Also known as: implied duties of good faith · implied covenant of good faith · good faith and fair dealing
Written by attorneys · grounded in primary & secondary sources — see below
An obligation imposed on each party to a contract to act honestly and fairly when performing and enforcing the agreement. The duty prevents one party from taking actions that destroy or injure the other party's right to receive the fruits of the contract. It applies even when the contract grants discretion, requiring that discretion be exercised consistently with the agreed purpose rather than to extract new concessions or evade performance.
CloudCore held a five-year license requiring it to deliver security updates to ByteNest. Midway through the term CloudCore threatened to withhold the updates unless ByteNest signed a new agreement doubling the fees. ByteNest signed under protest and later sued. The court treated the threat as an improper breach of the implied duty because CloudCore used its performance obligation as leverage to obtain terms outside the original bargain.
Ivan Ivanov and Iris Irons formed a general partnership under a written agreement that attempted to eliminate the obligation of good faith. When Ivan withheld information about a profitable opportunity, Iris sued. The court held that the agreement could prescribe reasonable standards for measuring performance of the duty but could not eliminate the obligation itself.
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Isaiah Ishikawa, a limited partner in Insight Consulting, exercised rights under the partnership agreement to block a transaction that would have benefited the firm. He did so solely to favor his separate competing business. The court measured his conduct against the contractual obligation of good faith and fair dealing that the statute imposes on limited partners.
Icarus Aviation threatened to stop providing required maintenance services under an existing contract with Isla Ireland unless she agreed to higher payments. The threat was made to extract new terms rather than to address any legitimate dispute over performance. The court classified the threat as improper because it constituted a threatened breach of the duty of good faith and fair dealing.
Ian Iverson, a partner in Inertia Dynamics, made a series of operational choices that minimized his own capital contribution while increasing costs to the partnership. Brenda, the other partner, claimed the choices violated the duty of good faith. The court applied the statutory requirement that partners exercise rights consistently with the contractual obligation of good faith and fair dealing.
Ilana Isaacs, a limited partner in Ivy Investments, withheld consent to a necessary capital call solely to pressure the general partner into selling her interest at an inflated price. The general partner sued. The court held that Ilana's exercise of consent rights had to conform to the contractual obligation of good faith and fair dealing imposed on limited partners.
No. The duty requires each party to perform and enforce the contract honestly and in a manner consistent with the agreed purpose. It does not add new terms but prevents conduct that frustrates the other party's reasonable expectations under the existing bargain.
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No. Partnership statutes permit the agreement to prescribe reasonable standards for measuring performance of the duty but prohibit outright elimination of the obligation itself.
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A threat becomes improper when it consists of a threatened breach of the duty of good faith and fair dealing. Using contractual discretion to withhold promised benefits solely to extract new concessions violates the duty and supports a duress claim.
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Partners must exercise rights and discretion consistently with the contractual obligation of good faith and fair dealing. Decisions made solely to harm the partnership or to favor a partner's separate interest can breach the duty even if literal compliance with the agreement is possible.
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…as amended, alleged 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…