Where does good faith collide?

A duty read into every contract that neither party may be excused from: UCC §1-304 imposes an obligation of good faith in the performance and enforcement of every contract within the Code, and the Restatement (Second) of Contracts §205 extends it to contracts generally. The Code defines the term as honesty in fact and the observance of reasonable commercial standards of fair dealing. Summers argued in 1968 that the phrase has no positive content of its own and works as an excluder, ruling out a heterogeneous list of bad-faith behaviours, evasion of the spirit of the deal, lack of diligence, abuse of discretion; Burton answered in 1980 that it has a core, namely the exercise of a contractual discretion to recapture an opportunity the party gave up when it signed. The covenant cannot be disclaimed and cannot override an express term, so its work is done in the gaps.[1][2][3][4]

Unit

A party's exercise of discretion in performing or enforcing a contract

Recovery means

Contract damages for the benefit of the bargain; no tort recovery outside insurance

Measured by

Fact-finder's finding on whether the party's conduct deprived the other of the contract's expected benefits

The one place the contractual covenant became a tort. Comunale v. Traders & General in 1958 held that a liability insurer that unreasonably refuses a settlement within policy limits breaches the implied covenant and is liable for the whole judgment against its insured, not just the policy amount; Gruenberg v. Aetna in 1973 extended the duty to first-party claims and held that an insurer's unreasonable withholding of benefits sounds in tort, opening consequential and punitive damages. Sykes's 1996 economic analysis asked whether that expansion is efficient and concluded that supracompensatory damages are justified only where the insurer's conduct exploits the insured's inability to litigate. Good faith here is a duty owed by a stronger party to a dependent one, and its breach is measured by the reasonableness of the insurer's conduct, not its honesty.[5][6][7]

Unit

An insurer's handling of a claim measured against what a reasonable insurer would do

Recovery means

The excess judgment, consequential damages, and punitive damages on proof of oppression, fraud, or malice

Measured by

Fact-finder's finding that the denial or delay was unreasonable or without proper cause

The principle on which treaty obligation rests. Article 26 of the Vienna Convention on the Law of Treaties, adopted in 1969, states that every treaty in force is binding on the parties and must be performed by them in good faith, and Article 31 requires that a treaty be interpreted in good faith in accordance with the ordinary meaning of its terms in context and in light of its object and purpose. The International Court of Justice in the Nuclear Tests cases of 1974 called good faith one of the basic principles governing the creation and performance of legal obligations, and held France bound by unilateral declarations on that ground alone. Kolb's 2006 study treats it as a general principle that protects legitimate expectations and limits the abuse of rights. Good faith here binds states with no superior to enforce it, and it creates obligations as well as governing their performance.[8][9][10]

Unit

A state's performance and interpretation of its obligations toward other states

Recovery means

Not applicable, the remedy is state responsibility, with no damages for bad faith as such

Measured by

Judicial or arbitral assessment of conduct against declarations, expectations, and treaty text

A duty of process that stops short of a duty of result. Section 8(d) of the National Labor Relations Act, added in 1947, requires employer and union to meet at reasonable times and confer in good faith over wages, hours, and other terms, but provides that the obligation does not compel either party to agree to a proposal or make a concession. NLRB v. Truitt in 1956 gave the duty teeth: an employer that pleads inability to pay must substantiate the claim with financial information on request, because a claim made in good faith is a claim one is willing to prove. Cox's 1958 article set out the problem the doctrine has never escaped: the Board must infer a state of mind from a course of conduct without dictating the terms of the bargain. Good faith here is a sincere effort to reach agreement, judged from the totality of the bargaining, and its breach is an unfair labour practice, not a broken promise.[11][12][13]

Unit

A party's conduct across the course of negotiations

Recovery means

A Board order to bargain, and restoration of the status quo; no contract can be imposed

Measured by

Board and court inference from the totality of conduct: proposals, information exchange, dilatory tactics, and surface bargaining

A lie to oneself, and the virtue of not telling one. Sartre's mauvaise foi, set out in Being and Nothingness in 1943, is the attempt to escape the anxiety of freedom by treating oneself as a fixed thing, the waiter who plays at being a waiter, the person who takes their past choices as a nature; it differs from an ordinary lie because deceiver and deceived are one consciousness, and Sartre argued that the notion of sincerity, understood as being what one is, is itself a form of bad faith. Williams's 2002 genealogy of truthfulness set out the two virtues of truth, accuracy and sincerity, and defended sincerity as a disposition to make assertions that express what one believes, a social achievement rather than a natural fact. Good faith here is a relation to one's own beliefs and freedom, and no counterparty need exist.[14][15]

Unit

A person's stance toward their own freedom and beliefs

Recovery means

Not applicable, for Sartre, authenticity is a project, not a restored state

Measured by

Not measured; analysed by phenomenological description and by conceptual genealogy