Also known as: obligations of good faith · good faith obligation · good faith obligations · duty of good faith · implied duty of good faith
Written by attorneys · grounded in primary & secondary sources — see below
A duty imposed by law on each party to a contract requiring honesty in fact and observance of reasonable commercial standards of fair dealing during performance and enforcement.
Select any source to read its text and confirm it supports the definition.
Odyssey Logistics contracted with Omega Energy to supply fuel on fixed dates. Omega Energy withheld shipments for weeks to force a price increase. Odyssey Logistics sued for breach after incurring substitute purchase costs. The court examined whether Omega Energy's withholding undermined the contract's core purpose.
Odin Obeng and Otis Olsen formed a general partnership to operate a trucking fleet. Their agreement tried to remove all good faith duties from partner decisions. Odin Obeng later withheld financial records to block a buyout. The court assessed whether the attempted elimination was enforceable.
Oasis Resorts and Overland Transport formed a limited partnership to develop a resort. The agreement set specific good faith benchmarks for capital calls. Overland Transport refused a call without explanation, citing only its own cash needs. The court reviewed whether the benchmarks met the manifestly unreasonable threshold.
Oscar Ortiz contracted with Odyssey Logistics to haul cargo at set rates. Odyssey Logistics threatened to cancel the contract unless Oscar Ortiz accepted lower pay. Oscar Ortiz signed under protest and later sued to rescind the modification. The court evaluated whether the threat breached an existing duty of good faith.
Omar Olson and Odilia Okamura operated a general partnership selling building supplies. Omar Olson approved a risky inventory purchase without consulting Odilia Okamura to boost his year-end bonus. The purchase caused substantial losses. The court considered whether the decision satisfied the good faith obligation in exercising partnership rights.
Omega Energy as limited partner asked Oasis Resorts for detailed financial reports on a joint project. Oasis Resorts delayed responses and provided only summaries. Omega Energy claimed the delay violated its rights under the partnership agreement. The court examined whether the responses met the good faith standard for limited partners.
Partnership statutes permit modification of good faith standards only if the changes are not manifestly unreasonable. Complete elimination is barred. Courts enforce the duty to preserve the contract's central benefits.
Dishonest conduct such as secret substitutions or false assurances weighs heavily toward finding a material breach. Courts treat sustained bad faith as undermining the trust essential to the contract.
…concur in parts I and II of the majority opinion. However, I respectfully dissent from part III dealing with breach of the implied duty of good faith and fair dealing. Contrary to the majority, I would hold that such a breach in the context of employment termination may give rise to tort remedies. The reasons which impel me to this…