What is "good faith"?

UCC 1-201(19)
  • "Good faith" means honesty in fact in the conduct or transaction concerned.
  • Subjective standard.
    • Could be a lower standard if you know less. (Could be honest and ignorant...)
  • Applies to everyone.
UCC 2-102(1)(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.
  • Adds an "objective" standard.
Dalton v. ETS
  • Took SAT, increased score 410 points.
  • ETS ignored all his additional information, proceeded only by saying not the same handwriting.
  • ETS did not exercise good faith in dealing with Dalton.
  • But litigation is ongoing.
  • Treating ETC like a gov’t agency, must simply apply rules, not wanting to second-guess decisions, simply tell them to comply with procedure.
Eastern Air Lines v. Gulf Oil
  • "Fuel freighting": filling up and the cheaper stations and carrying more-or-less fuel in the plane based on fuel charges in particular places.
  • Court finds Eastern’s performance to be consistent with good faith and establish commercial practices.
  • 2-208(2) and §203(b):
    • Looked at contract—and swings were incorporated
    • Course of performance—never a problem before
    • Course of dealings—in this case, didn’t really need to look at this—30 year history of same contract (well, with renewals)
    • Trade usage
  • Concluded Eastern did not violate/breach contract
Market Street Associates v. Frey
  • JC Penny sold property to GE and then leased it back
  • Paragraph 34 req’d GE to reasonably negotiate and gave JC Penny right to buy back under market value if they didn’t do so.
  • Market Street took over from JC Penny, wanted to buy back land—GE didn’t respond, didn’t negotiate, Market Street didn’t mention paragraph 34, Market Street moved to invoke paragraph 34.
  • Askws for specific performance b/c it’s land (presumed unique).
Dickey v. Philadelphia Minit-Man Corp (good faith & “best effort”)
  • • % lease of gross profit.
  • • Switching from washing to detailing arguably resulting in less gross profits and thus less money going to lessor.
  • • Tenant has increased profit, but the gross income has decreased.
  • o Example:
    • 100/day @ $5/car, $1 profit = $500 gross, $62.50 to landlord, $37.50 to tenant
    • 20/day @ $20/car, $10/proft = $400 gross, $50 to landlord, $150 to tenant
  • Good faith business decision, therefore not a breach of the contract.
    • My idea: if you’re taking money strictly at expense of landlord, not good faith—if there’s a 3rd party, then OK.
Bloor v. Falstaff Brewing Corp.
  • Liquidated damages clause—claim that defendant had violated best efforts clause—sold IP of Ballantine to Falstaff
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