§ 1–203. Obligation of Good Faith.

    Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.

Prior Uniform Statutory Provision: None.

Purposes:

    This section sets forth a basic principle running throughout this Act. The principle involved is that in commercial transactions good faith is required in the performance and enforcement of all agreements or duties. Particular applications of this general principle appear in specific provisions of the Act such as the option to accelerate at will (Section 1–208), the right to cure a defective delivery of goods (Section 2–508), the duty of a merchant buyer who has rejected goods to effect salvage operations (Section 2–603), substituted performance (Section 2–614), and failure of presupposed conditions (Section 2–615). The concept, however, is broader than any of these illustrations and applies generally, as stated in this section, to the performance or enforcement of every contract or duty within this Act. It is further implemented by Section 1–205 on course of dealing and usage of trade. This section does not support an independent cause of action for failure to perform or enforce in good faith. Rather, this section means that a failure to perform or enforce, in good faith, a specific duty or obligation under the contract, constitutes a breach of that contract or makes unavailable, under the particular circumstances, a remedial right or power. This distinction makes it clear that the doctrine of good faith merely directs a court towards interpreting contracts within the commercial context in which they are created, performed, and enforced, and does not create a separate duty of fairness and reasonableness which can be independently breached. See PEB Commentary No. 10, dated February 10, 1994 [Appendix V, infra].

    It is to be noted that under the Sales Article definition of good faith (Section 2–103), contracts made by a merchant have incorporated in them the explicit standard not only of honesty in fact (Section 1–201), but also of observance by the merchant of reasonable commercial standards of fair dealing in the trade.

Cross References:

Sections 1–201; 1–205; 1–208; 2–103; 2–508; 2–603; 2–614; 2–615.

Definitional Cross References:

"Contract". Section 1–201.

"Good faith". Sections 1–201; 2–103.