duty of good faith
The duty of good faith is the principle that directors and officers of a corporation who are making decisions in their capacities as corporate fiduciaries , must act with a conscious regard for their responsibilities in that role. A violation of the duty of good faith may include an intentional neglect of the usual duties of a director or officer, intentionally acting for a purpose other than the benefit of the corporation, or intentionally violating the law. Though there is no private shareholder right of action for a violation of the duty of good faith, its violation may also raise a claim under the duty of loyalty .
In Heritage Surveyors & Eng'rs, Inc. v. Nat'l Penn Bank, 801 A.2d 1248 , the court held that “the duty of good faith has been defined as honesty in fact in the conduct or transaction concerned”.
Furthermore, the Uniform Commercial Code section 1-304 provides that “Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement.”
[Last reviewed in September of 2022 by the Wex Definitions Team ]
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