Also known as: utmost good faith · good faith and fair dealing · covenant of good faith and fair dealing · uberrimae fidei
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 an agreement. The duty prevents a party from taking actions that deprive the other of the expected benefits of the bargain even when the contract language permits literal compliance.
River Coastal charters a vessel from Silver Sea for multiple voyages. Silver Sea repeatedly chooses weather routes and maintenance schedules that cut its own costs but cause chronic delays, forcing River Coastal to pay large third-party penalties. The pattern of cost-driven choices that undermine the timely-delivery purpose of the charter violates the duty of good faith and fair dealing.
Bernice and Brenda form a general partnership. Their agreement attempts to eliminate liability for negligent navigation decisions. Because the statute permits the agreement to set standards for the good-faith obligation only if those standards are not manifestly unreasonable, the blanket elimination clause is unenforceable.
Select any source to read its text and confirm it supports the definition.
Valerie and Joy form a limited partnership. The agreement tries to remove the good-faith obligation of limited partners. The statute allows elimination of that obligation only if the agreement supplies reasonable alternative standards. The bare elimination is therefore invalid.
Gold Buildings disables the HVAC system for two days while Ridge Buildings occupies the premises under an existing lease. The deliberate discomfort is used to pressure Ridge Buildings into signing a costly amendment. Because the tactic breaches the duty of good faith and fair dealing in performance of the lease, the resulting threat is improper.
Bernice, a partner in Coastal Charters, sails despite a severe-weather forecast and an inoperable backup radio. The decision causes major vessel damage. Because partners must exercise rights consistently with good faith and fair dealing, the reckless choice exposes Bernice to liability for the resulting loss.
A limited partner in a shipping venture diverts a client lead to her own separate company while using partnership resources. The statute requires limited partners to exercise rights consistently with good faith and fair dealing. The secret diversion therefore constitutes a breach of that obligation.
Courts consider whether the breaching party's conduct comports with standards of good faith and fair dealing when deciding if a breach is material. Deliberate deception or concealment that undermines the other party's expected benefits weighs heavily in favor of finding the breach material.
Supporting sources
A partnership agreement may prescribe reasonable standards for measuring performance of the duty but may not eliminate the obligation itself if the elimination is manifestly unreasonable. Blanket waivers that remove the duty entirely are therefore unenforceable.
Supporting sources
The duty governs performance and enforcement of an existing contract. Pre-contractual conduct that amounts to an independent tort may give rise to separate remedies, but the contractual duty itself attaches once the agreement is made.
Supporting sources
…by less drastic principles. I assume that where parties engage in a joint enterprise each owes to the other the duty of the utmost good faith in all that relates to their common venture. Within its scope they stand in a fiduciary relationship. I assume prima facie that even as between joint adventurers one may not secretly obtain…