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Is waiving a “good faith and fair dealing” clause in a contract a valid option?

| Jun 25, 2021 | Business law |

Every contract contains an implied “good faith and fair dealing” covenant. It demands that each party to the legal agreement respect each other’s rights when enforcing it.  

The terms and conditions contained in a contract explicitly detail each party’s obligations. The “good faith and fair dealing” aspect of a contract requires each party to avoid interfering with the other’s performance and take the steps necessary to cooperate. There are consequences for contracted parties breaching their duties to one another.  

What defines “good faith” and “fair dealing”? 

If you’re wondering what “good faith and fair dealing” entails, then it simply means that neither party to the contract should take any measures that would affect the rights the other entity enjoys.  

“Good faith” refers to a contracted party’s responsibility to carry out their contractual obligations honestly. “Fair dealing” refers to a contracted party’s responsibility to honor the “spirit” of their agreement.   

Some legal analysts argue that the “good faith and fair dealing” clause means that each party needs to avoid doing anything that a judge may interpret as a “lack of diligence or abuse” of their power.  

Do contracted parties have a right to waive the “good faith and fair dealing” clause? 

The question as to whether a “good faith and fair dealing” cause is waivable is challenging since it’s an implied covenant instead of a written one. It’s a clause that demands that contracted parties simply remain amendable and upfront with one another, so it’s generally not something that either party can waive.  

There are instances, though, in which contracted parties may be capable of entering into a written agreement that allows them to supersede such an implied covenant. Contracted parties may be able to limit or waive this right if there’s some kind of fiduciary agreement between the two of them, as there’s an easily identifiable obligation for each party to exercise good faith toward one another in such instances.  

Understanding your contractual obligations 

It’s a good business practice to honor any contract you sign your name to. Breaching such an agreement can be both time-consuming and costly to resolve. You may want to consult with an attorney to aid you in understanding your obligations if you’re not clear about them upon reading the terms and conditions in your contract. 

 

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