Also known as: implied obligations of good faith · implied good faith obligation · implied covenant of good faith · duty of good faith
Written by attorneys · grounded in primary & secondary sources — see below
A duty imposed upon each party to a contract requiring honest performance and fair dealing in both performance and enforcement of the agreement.
River Coastal charters a vessel from Silver Sea for multiple voyages under an agreement requiring timely deliveries. Silver Sea repeatedly selects weather routes that cut its fuel costs but cause repeated late arrivals, triggering over one hundred thousand dollars in penalties for River Coastal. River Coastal sues, claiming the routing choices breached the implied obligation.
Island Manufacturing agrees to supply parts to Imperial Motors under a long-term contract. When Imperial Motors requests a price adjustment permitted by a separate clause, Island Manufacturing threatens to stop all future deliveries unless Imperial Motors waives the adjustment right. Imperial Motors claims the threat breached the implied obligation.
Select any source to read its text and confirm it supports the definition.
Icarus Aviation mortgages its hangar to Interlink Communications. After a storm damages the hangar, insurance proceeds are paid to the lender. Interlink refuses to release the funds for repairs even though restoration is feasible and would restore the property value, electing instead to apply the money to the debt balance. Icarus Aviation claims the refusal breached the implied obligation.
Ike Ingram is sued for an auto accident with policy limits of fifty thousand dollars. The insurer refuses a reasonable settlement demand within limits despite clear liability and risk of excess judgment. After an excess verdict, Ike Ingram claims the insurer's refusal breached the implied obligation.
Ira Irving works for Imperial Motors under an employment agreement that permits termination without cause. Imperial Motors fires Ira Irving just before a large commission payment becomes due, citing the at-will clause. Ira Irving claims the termination breached the implied obligation.
Yes. The duty requires parties to observe reasonable commercial standards of fair dealing so that neither undermines the agreed allocation of risks and benefits.
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No. The duty limits how a party exercises discretion but does not eliminate an express termination right. Termination solely to deprive the other party of earned compensation violates the duty.
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No. The duty arises only after a contract is formed and governs performance and enforcement, not the bargaining process itself.
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An insurer that breaches the duty by failing to settle within policy limits when reasonable may be liable for the full excess judgment entered against the insured.
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Yes. A consistent course of accepting late payments without objection can render abrupt acceleration inconsistent with good faith, supporting injunctive relief against foreclosure.
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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…