Also known as: standards of good faith · good faith standard
Written by attorneys · grounded in primary & secondary sources — see below
A benchmark used to evaluate the extent to which a party's failure to perform or offer to perform comports with standards of good faith and fair dealing.
Alpha Eats LLC contracted with Stone Cafe for daily early-morning deliveries of fresh locally sourced baked goods. Stone Cafe instead delivered late and substituted cheaper frozen ingredients while marketing the items as farm-to-table. Alpha Eats terminated the contract after discovering the substitution. The court weighed Stone Cafe's deceptive conduct against the good-faith standard when deciding whether the breach was material.
J.R. Hale Contracting borrowed from United New Mexico Bank under a note containing an insecurity clause. The bank accelerated the debt after learning of Hale's financial difficulties. Hale challenged the acceleration as lacking good faith. The court examined whether the bank's belief that repayment was impaired satisfied the honesty-in-fact requirement under the applicable UCC standard.
Select any source to read its text and confirm it supports the definition.
A buyer must reject goods in good faith. When the buyer is a merchant, this requires both honesty in fact and observance of reasonable commercial standards of fair dealing in the trade. If the seller proves the buyer rejected to escape the bargain rather than because of nonconformity, the rejection is in bad faith and ineffective.
Supporting sources
No. Under ULPA (2001) § 105(c)(7), a partnership agreement may prescribe reasonable standards for measuring good-faith performance but may not eliminate the obligation itself. A clause that deems any conflicted transaction conclusively in good faith if approved by a committee controlled by the conflicted partner is unenforceable to that extent.
Supporting sources
One of the five circumstances listed in Restatement (Second) of Contracts § 241 is the extent to which the breaching party's conduct comports with standards of good faith and fair dealing. Deliberate deception, such as substituting inferior ingredients while representing otherwise, weighs heavily in favor of finding the breach material.
Supporting sources
Yes. Officers must act honestly toward the corporation. Knowingly misleading the board about significant contractual obligations or risks, or delaying disclosure of material adverse facts to protect personal bonuses, violates the good-faith component of an officer's fiduciary duties.
Supporting sources