The common law of contract has long recognised a duty of good faith in performance. This chapter argues that this duty is contract's core value – that good faith constitutes the distinct form of legal obligation that contracts establish. An initial section introduces the duty of good faith in performance through a series of doctrinal examples. Subsequent sections examine the metes and bounds of good faith and elaborate a theory of this duty. The theory explains that the duty of good faith in performance neither adds to the obligations that contracts impose nor recasts the substantive terms of actual contracts to fit any ideal. Instead, good faith is an attitude that contracting parties might take to the agreements that they have in actual fact made. When contracting parties approach their agreements in good faith, they at once respect freedom of contract and establish their contractual relations as sites of intrinsically valuable reciprocal recognition. Good faith thus constitutes contracts as what I have elsewhere called collaborations .
GOOD FAITH IN CONTRACT DOCTRINE
In the United States, the Uniform Commercial Code (UCC) imposes a mandatory duty of good faith in performance on ‘every contract’ within its scope. The Restatement (Second) of Contracts similarly says that ‘[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.’ Moreover, the two authorities elaborate good faith in similar terms. The UCC thus adds that ‘good faith’ means ‘honesty in fact and the observance of reasonable commercial standards of fair dealing’’. The comments to the Restatement explain that good faith ‘excludes a variety of types of conduct characterized as involving “bad faith” because they violate community standards of decency, fairness or reasonableness.’
While the Restatement sensibly takes the position that a ‘complete catalogue of types of bad faith is impossible’’, it nevertheless provides representative examples. These include: ‘evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party's performance.’ The comments add that good faith
is violated by dishonest conduct [in enforcing contract rights] such as conjuring up a pretended dispute, asserting an interpretation contrary to one's own understanding, or falsification of facts.