Compliance in Good Faith
Performing contractual obligations honestly and with genuine effort to meet the spirit and intent of the agreement.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Compliance in Good Faith?
Compliance in good faith means performing contractual obligations honestly, with genuine effort, and in the spirit and intent of the agreement - not just the bare minimum required by the contract's literal language. Every contract, whether written or implied, includes an implied covenant of good faith and fair dealing. This covenant requires parties to perform their obligations and exercise any discretionary rights in good faith, fairly, and honestly.
Good faith compliance goes beyond strict literal performance. A party who performs the technical letter of a contract but violates its spirit - through deception, evasion, or bad-faith tactics - can still be in breach. Courts use good faith standards to prevent parties from exploiting loopholes or taking unfair advantage of technical compliance.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Honest Intent
Good faith requires honest intent and genuine belief that performance aligns with the agreement's purpose. A party cannot knowingly perform in a way that defeats the other party's legitimate expectations.Genuine Effort and Diligence
Good faith compliance requires genuine effort and diligence. A party cannot sit idle, fail to cooperate, or take no action and claim compliance. The expectation is reasonable effort to meet the contract's goals.No Bad-Faith Tactics
Good faith is violated by deception, trickery, evasion, or exploiting technical loopholes. A party who technically complies but uses underhanded methods is acting in bad faith.Spirit and Intent Matter
Courts evaluate performance against the spirit and intent of the agreement, not just its literal language. If literal performance would defeat the agreement's purpose, it may violate the good faith covenant.Implied in All Contracts
The covenant of good faith and fair dealing is implied in every contract. The parties do not need to state it; it is assumed. A party cannot opt out of the good faith obligation.Real-World Example
A vendor contract says "Vendor shall deliver goods in a timely manner." The vendor is technically on time (delivers on the last day of the agreed window), but ships the goods in damaged packaging the vendor knows will cause the buyer to receive broken merchandise. The buyer must then re-order at an inconvenience.
Although the vendor met the literal deadline, this may violate the good faith covenant. The vendor knew the packaging would likely result in damaged goods, defeating the buyer's legitimate expectation of receiving usable merchandise. The spirit of the contract - delivering usable goods - was violated. A court might find the vendor breached despite technical compliance.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Good Faith Performance CovenantWatch Out For
Assuming literal compliance is enough
Even if you technically comply with contract language, you can be found to have breached if your performance violates the good faith covenant. A court examines the spirit and intent of the agreement, not just the literal words.Using technical loopholes to avoid performance
A common bad-faith tactic is exploiting a technical loophole to avoid performing the agreement's real purpose. Courts see through this. If you try to weasel out of the spirit of an agreement by citing a technicality, you risk liability.Refusing reasonable cooperation
Good faith implies a duty to cooperate with the other party's reasonable requests. If the other party asks for reasonable assistance to perform their obligations (like access to your facilities or information), refusing without justification may violate good faith.Don't let compliance in good faith deadlines catch you off guard
Key dates tied to compliance in good faiths - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Define specific performance standards to clarify expectations
Rather than relying on the vague "good faith" standard, define specific, measurable performance standards: delivery dates, quality specs, documentation, testing procedures. Concrete standards prevent disputes about whether performance was truly good faith.Document cooperation and good faith efforts
If you are concerned the other party is not performing in good faith, document all your requests for cooperation, all their responses, and all the efforts you made to facilitate performance. This record supports your position in a breach claim.Include remedy language for good faith violations
Add a clause: "If either party believes the other is not performing in good faith, the non-performing party shall provide written notice describing the violation and shall have 10 days to cure." This creates a structured process and shows a willingness to work through good faith disputes.Related Terms
Frequently Asked Questions
What is the implied covenant of good faith and fair dealing?
Every contract includes an implied covenant requiring both parties to perform honestly and fairly, consistent with the agreement's purpose. The parties cannot opt out of this covenant. Breach of the implied covenant is actionable even if the contract's explicit language is technically complied with.
Can a party be in breach for violating good faith without violating explicit contract terms?
Yes. Even if explicit contract terms are technically met, violation of the implied good faith covenant is a breach. A party who performs the letter of the contract but violates its spirit may be liable for breach.
Does good faith require a party to perform someone else's obligations?
No. Good faith requires you to perform your own obligations honestly and fairly. It does not obligate you to perform the other party's duties or to bail them out. But it does require you not to make their performance harder or more expensive through evasion.