Also known as:utmost good faith · good faith and fairness · good faith and fair dealing · uberrimae fidei · uberrima fides
Written by attorneys · grounded in primary & secondary sources — see below
A heightened fiduciary standard requiring complete honesty, loyalty, and fairness in all dealings between parties in close relationships such as partners or shareholders in closely held corporations. The standard prevents one party from using control or information advantages to obtain benefits at the expense of the other. It operates as an implied term in every contract and partnership agreement that limits the exercise of discretion to undermine the expected benefits of the bargain.
Sources & Authorities· 10 primary sources
Select any source to read its text and confirm it supports the definition.
Cases
Uniform Acts
Restatements
Hornbooks
How it applies
Common Examples
6
Landlord Renovations Undermine Tenant Sales
Usha Upton leased commercial space from Ultimate Solutions under a percentage-rent lease. Ultimate Solutions repeatedly closed entrances and conducted disruptive renovations that slashed customer access and sales. Usha Upton sued for breach. The court held that Ultimate Solutions violated the duty of utmost good faith and fairness by exercising its management rights in a manner that destroyed the central benefit Usha Upton reasonably expected from the lease.
Partnership Agreement Attempts to Waive Duty
Ulrike Ulrich and Ulf Ulfsson formed a general partnership under a written agreement that purported to eliminate liability for negligent decisions. After Ulrike Ulrich caused substantial losses through reckless conduct, Ulf Ulfsson sued. The court refused to enforce the waiver clause because the duty of utmost good faith and fairness cannot be eliminated by agreement and requires partners to discharge obligations consistently with that standard.
Limited Partner Withholds Information
Ugo Ucelli and Umar Underwood formed a limited partnership. Ugo Ucelli, the limited partner, refused to supply financial records needed for the partnership's tax filings and then demanded a premium for access. Umar Underwood sued. The court found that Ugo Ucelli breached the duty of utmost good faith and fairness by exercising information rights in a manner that frustrated the partnership's essential operations.
Threat to Terminate Credit Line
Union Steel obtained a revolving credit facility from Upstream Petroleum. After a minor reporting delay, Upstream Petroleum blocked all further draws while continuing to collect commitment fees. Union Steel sued for breach. The court held that Upstream Petroleum's conduct breached the duty of utmost good faith and fairness because it used a technical default to deprive Union Steel of the expected benefit of the facility.
Partner Diverts Partnership Opportunity
Ursula Upton and Usha Upton operated a general partnership developing software. Ursula Upton secretly licensed a module developed with partnership resources to her own company. Usha Upton sued for an accounting. The court ruled that Ursula Upton violated the duty of utmost good faith and fairness by appropriating a partnership opportunity without disclosure or consent.
Limited Partner Conceals Side Deal
Ulrike Ulrich, a limited partner, learned of a client opportunity through partnership channels and diverted it to her separate entity without informing the general partner. The general partner sued. The court held that Ulrike Ulrich breached the duty of utmost good faith and fairness by failing to disclose and account for the benefit derived from partnership information.
Common questions
Frequently Asked
5
Does the duty of utmost good faith and fairness apply only during contract performance or also during formation?+
The duty applies to performance and enforcement of every contract. Conduct before formation that amounts to an independent tort may support additional remedies, but the contractual duty itself arises once the agreement is made.
Supporting sources
Can a partnership agreement eliminate the duty of utmost good faith and fairness?+
No. Partnership statutes prohibit elimination of the duty. An agreement may prescribe reasonable standards for measuring performance but cannot remove the obligation entirely.
What conduct by a controlling shareholder in a close corporation violates the duty of utmost good faith and fairness?+
Using control to obtain personal benefits at the expense of minority shareholders, such as excluding them from opportunities or information, violates the duty. Courts subject such transactions to close scrutiny for fairness and proper motivation.
Supporting sources
Does the duty of utmost good faith and fairness require a party to maximize the other party's profits?+
No. The duty prevents actions that destroy or injure the other party's right to receive the fruits of the contract. It does not impose an affirmative obligation to maximize revenue beyond the agreed terms.
Supporting sources
When does an insurer's investigation of a claim breach the duty of utmost good faith and fairness?+
Repeated demands for duplicative documentation, unnecessary examinations, and pressure for a low settlement that frustrate the insured's expected protection breach the duty. Legitimate verification must be conducted fairly without creating unreasonable obstacles.
Supporting sources
and loyalty owed by a fiduciary to his principal[^maj-6] and also from the law of constructive trusts embodying equitable principles of unjust enrichment. Diedrick v. Helm ,…
faith
in the contractual context of the covenant of
good faith and fair dealing
, see, e.g., Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P. , 624 A.2d 1199 (Del.1993), Delaware decisions have shown a reluctance to importing these contractual…
, and a termination not made in
good
faith
constitutes a breach of the contract. We do not question the general principles that an employer is entitled to be motivated by and to serve its…
and the most scrupulous inherent
fairness
of transactions in which they possess a financial, business or other personal interest which does not devolve upon the corporation or all…
Business Associations Corporations and LlcsFiduciary duties · Managers and membersUBEIntermediate