Also known as: good faith performance duty · duties of good faith performance · implied duty of good faith · good faith and fair dealing
Written by attorneys · grounded in primary & secondary sources — see below
An implied obligation requiring each party to a contract to perform and enforce its duties honestly and fairly so that neither deprives the other of the expected benefits of the agreement.
Select any source to read its text and confirm it supports the definition.
Star Wealth Bank refused further draws on a revolving credit line after Sky Trust LLC submitted a financial report a few days late. The bank continued to charge commitment fees while suggesting funding might resume. Sky Trust sued for breach after the refusal deprived it of the cash flow the facility was meant to provide.
Bernice promised to contribute her vessel Sea Queen to Coastal Charters but later refused delivery and negotiated its sale for scrap. The partnership chartered substitute vessels for scheduled trips and incurred extra costs. Brenda sued on behalf of the partnership to recover the value of the promised contribution.
Valerie, a majority member of Republic Software, told her co-member the lead on a licensing deal had gone cold and then licensed the module through her separate company. She retained all fees and equity while using Republic resources. Joy sued for an accounting of the diverted benefits.
Gold Buildings disabled the HVAC system during lease negotiations to pressure Ridge Buildings into signing quickly. After the lease was executed Ridge Buildings discovered the conduct and sued for breach of the implied covenant. The claim rested on the pre-signing pressure as an improper means of obtaining the agreement.
Bernice departed on a charter despite a severe weather forecast and an inoperable backup radio. The vessel sustained major damage requiring an expensive rescue. Brenda sued the partnership for the resulting losses attributable to the decision.
Stone Cafe quietly substituted cheaper frozen ingredients for the locally sourced produce promised to Alpha Eats while continuing to market the items as farm-to-table. The substitution caused menu failures and reputational harm on opening day. Alpha Eats withheld payment and terminated the contract.
Courts consider the extent to which the breaching party's conduct comports with standards of good faith and fair dealing as one factor in the material-breach analysis. Concealment, misrepresentation, or exploitation of technical defaults weighs strongly toward materiality even when monetary loss is compensable. Dishonest performance can justify treating the breach as material and excusing further performance by the injured party.
Supporting sources
…that appellant was discharged in violation of both the terms of an implied employment contract and the implied covenant of good faith and fair dealing, and that the discharge was in violation of public policy and therefore tortious. The superior court sustained respondent’s demurrer to the third amended complaint and granted appellant…
…condition, term or covenant of employment, whether founded in fact or in law, including but not limited to the covenant of
…in having the suit against him compromised by a settlement within the policy limits. [1] There is an implied
…infliction of emotional distress; invasion of privacy; wrongful dismissal; violation of express and implied
A partnership agreement may prescribe standards for measuring the obligation if the standards are not manifestly unreasonable, but it cannot eliminate the obligation itself. The duty remains mandatory under the uniform acts even when the agreement attempts to limit liability for negligent decisions. Attempts to waive the duty entirely are unenforceable.
Supporting sources
The duty applies to both performance and enforcement of the contract. A party breaches when it exercises contractual rights, such as refusing draws or delaying claims, in a manner that deprives the other party of the expected benefits while continuing to collect fees or exert leverage. The obligation continues throughout the life of the agreement.
Supporting sources
Partners must discharge duties and obligations consistently with the contractual obligation of good faith and fair dealing. Grossly negligent or reckless conduct that causes partnership losses violates both the duty of care and the good-faith obligation. An agreement attempting to eliminate liability for such conduct is unenforceable.
Supporting sources