Also known as: good faith obligations · obligation of good faith · duty of good faith · good faith duty · implied covenant of good faith
Written by attorneys · grounded in primary & secondary sources — see below
A duty imposed on each party to a contract or partnership agreement requiring honest performance and fair dealing when carrying out obligations and enforcing rights. The duty prevents a party from using technical language or discretion to deprive the other of the expected benefits of the bargain. It applies even when the agreement grants broad discretion and cannot be eliminated by agreement.
Select any source to read its text and confirm it supports the definition.
West Investments drew on a revolving credit line from Bright Finance to fund its operations. After West filed one compliance certificate a few days late, Bright Finance refused all further draws while continuing to collect commitment fees and offering only vague assurances that funding might resume. West sued for breach. The refusal after a minor technical default deprived West of the benefit it reasonably expected from the credit agreement.
Maya and Liam formed a partnership under a short written agreement that addressed only profit splits from their flagship store. Maya later sought to open an online store using the partnership name. Liam objected and the partners sued each other. The agreement could not eliminate the obligation of good faith and fair dealing that governs how partners exercise rights under the statute.
A limited partner in a limited partnership repeatedly withheld consent to routine amendments without any commercial justification, forcing the general partner to incur extra costs. The limited partner claimed the partnership agreement allowed such conduct. The obligation of good faith and fair dealing still required the limited partner to exercise consent rights consistently with the reasonable expectations created by the agreement.
A buyer threatened to stop performance under an existing supply contract unless the seller agreed to a price increase on a separate deal. The seller had no other practical source for the goods. The threat constituted an improper means because it breached the duty of good faith and fair dealing owed under the supply contract.
A partner in a general partnership diverted a lucrative client opportunity to a separate venture she owned. The partnership agreement was silent on client allocation. The partner still had to exercise her rights consistently with the obligation of good faith and fair dealing even though the statute permits partners to further their own interests in some circumstances.
A limited partner refused to provide financial records the general partner needed to prepare required tax filings, citing a broad reading of an information-access clause. The partnership agreement did not expressly authorize the refusal. The limited partner remained bound to exercise information rights consistently with the obligation of good faith and fair dealing.
No. The obligation governs how parties perform and enforce existing duties rather than adding new ones. It prevents a party from using discretion or technical language to frustrate the reasonable expectations created by the agreement.
Supporting sources
No. Partnership statutes expressly prohibit elimination of the obligation although they permit reasonable standards for measuring performance if those standards are not manifestly unreasonable.
Supporting sources
Repeated demands for duplicative documentation, unnecessary medical examinations, and pressure for a discounted settlement after a valid claim is filed violate the obligation. Such tactics frustrate the protection the insured reasonably expected when purchasing the policy.
Supporting sources
Yes. A lender must consider cure proposals in good faith rather than rejecting them under a rigid internal policy. Refusal to evaluate reasonable proposals to avoid foreclosure breaches the obligation.
Supporting sources
A partner may further personal interests but must still discharge duties and exercise rights consistently with good faith and fair dealing. Conduct that harms the partnership without commercial justification can breach the obligation even if it advances the partner's own position.
Supporting sources