Also known as: obligation of good faith · good faith obligations · good faith obligation · duty of good faith · implied covenant of good faith
Written by attorneys · grounded in primary & secondary sources — see below
A contractual duty requiring each party to a contract or partnership agreement to act honestly and fairly when performing and enforcing obligations. The duty prevents a party from taking actions that undermine the other party's expected benefits under the agreement even when literal terms might permit them.
Silver Sea operated a cargo vessel under a multi-voyage charter with River Coastal. Silver Sea repeatedly chose weather routes and maintenance schedules that cut its own expenses but caused repeated late arrivals. River Coastal paid over one hundred thousand dollars in third-party penalties. The pattern of choices deprived River Coastal of the timely performance the charter was meant to deliver.
Osprey Aviation and its two partners signed a partnership agreement that tried to set its own measurement for good faith performance. The clause required partners to give thirty days' written notice before any capital call. When one partner made an immediate demand without notice, the others invoked the agreed standard to measure whether the demand complied with the obligation of good faith.
Select any source to read its text and confirm it supports the definition.
Olympus Banking formed a limited partnership with Oceanview Properties as the sole limited partner. The agreement set a specific notice-and-meeting procedure for any capital contribution requests. When the general partner bypassed the procedure, Oceanview Properties measured the bypass against the agreed standard to determine whether the general partner had performed its good faith obligation.
Onyx Pharmaceuticals threatened to stop supplying a key ingredient to Opal Okoro's manufacturing plant unless she signed a release of all prior delivery claims. The threat came while an existing supply contract was still in force. The release was later challenged as the product of an improper threat that breached the duty of good faith under the supply contract.
Omar Olson and Oscar Ortiz formed a general partnership to run a fleet of delivery vans. Olson decided to skip required safety inspections on three vans to meet a quarterly profit target. The decision exposed the partnership to regulatory fines and lost contracts. Ortiz claimed the choice violated the obligation to discharge partnership duties consistently with good faith and fair dealing.
Ophelia O'Brien, a limited partner in a real-estate venture, asked the general partner for financial statements required under the partnership agreement. The general partner delayed the response for sixty days without explanation. O'Brien asserted that the delay breached the limited partner's obligation to exercise rights consistently with good faith and fair dealing.
No. The duty requires only that each party refrain from conduct that deprives the other of the fruits of the contract. It does not impose a fiduciary obligation to put the other party's interests ahead of one's own.
Supporting sources
No. The obligation cannot be eliminated. A partnership agreement may prescribe standards for measuring performance of the obligation provided those standards are not manifestly unreasonable.
Supporting sources
Yes. A threat is improper if it is itself a breach of the duty of good faith and fair dealing under a contract with the recipient. Such a threat can render a resulting agreement voidable.
Supporting sources
Yes. A limited partner must discharge duties to the partnership and other partners and exercise rights under the partnership agreement consistently with the contractual obligation of good faith and fair dealing.
Supporting sources
…as amended, alleged that appellant was discharged in violation of both the terms of an implied 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…