In Good Faith
Performing or dealing honestly, fairly, and without deception; the UCC imposes a general obligation of good faith in every contract for the sale of goods, and courts imply it in most commercial contracts.
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 In Good Faith?
In good faith means performing contractual obligations honestly and fairly, without deception, and in a manner consistent with reasonable commercial standards. The duty of good faith is both a performance standard and a legal obligation imposed by statute (the UCC) and by courts in common law contracts. It requires that parties deal fairly and not exploit technical loopholes or act with hidden, dishonest intent.
Under the UCC (Article 2 for sales of goods), every contract for the sale of goods includes an implied obligation of good faith. The buyer and seller must act honestly and in good faith. Courts define good faith as "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." This means you cannot arbitrarily refuse to perform, cannot demand unreasonable concessions, and cannot act in bad faith to force the other party to breach.
In common law contracts (services, employment, partnerships), courts also imply an obligation of good faith and fair dealing. This prevents either party from acting in ways that destroy the other party's right to receive the benefit of the contract. However, courts recognize that good faith does not override the contract's express terms or require parties to abandon their own interests.
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
Honesty in Fact
The party must act truthfully and without intentional deception. Hidden information, false statements, or intentional concealment violates good faith.Reasonable Commercial Standards
In a given industry or trade, what would a reasonable merchant or businessperson do? Good faith requires conforming to those standards, not departing from them arbitrarily.Fair Dealing
The party must treat the other party fairly and not exploit technical loopholes, unconscionable conditions, or superior bargaining power unfairly.Obligation Cannot Be Waived
A contract cannot disclaim or eliminate the duty of good faith. This is a non-waivable obligation imposed by law.Applies to Discretionary Actions
Where a contract gives one party discretion (e.g., approval of plans, acceptance of goods), that discretion must be exercised in good faith, not arbitrarily or unreasonably.Real-World Example
A distribution agreement gives the distributor the right to terminate "in its sole discretion" after three years. After three years, even though business is booming and the supplier is performing perfectly, the distributor terminates to force the supplier to renegotiate at lower prices.
Even though the contract gave termination "in sole discretion," the distributor may have breached the implied duty of good faith. Terminating solely to force renegotiation, without legitimate business reason, is bad faith. The supplier could sue for breach of the good faith obligation.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Good Faith ObligationWatch Out For
Discretion must be exercised reasonably
If a contract gives you discretion (approving plans, accepting goods, setting prices within a range), you cannot exercise it arbitrarily. Courts will impose a reasonableness standard even if the contract says "sole discretion."You cannot exploit superior information
If you know information the other party does not, you have a duty of good faith to either disclose it or not exploit it unfairly. This is especially true in transactions involving special knowledge or expertise.Good faith does not require sacrifice of your interests
Good faith does not mean you must abandon your own interests or accept unfavorable terms. You can negotiate hard and pursue your business interests, as long as you do so honestly.Implied good faith modifies express terms cautiously
Courts imply good faith but are careful not to rewrite the express contract. If the contract clearly states a harsh term, courts may enforce it despite good faith concerns, though they interpret it narrowly.Don't let in good faith deadlines catch you off guard
Key dates tied to 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
Document good faith performance
Keep records showing you performed honestly and fairly: communications, payment on time, quality of goods, responsiveness to the other party. This supports a good faith claim if disputes arise.Clarify discretionary actions
If you have discretion under a contract (approval rights, pricing discretion), use clear, consistent standards. Document decisions to show they were not arbitrary. This demonstrates good faith.Related Terms
Frequently Asked Questions
Can I refuse to approve something just because I do not like it?
Not if the contract requires your approval but does not specify standards. You must exercise approval rights reasonably and in good faith. Arbitrary withholding of approval is a breach of good faith.
Does good faith require me to tell the other party everything?
Good faith requires honesty and not deceiving. It does not require full disclosure of all information you have. You can keep business secrets, but cannot lie or conceal material facts material to the contract.
Can a contract waive the good faith obligation?
No. Good faith is a non-waivable obligation under both the UCC and common law. Any clause attempting to disclaim good faith is void and unenforceable.