Also known as: UCC 1-201(b)(20) · U.C.C. § 1-201(b)(20) · UCC §1-201(b)(20) · good faith · UCC good faith definition
Written by attorneys — see sources below.
A statutory definition of good faith requiring honesty in fact and the observance of reasonable commercial standards of fair dealing.
Uri Underwood missed two mortgage payments on his home. Unity Capital, the mortgagee, reviewed the payment history and market conditions before declaring the full debt due under the acceleration clause. Uri challenged the acceleration as lacking good faith. The court upheld the action because Unity Capital had acted honestly and observed reasonable commercial standards.
Ulysses Usher bought industrial equipment from Ultra Precision under a UCC-governed contract. When a dispute arose over delivery timing, the parties conferred promptly about the scope of issues. Ulysses later sued, but the court found the conferral satisfied the UCC good-faith standards of honesty and reasonable commercial dealing.
Ursula Ung bought shares in Union Steel under a UCC Article 8 transaction. The board formed a committee that conducted an inquiry and concluded in good faith that continuing a related suit was not in the corporation's best interests. The court granted dismissal after confirming the committee's process met the UCC good-faith requirement of honesty and fair dealing.
Uriel Urban asked his lawyer whether a proposed sale of goods would violate UCC warranty rules. The lawyer explained the legal consequences and helped Uriel structure the deal to comply with existing rules rather than assisting any fraudulent scheme. The ethics board found the lawyer had acted with UCC good faith throughout the representation.
Uma Upadhyay sold research data under a UCC contract and received a grand jury subpoena. She appeared and testified after confirming the investigation was conducted in good faith. The court rejected any claim of privilege and enforced the subpoena because the government's actions satisfied the UCC good-faith standard of honesty and fair dealing.
Umbra Technologies sold equipment on credit secured by a mortgage governed by UCC Article 9. Before initiating foreclosure, Umbra Technologies reviewed all required notices and timelines to ensure compliance with the act. The court later confirmed that Umbra Technologies had proceeded in good faith throughout the process under the UCC definition.
The definition requires both honesty in fact and observance of reasonable commercial standards of fair dealing. Courts apply this objective component to evaluate whether commercial conduct meets industry norms even when subjective honesty is present.
The definition applies to all parties subject to the UCC, though the reasonable commercial standards component is especially relevant in merchant transactions. Non-merchants must still satisfy the honesty in fact element.
A mortgagee must exercise an acceleration right honestly and in accordance with reasonable commercial standards. Failure to do so may prevent enforcement of the accelerated debt even if a default occurred.
No. Good faith permits discussion of legal consequences and assistance with good faith efforts to test the law's meaning. Only knowing assistance with criminal or fraudulent conduct crosses the line.
…arising from the reasonable expectation of the continuation of benefits attending the status of marriage entered into in good faith are not present in such a case." (P. 685.) In the absence of express contract, Vallera concluded, the woman is entitled to share in property jointly accumulated only "in the proportion…