Can the covenant of good faith create duties inconsistent with contract terms? Young Living Essential Oils v. Marin Explained

In Young Living Essential Oils v. Marin, the Utah Supreme Court provided important clarification on the scope and limitations of the implied covenant of good faith and fair dealing in contract disputes.

Background and Facts

Young Living entered into a distributorship agreement with Carlos Marin in January 2005. Under the contract, Marin agreed to meet specific monthly performance guarantees measured by sales volume, and Young Living agreed to pay monthly advance payments offset by commissions. The agreement contained an integration clause stating that no other representations would be valid. When Marin failed to meet his performance guarantees by March and April 2015, Young Living sued for breach of contract, seeking the difference between advance payments ($65,000) and earned commissions ($3,637.57).

Key Legal Issues

Marin defended by claiming Young Living breached an implied covenant of good faith and fair dealing by failing to provide promised marketing materials. He argued that Young Living representatives had orally promised to provide marketing materials by February 1, 2005, and that these materials were essential for meeting performance guarantees.

Court’s Analysis and Holding

The Supreme Court affirmed summary judgment for Young Living, establishing strict limitations on the covenant. The court held that the covenant cannot create obligations “inconsistent with express contractual terms” and can only be invoked where it is clear from the parties’ “course of dealings” or settled custom that parties would have agreed to the covenant. The court rejected Marin’s claim because he sought to impose an affirmative duty not rooted in universal industry custom, but rather in alleged oral representations that contradicted the integrated contract terms.

Practice Implications

This decision significantly limits parties’ ability to use the good faith covenant to circumvent integrated contract terms. Practitioners should note that the covenant primarily protects against opportunistic interference with contract performance, not the creation of new affirmative duties. When asserting covenant claims, counsel must demonstrate either settled industry custom or established course of dealing, not merely alleged oral promises.