Good Faith Flashcards
§2–103. Definitions and Index of Definitions.
(1) In this Article unless the context otherwise requires
(b) “Good faith” in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
Meanings of good faith
Honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
The Duty of Good Faith
In every contract, the parties have a duty of good faith and fair dealing as to the performance and enforcement of the contract. RST 205.
Defining “Good Faith”
Generally, “good faith” is honesty in fact in the transaction at issue and the observance of reasonable commercial standards. See UCC § 1-304; RST 205 cmt. a.
Conduct that violates community standards of decency, fairness, or reasonableness is not in accord with the duty of good faith. RST § 205 cmt. a;
Centronics.
More Defining “Good Faith”
Ultimately, the precise meaning of “good faith” varies and depends on the context. RST § 205 cmt. a.
The duty of good faith is lesser than a duty than that owed by a fiduciary, but more exacting than a duty simply to engage from committing fraud. Market Street Associates.
Conduct that is not in good faith
The following types of behavior violate the duty of good faith:
(1) evasion of the spirit of the bargain;
(2) lack of diligence and slacking off;
(3) willful rendering of imperfect performance;
(4) abuse of a power to specify terms;
(5) and interference with or failure to cooperate in the other party’s performance. See RST § 205 cmt. d.
Evasion of the spirit of the bargain
It violates the duty of good faith for a party to take action or refuse to take action that is technically permitted under the contract but that prevents the other party from receiving the anticipated benefits of the agreement.
Schoolcraft.
At the same time, some courts hold that a party is free to take advantage of foreseeable, negotiated rights under the contract, and doing so is not opportunistic simply because it may have negative consequences for the other party.
See IRI.
Abuse of power to specify terms
Where a contract provides one party a degree of discretion in performance that, literally construed, would allow the party to engage in performance that would deprive the other party of the agreement’s value to that party, the duty of good faith requires the first party to observe reasonable limits in exercising that discretion consistent with the parties’ purposes in contracting.
Centronics.
However, while somewhat contradictory, some courts hold the obligation of good faith cannot override the express terms of a contract to limit one party’s contractually-provided discretion.
Taylor Equip. v. John Deere.
(1) In this Article unless the context otherwise requires
(b) “Good faith” in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
§2–103. Definitions and Index of Definitions.
Honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
Meanings of good faith
In every contract, the parties have a duty of good faith and fair dealing as to the performance and enforcement of the contract. RST 205.
The Duty of Good Faith
Generally, “good faith” is honesty in fact in the transaction at issue and the observance of reasonable commercial standards. See UCC § 1-304; RST 205 cmt. a.
Conduct that violates community standards of decency, fairness, or reasonableness is not in accord with the duty of good faith. RST § 205 cmt. a;
Centronics.
Defining “Good Faith”
Ultimately, the precise meaning of “good faith” varies and depends on the context. RST § 205 cmt. a.
The duty of good faith is lesser than a duty than that owed by a fiduciary, but more exacting than a duty simply to engage from committing fraud.
Market Street Associates.
More Defining “Good Faith”
The following types of behavior violate the duty of good faith:
(1) evasion of the spirit of the bargain;
(2) lack of diligence and slacking off;
(3) willful rendering of imperfect performance;
(4) abuse of a power to specify terms;
(5) and interference with or failure to cooperate in the other party’s performance. See RST § 205 cmt. d.
Conduct that is not in good faith
It violates the duty of good faith for a party to take action or refuse to take action that is technically permitted under the contract but that prevents the other party from receiving the anticipated benefits of the agreement.
Schoolcraft.
At the same time, some courts hold that a party is free to take advantage of foreseeable, negotiated rights under the contract, and doing so is not opportunistic simply because it may have negative consequences for the other party.
See IRI.
Evasion of the spirit of the bargain
