LAW 506-002 – Contracts II

Good Faith


Every contract carries an implied covenant of good faith and fair dealing.

Restatement Second of Contracts § 205

Duty of Good Faith and Fair Dealing

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

UCC § 1-304

Obligation of Good Faith.

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Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement.

UCC § 1-201(b)(20)

General Definitions.

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  1. "Good faith," except as otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing.
UCC § 2-306(2)

Output, Requirements and Exclusive Dealings.

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  1. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
"'[U]nder the covenant of good faith and fair dealing, a party [exercising discretion must] refrain from doing anything that will have the effect of frustrating the right of the other party to receive the fruits of the contract between them.'" This means that each party must "do nothing to destroy the rights of the other party to enjoy the fruits of the contract and [] do everything that the contract presupposes they will do to accomplish its purpose." In addition, the obligation to act in good faith and deal fairly prohibits a party from terminating its contract (or otherwise exercising its discretion) to "recapture" an opportunity that it lost upon entering the contract. . . . [T]he obligation of good faith and fair dealing requires a party exercising discretion to do so in accordance with the "reasonable expectations" of the other party.

Questar.