Also known as: implied duties of good faith and fair dealing · implied covenant of good faith and fair dealing · implied covenants of good faith and fair dealing · good faith and fair dealing · implied covenant of good faith
Written by attorneys · grounded in primary & secondary sources — see below
A contractual obligation requiring each party to a contract to perform and enforce the agreement honestly and without undermining the other party's expected benefits.
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River Coastal chartered a vessel from Silver Sea under a multi-voyage agreement requiring timely deliveries. Silver Sea repeatedly selected cost-saving routes that caused chronic delays and triggered over one hundred thousand dollars in third-party penalties for River Coastal. River Coastal sued for breach of the implied duty after the pattern deprived it of the timely performance the contract was designed to secure.
Maya, Luis, and Erin formed a software partnership whose agreement measured each partner's good faith solely by whether decisions maximized quarterly revenue. After Erin dissociated she challenged the clause. The court held the standard unenforceable because it prevented partners from considering longer-term partnership interests and therefore failed to satisfy the requirement that any contractual measure of good faith remain manifestly reasonable.
Luis and Dana formed MarSea LP with an investor syndicate as limited partner. The agreement purported to relieve Luis of all liability for customs practices even if he intentionally under-declared hazardous cargo. After regulators imposed fines Dana and the syndicate sued. The court refused to enforce the waiver because it attempted to excuse knowing violations of law.
Gold Buildings disabled the HVAC system in its building during lease negotiations with Ridge Buildings to create discomfort and force a quick signature. Ridge Buildings later terminated and sued alleging breach of the implied duty. The court treated the pre-formation conduct as outside the contractual duty because the obligation arises only once a contract exists.
Bernice and Brenda formed Coastal Charters. Despite a severe weather forecast and an inoperable backup radio Bernice departed on a charter. The vessel sustained major damage requiring an expensive rescue. Brenda sued on behalf of the partnership. The court held that Bernice's choice breached the duty of good faith and fair dealing because it constituted gross negligence in the conduct of partnership business.
Valerie and Joy formed Republic Software as a member-managed LLC. Valerie diverted a client opportunity to her separate company and used Republic's codebase and engineers without disclosure. Joy sued for breach. The court held that Valerie violated the duty of good faith and fair dealing by appropriating a company opportunity and dealing with the company on behalf of an adverse interest.
No. Partnership statutes permit parties to prescribe reasonable standards for measuring performance of the duty but prohibit outright elimination of the obligation itself.
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No. The obligation arises only once a contract exists and governs performance and enforcement rather than pre-contractual conduct.
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Actions that interpret discretionary clauses to minimize one party's costs while foreseeably imposing substantial harm on the other party and serving no legitimate commercial purpose beyond cost avoidance breach the duty.
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…objection to the assignment. (See Schweiso v. Williams, supra, 150 Cal.App.3d at p. 886.) This rule is consistent with the implied covenant of good faith and fair dealing which is implied in every contract. (See Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 371-372 [6 Cal.Rptr.2d 467, 826 P.2d 710].) The…