Good Faith

Centronics: (Discretion)

"only ways funds can be released is upon final determination of the purchase price, which, as the parties agree, is in the hands of the arbitrator". Test of Good Faith 1. Is the party acting within reasonable limits, given the parties purposes in making the k? a. Look to reasonable commercial standards in light of the purposes the parties had in making the K b. Consistency with reasonably standards of decency, common standards of fairness i. In this case they wanted arbitration to be done quick and cheap, so not reasonable ii. Point is to facilitate cooperation 2. Is the party acting to recapture an opportunity that it bargained away in the k? (Burton test of bad faith) a. When parties make a K, they are giving up certain things to gain other things b. Seller gave up the option for the early release of the money and tried to get it back i. That is bad faith; bad faith to try to go back on the deal you make ii. Trying to recapture an advantage bargained away in the k c. Parties intended escrow to leave funds until after arbitration or final payment. Therefore he is seeking a revision.

Feld v. Levy

(also an exercise of discretion case) Output K for one year, had to give 6 months notice to cancel. D stopped because it was "very uneconomical" · Do I have to go out of business to produce the breadcrumbs to sell to you? NO; but there was no attempt to show a real loss (ex: bankruptcy would be an example of good faith) · Had to take the loss in this case if not trivial · Use objective and subjective. Reasonable? Honest? · Objective (reasonableness) - Just because you will make less money, does not mean it is good faith to stop production. Would only be justified if losses were more than trivial amounts. o They weren't at risk for going bankrupt. They just wanted a new price · Subjective - did the D lie when he said very uneconomical? o Tried to recapture the ability to cancel at will instead of using the 6 month provision in the K o Like in Centronics, D was trying to recapture or get back something they bargained away, namely the 6-months cancellation o He didn't even try, he took down the ovens beforehand o Termination clause not invoked

Billman

(also satisfaction case) [violation of duty to cooperate in good faith WITH a condition] K had a "subject to financing" clause where the condition was that the buyer of the house needed to get a mortgage; Buyer couldn't get mortgage and claimed no duty to perform. · Must do what is reasonably necessary to fulfill a condition. There was an implied term in K to use best efforts, cooperate in securing the mortgage. · Objective bad faith: a reasonable person would assume that they would make a good faith effort to retain a mortgage. · They only went to one bank, this is not a reasonable standard for getting a mortgage. · Subjective bad faith: lied about how much money he had. Changed mind about buying property and made excuses.

Zapatha v. Dairy Mart

1. Was there a duty of good faith when Dairy Mart wanted to terminate? a. Yes, inferred because it is an exercise of discretion i. Legislature did not adopt GF limitations on right to terminate in franchise agreements b/c many different variables or factors to consider, not generally applicable 2. If there is, has Dairy Mart exercised good faith? a. Yes: honesty in fact and reasonableness of commercial standards i. There was no evidence of what the standards were or that Dairy Mart violated them ii. Zapatha was supposed to provide the standard (he was experienced in business as well) iii. This is not sale of goods, but use UCC definition by analogy** 1. Objective à no evidence DM did not adhere to reasonable commercial standards of fair dealing 2. Subjective à They were up front about this. No pretext, it was only because he didn't want to work more. No deception or unfairness, he was read the termination clause, declined a lawyer, understood every word, DM even offered to negotiate further

Patterson (Cooperation)

: Defendant bought properties at foreclosure sale even though plaintiff was supposed to buy them then sell them to defendant. They had a contract specifying as such. · Defendant interfered with the duty to execute the K, breached the K by: · Hindering performance · Making it impossible for plaintiff to perform his end of the deal · BAD FAITH · By entering into a k to purchase the property from P, which she knew was going to be obtained at the sale, D impliedly agreed that she would do nothing to prevent the purchase. · "In every contract, there is an [implied] undertaking by each party that they will not intentionally and purposely do anything to prevent the other party from carrying out the agreement on his part"

Hillesland

: plaintiff worked for ∆ for 30 years and thought he had a secure job; but he was an "at will" employee and was fired for selling property to his sons - violated standards, hurt reputation, exercised poor judgment; said he had an "impression" of permanent employment from his interview and that he could only be fired "for cause" · (1) No express words saying otherwise, so it was at-will · "The classic statement is that an employee can be discharged for good cause, no cause, or even a cause morally wrong" · (2) GF should not be applied to transform an at-will employment to one terminable only for cause. An employer also has an interest in running a business as they see fit. · (3) It would subject discharge to judicial incursion into the amorphous concept of bad faith · Shapeless, no clear lines. What has to happen to fire someone? Too confusing to hire/fire · (4) Would effectively abolish the at-will rule. · (5) Essentially re-writing the K for the parties · Regardless, they did have a cause- he was directing business to his relatives

Market Street Associates

Paragraph 34: Landlord would finance costs/expenses of the premises. Should negotiations fail, can repurchase from the landlord. If they can't agree àtenant can repurchase at OG price and more, a good value. · Tenant formally requests funding without referencing P34 and landlord denies because it was under 7million too small. Tenant tries to repurchase and exercise that part of agreement. Claim was that tenant acted in bad faith for nondisclosure and it was a trap. · Posner's explanation of the good faith component that avoids ethics but describing efficiency and saving costs: · Gf1 - If it does not cost the party anything, they have a good faith duty under a contractual relationship to point something out to the other party · Promoted efficiency, saves dollars and cents · Gf2 -What was anticipated when the parties made the K (Cooperative enterprise). Would they insist the tenant reference this paragraph?

Roth Steel vs Sharon Steel Corp

Roth entered into contract to purchase steel at a given price. Sharon sought modification due to taking too many requests rather than a genuine shortage of materials. · Court said that under UCC good faith, there must be two inquiries: Objective and Subjective o Objective: § reasonable to want to avoid loss? § court says it is consistent with commercial standards § this is an unforeseen circumstance · steel being at full capacity o Subjective: o they lied about not having steel. o The modification was held to be void because the party acted in bad faith by using coercive tactics to enter into the agreement (threatening to stop selling steel).

Australian Airlines (Satisfaction Clause)

UTF rejects used airplane purchase for minor inconsistency between fuel tanks despite having a K. The price of aircraft had declined from 32 million to 12 million. Airline says that accepting these inconsistencies is a reasonable commercial standard of fair dealing in the aircraft trade. A merchant buyer does not necessarily act in bad faith when it rejects a nonconforming tender because the market for the resale of the goods has declined. UCC-201(b)(20) - subjective honesty and observe of reasonableness commercial standard of fair dealings Parties can define a standard different from industry custom (if reasonable)

Badie v Bank of America

when one party to a k retains unilateral rights to amend an agreement governing the parties relationship, its exercise of that right is constrained by the covenant of good faith and fair dealing which precludes amendments that operate retroactively to impair the accrued right.