The Value of Good Faith and Fair Dealing

There’s a principle, or really two related principles in the law known as good faith and fair dealing.  There are various definitions, but generally the combined concept means something like, honesty in fact and the observance of reasonable commercial standards of fairness.  I’d like to weigh in on the importance and value of good faith and fair dealing – not just in purely legal terms, but in all business activities including legal and contractual relationships, negotiations, and even litigation and dispute resolution.

The concepts of good faith and fair dealing have legal meaning and impact.  The UCC implies them in contractual relations between merchants.  Franchise law implies them in the relationship between franchisor and franchisee.  Courts sometimes find a failure by a party to act in good faith or to deal fairly and reasonably with another party as a basis for a breach of contract or tort claim, or as the basis for a defense to such a claim.

However, and I think equally important, good faith and fair dealing have direct value and benefit to the underlying businesses and business activities.  They lead to honest and efficient/effective negotiations.  They lead to clear and understandable contracts that reflect the parties’ actual agreement and intent, rather than hidden agendas and attempts to “trick” the other party.  They allow the parties to avoid misunderstandings and to resolve them more directly and efficiently when they do arise.  In other words, they save time and money and allow the parties to focus on the important business issues rather than protecting themselves from the other party’s devious behavior. 

Good faith and fair dealing is, in some ways like the law’s version of the “Golden Rule” – do unto others as you would have them do to you (and the world will be a better place).  Treat others with honesty and fairness, and it will yield value to you and to them – value that directly impacts your bottom line.

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