Contracts II Class 5: Implied Duty of Good Faith & Fair Dealing

Flashcards covering key concepts related to the implied duty of good faith and fair dealing in contracts.

Implied Duty of Good Faith and Fair Dealing

A legal obligation inherent in all contracts requiring parties to perform in good faith and with fair dealing. Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.

Good Faith (Honesty in Fact)

A subjective standard of honesty in the performance of a contract. This varies depending on context.

UCC §1-201(b)(20) Good Faith Generally

Defines good faith as honesty in fact and observance of reasonable commercial standards of fair dealing.

Rest.2d § 205

Establishes that every contract imposes a duty of good faith and fair dealing on its parties.

Bad Faith

Actions taken that are not aligned with the agreed common purpose of the contract, or that harm the other party's right to benefit from the contract.

Rest.2d § 205, cmt. a

Comments on the definition of good faith, emphasizing faithfulness to a common purpose in contracts.

Seidenberg v. Summit Bank

A case illustrating the testing of good faith and fair dealing in contract disputes.

Discretionary Power

The authority given to one party in a contract, which must be exercised in good faith.

Ambiguities in Contract

Unclear terms in a contract that can lead to different interpretations.

Legal Tests for Good Faith

Standards provided by law to evaluate whether a party has acted in good faith.

Objective Standard

A reasonable standard expected in commercial dealings, contrasting the subjective honesty standard.

Case Law

Law established by the outcome of former court cases.

Express Terms of Contract

Specific provisions and obligations clearly stated in a contract.

UCC §2-103 (1)(b): Good faith Merchant Definition

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.

What does good faith mean (Statutory Standards)H

Honesty in Fact is SUBJECTIVE Observance of reasonable commercial standards is OBJECTIVE. Jurisdictions differ about whether one or both is required in common law cases.

What does good faith mean: Caselaw

• Means faithfulness to an agreed common purpose and justified expectations

• not evading the spirit of the contract.

• not harming the other party’s right to receive the fruits of the contract

• not acting in bad faith.

• Cannot contradict express terms of the K.