Also known as: good-faith performance · good faith · duty of good faith
Written by attorneys · grounded in primary & secondary sources — see below
An implied contractual obligation requiring each party to perform its duties honestly and fairly without undermining the other party's expected benefits from the agreement. The duty arises from the parties' intentions as revealed by the circumstances and operates through interpretation and gap filling. It rules out uncooperative conduct even when express terms do not address the issue.
Gretchen Graham missed two installment payments on her home loan from Glacier Energy. Glacier Energy declared the full debt due under the acceleration clause in the note. The court examined whether Glacier Energy exercised its acceleration right honestly and with a legitimate commercial purpose rather than to oppress Graham. Because the lender acted without improper motive, the acceleration stood and foreclosure proceeded.
George Garcia's counsel noticed a deposition of Galaxy Technologies under Rule 30(b)(6) and listed five topics. Counsel for the company contacted Garcia's counsel to discuss the scope and designate witnesses. The parties reached agreement on the matters each designee would cover after exchanging emails and a brief call. The deposition proceeded without motion practice because the conferral satisfied the good-faith requirement.
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Greta Goldstein filed a derivative action against Golden Gate Logistics alleging waste by two directors. The board appointed a committee of qualified directors that reviewed records and interviewed witnesses. The committee concluded in good faith that continued litigation would harm the corporation. The court dismissed the suit on the corporation's motion because the determination rested on a reasonable inquiry.
Georgia Gibbs asked her lawyer whether a proposed transaction would violate securities rules. The lawyer explained the statutory text and advised Gibbs on how to structure the deal to stay within legal bounds. The lawyer refused to help conceal material facts from regulators. The advice constituted a permissible good-faith effort to determine the law's application.
Gina Griffin received a grand jury subpoena seeking her confidential source notes. She appeared and answered questions about events she personally observed. The prosecutor limited questions to matters directly relevant to the investigation. Griffin's compliance with the good-faith proceeding did not violate the First Amendment.
Gwen Gallagher fell behind on her mortgage held by Griffin Industries. The lender sent required notices and offered a repayment plan before initiating foreclosure. Gallagher rejected the plan and the lender proceeded under the uniform act. The lender's steps satisfied its duty to act in good faith throughout the process.
No. The duty requires only honesty and fair dealing in performance. It does not impose fiduciary obligations or require a party to place the other party's interests above its own.
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Yes. Courts use the covenant to imply terms the parties must have intended because they are necessary to give business efficacy to the agreement, such as cooperation in long-term contracts.
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No. The covenant permits redress for bad faith performance even when the defendant has not breached any express term, as when a party exercises discretion in a manner that defeats the other party's justified expectations.
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Courts examine whether the conduct was honest, whether it had a legitimate commercial reason, and whether it was free from extortion or arbitrary refusal to cooperate.
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…arising from the reasonable expectation of the continuation of benefits attending the status of marriage entered into in good faith are not present in such a case." (P. 685.) In the absence of express contract, Vallera concluded, the woman is entitled to share in property jointly accumulated only "in the proportion…