Also known as: utmost fairness in dealing · utmost good faith · good faith and fair dealing
Written by attorneys · grounded in primary & secondary sources — see below
A contractual obligation requiring each party to a contract or partnership agreement to perform and enforce its duties honestly and fairly without undermining the agreed allocation of risks and benefits. The obligation is mandatory and cannot be eliminated by agreement though parties may prescribe reasonable standards for measuring compliance.
Silver Sea repeatedly chose weather routes and maintenance schedules solely to cut its own expenses under a multi-voyage charter with River Coastal. The choices caused repeated late arrivals that triggered heavy third-party penalties for River Coastal. River Coastal sued claiming breach of the duty. The court held the pattern violated the obligation because it deprived River Coastal of the timely performance the contract was meant to secure.
Nova Inc. the general partner of Nova Ventures LP invoked a clause allowing favoritism toward strategic investors whenever Nova had a reasonable business justification. Nova withheld roadmap information from minority partner Chen and steered a major customer to a strategic investor's portfolio company. Chen sued for breach of the duty. The court rejected the clause as an attempt to eliminate the obligation rather than define a reasonable measuring standard.
Select any source to read its text and confirm it supports the definition.
Carla the managing producer of Silver Screen LP cast herself and friends in lead roles despite cheaper better-qualified actors. The agreement declared any decision conclusively in good faith if approved by Carla. Limited partners sued alleging bad faith. The court refused to enforce the presumption because it effectively erased the mandatory obligation rather than setting a permissible standard.
After signing a lease Ridge Buildings discovered Gold Buildings had disabled the HVAC system during negotiations to force quick agreement. Gold Buildings later threatened to withhold building access unless Ridge accepted unfavorable modifications. Ridge sued claiming the threat breached the duty. The court treated the threat as improper because it violated the obligation of good faith and fair dealing under the lease.
Bernice a partner in Coastal Charters refused to deliver her promised vessel and later sailed another vessel into a storm despite known risks. Brenda sued on behalf of the partnership for resulting losses. Bernice pointed to a clause limiting liability for negligent decisions. The court held that any standard of conduct must still be applied consistently with the obligation of good faith and fair dealing.
A limited partner in a manufacturing partnership secretly arranged for the general partner to shift production to an affiliate the limited partner controlled thereby reducing distributions to other partners. The other partners sued alleging breach. The limited partner argued limited partners owe no duties. The court held the limited partner must exercise rights consistently with the obligation of good faith and fair dealing.
No. Modern partnership statutes treat the obligation as mandatory and nonwaivable. An agreement may prescribe reasonable standards for measuring performance but cannot erase the duty itself or render it meaningless through irrebuttable presumptions or impossibly narrow definitions of bad faith.
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A court first decides whether the contractual standard is manifestly unreasonable. If the standard effectively insulates self-dealing or pretextual decisions from review it will be refused enforcement and the statutory obligation applied directly to the conduct.
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Yes. Failure to deliver a promised non-money asset triggers an obligation to contribute cash equal to the asset's value at the partnership's election. The duty of good faith and fair dealing reinforces rather than relieves this contribution obligation.
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…leases and, correspondingly, to negotiate for the payment of bonuses, delay rentals, and royalties, subject to a duty of utmost good faith and fair dealing to non-executive interest holders. Id. at 74-75 (citing Jones, 26 Tex L. Rev. at 569, and Plainsman Trading Co. v. Crews , 898 S.W.2d 786, 789-90 (Tex.1995)). “In Texas, a typical oil…