Obligation of good faith and fair dealing - Next Generation Bar Exam

1. In most jurisdictions, what effect does the implied duty of good faith have on an employer's power to end at-will employment?

   It generally does not limit that power. A minority of jurisdictions use the duty to protect earned compensation, such as commissions.

2. Under UCC 2-306(2), what duty does a lawful exclusive dealing agreement impose?

   Best efforts: the seller to supply the goods and the buyer to promote their sale. The duty applies unless the parties agree otherwise.

3. A tenant whose rent is a percentage of sales diverts most of its business to its own new store across the street. What claim does the landlord have?

   Breach of the implied duty of good faith and fair dealing. The diversion deprives the landlord of the benefit the percentage-rent term was meant to secure.

4. What limit applies to the implied duty of good faith in relation to express terms?

   It cannot override or contradict the contract's express terms. The duty fills gaps and governs how express rights are exercised; it does not create new ones.

5. What duty is implied in an exclusive agency agreement that contains no express promise of performance by the agent?

   A duty to use reasonable efforts. Implying the duty keeps the agreement from being illusory.

6. How does the UCC define good faith?

   Honesty in fact and observance of reasonable commercial standards of fair dealing. The definition applies throughout the UCC.

7. Outside the insurance context, what remedy ordinarily follows a breach of the implied duty of good faith?

   Contract damages, not tort damages. Most jurisdictions treat the breach as a breach of contract.

8. Under UCC 2-306, what limits the quantity in an output or requirements contract?

   Actual output or requirements occurring in good faith, not unreasonably disproportionate to any stated estimate or normal amount. The limit prevents a party from exploiting market swings under the guise of its requirements.

9. How does the duty of good faith constrain a party's contractual discretion?

   Discretion must be exercised consistently with the other party's justified expectations, not to recapture forgone opportunities. Using discretion to deprive the other party of the fruits of the bargain is a breach.

10. A requirements buyer with an estimated need of 1,000 units a month demands 5,000 units after the market price spikes, intending to resell. What is the seller's obligation?

    To supply only quantities that are in good faith and not unreasonably disproportionate to the estimate. A demand inflated to profit from resale is not a good-faith requirement.

11. In which contracts is a duty of good faith and fair dealing implied?

    In every contract, as to its performance and enforcement. Both the Restatement (Second) and the UCC impose the duty.

12. In which context do many jurisdictions recognize tort liability for breach of the implied duty of good faith?

    An insurer's bad-faith refusal to pay or settle a claim. The special relationship between insurer and insured supports tort remedies, including punitive damages in some cases.

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