view,
22 good faith is understood in the context of its alignment with the justifiable
expectations of the parties.
Articles 1 and 2 of the Uniform Commercial Code, apply to commercial transactions and make good faith an express requirement in transactions. The good faith
requirement limits a party’s discretionary freedom in contract performance and
enforcement. The context in which the contract was made and the justifiable
expectations of the parties while entering into a contract are the central fields
where in good faith operates in. This reduces any arbitrary or one sided interpretation
of the contract later in case of any dispute. This approach is called the “practice
view” of good faith because it codifies judicial practice.
23
It is interesting to note the case of Dorsey Bros. v. Anderson,
24 where a buyer of
snap beans was given the discretion to determine when the beans were ripe and to
calculate the price following harvest. Due to a drought, a portion of the farmer’s bean
crop was damaged. The buyer delayed harvesting of the farmer’s crop to harvest
other less-damaged beans.
As a result, the farmer’s beans were damaged even further and the eventual price
was reduced. That the buyer acted in bad faith in delaying the harvest was sufficient
for a determination of breach of contract. In this case, it was pronounced that the
buyer did not act in good faith because he did not use his discretion to the justifiable
commercial expectations of the other party. The buyer had control over that certain
condition to decide when the crop was ripe to harvest at the right time which he
chose not to do or rather neglected to do. The concept of good faith has many
connotations that can only be understood and realized in the specific context of the
case. In this scenario, a duty to be aware and act at the optimum condition of the crop
was internalized as an act to be carried out pursuant to the good faith requirement.
The buyer’s negligent omission or incorrect judgement amounted to an act contrary
to commercial sense which any party entrusted with that specific role would reasonably choose not to do.
Courts agree that the good faith performance obligation in these cases is the same
as the pre-existing common law obligation.
25 It supposes that the distinctive mission
of a good faith performance obligation is to police a party’s exercise of contractual
discretion.
26
“Instances inevitably arise where one party exercises discretion retained
under a contract in such a way as to deny the other a reasonably expected benefit of
the bargain.”
27
Code’s (U.C.C.; the Code) general definition of good faith encompasses both “honesty in fact and
the observance of reasonable commercial standards of fair dealing.”
22 Practice view interpreted good faith more contextually, aligned with the expectations of the
parties.
23 See Burton (1994), pp. 1533–1564.
24 264 Md. 446 (1972), 287 A.2d 270.
25 Burton (1994), p. 1534.
26 Ibid.
27 See Rawlings, 151 Ariz. at 154, 726 P.2d at 570.
120
S. Choudhury and P. Das
22 good faith is understood in the context of its alignment with the justifiable
expectations of the parties.
Articles 1 and 2 of the Uniform Commercial Code, apply to commercial transactions and make good faith an express requirement in transactions. The good faith
requirement limits a party’s discretionary freedom in contract performance and
enforcement. The context in which the contract was made and the justifiable
expectations of the parties while entering into a contract are the central fields
where in good faith operates in. This reduces any arbitrary or one sided interpretation
of the contract later in case of any dispute. This approach is called the “practice
view” of good faith because it codifies judicial practice.
23
It is interesting to note the case of Dorsey Bros. v. Anderson,
24 where a buyer of
snap beans was given the discretion to determine when the beans were ripe and to
calculate the price following harvest. Due to a drought, a portion of the farmer’s bean
crop was damaged. The buyer delayed harvesting of the farmer’s crop to harvest
other less-damaged beans.
As a result, the farmer’s beans were damaged even further and the eventual price
was reduced. That the buyer acted in bad faith in delaying the harvest was sufficient
for a determination of breach of contract. In this case, it was pronounced that the
buyer did not act in good faith because he did not use his discretion to the justifiable
commercial expectations of the other party. The buyer had control over that certain
condition to decide when the crop was ripe to harvest at the right time which he
chose not to do or rather neglected to do. The concept of good faith has many
connotations that can only be understood and realized in the specific context of the
case. In this scenario, a duty to be aware and act at the optimum condition of the crop
was internalized as an act to be carried out pursuant to the good faith requirement.
The buyer’s negligent omission or incorrect judgement amounted to an act contrary
to commercial sense which any party entrusted with that specific role would reasonably choose not to do.
Courts agree that the good faith performance obligation in these cases is the same
as the pre-existing common law obligation.
25 It supposes that the distinctive mission
of a good faith performance obligation is to police a party’s exercise of contractual
discretion.
26
“Instances inevitably arise where one party exercises discretion retained
under a contract in such a way as to deny the other a reasonably expected benefit of
the bargain.”
27
Code’s (U.C.C.; the Code) general definition of good faith encompasses both “honesty in fact and
the observance of reasonable commercial standards of fair dealing.”
22 Practice view interpreted good faith more contextually, aligned with the expectations of the
parties.
23 See Burton (1994), pp. 1533–1564.
24 264 Md. 446 (1972), 287 A.2d 270.
25 Burton (1994), p. 1534.
26 Ibid.
27 See Rawlings, 151 Ariz. at 154, 726 P.2d at 570.
120
S. Choudhury and P. Das