Compliance in Good Faith: Definition, Example and Related Terms
What is Compliance in Good Faith ?
Compliance in good faith refers to the obligation of parties in a contract to perform their contractual duties honestly, fairly, and in a manner that promotes the overall purpose of the contract. It requires the parties to act with sincerity and to avoid any intentional or deliberate actions that would undermine the spirit of the agreement. Compliance in good faith is a fundamental principle in contract law that ensures the parties' trust and confidence in each other's commitment to fulfill their obligations.
Scenario Description Supply Agreement A company enters into a supply agreement with a supplier to purchase raw materials for its manufacturing process. The agreement includes provisions regarding quality standards and delivery schedules. Both parties must comply with these provisions in good faith. If the supplier deliberately provides substandard materials or fails to meet the agreed-upon delivery dates without a valid reason, they would be in violation of the compliance in good faith requirement. Service Contract A client hires a service provider to perform maintenance and repairs on their equipment. The contract specifies the scope of work, service levels, and response times. Both parties are obligated to comply with these terms in good faith. If the service provider consistently fails to meet the agreed-upon service levels or intentionally performs low-quality repairs, they would be breaching the compliance in good faith requirement. Distribution Agreement A manufacturer enters into a distribution agreement with a distributor to sell their products in a specific territory. The agreement includes provisions regarding marketing efforts, pricing, and exclusivity. Both parties have a duty to comply with these provisions in good faith. If the distributor engages in deceptive marketing practices or fails to make reasonable efforts to promote the products, they would be in violation of the compliance in good faith requirement.