“We agree to act in good faith.” It’s one of the most common phrases in business contracts — and one of the most misunderstood.

In both New York and New Jersey, the duty of good faith and fair dealing is implied in almost every agreement. It sounds like a safety net, but in practice, it can become a weapon — one that either party can use when trust breaks down or performance gets fuzzy.

1. What “Good Faith” Really Means — and Why It’s Dangerous

Courts define “good faith” as honesty in conduct and fair dealing in performance. But that’s vague — and vagueness breeds litigation. Parties often accuse each other of “bad faith” when the contract doesn’t go their way.

Unlike a breach of a specific clause (“You didn’t deliver the product”), a breach of good faith is subjective: it’s about *intent*, *effort*, and *motives*. That makes it both powerful and unpredictable.

2. NY vs. NJ: Subtle but Crucial Differences

New York: The implied covenant of good faith can’t rewrite a contract, but it can fill in gaps. It’s used when one party technically complies but undermines the deal’s spirit. Example: refusing cooperation that makes performance impossible.

New Jersey: NJ courts take it even further. They allow standalone “bad faith” claims, especially where one side exercises discretion unfairly — like terminating a contract without real justification or manipulating performance metrics.

3. Common Ways Good Faith Clauses Backfire

• Discretion abuse: A supplier “adjusts” pricing or delivery schedules arbitrarily, claiming market changes.
• Contract sabotage: One partner slows approvals to force the other to miss deadlines — then claims default.
• Exit games: A party gives notice but continues benefiting from the contract in bad faith.
• Performance denial: The other side technically performs, but in a way that destroys the deal’s purpose.

4. How to Draft or Enforce Good Faith Clauses Safely

To avoid disaster, clarity is everything. Here’s how to protect yourself:

• Define obligations clearly. Don’t rely on “good faith” alone — specify what cooperation looks like.
• Add measurable standards. Deadlines, metrics, and written approvals reduce “bad faith” arguments.
• Use good faith as a shield, not a sword. Invoke it to enforce fairness — not to rewrite a bad deal.
• Document everything. Courts look for consistent communication and evidence of cooperation.

5. When to Call Counsel

If you’re being accused of bad faith — or suspect the other side is acting without it — don’t wait. Courts often resolve these disputes on subtle facts. A single email, payment delay, or refusal to cooperate can swing the case.

This article provides general information for NY/NJ business owners and is not legal advice. Results depend on your contract, communications, and state law.