Good cause: Overview, definition and example
What is good cause?
Good cause refers to a valid, justifiable reason for taking an action or making a decision. In the context of contracts, it often relates to situations where one party is allowed to take certain actions, such as terminating or modifying the contract, based on a legitimate reason. Good cause ensures that decisions are not arbitrary but are backed by sound, acceptable reasoning.
Why is good cause important?
Good cause is important because it provides fairness and accountability in contract enforcement. It ensures that any significant actions, like termination or changes to the contract, are based on legitimate grounds. For businesses, having good cause as a requirement helps protect against unfair practices and ensures that both parties are held to their commitments.
Understanding good cause through an example
Imagine a company, GreenTech, hires a contractor to develop a new software system. The contract includes a clause that allows GreenTech to terminate the agreement if the contractor fails to meet certain milestones by the agreed dates. If GreenTech decides to end the contract, they must show good cause, meaning they must prove that the contractor failed to meet the specific terms laid out in the agreement.
In another case, a service provider might be able to terminate a contract if a client consistently fails to make payments, even after repeated reminders. This is an example of good cause for termination because the client's failure to pay goes against the agreed terms.
Example of good cause clause
Here’s how a good cause clause might look in a contract:
“Either party may terminate this Agreement for good cause, including but not limited to material breach of contract, failure to perform as agreed, or any other significant failure that affects the execution of the terms outlined in this Agreement.”
Conclusion
Good cause ensures that actions taken under a contract, such as termination or changes, are done for fair and justified reasons. It helps maintain fairness and protects both parties from arbitrary decisions. Understanding what qualifies as good cause can help businesses ensure that their contracts are enforceable and that their actions are backed by valid reasons.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.