/DOO-tee uv GOOD fayth and FAIR DEEL-ing/·doctrine
Also known as:good faith and fair dealing · implied covenant of good faith and fair dealing · covenant of good faith and fair dealing · implied covenant of good faith · good faith covenant
Written by attorneys · grounded in primary & secondary sources — see below
A contractual obligation imposed on each party to a contract requiring honest performance and enforcement that does not undermine the other party's reasonable expectations under the agreement.
Sources & Authorities· 9 primary sources
Select any source to read its text and confirm it supports the definition.
Cases
Uniform Acts
Restatements
Casebooks
Hornbooks
Study Supplements
Dictionaries
How it applies
Common Examples
6
Shipping Delays and Cost Cutting
River Coastal chartered a vessel from Silver Sea for multiple voyages under an agreement requiring timely weather-based routing. Silver Sea repeatedly chose cheaper routes that caused chronic delays and triggered over one hundred thousand dollars in third-party penalties for River Coastal. The pattern deprived River Coastal of the timely performance central to the charter bargain.
Partnership Agreement Standards
Daniel Diaz and Diana Delgado formed a general partnership to operate a logistics service. Their agreement set specific performance benchmarks for route assignments that were not manifestly unreasonable. When Daniel deviated from those benchmarks to favor his own side business, the deviation violated the contractual obligation measured by the agreed standards.
Limited Partner Conduct
Dominion Capital served as a limited partner in a venture with Derek Douglas as general partner. The partnership agreement prescribed standards for information sharing that were not manifestly unreasonable. Dominion withheld material financial data to pressure Derek into a buyout on unfavorable terms, breaching the obligation measured by those standards.
Threat to Withhold Performance
Dorothy Daniels contracted with Dynamic Solutions to supply custom parts by a fixed date. When Dynamic demanded a price increase, it threatened to stop all shipments unless the higher price was accepted. The threat constituted an improper means because it breached the duty of good faith and fair dealing under the existing supply contract.
Partner Operational Decisions
Destiny Davis and Dakota Industries formed a general partnership to run a delivery service. Destiny diverted partnership trucks to her separate client during peak hours, causing missed deliveries and lost revenue. The diversion failed to discharge her duties consistently with the contractual obligation of good faith and fair dealing.
Limited Partner Rights Exercise
Delilah Duran held a limited partnership interest in a real estate venture alongside Drake Logistics as general partner. Delilah exercised her information rights to demand documents solely to harass Drake into selling his interest at a discount. The exercise of rights did not comport with the contractual obligation of good faith and fair dealing.
Common questions
Frequently Asked
5
How does the duty of good faith and fair dealing affect a court's materiality analysis in a breach dispute?+
Courts weigh whether the breaching party's conduct comports with standards of good faith and fair dealing as one of the circumstances determining materiality. Intentional concealment or diversion of resources to favor other clients weighs heavily toward finding a material breach even when the numerical shortfall appears modest.
Supporting sources
Can a partnership agreement eliminate the duty of good faith and fair dealing?+
A partnership agreement may prescribe standards by which the obligation is measured if the standards are not manifestly unreasonable, but it cannot eliminate the obligation itself. Attempts to remove the duty entirely exceed the permissible scope of modification under the uniform acts.
Supporting sources
Does the duty apply to a limited partner's exercise of information rights?+
Yes. A limited partner must exercise rights under the partnership agreement consistently with the contractual obligation of good faith and fair dealing. Using those rights solely to harass the general partner into an unfavorable transaction violates the obligation.
Supporting sources
When does a threat to stop performance become improper because of the duty?+
A threat to stop performance is improper if it constitutes a breach of the duty of good faith and fair dealing under an existing contract with the recipient. Such a threat supplies grounds for avoiding the resulting modification or release.
Supporting sources
How does the duty interact with an express contractual right to terminate without cause?+
The duty limits the exercise of an express termination right. An employer or franchisor may not terminate solely to deprive the other party of compensation or benefits already earned under the contract.
Supporting sources
use presupposes
good faith and fair dealing
) (quotation marks omitted), with Folsom v. Marsh , 9 F. Cas. 342, 349 (No. 4,901) (CCD Mass. 1841) (
good
faith
does not bar a finding of infringement); Leval 1126-1127 (
good
faith
…
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 granted appellant…
covenant
of employment, whether founded in fact or in law, including but not limited to the
covenant of good faith and fair dealing
, or otherwise in violation of any of my rights, I and Employer agree to submit any such matter to binding arbitration pursuant to the provisions of title 9 of Part III of the California…
covenant
s of
good faith and fair dealing
; and breach of contract. The District Court entered summary judgment for the defendants except as to the three state-law claims for intentional infliction of emotional distress, invasion of…
Business Associations Corporations and LlcsFiduciary duties · Managers and membersUBEIntermediate