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Abstract morality concepts and contract law

| Jul 8, 2014 | Business Formation & Planning |

Michigan business owners may want to take note of a case in Delaware involved a limited partnership agreement. The Delaware Court of Chancery was involved in the case and addressed important business planning concerns as noted in the contract language between the parties. Concepts such as good faith and fair dealing were weighed in light of contract language rather than as abstract moral issues.

According to the court, the limited partnership agreement defined good faith, noting that an action undertaken must be based on belief that the action was in the partnership’s best interests. Because belief is a term that is subjective and because trial judges can’t read the minds of those involved, facts must be used to assess the issue in relationship to an individual’s beliefs. Good faith was determined to signify faithfulness to the terms and purpose of the contract. Similarly, the term fair dealing was evaluated as meaning consistency with the purpose and agreement existing between the parties. If an issue was not addressed in a contract in a specific manner, these concepts might be carefully used to assess how these issues would have been addressed if included.

An additional determination by the court was that a contract could not be rewritten if certain protections were not obtained during the bargaining process. The court indicated that it did not have the liberty to introduce its own ideas of fair and reasonable.

Based on the case, there are many important business issues to be considered if a partnership agreement is being created. These include the fact that the language of a contract is to be enforced according to how it is written. Abstract ideas may not be used to revise a contract in court. Parties are responsible for clarifying their intentions in the language. It is critical that a contract is clear and complete, making it wise to consider working with an experienced business lawyer in drafting contract language.

Source: The Huffington Post, “‘Good Faith and Fair Dealing’ in Contract Law Does Not Impose Abstract Morality“, Brad Reid , July 02, 2014