Also known as: implied duties of good faith performance · implied duty of good faith · good faith performance · implied covenant of good faith · good faith and fair dealing
Written by attorneys · grounded in primary & secondary sources — see below
A contractual obligation requiring each party to act honestly and fairly when performing and enforcing the agreement. The duty prevents a party from taking actions that destroy or injure the other party's right to receive the fruits of the contract. It operates as an implied term in every contract and supplies a standard for evaluating discretionary conduct.
Select any source to read its text and confirm it supports the definition.
Indigo Textiles leased retail space from Inertia Dynamics under a percentage-rent lease. Inertia Dynamics repeatedly closed entrances and conducted disruptive renovations that sharply reduced customer access and sales. Indigo Textiles sued for breach after its revenue collapsed. The conduct violated the implied duty because Inertia Dynamics exercised its management rights to frustrate the central benefit Indigo Textiles reasonably expected from the lease.
Ian Iverson and Ivy Ibarra formed a general partnership to operate a consulting firm. Their agreement attempted to eliminate the obligation of good faith and fair dealing under the statute while substituting a manifestly unreasonable measurement standard. Ivy Ibarra later challenged the clause after Ian Iverson withheld information to gain a personal advantage. The attempted elimination was ineffective because the statute permits only non-manifestly-unreasonable standards to govern the obligation.
Integrity Partners, a limited partnership, received licensing revenue from a client introduced through limited partner Ismael Ibrahim. Ibrahim diverted the opportunity to his separate entity and retained the fees. The general partner sued, alleging breach of the good-faith obligation. Ibrahim's conduct violated the duty because limited partners must discharge their duties consistently with good faith and fair dealing under the statute.
Insight Consulting contracted with Isabelle Inman to provide ongoing advisory services. When market conditions changed, Insight Consulting threatened to stop performance unless Inman agreed to a substantial price increase. Inman refused and sued for breach. The threat constituted an improper means because it breached the duty of good faith and fair dealing under the existing contract.
Ibrahim Iqbal and Imani Idowu operated a general partnership selling textiles. Iqbal used partnership funds to pay personal expenses without disclosure or consent. Idowu sued for breach after discovering the diversions. Iqbal's conduct violated the statutory obligation because partners must discharge their duties consistently with good faith and fair dealing.
Inertia Dynamics, a limited partnership, pursued a client contract that limited partner Ivy Ibarra secretly redirected to her own company. Ibarra retained all resulting profits without disclosure. The general partner demanded an accounting. Ibarra's actions breached the obligation because limited partners must exercise rights consistently with good faith and fair dealing.
No. The duty applies to performance and enforcement of the contract. Conduct after formation that frustrates the other party's expected benefits can constitute a breach even when no express term is violated.
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No. A partnership agreement may prescribe reasonable standards for measuring the obligation but cannot eliminate it outright. Any attempt to remove the duty entirely is ineffective under the statute.
…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…
…condition, term or covenant
…consider Sloan's interest in having the suit against him compromised by a settlement within the policy limits. [1] There is an implied covenant of good faith
…infliction of emotional distress; invasion of privacy; wrongful dismissal; violation of express and implied
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Yes. When a buyer accepts initial deliveries without objection and then rejects later conforming goods for pretextual reasons after prices drop, the conduct violates the duty of good faith and fair dealing and constitutes a breach of contract.
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Yes. An insurer that repeatedly demands duplicative documentation, orders unnecessary examinations, and presses for an unfairly low settlement breaches the duty by creating unjustified obstacles to the policyholder's receipt of benefits.
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Yes. A lender that refuses further draws after a minor default while continuing to collect commitment fees and suggesting future funding may resume acts in bad faith by undermining the purpose of the credit facility.
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