Good Faith and Fair Dealing - R.205

Good Faith and Fair Dealing - UCC Sec. 1-304

Every contract within the UCC imposes on each party a duty of good faith and fair dealing in its performance and its enforcement. Honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.

Triggers for Implied Covenant of Good Faith and Fair Dealing (3)

1. When the contract does not provide term necessary to fulfill parties expectations, it includes terms intended because it is necessary for business efficacy. 2. When the contract has been utilized to allow redress for the bad faith performance of an agreement even when the defendant has not breached an express term. (satisfaction). 3. When the contract expressly provides a party with discretion regarding its performance.

Wood v. Lucy, Lady Duff-Gordon

An implied obligation to use reasonable efforts will prevent a somewhat indefinite promise from being illusory.

Conditions of Satisfaction

Conditions of satisfaction indicate that a party entering the contract does not have to perform if they are not satisfied with the other's performance.

Good Faith and Fair Dealing - Common Law

Every contract imposes on each party a duty of good faith and fair dealing in its performance and its enforcement. R. 205 Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party. Excludes conduct characterized as bad faith because they violate community standards of decency, fairness or reasonableness.

Morin Building Products Co. v. Baystone Construction, Inc.

Holding: K states satisfaction based on aesthetics, but K is ambiguous and probably didn't intend to subject sub's work to "aesthetic whim Objective reasonable person std. when K involves commercial quality, operative fitness, or mechanical utility This is the objective approach.

Seidenberg v. Summit Bank

Rule of law: One may introduce parol evidence when claiming that a party breached the duty of good faith and fair dealing 1.Includes the nature of the alleged breach and applicable industry standards a. Can find a breach even when an express K term was not violated 2. Good faith performance = expectation of parties + purpose of K 3. Parol evidence rule ordinarily has no impact on good faith claim b/c implied term

Fruits of the Contract Approach

The covenant of good faith is violated whenever there is conduct that destroys or injures the right of the other to receive the benefit of the agreement. Under this standard, neither party can do anything that injures the right of the other to receive the benefit of the agreement.

General Rule for Good Faith and Fair Dealing

The duty of good faith and fair dealing applies to every contract and includes conduct that is not addressed (unstated) by the terms of the contract. However, although good faith and fair dealing is implied in all contracts, it does not override express terms of a contract (though you may still be in breach).

Subjective Conditions of Satisfaction

Where the object of a contract is to please personal tastes, aesthetic feelings, or opinions of a person, his subjective satisfaction is normally required. However, where a party is dissatisfied, the party's dissatisfaction must be exercised in good faith.