the other party . . .”  Id., cmt. a.  “The appropriate remedy for a breach of the duty of good faith also varies with the circumstances.”  Id., cmt. a.  “Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified.”  Id., cmt. e.  “Bad faith” may be overt or consist of inaction, and fair dealing may require more than honesty.*FN1  Id., cmt. e. 

A plaintiff must make certain allegations:

Under Virgin Islands law, to claim a breach of the implied duties of good faith and fair dealing, a plaintiff must allege: “(1) that a contract existed between the parties, and (2) that, in the performance or enforcement of the contract, the opposing party engaged in conduct that was fraudulent, deceitful, or otherwise inconsistent with the purpose of the agreement or the reasonable expectations of the parties” (emphasis added) [Smith v. Virgin Islands Housing Authority, Civ. No. 2009-011, 2011 U.S. Dist. LEXIS 19409, at *23, (D.V.I. Feb. 28, 2011) (Finch, J.)].

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