Why No Respect? The Contractual Duties of Good Faith and Fair Dealing in Delaware

Abstract:     
The thesis of this paper focuses on the statutory policy of "freedom of contract" in Delaware unincorporated entity law and the confusion of some courts in applying these contractarian principles in the face of, what would have been, traditional fiduciary duties. What has resulted is a muddle in the case law caused by the similarity in the terms good faith, in the context of the duty of good faith in contract law, and the term good faith as it is used in the law of business organizations to describe a fiduciary duty of care or the standard of conduct for a director in a corporation. Similarly, puzzlement results when litigators or courts mistakenly interchange the contract term fair dealing with the judicial standard of entire fairness traditionally reserved for the review of conduct by disloyal fiduciaries. In Delaware, it is time for corporate principles to remain in the realm of corporate law and the corpfuscation of unincorporated law to end.

Keywords: Delaware corporations, good faith

JEL Classifications: d23, G30

Working Paper Series