NY, Delaware Contract Provisions Require Close Study To Navigate

Both New York and Delaware—the two dominant jurisdictions for sophisticated commercial agreements—recognize the implied covenant of good faith and fair dealing.

In New York, the doctrine traces back to Kirke La Shelle Co. v. Paul Armstrong Co., which held that neither party may act to destroy the other’s right to receive the “fruits of the contract.” The Delaware Court of Chancery similarly recognized in Wagner v. BRP Group, Inc. that the covenant “inheres in every contract governed by Delaware law and cannot be eliminated.”

But when a contract grants one party “sole discretion,” the jurisdictions diverge. There are critical distinctions between these jurisdictions, and it’s important to ensure discretionary provisions can withstand judicial scrutiny.