Also known as: UCC § 1-203 · UCC 1-203 · § 1-203 UCC · UCC good faith · obligation of good faith
Written by attorneys · grounded in primary & secondary sources — see below
A statutory obligation requiring every contract or duty within its scope to be performed and enforced honestly and fairly.
East Banking reallocated capital in Apex Hedge Fund LP during a market downturn using a sole-discretion clause tied to peer hedge fund practices. Maple Asset benefited while Urban Finance minority accounts suffered losses. The court upheld the clause because it supplied an external benchmark that was not manifestly unreasonable at formation.
Frank repeatedly declared his matters urgent in the shared litigation support center formed with Gold Firm. Junior staff were diverted to his cases without objective limits or review. The court invalidated the standard because it permitted unchecked self-preferencing that undermined fair dealing.
Bernice departed on a charter despite a severe weather forecast and inoperable backup radio, damaging the vessel. Brenda sued on behalf of Coastal Charters for the resulting losses. The court held Bernice liable because her conduct constituted gross negligence that violated the duty of care measured by good faith.
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A limited partner in a fund repeatedly invoked a subjective urgency clause to redirect staff resources to its own matters. The general partner and other limited partners suffered missed deadlines and added costs. The court examined whether the conduct satisfied the good faith obligation imposed on limited partners.
A general partner in a limited partnership diverted research staff to its own urgent cases under a perceived-urgency clause lacking any cap or review. Other partners incurred extra costs from junior personnel. The court assessed whether the general partner's actions met the good faith standard required by statute.
No. The Uniform Partnership Act and Uniform Limited Partnership Act prohibit elimination of the obligation. An agreement may prescribe standards for measuring performance only if those standards are not manifestly unreasonable.
The court decides the question as a matter of law. It evaluates the term as of the time it became part of the agreement and considers only the circumstances existing then.
Yes. A limited partner must discharge duties and exercise rights consistently with the contractual obligation of good faith and fair dealing under the partnership agreement.
A partner must refrain from grossly negligent or reckless conduct, willful or intentional misconduct, or a knowing violation of law. Ordinary professional judgment that stays within those bounds does not breach the obligation.