Performance - Good Faith

UCC 2-201(b)20

"good faith" means honesty in fact and the observance of reasonable commercial standards of fair dealing

Four Settings Where "Bad Faith" is Claimed

(1) Hindrance, Prevention, and Failure to Cooperate (2) Exercise of Discretion as Granted in the Contract (3) Contract Modifications (4) Termination for Reasons Other Than Cause

Austrian Airlines

A merchant buyer does not necessarily act in bad faith when it rejects a nonconforming tender because resale market value has decline

Roth Steel v. Sharon

All parties have an implied obligation of good faith, and lying to the contracted party in order to sell products to a third party for higher profit is considered bad faith. Dishonesty in fact is bad faith.

Hillesland v. Federal Land Bank

At will employment rule - one may be terminated under an at will employee contract and the exercising of rights by the employee is not considered bad faith (Majority View)

Zapatha v. Dairy Mart

At-will terminations are subject to good faith, but harshness is not a basis of bad faith - sole test is whether the person was honest

UCC 2-601

Buyer has a right to reject goods that fail to conform to contract: (a) reject the whole; (b) accept the whole; (c) accept the conforming, reject the nonconforming (d) allow other party opportunity to cure

Restatement Sec. 205

Every contract imposes upon each party a duty of good faith and fair dealing in its performance

UCC 2-201(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 Determined on a case-by-case basis

Patterson v. Meyerhoffer

If one takes affirmative steps to make it more difficult for the other party to perform, that party is in breach of the duty of good faith. Every contract imposes a duty on the parties not to act in a way that would prevent the other side from performing

Markert Street Assoc. v. Limited Partership

It is a violation of the implied covenant of good faith and fair dealing to take advantage of another party's ignorance, naivety, incapacity or inexperience If you lie and the lie was relied upon, that is a breach of good faith in formation Trick = breach Mistake = "good faith" mistake is not a breach

UCC 2-306

Output contracts have good faith obligations written into them - Termination of an output contract is NOT bad faith unless it was breach for a trivial problem (ex: loss of money)

UCC 2-508

Right to Cure - if time still left for performance, seller has opportunity to cure his side of performance & meet his obligations

Intentional Interference

To prove: 1) the existence of a contract/business relation 2) D's knowledge of the contract or business relation 3) Intentional interference by the D with the contract or business relation 4) proximate damages

Billman v. Hensel

When there is a condition in the contract, the party must make a good faith effort to meet the condition Good faith requires exercising reasonable best faith efforts to satisfy the contract

Centronics v. Genicom Corp

Where a contract is clear and explicit about obligations and sets of rights, one cannot argue good faith as a basis for getting more rights You cannot get out of a bad deal using good faith as a basis No breach of duty of good faith for following the terms of the contract

Omni Group v. Seattle

Where a party's judgment is a condition precedent to his promise, the judgment must be made in good faith & the judgment will serve as sufficient consideration to make his promise valid

UCC 2-209

does not require fresh consideration for contract modifications (common law requires fresh consideration)

Feld v. Levy

terminating a contract simply because you will lose money is a bad faith breach (trivial)