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94 Harv. L. Rev. 369 (1980-1981)
Breach of Contract and the Common Law Duty to Perform in Good Faith

handle is hein.journals/hlr94 and id is 387 raw text is: BREACH OF CONTRACT AND THE COMMON LAW DUTY TO PERFORM IN GOOD FAITH Steven J. Burton* The contractual expectation interest traditionally is conceived in terms of a promisee's expectation of receiving the promised benefit of the contract. In this Article, Professor Burton argues that the expectation interest also encompasses the expected costs to the promisor, which consist of opportunities forgone at the time of contract formation. This cost perspective makes it possible to ar- ticulate an operational standard of good faith performance, which is now an implied covenant in every contract in most American common law jurisdictions. The duty to perform in good faith ap- plies when one party exercises discretion in performance and thereby controls the other party's anticipated benefit. The discre- tion-exercising party performs in good faith when it exercises dis- cretion for any purpose within the reasonable contemplation of the parties, and in bad faith when discretion is used to recapture forgone opportunities. A MAJORITY of American jurisdictions,1 the Restatement (Second) of Contracts,2 and the Uniform Commercial Code (U.C.C.)3 now recognize the duty to perform a contract in good faith as a general principle of contract law. The conduct of virtually any party to any contract accordingly may be vulnerable to claims of breach stemming from this obliga- tion.4 Yet neither courts nor commentators have articulated an operational standard that distinguishes good faith perfor- mance from bad faith performance.5 The good faith perfor- mance doctrine consequently appears as a license for the ex- * Associate Professor of Law, University of Iowa. B.A., University of California at Los Angeles, 1970; J.D., University of Southern California, '973. The author wishes to express his gratitude to the many colleagues who read and commented on earlier drafts. Special thanks go to Professors Clifford Calhoun, Robert Hillman, and Alan Widiss and to Dr. Serena Stier. Thomas S. Kiriakos and James Stinehart assisted in the research. I Cases indicating jurisdictions that explicitly recognize a general obligation of good faith performance in every contract at common law are set out in the Appendix, P. 404 infra. 2 RESTATEMENT (SECOND) OF CONTRACTS § 231 (Tent. Draft No. 5, 1970). 3 UC.C. § I-2O3. All citations are to the UNIFORM COMMERCIAL CODE 1978 OFFICIAL TEXT WITH COMMENTS (1978). 4 This Article concentrates on claims of bad faith giving rise to a breach of contract rather than on claims of bad faith asserted against a party who concedes the breach but claims to have substantially performed. In the latter case, good faith performance is one of several factors bearing upon substantial performance: See note 35 infra. 5 See generally Farnsworth, Good Faith Performance and Commercial Reason- ableness Under the Uniform Commercial Code, 30 U. CHI. L. REv. 666 (1963); Summers, Good Faith in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 VA. L. REv. 195 (1968). Professor Summers does not

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