History and Theory of Good Faith Performance in the United States

Abstract

This book Chapter is about breach of contract based on the obligation to perform in good faith, which is implied in virtually every contract in the United States. The Restatement (Second) of Contracts provides: Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. Similarly, the Uniform Commercial Code provides: Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement. These vague formulations, however, beg the practical question: What distinguishes good faith from bad faith performance?The good faith performance doctrine is a relative newcomer to American law. It has burgeoned in importance in recent decades; it now seems that hardly a complaint is filed stating a claim in contract without including an allegation of bad faith. By far, most of these claims are rejected by the courts, most often for good reasons. Enough of them succeed to make it crucial to grasp the shape of current judicial practice. In this Chapter, I will give a brief history of the good faith performance doctrine and present the main current theories of its proper use. We now can see that some lines of development that seemed important only a few years ago are dead ends. In particular, case law treating the good faith obligation as a basis for claims of tortious breach of contract, allowing damages for emotional distress and even punitive recoveries, has vanished except in the insurance context. Similarly, early scholarly commentary treating good faith performance as a post-formation counterpart to the unconscionability doctrine, allowing courts to impose obligations of “contractual morality” or "altruism" on the parties, has not gained general favor with the courts. The now-considerable case law has taken on a distinctly free market orientation, regularly construing good faith to protect and serve the parties' justified expectations arising from their promises. I will conclude with some remarks on comparative aspects of good faith.