Good Faith Performance

Abstract

This Article aims to unveil and undermine one of the most resonant truisms in contract law. It shows that a dominant criterion used by courts and academics in applying the omnipresent and overarching principle of good faith is essentially flawed. Our argument is innovative in at least four respects. First, it uncovers a common denominator of the major accounts of good faith performance in case law and academic literature, namely resort to community standards. While not unheard of, this test has never been recognized or addressed as a unifying thread of the various theories. Second, the Article distinguishes two forms of community standards: common views of morality and common practice. This has never been done before in this context. Third, the Article fiercely challenges the common denominator by proving that all definitions of community standards are either theoretically unsound or impractical. This conclusion undermines the validity of judicial practice and contemporary legal theories. Fourth, the Article uses a novel theoretical perspective that can be labeled “axiomatic jurisprudence,” employing tools from a branch of economics known as social choice theory. In this respect, it follows up on our recent publication, which utilized similar tools to analyze the concept of reasonableness in tort law.

Keywords: Contract Law, Good Faith, Performance, Uniform Commercial Code, Restatement, Expectation Interest, Social Choice, Axioms, Community Standards, Interpretation, Law and Economics

JEL Classification: D71, D72, K12