Also known as: implied in law duty of good faith and fair dealing · implied-in-law covenant of good faith and fair dealing · implied covenant of good faith · good faith and fair dealing
Written by attorneys — see sources below.
A duty imposed by law on each party to a contract requiring honest and fair conduct in performance and enforcement. The duty prevents a party from taking actions that destroy or injure the other party's right to receive the fruits of the contract.
Allied Development leased commercial space to Gate Buildings under a percentage-rent lease. Allied repeatedly closed entrances and permitted disruptive renovations that slashed customer traffic for months while seeking a larger replacement tenant. Gate Buildings suffered sharp sales declines and sued. The conduct breached the duty because it frustrated the central benefit Gate Buildings reasonably expected from the lease.
Ira Irving and Imani Idowu formed a general partnership under a written agreement. The agreement attempted to eliminate the obligation of good faith and fair dealing while prescribing new performance standards. The statute permits the partners to set reasonable standards but bars outright elimination of the duty.
Idris Ives and Isla Ireland formed a limited partnership. Their agreement sought to eliminate the contractual obligation of good faith and fair dealing for both general and limited partners. The statute allows the agreement to prescribe reasonable measurement standards but prohibits complete elimination of the duty.
Ibrahim Iqbal contracted with Ironwood Capital. Ironwood threatened to withhold performance unless Iqbal accepted unfavorable modifications. The threat amounted to a breach of the duty of good faith and fair dealing under the existing contract.
Innovate Pharmaceuticals and Inertia Dynamics operated as partners. One partner exercised a contractual right in a manner that deliberately undermined the other's expected benefits under the agreement. The statute requires partners to discharge duties and exercise rights consistently with the obligation of good faith and fair dealing.
Iris Energy and Idina Iverson formed a limited partnership. The limited partner exercised rights under the agreement in a way that injured the partnership's interests without regard to fair dealing. The statute requires the limited partner to discharge duties and exercise rights consistently with the contractual obligation of 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 breach the duty even when no express term is violated.
Yes. A party breaches when it exercises discretion or rights under the contract in a manner that destroys or injures the other party's right to receive the fruits of the bargain. The duty limits how contractual rights may be used.
No. The duty does not impose an affirmative obligation to maximize the other party's benefits. It prohibits actions that undermine the central purpose of the contract or act as a pretext to escape a bargain.
No. The agreement may prescribe reasonable standards for measuring performance of the duty but cannot eliminate the obligation itself. Attempts to remove the duty entirely are invalid.
A breach gives rise to a contract claim for damages. The injured party may recover losses caused by the bad-faith conduct that deprived it of the expected contractual benefits.
…supra, 50 Cal.2d 654 , was mainly concerned with the contract aspect of the action. This may be due to the facts that the tort duty is ordinarily based on the insurer’s assumption of the defense and of settlement negotiations (see Keeton, Liability Insurance and Responsibility for Settlement (1954) 67 Harv.L.Rev.…