Friday, May 09, 2008

contracts - good faith and fair dealing

Pierce v. QVC, Inc. - ED Pa. - May 5, 2008

http://www.paed.uscourts.gov/documents/opinions/08D0511P.pdf

Pennsylvania courts have adopted the general duty of good faith and fair dealing in the performance of a contract as found in the Restatement 2d, Contracts § 205, see, e.g., Somers v. Somers, 613 A.2d 1211, 1213 (Pa. Super. Ct. 1992), and the state UCC, 13 Pa. Cons. Stat. § 1203, imposes a similar requirement.

UCC §1203 provides that “[e]very contract or duty within this title imposes an obligation of good faith in its performance or enforcement.” “Good faith” is defined by statute as “[h]onesty in fact in the conduct or transaction concerned.” 13 Pa. C.S. §1201. As Pennsylvania courts and the Third Circuit have explained, however, “[t]he obligation to act in good faith in the performance of contractual duties varies somewhat with the context.”

Noting the U.C.C. definition of good faith, the Restatement explains that “[g]ood faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party . . . .” Restatement 2d, Contracts § 205 Cmt. a.

As the Third Circuit has explained, with "rare exception, the courts use the UCC good faith requirements in aid and furtherance of the parties’ agreement, not to override the parties’ agreement for reasons of fairness, policy, or morality. Thus, courts generally utilize the good faith duty as an interpretive tool to determine the parties’ justifiable expectations, and do not enforce an independent duty divorced from the specific clauses of the contract."

The comment to 13 Pa. C.S. §1203 notes 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.”

In fact, the Third Circuit and this Court have recognized an independent duty of good faith under Pennsylvania law only in “limited situations,” such as a confidential or fiduciary relationship.
Courts should “utilize the good faith duty as an interpretive tool to determine the parties’ justifiable expectations” and not to “override the parties’ agreement for reasons of fairness, policy, or morality,” which "would be contrary to the meaning of the duty of good faith found in the Restatement and Pennsylvania’s U.C.C."

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