Also known as: observing reasonable commercial standards of fair dealing · objective good faith · UCC good faith
Written by attorneys · grounded in primary & secondary sources — see below
An objective component of the good faith obligation imposed on merchants in commercial transactions. It requires adherence to the standards of fair dealing prevalent in the relevant trade or industry.
Olympia Steel contracted to supply asphalt to a paving company at a price to be fixed by the seller. Olympia announced a thirty-two-dollar-per-ton increase effective the next day with no advance warning. The paving company sued, claiming the abrupt change violated the duty of good faith. The court measured Olympia's conduct against the universal practice in the asphaltic paving trade of providing reasonable advance notice before price hikes.
Osprey Aviation bought jet fuel from a refiner under an open-price contract. When crude prices spiked, the refiner posted a new price that matched other suppliers in the region. Osprey claimed the refiner acted in bad faith to exploit the shortage. The court examined whether the posted price aligned with reasonable commercial standards of fair dealing in the aviation fuel trade.
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Optima Health operated a fleet that purchased fuel from a single supplier under a requirements contract. Daily liftings fluctuated sharply with seasonal demand and route changes. The supplier alleged the airline manipulated volumes to harm the supplier. The court assessed whether the airline's liftings conformed to established commercial practices between airlines and fuel providers.
Overland Transport agreed to buy grain from a farmer at a fixed price. The farmer repudiated when spot prices tripled. Overland waited several days before purchasing replacement grain at the higher market price. The farmer argued the delay showed a lack of fair dealing. The court evaluated whether Overland's timing satisfied reasonable commercial standards in the grain trade.
No. The standard measures conduct against prevailing trade norms rather than imposing a general duty of disclosure. A merchant satisfies the standard by acting consistently with practices that other merchants in the trade regard as fair.
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Honesty in fact examines the party's actual state of mind. The observance of reasonable commercial standards of fair dealing imposes an external benchmark drawn from trade usage and industry practice, even if the party subjectively believed its conduct was honest.
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Yes. When the buyer continues to need functionally equivalent goods and obtains them from an affiliate while drastically reducing orders under the contract, courts may find the conduct fails to meet reasonable commercial standards of fair dealing.
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A posted price satisfies the standard in the normal case but may fall short when trade usage requires advance notice or other safeguards before a price change. The inquiry turns on whether the seller's method of fixing the price comports with prevailing commercial practice.
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…or by the buyer means a price for him to fix in good faith,” Haw.Rev.Stat. § 490:2-305(2). For a merchant good faith means “the observance of reasonable commercial standards of fair dealing in the trade.” Id. 490:2-103(l)(b). The comment to Section 2-305 explains, “[I]n the normal case a ‘posted price’ . . . satisfies the good faith requirement.” Id., Comment 3. However,…