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 updated in September of 2022 by the Wex Definitions Team]