Also known as: good-faith requirement · good faith requirements · duty of good faith · good faith obligation
Written by attorneys · grounded in primary & secondary sources — see below
A duty imposed upon each party to a contract to perform and enforce the agreement honestly and fairly so as not to deprive the other party of the expected benefits.
Valley Ag contracted to buy produce from Steve at a fixed price. After market prices fell, Valley Ag began rejecting later shipments for trivial defects even though it had accepted comparable produce earlier. Steve sued for breach. The rejections breached the duty because they were made to force a price reduction rather than to enforce the contract terms.
Star Wealth Bank held a revolving credit line with Sky Trust LLC. After a minor reporting default, the bank blocked further draws while continuing to charge commitment fees. Sky Trust sued. The bank's conduct breached the duty because it exploited the technical default to undermine the credit facility's purpose.
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Union Creative held a mortgage from Continental Culture. After missed payments, the lender mailed a cure letter with an unremarked acceleration notice attached. Continental tendered the arrearages before any acceleration took effect. The lender's refusal to accept the tender breached the duty because the acceleration procedure lacked good faith notice.
Interactive Data Corp. employed Glenn Gross under a contract allowing termination without cause. The company fired him shortly before a large commission payment became due. Gross sued. The termination breached the duty because it was used solely to deprive him of compensation earned under the contract.
Ernest Pestana, Inc. leased space to Gabriel Gonzalez. The lease required landlord consent to any assignment. When Gonzalez proposed a financially responsible assignee, the landlord refused without stating a commercial reason. Gonzalez sued. The refusal breached the duty because it arbitrarily prevented Gonzalez from realizing the lease's value.
No. The duty applies throughout performance and enforcement of the contract. It prevents a party from exercising contractual rights in a manner that deprives the other party of the expected benefits of the bargain.
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Yes. When a buyer accepts initial deliveries without objection but later rejects comparable goods after market prices drop, the rejections violate the duty if they serve as a pretext to renegotiate price rather than to enforce quality terms.
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Yes. A lender violates the duty when it refuses to consider late payments or alternative proposals under a rigid internal policy and proceeds directly to foreclosure without meaningful review.
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Yes. Repeated demands for duplicative documentation, unnecessary examinations, and pressure for a low settlement can breach the duty when they create unjustified obstacles to payment rather than serving legitimate verification needs.
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…& Brody, Inc. [espousing the majority rule] was decided,... there has been an increased recognition of and emphasis on the duty of good faith and fair dealing inherent in every contract." ( Id., 147 Cal. App.3d at p. 329.) (6) Thus, "[i]n every contract there is an implied covenant that neither party shall do anything which will…