Massachusetts Law Review

The Duty of Good Faith and Fair Dealing in Commercial Contracts in Massachusetts

Tory A. Weigand is a partner in the Boston office of Morrison Mahoney, L.L.P.
I. Introduction II. Early Seeds and Instinctive Obligation III. 'Men of Honor' and the 'Right to the Fruits' IV. Countervailing Power of Contractual Text V. Contractual Context VI. The Uniform Commercial Code and The Restatement (Second) of Contracts A. The UCC B. The Restatement VII. Excluder, Context and Presumption of Good Faith VIII. Fortune/Gram: At-Will Termination IX. Discretionary Rights and The Recapture of Foregone Opportunities: Anthony's Pier Four X. The Present Standard: Meaning Through Context XI. Fiduciary Duty Distinguished XII. Recent Application A. Gap-Filler and Implied Promises B. Discretionary Rights, Deprivation of Expectations and Opportunistic Behavior C. Long-Term Contracts and Unforeseen Developments D. Termination E. Contractual Rewriting F. Contractual Negotiations and Culpa in Contrahendo XIII. Waiver XIV. Damages XV. Procedural Issues XVI. Relationship to Massachusetts General Laws C

I. Introduction

II. Early Seeds and Instinctive Obligation

III. 'Men of Honor' and the 'Right to the Fruits'

IV. Countervailing Power of Contractual Text

V. Contractual Context

VI. The Uniform Commercial Code and The
Restatement (Second) of Contracts

A. The UCC

B. The Restatement

VII. Excluder, Context and Presumption of Good Faith

VIII. Fortune/Gram: At-Will Termination

IX. Discretionary Rights and The Recapture of
Foregone Opportunities: Anthony's Pier Four

X. The Present Standard: Meaning Through
Context

XI. Fiduciary Duty Distinguished

XII. Recent Application

A. Gap-Filler and Implied Promises

B. Discretionary Rights, Deprivation of
Expectations and Opportunistic Behavior

C. Long-Term Contracts and Unforeseen
Developments

D. Termination

E. Contractual Rewriting

F. Contractual Negotiations and Culpa in Contrahendo

XIII. Waiver

XIV. Damages

XV. Procedural Issues

XVI. Relationship to Massachusetts General Laws Chapter 93A

XVII. A Responsible and Modern Duty of Good Faith and Fair Dealing

I. Introduction

In Massachusetts, the duty or covenant of good faith and fair dealing in all contracts is well-established. Despite its time-honored status, however, its scope and application remain elusive and ill-defined. Instead of setting forth a definitive standard or criteria for assessing challenged conduct, courts have opted to address claims on an individualized, fact-specific basis. The elusiveness stems from the controversy that the principle of good-faith performance engenders in the law of contracts. Hailed by some as an indispensable measure of "contractual morality,"1 it is referred to by others as a "chameleon,"2 as well as an unwarranted invitation to the judiciary to impermissibly intrude into freedom of contract.3 This article reviews both the historical underpinnings and recent case developments as to the duty of good faith and fair dealing in commercial contracts in Massachusetts and the underlying tension between implied obligations of good faith and fair dealing and the right of parties to construct their bargains free from judicial or external notions of good faith.

II. Early Seeds and Instinctive Obligation

Good faith and fair dealing in contractual relations has deep roots extending back as far as Roman law.4 It likewise has long been part of the law of countries such as Germany that follow a "civil code."5 Under some civil-code systems, the duty encompasses not only the generalized obligation of contracting parties to act reasonably but requires a relationship of trust based on commercial dealings of the transacting parties.6 Some jurisdictions, in fact, impose the duty not only on contractual performance but also on contractual negotiation, allowing for a claim in tort for any breach as well as otherwise rendering any term or agreement contrary to "good faith" void and unenforceable.7

The development of the duty of good faith and fair dealing in American law, including Massachusetts, has been more circumscribed. Nonetheless, very early Massachusetts recognized that "good faith" had a role in contractual relations. In 1808, Justice Sedgwick of the Supreme Judicial Court observed that "not only good morals, but the common law, requires good faith, and that every man in his contracts should act with common honesty."8 Good faith emerged in the early common law's willingness to "imply" both promises and terms to contractual relations. Implied promises were found to render enforceable transactions or obligations that would otherwise not be due to lack of mutuality or consideration.9 According to the Supreme Judicial Court, in 1841:

[V]ery many equity principles have been adopted by courts in modern times, allowing actions to be maintained on implied promises by the party to do what justice and equity require to be done, where there is no [enforceable] express contract.10

The most famous "implied promise" case, of course, is Justice Cardozo's decision in Wood v. Lucy, Lady Duff-Gordon.11 Decided in 1917, Justice Cardozo found an agreement to market clothing designs enforceable as it implicitly required "reasonable efforts" and as the court would not "suppose that one party was to be placed at the mercy of the other."12 According to Justice Cardozo:

The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view today. A promise may be lacking and yet the whole writing may be "instinct with an obligation," imperfectly expressed.13

In addition to recognizing implied promises, courts often would supply terms to a parties' bargain. This power was utilized when the parties' express agreement did not resolve the dispute because the agreement was either silent or ambiguous about the post-formation conduct at issue. This was seen as a necessary gap-filling role in order to effectuate the common, albeit unexpressed, expectations of the parties.14

The power to imply and the belief that contracts can be "instinct with obligation," comprised the foundation for the recognition of an obligation of "good faith" in a variety of transactions. By 1919, Massachusetts noted that it had, "where equity in the interest of good faith and fair dealing"15 required, prohibited the use of information acquired through employment,16 protected the good will of a vendee against setting up a rival business by the vendor17 and precluded the appropriation of property.18 These holdings all reflected "equitable doctrines engrafted on written instruments silent upon the subject because consonant with fundamental ethical rules of right and wrong."19

Massachusetts proceeded to recognize a number of additional "implied promises" or covenants and imposed "good faith" in an increasing number of contractual relations. For example, it was recognized that even though a party failed to fully perform under a contract it could still recover the value of the services rendered where the party acted in good faith and had unintentionally failed to perform the full contract.20 Similarly, contracts containing "satisfaction clauses" were subject to "reasonableness" and "good faith," with the courts stating that if the service at issue was satisfactory to a reasonable person in view of all the circumstances "there is read into the contract the rule that, that which the law says a party ought to be satisfied with, the law will say he is satisfied with."21

III. 'Men of Honor' and the 'Right to the Fruits'

It was not long before Massachusetts expressly provided that good faith was applicable to all contracts. Indeed, in 1929, the Supreme Judicial Court, in addressing a breach of contract claim under an option agreement for the purchase of stock in an oil-producing leasehold, expressly stated, for the first time, that there was an obligation of good faith and fair dealing in all contracts.22 The court referred to the parties as "men of honor" and emphasized that a business contract "is to be interpreted as a business transaction entered into by practical men to accomplish an honest and straightforward end."23

Beginning in 1936, the duty of good faith was defined as a covenant "that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract."24 This formulation originated from Justice Hubbs of the high court in New York25 and was adopted and restated three years later by the First Circuit in holding that a contract to prepare radio advertisements impliedly obligated that the advertisements or related materials could not be assigned by the creator for the benefit of another.26 The court found that to allow such post-formation conduct would result in the loss of the benefits sought by the purchaser of the advertisements in entering into the contract. This "fruits" articulation of the duty of good faith remains intact today and is regularly quoted as the operative standard.27

IV. Countervailing Power of Contractual Text

At the time that good-faith obligation was gaining a foothold in Massachusetts jurisprudence, certain opposing canons of contract construction were already entrenched. These fundamental canons of construction served, and continue to serve, to severely restrict the scope and meaning of any implied duty of good faith. Indeed, Massachusetts gave homage (and continues to do so today) to the principle that utmost primacy must be given to the words and terms used in the parties' express agreement.28 If unambiguous, it was to be construed solely by the instrument's "plain terms' or within the "four corners" of the document.29 Moreover, in 1877, the Supreme Judicial Court proclaimed that "[e]ven if it be found that the contract, according to its true meaning . . . fails to become operative, it is not for the court, in order to give it operation, to suppose a meaning which the parties have not expressed."30 The parol evidence rule buttressed the "plain term," "four corner" means of resolving contractual disputes by barring introduction of any extrinsic evidence that would contradict or supplement the express terms.31 Such an approach places great faith and certainty in the written word as well as in the parties to identify and resolve all possible issues and to otherwise predict the future.

Accordingly, early common law saw the development of two seemingly opposing forces - implied notions of good faith and the sanctity of express contractual terms. In an 1885 decision, the Supreme Judicial Court touched on the tension between the written word and the power to imply in a claim that a lease contained an implied covenant that the lessee was to manufacture bricks. According to the court:

No precise words are necessary to constitute a covenant provided we are able to collect an agreement by the parties that a certain thing shall be done, that will be sufficient to enable us to say that a covenant is created. But we must be satisfied that the language does not merely show that the parties contemplated that the thing might be done, but it must amount to a binding agreement upon them that the thing shall be done.32

The recognition of the confluence of these opposing forces is essential to both a proper understanding of the duty of good faith and fair dealing in Massachusetts as well as in any efforts to further define its modern contours and application.

V. Contractual Context

Massachusetts common law eventually developed a less rigid approach of contractual interpretation by recognizing the need to interpret and apply the contract in "context." As Justice Holmes observed in 1918, "a word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and context according to the circumstances and the time in which it is used."33 Not only could courts, in certain circumstances, supply or imply terms or obligations into an agreement34 but under a "contextual" view of contract interpretation, they could also consider "the facts and circumstances of the transaction."35 This includes "the situation and relations of the parties for the purpose of applying the terms of the written contract to the subject matter and removing and explaining any uncertainty or ambiguity which arose from such application."36

While it has been held that "[c]ourts cannot . . . use commercial context to override express provisions of a contract,"37 contract interpretation remains as an "individualized process, with the conclusion in a particular case turning on the particular language used against the background of other indicia of the parties' intention."38 Accordingly, a contract is to be construed "with reference to the situation of the parties when they made it and to the objects sought to be accomplished."39 It should also be accorded a construction that effectuates "[j]ustice, common sense and the probable intention of the parties"40 and gives the agreement effect "as a rational business instrument."41

The recognition of a "contextual" approach to contract construction was a move away from the "formalistic" contractual interpretation rules and is consistent with the notion of good faith and fair dealing.42 Further, such an approach suggests a possibly broader application of the duty of good faith and fair dealing.43 As more fully set forth below, recent applications of the duty demonstrate that this has not been the case. Nonetheless, the contextual approach to contract dispute resolution remains important to a workable and just application of good faith in modern commercial contracts.44

VI. The Uniform Commercial Code and The Restatement (Second) of Contracts

The most significant historical development as to the duty of good faith and fair dealing in Massachusetts took place with the adoption of the Uniform Commercial Code (UCC) and the publishing of the Restatement (Second) of Contracts.45 Both are significant authority in Massachusetts jurisprudence and set forth what may be considered to be the high water mark for the doctrine.

A. The UCC

Massachusetts first adopted a version of the UCC in 1957 and was the second state to do so.46 The notion of good faith and fair dealing plays a significant role in the UCC. Although the UCC is "not a comprehensive codification of commercial law," is not applicable to a majority of commercial transactions and leaves many issues such as contract formation to the "common law,"47 it does specifically incorporate the duty of good faith. Indeed, "good faith" is referenced in at least 50 different UCC provisions.48 Various UCC sections expressly impose a "good faith" limitation on a number of discretionary powers provided for under the UCC such as specifying a price term, unspecified quantities under output or requirement contracts, acceleration of performance and other aspects of performance.49

The primary UCC provisions pertaining to good faith are sections 1-103, 1-201(19) and 2-103. Section 1-203 of the UCC's general provisions, as adopted in Massachusetts, states that "[e]very contract or duty within this chapter imposes an obligation of good faith in its performance or enforcement."50 Section 1-201(19), in turn, defines good faith as only "honesty in fact in the conduct or transaction concerned." With regard to "merchants" and the "sale of goods" (Article 2) and contracts governed by Article 9, however, good faith is further defined to mean "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade."51

As a result, the UCC has two varying definitions of good faith: a narrow subjective definition and a broader objective standard. Under the "honesty in fact" definition, a subjective internal standard involving only a determination of the intent or state of mind of the party is at issue.52 This so called "pure heart empty head"53 approach looks only to the actual belief of the party and not the reasonableness of that belief.54 Under the broader definition, an objective standard applies and includes not only the actual belief of the party but also the reasonableness of the belief and conduct.55 These divergent views underscore the fundamental debate with good faith obligation in private contract; i.e. whether and to what extent external standards should be imposed to regulate post-formation conduct.

B. The Restatement

The Restatement (Second) of Contracts first emerged in 1981 and like the UCC constitutes another fundamental and important source of the duty of good faith in contractual relations. The operative provision is found in section 205, which provides in direct and succinct terms:

Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.

Unlike the UCC, the restatement speaks in terms of "good faith and fair dealing" not just "good faith." In the accompanying comments, good faith is described as "faithfulness to an agreed common purpose and consistency with the justified expectations of the other party" and as requiring "more than honesty." Like the UCC and using the "excluder"56 approach, the comments to section 205 proceed to define "good faith" by what constitutes "bad faith."

A complete catalogue of types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party's performance.57

VII. Excluder, Context and Presumption of Good Faith

Both the UCC and the restatement are compelling authoritative sources of the duty of good faith and fair dealing in commercial contracts. The restatement, including section 205, is frequently cited and referred to.58 The UCC, in turn, is authoritative even for contracts outside its scope, as the common law permits the "selective application" of "legislative statements of policy," including those as to "good faith," where analogous and reasonable.59

Both sources, in utilizing the "excluder" approach to defining good faith and fair dealing, eschew a more concrete definition, leaving the courts to develop the boundaries of the duty based on the particular contract, transaction and applicable commercial standards.60 This approach is based on the belief that attempts to impose a more definitive standard would be impossible and undesirable and that the need for flexibility outweighs the benefits of increased certainty.61 This is in keeping with the admonition that "[i]f an obligation of good faith is to do its job, it must be open ended rather than sealed off in a definition."62

Both sources likewise employ a contextual approach to contract construction.63 The restatement, for instance, makes clear that "[w]ords and other conduct are interpreted in the light of all the circumstances."64 Moreover, under the restatement, not only is there no need for a showing of ambiguity before extrinsic evidence as to the parties' understanding can be considered but even where the writing is integrated, extrinsic evidence such as usage of trade, prior and subsequent conduct, course of dealing and course of performance can be looked at to supplement, explain or qualify the writing.65

The UCC, in turn, emphasizes the necessary relationship of good faith and context by making clear that the concept of agreement is not limited to the terms of the writing but requires that the language be read and interpreted through the parties' actions, in light of the commercial practices, circumstances and context.66 A recent code commentary on the subject explains that:

[T]he requirements of "good faith" . . . is but a recognition that the . . . parties . . . have understandings or expectations that were so fundamental that they did not need to negotiate about those expectations. When the court . . . holds that "good faith" requires a party not to violate those expectations, it is recognizing that sometimes silence says more than words, and it is understanding its duty to the spirit of the bargain is higher than its duty to the technicality of the language.67

Neither the UCC nor the restatement resolve the fundamental tension between implying general obligations of good faith to contractual relations and the right of parties to freely construct their bargains without undue imposition by a court's view of commercial reasonableness.68 For instance, the restatement appears at one point to limit and tie the duty of good faith to the formal expressions of the parties by stating that "[g]ood faith performance emphasizes faithfulness to an agreed common purpose and consistency with the judicial expectations of the other party."69 The restatement, however, does make clear that the duty encompasses broader social policy concerns such as "fairness and reasonableness" by providing that good faith excludes types of conduct involving bad faith "because they violate community standards of decency, fairness or reasonableness."70

The UCC appears to make a more concerted effort to reconcile the duty of good faith with contractual freedom. The UCC imposes the duty of good faith as a matter of law and provides that it cannot be disclaimed.71 It also provides, however, that the parties may by agreement determine the standards by which the good faith obligation is to be measured "if such standards are not manifestly unreasonable."72 In essence, a presumption of good faith is created, which presumption can be displaced or refined by the parties if they so desire and expressly provide.

VIII. Fortune/Gram: At-will Termination

A further benchmark in the development of the covenant of good faith and fair dealing was the Supreme Judicial Court's seminal decision in Fortune v. National Cash Register Co.73 where it expressly recognized and imposed the obligation of good faith and fair dealing on the right of an employer to terminate an at-will employment contract.

Fortune involved an at-will contract between a salesman and employer that required the salesman be paid a salary and bonus for sales. The contract expressly provided for termination without cause by either party upon written notice. Although the salesman was terminated shortly before the receipt of a substantial sale, it was undisputed that he had been paid all commissions owing and provided written notice of termination. The Supreme Judicial Court agreed that under a "literal reading" of the contract there was no breach or liability.74 Nonetheless, the court affirmed the judgment for the salesman and held that the contract contained an implied covenant of good faith and fair dealing and that a termination made in "bad faith" constituted a breach of contract.

While the court recognized the general rule that at-will contracts allow termination "without reason," it also recognized that it was "the general requirement in this Commonwealth that parties to contracts and commercial transactions must act in good faith toward one another."75 Citing to the UCC, it called the duty of good faith and fair dealing between parties "pervasive requirements in [Massachusetts] law."76 The court further determined the finding of bad faith was supported by evidence that the termination was motivated by a desire to pay the salesman as little as possible of the bonus credit otherwise due or for which he was on the "brink' of earning. Under the Fortune articulation, the duty of good faith precludes an employer from terminating an at-will employee in "bad faith" for the purpose of depriving the employee of benefits or compensation due or forthcoming at the time of discharge.77

In its subsequent decision in Gram v. Liberty Mutual Insurance. Co.,78 the Supreme Judicial Court again addressed the issue of good faith and fair dealing in at-will employment. There, it was held that even where there is no "bad faith" as to the termination, a termination without "good cause," resulting in deprivation of reasonably ascertainable "compensation based on past services," was actionable pursuant to the duty of good faith and fair dealing.79

The Fortune-Gram articulation of the duty of good faith and fair dealing is notable in that it utilized an essentially contextual instead of literal approach to the employee-employer at-will contract. It recognized that employers did and should have flexibility to control their workforce but that this right would not be unduly interfered with by an implied obligation to act in good faith and fair dealing in any termination.80 While it is considered an "isthmian exception" to the general right in at-will relationships to terminate for any reason,81 and although it could be argued that the standard should be limited to the employer-employee relationship, it has been readily applied in other contexts as well and represents a very narrow application of good faith to challenges to at-will commercial contracts.

IX. Discretionary Rights and The Recapture of Foregone Opportunities: Anthony's Pier Four

Perhaps the most seminal modern day Massachusetts decision addressing the duty of good faith and fair dealing after the UCC and restatement was Anthony's Pier Four, Inc. v. HBC Associates.82 There, it was found that the duty of good faith as well as Massachusetts General Laws chapter 93A limited conduct taken pursuant to a discretionary right under a real estate development contract entered into between sophisticated parties.

The real estate development contract at issue provided for the purchase and development of Boston's Fan Pier.83 The development plans included a high-rise hotel, office towers, luxury condominiums and a marina.84 The contract also contained rights of the owner for approval of the developer's development plan.85 Under the provision, approval by the owner was only needed if changes to the development plan would have a "materially adverse effect."86 The owner subsequently claimed that the development plan had not been approved, and when submitted by the developer the owner disapproved of the plan.87 This disapproval resulted in the developer being unable to obtain the financial backers and the necessary governmental permits resulting in the abandonment of the project.88

The jury verdict on the breach of the implied covenant of good faith and fair dealing claim was upheld by the court. In so doing, the Supreme Judicial Court rejected the contention that the implied covenant should not be implied "between sophisticated business people" and held that there was sufficient evidence to support the trial finding that the owner's disapproval of the development plan "destroyed or injured [the developer's] right to receive the fruits of the contract."89 Central to the decision was evidence that the disapproval of the plan was not due to any problems with the plan but that the owner wanted more money.90 According to the court:

[A] number of the positions and actions taken by [the owner], culminating with the purported disapproval of the [development plan], were designed to force financial concessions from [the developer]. [The owner's] approval was crucial to [the developer's] efforts to obtain financial backing as well as governmental permits and approvals. Knowing that it thus could apply pressure on [the developer], [the owner] withheld its approval in an attempt to force [the developer] to sweeten the deal. [The owner's] use of a discretionary right under the agreement as a pretext justifies the judge's ruling that [the owner] breached the covenant of good faith and fair dealing.91

Given the long-standing development and presence of good faith and fair dealing in Massachusetts common law, the holding in Anthony's Pier Four was not a surprise. Nonetheless, it remains significant as it was an unequivocal application of the duty to a discretionary right in a commercial contract and was a construction made not solely on the basis of the terms of the contract but its context. Anthony's Pier Four also confirms that the duty of good faith applies even in contracts between sophisticated business persons and that the duty is violated where a discretionary right set forth in the contract is used to "recapture opportunities . . . determined by the other party's reasonable expectations."92

X. The Present Standard: Meaning Through Context

The present formulation of the standard for the implied covenant or duty of good faith and fair dealing in Massachusetts is an amalgam of the "fruits," restatement and "recapture forgone opportunities" articulations. Recent decisions almost always reiterate that the duty of good faith and fair dealing requires that "neither party shall do anything that shall have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Most courts will likewise add "[w]here one party has the right to exercise discretion under the contract, it is bad faith to use that discretion to 'recapture opportunities foregone on contracting as determined by the other party's reasonable expectations.'"93

Recent Appeals Court decisions drew directly from the restatement stating that the implied obligation was better understood as a "duty" than a "covenant" and 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."94 It is this formulation that is at the heart of a proper and just role for the doctrine in Massachusetts commercial contracts.

While the standard rule of good faith and fair dealing is easily and generally stated, Massachusetts has not endeavored to set forth a more specific standard or identify a set of universal criteria for identifying prohibited conduct. Some Massachusetts courts state that a violation requires "a dishonest purpose, consciousness of wrong, or ill-will in the nature of fraud" with little other explanation.95

Even under the restatement and UCC and their "excluder" approach, identifying conduct that is excluded from the realm of good faith, meaningful guidance is lacking. The restatement's categories such as "evasion of the spirit of the bargain," "lack of diligence and slacking off" and "abuse of power to determine compliance" are not particularly instructive. Equally evasive is interference with the "fruits of a contract" or the attempt to "recapture foregone opportunities." The difficulty is in ascertaining whether particular conduct represents a "foregone opportunity" of the contract as it may not be expressly contained in the contract. As one commentator noted, "[w]hen the contract does not indicate the permissibility of conduct, there is no agreed-upon source for determining whether the parties reasonably expected that the conduct would constitute a foregone opportunity."96

Similarly, the "fruits" of the contract aphorism can be misleading to the extent it suggests that any conduct that destroys or injures the right of the other party to receive the benefits of the contract is a violation.97 As with the foregone opportunities formulation, the "fruits" of the contract are the equivalent of the parties' reasonable expectations that may or may not be set out expressly in the contract.98 Further, while a party must not unreasonably or unduly injure the other's benefits under the contract, determining what constitutes impermissible conduct remains difficult to identify.99

Slightly more instructive is the recent confirmation by the Supreme Judicial Court that a breach of the implied duty of good faith and fair dealing does not require "bad faith" as lack of good faith can be inferred by considering the totality of the circumstances.100 In that case, the mere size of the transfer by the husband from his estate to his second wife was found, as a matter of law, to have violated the implied duty of good faith and fair dealing owed by the husband to his son of his first marriage under a divorce agreement.

Somewhat complicating the search for a more meaningful definition is the recognition that the duty of good faith and fair dealing can encompass "inaction" or the failure to cooperate. In Uno Restaurants, Inc. v. Boston Kenmore Realty Corp,101 the Supreme Judicial Court, following the lead of the restatement, stated "[i]naction amounts to a lack of good faith in contract performance only when the contracting party had a duty to act."102 In Brennan v. Carvel Corp,103 the court explained "a party may be under the duty not only to refrain from hindering or preventing the occurrence of his own duty or the performance of the other party's duty, but also to take positive steps to cooperate with the other party in achieving these objectives."104 This is in keeping with the notion that a contractual relationship is at its core a cooperative venture. As to when a duty to act or positive action would be required remains fact specific.

Importantly, and consistent with the notion that the implied duty of good faith and fair dealing is dependent upon the particular contract and context, Massachusetts courts have slightly varied the generalized standard in response to the specific contractual relationship. Indeed, it is the specific contract, contractual relation and context that provide the duty its functional meaning.

The Supreme Judicial Court, in the Uno decision, re-emphasized the importance of context in addressing claims under the duty of good faith and fair dealing.105 There, the court addressed a claim of breach of the duty of good faith and fair dealing as to a right of first refusal under a commercial lease. The court held that "in the absence of collusion, a determination of good faith and fair dealing in the context of a right of first refusal rests on the adequacy of the notice afforded the holder of the right regarding any third party offer."106 The court rejected the contention that the duty imposed any other obligation.

The duty of good faith and fair dealing has likewise developed in bank-lender disputes.107 For example, a mortgagee's responsibility to its mortgagor in the exercise of the power of sale is "good faith and . . . reasonable diligence to protect the interest of the mortgagor."108 In such circumstances, the alleged bad faith or lack of reasonable diligence must be "of an active and conspicuous character."109 Similarly, the duty of good faith and fair dealing requires a bank to be "honest" in its dealings with guarantors and to refrain from purposefully injuring the right to obtain benefits under contract.110 As to demand notes, however, Massachusetts has held the UCC's obligations of good faith to be inapplicable.111

The duty of good faith and fair dealing in contracts of insurance has been provided a specialized meaning akin to negligence, due to the special status the law bestows on the insurer-insured relationship. Massachusetts requires the insurer to deal with the insured with "candor and fairness"112 and not to act "to defeat any intended coverage or diminish the protection purchased by the insured."113 Where a term in the contract is subject to the discretion of the insurer "its privilege in this respect imports a reciprocal obligation for its exercise" to act in good faith.114 Moreover, the good-faith obligation of an insurer concerning settlement is a "negligence standard."115

These subtle but distinct formulations of the duty of good faith and fair dealing demonstrate that the duty is fluid, deriving its meaning from the particular contract and context.116

XI. Fiduciary Duty Distinguished

Justice Cardozo famously remarked: "[m]any forms of conduct permissible in a workaday world for those acting at arm's length are forbidden to those bound by fiduciary ties."117 This recognition of the distinction between fiduciary obligation and arm's length transactions is informative in the search for a responsible duty of good faith and fair dealing.

Fiduciaries or parties to a "special relationship" are bound by a heightened duty of good faith. For instance, parties to a separation agreement are deemed fiduciaries to each other and held to the "highest standards of good faith and fair dealing" in the performance of contractual obligations.118 This heightened standard applies to joint ventures,119 partnerships,120 closely held shareholders, trusts121 and senior executives, directors and officers.122 In these situations, the implied obligation is one of "utmost" good faith and fair dealing, including a stringent duty of loyalty and obligation of full and honest disclosure.123

Both fiduciary duty and the duty of good faith contractual performance are in a very general sense similar.124 They both can limit unfair dealing and self-interested action. Both duties are likewise defined by and depend upon the particular context.125 However, and despite the use of "good faith" in both formulations, there are manifest distinctions that must be maintained especially as to arm's length commercial transactions.126

Fundamental is that the heightened duty for fiduciaries is imposed by law due to the unique relationship between the parties and is not dependent on any contract.127 The fiduciary, unlike the party to an arm's length commercial contract, owes a paramount duty to the beneficiary that is superior to the fiduciary's own personal or pecuniary interests.128 Indeed, fiduciary obligation can be breached without there being dishonesty or bad faith and where the fiduciary merely fails to recognize its fiduciary obligation.129 Elemental to the fiduciary or special relationship and the resultant heightened duty of good faith is the placement of one party's trust and confidence in another.130

Unlike a fiduciary, parties to an arm's length commercial transaction can act in their own self-interest so long as they honor their contractual obligations.131 There is no dependent relationship, no "special relationship" and no special trust and confidence. To the contrary, in most commercial transactions the parties are independent entities who have freely negotiated over the terms of their bargain. In such relations, there is no "heightened" duty of good faith and courts must be vigilant in maintaining the distinction and not unwittingly foist fiduciary obligation upon commercially contracting parties.

XII. Recent Application

Despite the lack of clear or universal criteria, recent developments show that certain lines of demarcation have been drawn. Specifically, the duty of good faith and fair dealing is implicated where the contract is either silent or ambiguous as to the conduct at issue, with the duty viewed as an interpretative aid. Its most prominent role is to regulate post-formation conduct that was (a) undertaken pursuant to a specific discretionary grant set forth in the contract or (b) aimed at or resulted in injuring or depriving a party of his or her reasonable and justifiable expectations. The duty, however, is generally inapplicable to contractual negotiations. Most importantly, and a familiar refrain of many recent decisions, is that the duty cannot be used to "rewrite" the express terms of the contract.

A. Gap-Filler and Implied Promises

A recent example of the duty of good faith and fair dealing as an interpretative tool or "gap filler" is found in President and Fellows of Harvard College v. PECO Energy Co.132 There, the Appeals Court held that contracts between an electricity provider and certain purchasers were ambiguous as to whether the purchasers could select either one or both of two extensions (either two years or five years) provided under the contracts. The court also noted that extrinsic evidence may not provide a resolution as "this may be a question that the parties simply never considered."133 If so, it stated that the rule that, if a contract is ambiguous or uncertain and extrinsic evidence does not reveal the intention of the parties, then a court is to supply "a term which is reasonable under the circumstances" would apply.134 In so doing, it made clear that the supplied term must "comport . . . with community standards of fairness and policy rather than analyze a hypothetical model of the bargaining process."135

In Bacou Dalloz USA, Inc. v. Continental Polymers, Inc.,136 the court recognized the duty as rendering enforceable what would otherwise be an illusory obligation. There, a letter agreement outlining an agreement to purchase requirements for polyurethane prepolymer provided "that the quality and price of such raw material are equivalent to that which is then used by [purchaser] and available from third-party suppliers."137 The First Circuit rejected the finding of the trial court that the promise was illusory because, among other things, the implied duty of good faith and fair dealing imposed upon the buyer the "contractual duty" to determine in good faith the quality of the seller's product as compared to third-party vendors.138

This gap-filling role of the duty of good faith is perhaps the least controversial. It serves as a further interpretative tool to effectuate the intention of the parties and does not raise the specter of unwarranted judicial interference with the express bargain of the parties. Indeed, as stated in PECO, there first must be an ambiguity or uncertainty as well as no helpful extrinsic evidence before the court may resort to gap filling. Some commentators believe this should be the only role for the duty of good faith and fair dealing in contractual disputes.139

B. Discretionary Rights, Deprivation of Expectations and Opportunistic Behavior

The most fertile grounds for the duty of good faith and fair dealing is where the conduct in question is taken pursuant to a discretionary right in the contract and no governing criteria for the exercise of that discretion have been expressly designated. The discretionary rights that are implicated vary and include such things as plan approvals, output or requirement provisions, satisfaction clauses, consents to assignment, option election rights, appraisal rights and service-level provisions, among others. The concept covers any provision of a contract where performance of one party is controlled or materially affected by the sole discretion of the other.

In Anthony's Pier Four, the owner had used the discretionary right to approve the development as a pretext to extract additional monies beyond that already agreed to. Other decisions addressing discretionary powers include the following:

¥ Real estate contract provision making sale contingent on seller finding "suitable housing" held to include duty of good faith and fair dealing imposing on seller an "affirmative duty . . . to use reasonable efforts to find suitable housing."140

¥ Commercial lease containing "right of first refusal" was subject to duty of good faith and fair dealing, and lessee violated duty based on various actions taken after learning of the lessor's contract with another to sell the lessor's entire interest in the property. The court found that "[r]ather than exercising its rights under the lease . . . [the lessee] engaged in unfair conduct, involving delay, misrepresentation and manipulation" causing the lessor to lose its ability to sell its entire interest.141

¥ Duty of good faith applied to a party's right to seek repudiation that was breached where the right to repudiate the contract was exercised as "a tool engineered to serve [the] illicit purpose [of extracting price concessions]."142 The evidence showed that the damaged party had relied on the contract, provided its financial statements and internal business documents, informed its customers, suppliers and employees of the purchase under the agreement followed by the "abrupt" repudiation and then a request to renegotiate.143

More recently, the Federal District Court of Massachusetts confirmed the understanding that contractual performance that is subject to the other party's satisfaction is governed by good faith. Thus, an agreement that provided that a corporate party could award a substitute contract to another vendor where "the primary contractor is not able to fulfill the job requirements as determined by [the corporation]" was subject to good faith in such a determination.144 The court denied summary judgment, finding it was disputed whether poor service was provided.145

The applicability of good faith and fair dealing does not necessarily require the presence of a discretionary right. It can arise where a party engages in unwarranted opportunistic behavior or, more specifically, where there is concerted post-formation conduct that defeats the other party's reasonable expectations under the contract.

In Turkanjian v. Rockland Trust Co,146 for example, the Appeals Court recently upheld a verdict for the plaintiff on a claim of breach of the duty of good faith and fair dealing by a bank under a commitment letter.147 Notably, the plaintiff claimed that he was repeatedly assured of a certain fixed interest rate.148 The bank failed to provide the interest rate, forcing plaintiff to get alternative financing.149 Although the commitment letter did not contain the claimed interest rate and, in fact, had an integration clause, the court nonetheless found that "a number of positions and actions taken by the Bank [after execution of the commitment letter] were designed to force concessions."150

The court relied on the repeated attempts by the bank to obtain more favorable financing terms; the bank portraying the plaintiff in a negative light before a Small Business Administration meeting and denigrating the ability of the plaintiff to repay the loan; the bank's failure to complete a timely appraisal; and its failure to honor the promised interest rate to support a finding of a violation of the duty of good faith and fair dealing.151 It should be noted that the focus in Turkanjian was not so much on the failure to provide the orally promised interest rate (which would be precluded under a strict construction of the integration clause), but rather on the bank's other actions after it had agreed to provide the loan. The court found this subsequent conduct by the bank to be aimed at obtaining a better deal and interfering with plaintiff's expectations instead of honoring the bank's obligations.

C. Long-Term Contracts and Unforeseen Developments

Unforeseen developments under long-term contracts are also potential fodder for application of the duty of good faith and fair dealing. As one noted jurist has stated:

At the formation of the contract the parties are dealing in present realities; performance still lies in the future. As performance unfolds, circumstances change, often unforeseeably; the explicit terms of the contract become progressively less apt to the governance of the parties' relationship; and the role of implied conditions - and with it the scope and bite of the good-faith doctrine - grows.152

Examples of long-term contracts implicating the duty of good faith and fair dealing that also have recently been addressed by the courts include divorce and separation agreements. In two recent decisions, the Supreme Judicial Court found that the duty of good faith and fair dealing invalidated certain post-contractual conduct.153 In one case, Nile v. Nile, a divorce agreement provided that the husband would leave two-thirds of his estate to the children of his first marriage.154 Prior to his death, he transferred $4 million out of $4.6 million to a trust for the benefit of his second wife leaving the remaining $600,000 to be transferred to his only child of the first marriage. The Supreme Judicial Court upheld the entry of summary judgment for the son on his claim for breach of the implied covenant of good faith and fair dealing, holding that the duty obligated the father to refrain from disproportionately divesting his son from his inheritance as required under the divorce agreement.155 In so doing, the court reiterated that breach of the duty of good faith and fair dealing did not require a showing of bad faith but only lack of good faith based on all the circumstances.156

Similarly, in Krapf v. Krapf,157 the Supreme Judicial Court addressed the duty of good faith under a separation agreement. There, 12 years after a separation and divorce, the husband, a military reservist, developed a disability and applied for and was awarded veteran disability benefits. Due to the statutory structure of such benefits and its relationship to pension and retirement pay, he elected to waive pension benefits. Under federal law, retirement benefits waived to receive disability benefits were not subject to divisibility upon divorce. The election resulted in the former wife receiving an 86 percent drop in pension pay otherwise required under the prior separation agreement.158

The court relied upon, among other things, the duty of good faith and fair dealing and found that although it could not order the division of the disability benefits, it could (and did) order the husband to satisfy his financial obligation under the agreement out of "whatever resources" he had. In so finding, the court stated it was:

[H]ighly unlikely that [the wife] negotiated [the separation agreement where pension rights were the most valuable asset] intending to give [the husband] carte blanche to reduce the value of her pension to a pittance in order to benefit himself. Nothing in the agreement suggests such authorization. We think it far more likely that the agreement gave her a "reasonable expectation" that she would receive pension income in her later years.159

The court was mindful of the husband's important service to his country and the unexpected development of a disability,160 but found that his action resulted in his benefit to the detriment of the wife in violation of his "ongoing" duty of good faith and fair dealing. According to the court "equity will not sanction voluntary action that amounts to the 'evasion of the spirit of the bargain.'"161 While Nile and Krapf involve domestic relations agreements imposing a "heightened" duty of good faith and fair dealing, they are notable as both decisions found a violation of the duty even though there was no evidence of ill will or malevolent motive.

Contractual guaranties are another type of long-term contractual obligation. In Cadle Co. v. Vargas,162 the Appeals Court relied on the duty of good faith to invalidate a personal loan guaranty.163 The guaranty had been signed by the wife of the borrower guaranteeing any debt of the husband-borrower164 and was unlimited both to amount and to time. The original loan and guaranty were associated with a corporate loan for the husband's business. Several years later, however, the husband borrowed additional money to fund a subsequent divorce from the wife and later defaulted.

Judge Kaplan found that the equities demanded that the guaranty be unenforceable (i.e. it was anomalous to have wife fund her own divorce settlement). He likewise referenced the applicability of the duty of good faith and fair dealing to long-term contracts where there has been the development of an "unforeseen" circumstance.165 "In such cases of discordance between text and reality, courts strive to bring to bear the familiar standard [of good faith and fair dealing]."166 The court further noted that this was an unusual factual circumstance and that in most instances guaranties would be enforced according to their express terms.167

D. Termination

The duty of good faith and fair dealing is commonly invoked in actions challenging terminations of commercial relations. The Supreme Judicial Court has made clear that the "duty of good faith and fair dealing exists during the course of events leading up to and including termination but that duty is to be evaluated in light of an agreement that permits termination by either party without cause or notice."168 Not surprisingly, Massachusetts has held that termination without cause provisions in commercial contracts are not unenforceable or "oppressive," as to hold otherwise "would establish an unwarranted barrier to the use of termination at will clauses in contracts in this Commonwealth, where each party received the anticipated and bargained for consideration during the full term of the agreement."169

Without much discussion as to whether the Fortune/Gram formulation of the duty of good faith and fair dealing should be applicable outside the employer-employee at-will relationship, courts have routinely utilized the criteria in evaluating claims of bad faith terminations in various types of commercial contracts. For instance, in franchise agreements it has been held that terminations due to the refusal to sign a new franchise agreement or the refusal of a franchisee of 25 years to agree to a reorganization of routes did not constitute bad faith absent a "deprivation of earnings, good will or loss of investment."170 The courts make clear that the lack of good reason for the termination absent evidence of "other indicia of lack of honesty or taking unfair advantage; or bad faith" is not sufficient to make out a claim. "In a word, the absence of good cause is not the equivalent of absence of good faith."171 In one case, the court found that allegations that the franchisor's managers wanted to individually profit from the termination or that the termination was due to personal animosity or both were not sufficient.172

Good faith and fair dealing challenges have been made to termination notices associated with "without cause" termination provisions with mixed results. In Cherick Distributors, Inc. v. Polar Corp.,173 a beverage distributor was terminated on four-days notice after the beverage supplier learned that the distributor was arranging a meeting of all distributors of the supplier to form an association to negotiate with the supplier. Although the contract was an at-will distributorship, the Appeals Court upheld the jury verdict for the distributor on the good faith claims and claims under Massachusetts General Laws chapter 93A. Referencing the UCC, the court found that whether the four-day notice constituted reasonable notice under commercial standards of good faith was properly before the jury and the fact that the supplier had abruptly terminated the distributor on the eve of the scheduled meeting was sufficient for a finding that the supplier intended to put the distributor out of business. The court noted that the notice left no time for the distributor to secure another supplier, adjust its equipment and warehouse or maintain its staff.174

In Serpa Corp. v. McWane, Inc.,175 the court rejected a similar claim by an exclusive plumbing supply distributor where the distributor was provided commissions for a 30-day period following the termination. The court found that the evidence supported that the termination was based on efficiency concerns and that there was no evidence that 30 days was insufficient notice or that the termination was based on a retaliatory motive or bad faith or was calculated to injure.176

More recently, the First Circuit rejected the contention that good faith and fair dealing required a manufacturer to give notice to a distributor as to the appointment of a new and competing distributor.177 The court rejected any analogy to Cherick as the distributorship agreement at issue did not require notice and implying such notice would be unwarranted, because the harm to the distributor by such appointment was not "of the same magnitude" as the harm from the termination of a distributorship agreement.178

The duty of good faith has also arisen in claims addressing the manner of termination.179 Specifically, the Appeals Court affirmed a finding that the duty of good faith as to a severance agreement was violated where the company refused to allow the employee to respond to allegations of improperly collected commissions and benefits, insisted on limiting severance payments and threatened to ruin the employee's career.

Similarly, in Linkage Corp. v. Trustees of Boston University,180 the Supreme Judicial Court upheld a jury verdict on a contractor's claims under Massachusetts General Laws chapter 93A and the implied covenant of good faith and fair dealing. There, under a somewhat unique and egregious set of facts, Boston University terminated a contractor who was providing education and training seminars. According to the evidence, the university had led the contractor to believe that the contract would be renewed; a hostile confrontation had occurred during a meeting where the contractor had been asked to present a business plan; the university performed an unannounced audit of the contractor; the university secretly contacted certain employees of the contractor and made a concerted effort to hire the employees despite a no-hire provision in the contract; the university presented a termination letter only after the contractor refused to allow it to hire his employees; at the same time the university sent security personnel to the facility being used by contractor in order to "secure" the facility; and the university informed the contractor's employees that he had been terminated for cause.181

E. Contractual Rewriting

Despite the above examples, the great majority of recent decisions have rejected claims based on alleged breaches of the duty of good faith and fair dealing. A familiar refrain of these court decisions is that the duty cannot be used to "rewrite the parties' agreement."182 Indeed, the First Circuit proclaimed that it is "unbefitting that we accomplish by judicial fiat what [a party] neglected to achieve contractually."183

This view merits careful consideration especially as to commercial contracts. Where a sophisticated and knowledgeable party chooses to embody its relationship in a simple written instrument crafted by it, it is entitled to and should be held to the contractual language it chose. Any court should be careful not to impose its external views on the contracting parties or to let matters outside the four corners of the instrument that are specifically anticipated and addressed within the agreement overwhelm or change the contract itself. What the court must not do is attempt to rewrite the parties' contract to conform to the court's sense of equity or preference for a different outcome, no matter how appealing.184

In the recent First Circuit decision in Boyle v. Douglas Dynamics, LLC,185 a judgment for a manufacturer against a claim for breach of the duty of good faith and fair dealing was affirmed. There, the plaintiff became distributor of defendant manufacturer's ice and snow removal products upon purchase of another business. It was claimed that the defendant breached the distributorship agreement by promoting plaintiff's largest customer from a limited pool distributor to a full-time distributor resulting in it becoming plaintiff's direct competitor. The distributor relied in large part on certain "reassuring comments" by the manufacturer.186 The contract was silent as to the right to appoint additional distributors.187 The court found no good-faith violation as the contract did not prevent defendant from adding distributors and there was no express promise not to do so.188 The First Circuit emphasized that the "covenant may not . . . be invoked to create rights and duties not otherwise provided for in the existing contractual relationship."189

In Owen v. Kessler,190 the Appeals Court also voiced concern about the duty of good faith being used to alter the terms of an express agreement. There, a real estate commitment agreement provided that "time is of the essence" and set forth a specific time by which a signed purchase and sale agreement was to be provided.191 The seller refused to sell the property when the buyer delivered the purchase and sale agreement 15 to 20 minutes after the set deadline.192 The court rejected the contention that the seller's rejection of the late delivery was a violation of the duty of good faith and fair dealing. The court held that it was obliged to enforce the express terms of the parties' agreement. It likewise emphasized that the duty could not be used to override an express term, that there was no pretextual use of a discretionary right and "no evidence of any clandestine attempts by the seller to sabotage any aspect of the deal."193

In a recent decision, the Appeals Court stated that the "the covenant . . . may not be invoked to create rights and duties not otherwise provided for in the existing contractual relationship, as the purpose of the covenant is to guarantee that the parties remain faithful to the intended and agreed expectations of the parties in their performance."194 The court refused to read any other duty or obligation into the express right of first refusal under a lease other than the obligation to give reasonable notice of an offer by a third party.195 Addressing the claim through the specific context, the court stated:

Where there are many varying methods by which the holder's right of first refusal may be protected in the event an offer for that property also includes other property, we are reluctant to conclude that the covenant of good faith and fair dealing has, sub silentio, provided a specific form of protection that is not mentioned in the parties' contract.196

Notably, it is under the "rewrite the contract" rubric that the pure textualists to contract dispute resolution rally to assert that the implied duty of good faith and fair dealing has a very limited place in contract law. Under such a view, the duty of good faith and fair dealing is seen as the last refuge of contractual parties seeking to salvage losses traceable to their own failure to negotiate sufficient contractual rights and protections.197

F. Contractual Negotiations and Culpa in Contrahendo

Massachusetts does not generally recognize an implied duty of good faith and fair dealing in contract negotiations absent a binding agreement expressly so stating.198 This stems from the view that there is no implied covenant of good faith and fair dealing absent a contract,199 the assumption that parties must be allowed wide latitude to break off contractual negotiations and the concern that imposing implied obligations upon negotiations would wrongly result in creating legally binding obligations that a party did not knowingly assume.200

Schwanbeck v. Federal-Mogul Corp. exemplifies the existing reluctance to impose a duty of good faith and fair dealing in contract negotiations201 There, the parties were negotiating the purchase of certain business assets and had executed a letter of intent in which it was agreed that the purchasing party was "interested" in purchasing the assets of the other. The letter agreement contained an express disclaimer that neither party intended to be bound by the letter, which was followed by a provision providing "[h]owever, the parties understand and acknowledge that they will proceed in good faith in the negotiation of [a] binding definitive agreement."202

The Appeals Court, construing the two provisions together, held that the reference to "good faith" did impose a binding obligation despite the disclaimer. The Appeals Court further held that the obligation to negotiate in good faith "means that neither party may enter into the preliminary agreement for some ulterior purpose" but that the duty had not been breached. While the court made clear that the good-faith obligation "means something less than unremitting efforts to get to 'yes' with the players at all times playing their cards face up," absent entering into the negotiations for "some ulterior purpose," a breach of good faith in negotiations will not be found.203 According to the court, good faith will likely be met where the party simply takes "some action such as exchanging drafts which flesh out details of the business points agreed to in the preliminary document."204

The Supreme Judicial Court upheld the result but rejected the Appeals Court's finding that there was a binding obligation to negotiate in good faith. The court summarily found that the fact that the "expression of intent" in the letter to proceed to a definitive agreement in good faith followed the disclaimer of binding effect and began with the word "however" did not "elevate its status" to a binding obligation. The court expressly refused to discuss what would constitute either a duty or violation to negotiate in good faith.205

Some courts do not require an explicit provision before imposing a duty of good faith in contractual negotiations. For example, the words "you will withdraw the [s]tore from the rental market, and only negotiate the above described leasing transaction to completion" were found sufficient to impose the obligation to negotiate in good faith.206 In another case, a letter providing that "rates and terms are subject to further negotiations" was also deemed to be sufficient.207

Other courts reject any such implied duty even where an obligation of good faith is expressly stated or inferred from the terms of a preliminary agreement.

An agreement to negotiate in good faith is amorphous and nebulous, since it implicates so many factors that are themselves indefinite and uncertain that the intent of the parties can only be fathomed by conjecture and surmise.208

The First Circuit recently touched upon the duty of good faith in contractual negotiations stating that as a matter of federal common law "liability for bad faith bargaining is limited," although claims for fraud or estoppel are possible.209 The court also acknowledged that "depending upon language and inclination, courts sometimes construe letters of intent as themselves creating contractual or quasi-contractual obligation to negotiate in good faith toward a final contract."210 It went on to address a claim under Puerto Rican law pursuant to the doctrine of "culpa in contrahendo," which was stated to be the rule that "negotiations toward an agreement can even without a letter of intent give rise to mutual expectations that the parties will bargain in good faith and refrain from misconduct."211 The rule is aimed at protecting the "reliance interest" as opposed to the "expectation interest" with the applicable test requiring an evaluation of "the conduct, reasonable expectations, and virtually any other relevant circumstances."212

Applying this amorphous test, the court found no violation where a landowner claimed that a developer had failed to negotiate a commercial ground lease in good faith. The developer had delayed in executing the ground lease due to difficulties in finalizing a lease with a store chain needed for the project. Although the court agreed that the developer could be criticized for not telling the landowner that execution of the ground lease required that the negotiations with the store chain bear fruit, it found no bad faith because this conduct was not deliberate, was otherwise limited and was the result of trying to save the overall project.

Where parties have expressly agreed to negotiate a further agreement in good faith, such an agreement should be given meaning and effect. Certainly, the scope of any such obligation should be fairly narrow and require much less than in either the contractual performance or enforcement context. Indeed, as the Appeals Court stated in Schwanbeck, absent entering into negotiations for some ulterior purpose, making minimal efforts to reach the anticipated agreement should satisfy the good-faith obligation. Imposing such a limited obligation does no harm to the right of parties to break off negotiations without justification, nor does it unnecessarily or unfairly inject judicial notions of good faith into the parties' bargain. To the contrary, it gives substance to the parties' bargain and promotes minimum notions of equitable behavior in the marketplace.213

XIII. Waiver

Another area that exemplifies the tension between contractual autonomy and implied notions of good faith and fair dealing is found in waiver of a contracting party's legal rights.214 Massachusetts has not yet expressly addressed the issue, although the superior court has held that waiver provisions in a guaranty, while enforceable, "do not immunize a mortgagee from the duty to act in good faith and use reasonable diligence to protect the interests of the mortgagor in the foreclosure sale process."215

The issue of waiver is especially significant in the context of discretionary powers,216 in particular whether an express discretionary power can be insulated from external notions of good faith and fair dealing.217 The UCC approach is that the duty is not waivable by the parties but that the parties do have the power to set out their own specific standards to govern any discretionary power. Massachusetts General Laws chapter 106, section 1-102(3) provides:

The effect of provisions of this chapter may be varied by agreement, except as otherwise provided in this chapter and except that obligations of good faith, diligence, reasonableness and care prescribed by this chapter may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligation is to be measured if such standards are not manifestly unreasonable.218

Accordingly, if the parties wish to insulate the discretionary power, they can do so as long as it is not "manifestly unreasonable." The burden to show waiver should be "exacting."219 As one commentator has noted:

The burden of expression regarding an agreed displacement of the external standards of good faith and fair dealing with respect to a particular discretionary power will fall to the party seeking to obtain such discretion. This burden proceeds from the prudential notion that the expectations of good faith performance are so fundamental that any attempt to deviate from them by agreement should be subject to heightened obligations of explicitness and prominence.220

XIV. Damages

Recoverable damages for violation of the duty of good faith have gotten scant attention by the courts to date. Some jurisdictions refer to breach of the duty as a tort.221 Massachusetts courts have viewed the implied duty as a "contractual obligation.'222 As such, the contractual measures of damages of restitution, reliance or expectation would apply.223 Expectancy damages would be the most common measure and would include those damages that would allow the aggrieved party to be placed in the same position as it would have been had the other party not breached its performance obligation.224 It would also logically include "consequential" damages so long as foreseeable at the time of the contract.225

In a great majority of cases, there will be both a violation of the duty of good faith and fair dealing and breach of contract. Accordingly, if the breaches are based on the same set of facts the damages would be the same, with only one recovery appropriate.226 Notably, however, Massachusetts courts differ as to whether there can be a breach of the implied covenant absent a breach of contract.227 This anomaly is largely academic as it turns on whether the duty is viewed solely as an interpretative aid or is a separate duty that, while derived and dependent upon the contractual expectations, is independent. Under either view, the duty polices contractual performance and determining damages remains the same.

Under the Fortune/Gram cases, the damage rule is specialized. There, recoverable damages are limited to the amount required to prevent the terminating party from being unjustly enriched by depriving the aggrieved party of money that it had fairly earned and legitimately expected.228 Damages are thus limited to those monies already earned and do not include lost future wages or benefits. In non-employee at-will termination cases, the rule is similar but not as limited. In Cherick, for instance, where an at-will distributor was terminated by its supplier on four-days notice in breach of the duty of good faith and fair dealing, the court upheld the award of a portion of the distributor's resulting loss of business.229

Recoverable damages, in other instances, will depend on the particular conduct that is found violative. Such items as lost profits, loss of business and loss of good will would be recoverable in appropriate circumstances subject to the obligation to mitigate.230

It has been held that a party's breach of the obligation of good faith and fair dealing can preclude the award of damages. In Hawthorne's Inc. v. Warrenton Realty, Inc,231 the court found that a lessee was not entitled to either damages or specific performance under a right of first refusal pursuant to a commercial lease. The court held that the lessee had not acted "honestly or in good faith in its dealings concerning its option rights" and that where "a party has committed a breach of the covenant of good faith and fair dealing [it] may not obtain relief based on the effects of its own breach."232

XV. Procedural Issues

As a claim for violation of the duty of good faith and fair dealing will almost always be asserted together with a claim of breach of contract, it can raise certain procedural issues. One issue concerns how such claims are treated at summary judgment. It is black letter law that contracts are to be interpreted by the court as a matter of law. Most commercial contracts are entered into with at least some amount of sophistication on both sides together with a negotiated written agreement. As such, many contractual disputes are presented to the court on summary judgment where a contract is set before the court for interpretation and where both the viability of the theory of liability and the supporting proof are assessed to determine whether there is a triable issue.

However, claimants asserting a breach of the duty of good faith accompanying the contract will inevitably oppose such motions with the mantra that such claims "are rarely appropriate for summary judgment."233 The assertion is that violation of the duty of good faith turns on intent, motive or state of mind that are inherently factual issues inappropriate for summary judgment.234

In many disputes there will be factual issues inappropriate for summary judgment. This is especially so where a duty of good faith has been alleged and there is a factual dispute regarding whether the duty was breached by the conduct in question. Nonetheless, courts should not shrink from evaluating good-faith breach claims at summary judgment and should ensure that (a) the claimant has properly alleged a cognizable duty of good faith claim in the contractual context and (b) has presented sufficient and competent proof creating a material issue of disputed fact.

It should not be sufficient to defeat summary judgment simply by generally alleging "a breach of the duty of good faith and fair dealing." Courts should ensure that the proponent of such a position is setting forth a claim as to a matter of performance and has specifically articulated how the post-formation conduct at issue violated the duty of good faith and fair dealing. The obligation claimed to have been violated under the duty of good faith must be identified with specificity and must derive from the parties' justified expectations as distinct from an effort to create legal obligations not otherwise provided for in the parties' contractual relationship and expectations. This is a question of law appropriate for summary judgment resolution.

The recent Supreme Judicial Court decision in Uno is informative concerning summary judgment.235 As discussed above, the court rejected the assertion that the duty of good faith as to a holder's right of first refusal to purchase certain property imposed any obligation besides seasonable notice of a third-party's offer. Accordingly, any other claimed obligation would not be cognizable as a matter of law. Stated another way, any other challenged action or inaction unrelated to the issue of notice is irrelevant and cannot be the subject of a viable claim. Such a focused approach serves to maintain the integrity of the summary judgment procedure, the interpretation of contracts and the proper boundaries of the duty of good faith.

An additional procedural pitfall associated with good faith claims recently was addressed by the First Circuit in Zachar v. Lee.236 At issue, was preservation of argument for appeal. The court rejected a challenge to a jury verdict awarding damages to the buyers of a home on Nantucket for breach of the duty of good faith and fair dealing arising out of the sale of a home. After placing a deposit on the property, the buyers were no longer interested in the property due to a sudden job relocation. They entered into an agreement with the sellers whereby the buyers would be able to potentially recoup their deposit if the property were resold. Under the terms of the agreement, the sellers were required to "market and sell the property in a reasonable commercial manner." It was claimed that the sellers listed the property at an inflated value and undertook insufficient marketing efforts. The jury found no violation of the express agreement (which included the reasonable marketing efforts obligation) but did find a violation of the implied duty of good faith and fair dealing.

On appeal, the sellers contended that, since the jury found no breach of the express agreement, there could be no basis for finding a breach of the obligation of good faith. The court rejected this argument because no objection had been made to the jury instructions on the duty of good faith and fair dealing, this issue had not been raised in post-trial motions and no timely objection had been made to the jury verdict. According to the court:

If the [defendants] believed that the breach of a contract is a sine qua non in any claim for breach of the implied covenant of good faith and fair dealing, they would - and should - have asked for such an instruction. They did not, and by failing to do so, [they] forfeited their argument.237

XVI. Relationship to Massachusetts General Laws Chapter 93A

Massachusetts appellate courts have yet to directly address whether the breach of the duty of good faith and fair dealing constitutes a per se violation of Massachusetts General Laws chapter 93A. Neither the long-standing and colorful references to "rascality" and "rancid flavor of unfairness" nor the understanding that violative conduct must be either (a) within at least the penumbra of some common law, statutory or other established concept of unfairness or (b) immoral, unethical, oppressive or unscrupulous, offer much practical guidance.238 Also unhelpful are the established yet somewhat conflicting chapter 93A principles that a mere breach of contract without more is insufficient to constitute an "unfair and deceptive" act or practice239 and that "conduct in disregard to known contractual arrangements and intended to secure benefits to the breaching party constitutes an unfair act or practice."240

Given the lack of clarity, it is not surprising that courts that have addressed the issue have come to differing conclusions. For instance, the First Circuit has summarily held that violations of chapter 93A must meet "a higher standard" of liability than do breaches of the duty of good faith and fair dealing.241 A recent superior court judge, however, held to the contrary, stating that "[s]ince a breach of the implied covenant of good faith and fair dealing means that the defendant has acted in bad faith or engaged in unfair dealing" a breach supports a finding of a violation of chapter 93A.242

It would not appear that a blanket rule can or should be laid down, as it will depend on the particular conduct and circumstances. Indeed, recent cases have made clear that assessing a chapter 93A claim requires an evaluation of the challenged conduct together with its purpose and effect.243

In many instances, it would appear that conduct violative of the duty of good faith and fair dealing would also run afoul of chapter 93A. As set forth above, the duty is breached through the pretextual use of discretionary rights under a contract or where parties deliberately and knowingly engage in conduct aimed at either recapturing foregone opportunities or interfering with the reasonable expectations of the parties. Chapter 93A violations have been found in analogous conduct such as where one party to an agreement breaches a contract in order to gain an unfair advantage over the other or as a "wedge" to enhance bargaining power.244 Most recently, the Appeals Court found that a lessor's position under a lease provision, even where the court had to insert a missing term to resolve the dispute, coupled with its notice of eviction to the lessee was "extortionate in intent and effect" supporting chapter 93A liability.245

Similarly, courts have found violations of chapter 93A based on conduct akin to that addressed under the Fortune articulation of good faith and fair dealing. For instance, a chapter 93A violation was found where an independent tax advisor was denied commissions due under contract after a decision to handle tax matters in-house246 as well as where a marketing agreement was terminated to compel acceptance of lower commissions.247 Such cases appear to be in keeping with the major design of chapter 93A which is to "encourage more equitable behavior in the marketplace . . . [and impose] liability on persons seeking to profit from unfair practices,"248 and while the statute "does not contemplate an overly precise standard of ethical or moral behavior [i]t is the standard of the commercial marketplace."249

Nonetheless, a violation of the contractual duty of good faith and fair dealing may not necessarily equate to an "unfair and deceptive" act or practice. For instance, in those instances of unforeseen circumstances and long-term contracts such as those involved in Krapf, and Vargas, absent a knowing breach of the agreement, intent to injure or to benefit unfairly, a court would be hard pressed to find a chapter 93A violation.

XVII. A Responsible and Modern Duty of Good Faith and Fair Dealing

The contractual duty of good faith enjoys a long and distinguished heritage in Massachusetts. Despite this history, the duty remains elusive, due in large part to the broad, generalized articulations long used by the courts. On closer inspection, however, the duty's essential purpose is to protect the justified expectations of the contracting parties and, as such, derives its functional meaning from the specific contractual relation and circumstances at issue.

To be sure, courts need to ensure that the duty is not misused and resorted to as a means to impose duties and obligations beyond the parties' negotiated bargain and justified expectations. Disgruntled parties to a contract should not, especially after entering into an arm's length bargain, utilize the duty of good faith as a means to obtain from the court obligations they failed to achieve contractually. Courts likewise need to be vigilant in maintaining the distinction between fiduciary obligation and contractual good faith so that the heightened fiduciary obligations are not unwittingly foisted upon arm's length transacting parties.

Notwithstanding these important concerns, the key to a proper modern duty of good faith in contractual performance lies with the protection of the parties' justified expectations. It is a means of implementing the "spirit of the bargain" and a recognition that minimum principles of fairness and honesty apply to performance under commercial contracts.

Defining the contours of such a duty in modern commercial contracts begins with the parties' express bargain. Indeed, primacy must be given to the express terms used by the parties in determining the nature and scope of their justified expectations.250 This is necessary in order to properly respect the right of private and sophisticated parties to negotiate and contract in the commercial marketplace.

While substantial deference should be accorded the express terms of the contract, contractual expectations are not always apparent from the written terms. Some expectations may be so fundamental that neither party reduced them to writing or circumstances simply developed later that were never contemplated or foreseen.251 Where the express terms of the agreement do not sufficiently delineate the parties' expectations or the permissibility of the post-formation conduct, the contractual context, including the subject matter, the parties' relationship and experience, their course of dealing, usage of trade and the like can provide and define the applicable obligations. Such an analysis is in keeping with the modern contextual approach to contract interpretation.

The duty of good faith and fair dealing's primary domain in commercial contracts lies with discretionary rights. Indeed, in this setting, good faith can be understood as not a question of what a party has a right to do under a contract but rather how that right is exercised. Absent express direction by the parties, the purpose and function of the generalized discretionary power must be assessed in context together with the reasons or justifications behind the post-formation conduct at issue. If the reason for the challenged post-formation conduct was within the contemplation of the parties, the conduct should not be actionable even if a court otherwise believes the conduct to be questionable. Conduct that is dishonest or intended to gain back risks or obligations given up under the contract or contrary to the parties' justified contractual expectations and which are not specifically addressed by the express terms, however, will violate the obligation of good faith. While commercially sophisticated parties should be able to grant one or the other a discretionary power insulated from any external notions of fairness, they should be required to do so clearly. The law should not "easily assume that one party would put itself at the mercy of another in such a fashion."252

Protecting both the integrity of the parties' express bargain as well as implied notions of good faith and fair dealing in commercial contractual performance will be a continuing battleground for courts and litigants. Striking a proper balance lies in acknowledging that the duty of good faith and fair dealing has a viable role in the law of contract, that the duty's contours should be defined and limited by the particular contract and context and that the duty is not a means for either parties or courts to impose rights or duties outside of the parties' justified expectations.

End Notes

1. Robert S. Summers, The General Duty of Good Faith - Its Recognition and Conceptualization, 67 Cornell L. Rev. 810, 811 (1982) [hereinafter Summers, Good Faith]; E. Allan Farnsworth, Good Faith Performance and Commercial Reasonableness Under the Uniform Commercial Code, 30 U. Chi. L. Rev. 666 (1962) [hereinafter Farnsworth, Good Faith].[back]

2. Empire Gas Corp. v. Am. Bakeries Co., 840 F.2d 1333, 1339 (7th Cir. 1988) (Posner, J.).[back]

3. See e.g., N. Heel Corp. v. Comp. Indus., 851 F.2d 456, 466 (1st Cir 1988) ("[not our role to] accomplish by judicial fiat what a party has neglected to achieve contractually"), quoting RCI Northeast Servs. Div. v. Boston Edison Co., 822 F.2d 199, 204 (1st Cir. 1987); Mkt. St. Assocs. Ltd. P'ship v. Frey, 941 F.2d 588, 595-96 (7th Cir. 1991) (suggesting modern contract law could do without a doctrine of good faith).[back]

4. Farnsworth, Good Faith, supra note 1, at 669-70.[back]

5. Under a provision of the civil code in Germany known as the "Treu and Glauben," for example, it is provided that the "debtor is bound to effect performance according to requirements of good faith giving consideration in common usage." See Peter Schlechtriem, Good Faith in German Law and in International Uniform Laws (1997), available at http://www.crdcs.org/frames24.htm (last visited Aug. 3, 2004); Paul J. Powers, Defining the Undefinable: Good Faith and the United Nations Convention on Contracts for International Sale of Goods, 18 J.L. & Com. 333 (1999); see also Friedrich Kessler & Edith Fine, Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study, 77 Harv. L. Rev. 401, 420 (1964) (comparing common law and German views on good faith in contract).[back]

6. Allan E. Farnsworth, The Concept of Good Faith in American Law at 2-6, at http://w3.uniroma1.it/idc/centro/publications/10farnsworth.pdf (last visited Aug. 3, 2004); Emily M. Weitzenbock, Electronic Agents and Contract Performance: Good Faith and Fair Dealing, at http://www.cirfid.unibo.it/~lea-02/pp/Weitzenboeck.pdf (last visited Aug. 3, 2004).[back]

7. Farnsworth, supra note 6, at 2-6.[back]

8. Bliss v. Thompson, 4 Mass. 488, 492 (1808).[back]

9. See Bishop v. Shepard, 40 Mass. 492, 494 (1839) (court found and imposed implied promise of ship owner to pay father of son who deserted from whaling ship based on "equitable consideration"); Appleton v. Bascom, 44 Mass. 169, 171 (1841) (law implied promise of principal of surety to pay surety for surety's payment of principal's debt).[back]

10. Appleton, 44 Mass. at 171.[back]

11. 222 N.Y. 88, 118 N.E. 214 (1917).[back]

12. Lucy, Lady-Duff Gordon, 222 N.Y. at 91, 118 N.E. at 214.[back]

13. Id. quoting McCall Co. v. Wright, 117 N.Y. Supp. 775, 133 A.D. 62 (1909).[back]

14. See Lawrence v. City of Cambridge, 422 Mass. 406, 411 (1996).[back]

15. Eaton v. Eaton, 233 Mass. 351, 376 (1919).[back]

16. Essex Trust Co. v. Enwright, 214 Mass. 507 (1913).[back]

17. Foss v. Roby, 195 Mass. 292, 298 (1907).[back]

18. Shattuck v. Burrage, 229 Mass. 448, 451-52 (1918).[back]

19. Eaton, 233 Mass. at 376.[back]

20. Russo v. Charles I. Hosmer, Inc., 312 Mass. 231, 233 (1942); Reed v. Inhabitants of Scituate, 87 Mass. 120, 123 (1862); Gleason v. Smith, 63 Mass. 484, 486 (1852); see also Chandler, Gardner & Williams, Inc. v. Reynolds, 250 Mass. 309, 314 (1924).[back]

21. Gleason, 63 Mass. at 486. Additional early implied promises or covenants included the implied covenant of quiet enjoyment in a lease (Burofsky v. Turner, 274 Mass. 574, 581 (1931); Dexter v. Manley, 58 Mass. 14, 17-18 (1849)), the implied contractual obligation of innkeepers regarding quality and character of food provided (Friend v. Childs Dining Hall Co., 231 Mass. 65 (1918)) and the implied warranty of merchantable quality in commercial contracts for goods. (eee, e.g., Murchie v. Cornell, 155 Mass. 60, 63 (1891); Gould v. Stein, 149 Mass. 570, 574 (1889); Wilson v. Lawrence, 139 Mass. 318, 322 (1885)). Other obligations of good faith were found applicable to a mortgagee's power of sale under a mortgage contract (Levey v. Higginson, 266 Mass. 381, 385 (1929)); requirement and output contracts (Neofotistos v. Harvard Brewing Co., 341 Mass. 684, 689 (1961)); a construction contract between a contractor and subcontractor (Dahlstrom Metallic Door Co. v. Evatt Constr. Co., 256 Mass. 404, 413 (1926)); a personal service contract for radio advertisements (UpRoar Co. v. Nat'l Broad. Co., 81 F. 2d 373, 377 (1st Cir. 1936)); a freight contract (E. Mass. St. Ry. Co. v. Union St. Ry. Co., 269 Mass. 329, 334 (1929)); an agreement for stock appraisal (Krauss v. Kuechler, 300 Mass. 346, 349 (1938)); a broker's commission (Elliott v. Kazajian, 255 Mass. 459, 462 (1926)); and negotiable instruments (Macklin v. Macklin, 315 Mass. 451, 455 (1944)) ("The rights of a holder of a negotiable instrument are to be determined by simple test of honesty and good faith.").[back]

22. Clark v. State St. Trust Co., 270 Mass. 140 (1930).[back]

23. Id. at 153.[back]

24. UpRoar, 81 F.2d at 376. The reference to the benefits under a contract as "fruits" appeared as early as 1818. In Russell v. DeGrand, 15 Mass. 35 (1818), the Supreme Judicial Court addressed a claim under a vessel insurance policy stating that "[t]he rule of law is of universal operation, that none shall, by the aid of a court of justice, obtain the fruits of an unlawful bargain." Id. at 39.[back]

25. Kirke La Shelle Co. v. Paul Armstrong Co., 263 N.Y. 79, 89, 188 N.E. 163, 167 (1933).[back]

26. Uproar, 81 F.2d. at 337. [back]

27. See Tufankjian v. Rockland Trust, Co., 57 Mass. App. Ct. 173, 177 (2003); see also Anthony's Pier Four, Inc. v. HBC Assocs., Inc., 411 Mass. 451, 471-72 (1991);. Druker v. Roland Wm. Jutras Assocs., Inc., 370 Mass. 383, 385 (1976); Uproar, 81 F.2d at 377; Kirke La Shelle, 263 N.Y. at 89, 188 N.E. at 167.[back]

28. This appears to be a corollary to the broader recognition that "it is in the public interest to accord individuals broad powers to order their affairs through legally enforceable agreements." Beacon Hill Civic Ass'n v. Ristorante Toscano, Inc., 422 Mass. 318, 320 (1996), quoting E.A. Farnsworth, Contracts, 5.1 at 345 (2d ed. 1990).[back]

29. Electric Welding Co. v. Prince, 195 Mass. 242, 246 (1907); Farquhar v. Farquhar, 194 Mass. 480, 405 (1907) (until set aside by mistake contract contains within its "four corners" the statement and only statement of the obligations); accord Hiller v. Submarine Signal Co., 325 Mass. 546, 550 (1950); Ober v. Nat'l Cas. Co., 318 Mass. 27, 30 (1945).[back]

30. Shoe & Leather Nat'l Bank v. Dix, 123 Mass. 148, 150 (1877).[back]

31. Queenin v. Blank, 268 Mass. 432, 435 (1929); Starks v. O'Hara, 266 Mass. 310, 314 (1929).[back]

32. Smiley v. McLauthlin, 138 Mass. 363, 364-65 (1885), quoting Baron Parke in James v. Cochrane, 7 Exch. 170.[back]

33. Towne v. Eisner, 245 U.S. 418, 425 (1918) (interpreting statute); see also Dittemore v. Dickey, 249 Mass. 95, 104-05 (1924).[back]

34. "Course of dealing" has also been recognized to establish a contractual agreement or define the parties' contractual obligations. Delano Growers' Coop Winery v. Supreme Wine Co., 393 Mass. 666, 672-74 (1985) (where parties used same procedure for processing wine for approximately five years this established course of dealing that defined parties' contractual obligations).[back]

35. Keating v. Stadium Mgmt. Corp., 24 Mass. App. Ct. 246, 249-50 (1987) (quoting Robert Indus., Inc. v. Spence, 362 Mass. 751, 753 (1973)); see also Krapf v. Krapf, 439 Mass. 97, 100 (2003) (court to give effect to language of contract considered in light of the context of the transaction and the purpose to be accomplished); Starr v. Fordham, 420 Mass. 178, 190 (1995) (same).[back]

36. Keating, 24 Mass. App. Ct. at 250. An early example is Eastern Massachusetts Street Railway Co. v. Union Street Railway Co., 269 Mass. 329 (1929). There, the parties contractually agreed to joint use of tracks, freight cars and terminals for five years with the right of either party to terminate upon six month's notice. The plaintiff ceased operating as a freight business without giving notice. Plaintiff sued for an accounting while the defendant claimed a set-off. It was held that

[t]he provisions of the contract, when interpreted in the light of the circumstances and purpose to be accomplished, mean that the plaintiff was under an obligation to carry on a freight trolley business during its term and not voluntarily to stop the normal flow of that business. The continuance of that business was essential to the carrying out of the terms of the contract and hence an agreement to that effect is implied.

Id. at 332 (citations omitted); see also Campion v. Boston & Me. Ry., 269 Mass. 579, 581 (1930) (term of contract to be construed in light of circumstances surrounding the making of the contract and the situation and relation of the parties).[back]

37. Plymouth Rubber Co., Inc. v. Ins. Co. of N. Am., Inc., 18 Mass. App. Ct. 364, 369 (1984).[back]

38. Shea v. Bay State Gas Co., 383 Mass. 218, 222-23 (1981).[back]

39. Id. at 223 (quoting Bryne v. Gloucester, 297 Mass. 156, 158 (1937)).[back]

40. Stop & Shop, Inc. v. Ganem, 347 Mass. 697, 701 (1964).[back]

41. Shane v. Winter Hill Fed. Sav. & Loan Ass'n, 397 Mass. 479, 483 (1986); Bray v. Hickman, 263 Mass. 409, 412 (1928); see also Kerrigan v. Boston, 361 Mass. 24, 33 (1972) ("we are to look 'through the form to the substance and purpose of the agreement") (quoting Clark v. State St. Trust Co., 270 Mass. 140, 153 (1930)).[back]

42. Michael P. Van Alstine, Of Textualism, Party Autonomy, and Good Faith, 40 Wm. & Mary L. Rev. 1223, 1236-46 (1999) [hereinafter Van Alstine, Of Textualism]. Van Alstine's article is an excellent discussion of good-faith contractual performance and its modern standing in light of reemphasis by courts on textualist approach to contract dispute resolution.[back]

43. Id. at 1242-43 (citing Farnsworth, Good Faith supra note 1, at 671); Restatement (Second) Contracts § 205 (1981).[back]

44. Van Alstine, Of Textualism, supra note 42, at 1224-25 (suggesting that the duty of good faith and fair dealing has undergone severe restriction by many modern courts by the "forces of formalism in contract").[back]

45. Id. at 1242-43.[back]

46. James J. White & Robert S. Summers, Uniform Commercial Code § 4 (3rd ed. 1988).[back]

47. Id. at 6.[back]

48. Powers, supra note 5, at 339 (citing E. Allan Farnsworth, Duties of Good Faith and Fair Dealing Under the UNIDROIT Principles, Relevant International Conventions, and National Laws, 3 Tul. J. Int'l & Comp. L. 47, 52 (1995); see also Van Alstine, Of Textualism, supra note 42, at 1242-43.[back]

49. See Mass. Gen. Laws ch. 106, §§ 1-208; 2-508; 2-603; 2-614; 2-615; 1-205; 2-305(2); 2-306(1); 2-311(1); 1-208 (2002).[back]

50. Id. § 1-203.[back]

51. Mass. Gen. Laws ch. 106, § 2-103(b) (2002); Id. § 1-201(19); see also Mass. Gen. Laws ch. 106, § 3-103 (negotiable instruments; "'good faith' means honesty in fact and observance of reasonable commercial standards"). Pride Hyundai, Inc. v. Chrysler Fin. Co., L.L.C., 2004 U.S. App. LEXIS 10455 *3 (May 27, 2004).[back]

52. DeMoulas v. DeMoulas Super Mkts. Inc., 424 Mass. 501, 547 (1997); see also McCarthy, Kenney & Reidy, P.C. v. First Nat'l Bank of Boston, 402 Mass. 630, 635 (1988) (definition of good faith in UCC does not require commercial reasonableness); But see Pride Hyundai, 2004 U.S. App. LEXIS at *3.[back]

53. Robert Braucher, The Legislative History of the Uniform Commercial Code, 58 Colum. L. Rev. 798, 812 (1958).[back]

54. Demoulas, 424 Mass. at 547.[back]

55. See, e.g., Mass. Gen. Laws ch. 106, § 301-3(a)(4) (good faith as to negotiable instruments defined as "honesty in fact and the observance of commercially reasonable standards"); Mass. Gen. Laws ch. 106, § 2A-103(3) (same as to lease transactions); Mass. Gen. Laws ch. 106, § 8-102(a)(10) (same as to investment securities); R. Wilson Freyermuth, Enforcement of Acceleration Provisions and the Rhetoric of Good Faith, 1998 BYU L. Rev. 1035, 1064 n.84 (discussing amendments involving good faith to Articles 3, 4 and 4A).[back]

56. The "excluder" analysis to good faith was first articulated by Summers. See Summers, supra note 1; Robert S. Summers, "Good Faith" in General Contract Law and the Sales Provisions of the Uniform Commercial Code," 54 Va. L. Rev. 195, 196 (1968) [hereinafter Summers, General Contract Law].[back]

57. Restatement (Second) Contracts 205 cmt. d.[back]

58. See e.g., Krapf, 439 Mass. at 107; Nile v. Nile, 432 Mass. 390, 398-99 (2000); Lafayette Place Assocs. v. Boston Redev. Auth., 427 Mass. 509, 526 (1998); Hawthorne's, Inc. v. Warrenton Realty, Inc., 414 Mass. 200, 211 (1993); Davidson v. Gen. Motors Corp., 57 Mass. App. Ct. 637, 647 (2003); Cadle Co. v. Vargas, 57 Mass. App. Ct. 361, 365-66 (2003); Tufankjian v. Rockland Trust Co., 57 Mass. App. Ct. 173, 174 (2003).[back]

59. Zapatha v. Dairy Mart, Inc, 381 Mass. 284, 291 (1980) (applying UCC's good-faith obligation to franchise agreement not covered by UCC); Waste Stream Environmental, Inc. v. Lynn Water and Sewer Comm'n, 2003 Mass. Super LEXIS 43, *26 n. 29 (Whitehead, J.) ("Common law cases are governed by analogous UCC principles when the UCC evolved from considerations comparable to those in common law.").[back]

60. Summers, General Contract Law, supra note 56, at 206, 264. Summers described "good faith" as a "phrase which has no general meaning or meaning of its own but which serves to exclude many heterogeneous forms of bad faith." Id. at 196.[back]

61. Id.[back]

62. Id. at 215.[back]

63. Restatement (Second) Contracts § 205.[back]

64. Van Alstine, Of Textualism, supra note 42, at 1240 (quoting Restatement (Second) Contracts § 202(1)).[back]

65. Restatement (Second) Contracts §§ 202 cmt. a; 212 cmt. b; 214 cmt. b; 214(c); 222(3); 202(4); 223(2); see also Krapf, 439 Mass. at 107 (separation agreement interpreted by its terms and context).[back]

66. Mass. Gen. Laws ch. 106, §§ 1-201(11), 1-201(3), 1-205 (2002).[back]

67. Uniform Commercial Code's Permanent Editorial Board (PEB) Commentary on UCC, PEB Commentary No. 10 Final Draft, at 3 n.12, UCC Rep. Serv. (Callahan) (Feb. 10, 1994) (quoting 3 A. Corbin, Corbin on Contracts § 570 (West Supp. 1993).[back]

68. Van Alstine, Of Textualism, supra note 42, at 1252-54.[back]

69. Id. (citing Restatement (Second) of Contracts § 205 cmt. a).[back]

70. Id. at 1252-53 (citing Restatement (Second) of Contracts § 205 cmt. a).[back]

71. Mass. Gen. Laws ch. 1-102(3) (2002).[back]

72. Id.[back]

73. 373 Mass. 96 (1977).[back]

74. Id. at 101.[back]

75. Id. at 102.[back]

76. Id. [back]

77. Id. at 104. Notably, the Supreme Judicial Court in Fortune held that the defendant-employer's written contract with its employee "contain[ed] an implied covenant of good faith and fair dealing and a termination not made in good faith constitutes a breach of the contract." Fortune, 373 Mass. at 101.[back]

78. 391 Mass. 333 (1984) (Gram II).[back]

79. Id. at 335.[back]

80. Fortune, 373 Mass. at 101-02.[back]

81. Cochran v. Quest Software, Inc., 328 F.3d 1, 14 (1st Cir. 2003).[back]

82. 411 Mass. 451 (1991).[back]

83. Id. at 455-56.[back]

84. Id.[back]

85. Id. at 455.[back]

86. Id.[back]

87. Anthony's Pier Four, 411 Mass. at 458.[back]

88. Id. at 462-63.[back]

89. Id. at 472.[back]

90. There was evidence that the owner's representative had stated that "I'd rather look out of my window on nothing than on a lousy deal." Id. at 462.[back]

91. Id. at 472-73.[back]

92. Id. at 473 (quoting Steven J. Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harv. L. Rev. 369, 372-73 (1980)); see also James L. Miniter Ins. Agency, Inc. v. Ohio Indem. Co., 112 F.3d 1240, 1250-51 (1st Cir. 1997) ("the existence of the covenant in no way depends on the level of sophistication of the parties").[back]

93. Piantes v. Pepperidge Farm, Inc., 875 F. Supp. 929, 938 (D. Mass. 1995) (quoting Anthony's Pier Four, 411 Mass. at 473).[back]

94. Cadle Co., 55 Mass. App. Ct. at 366 (quoting Restatement (Second) of Contracts § 205); accord Davidson, 57 Mass. App. Ct. at 647; Tufankjian, 57 Mass. App. Ct. at 177.[back]

95. Equipment & Systems for Industry, Inc. v. Northmeadows Construction Co., 59 Mass. App. Ct. 931, 933 (2003), citing Nagel v. Provident Mut. Life Ins. Co. of Philadelphia, 51 Mass. App. Ct. 763, 768-69 (2001).[back]

96. Thomas A. Diamond & Howard Foss, Proposed Standards for Evaluating When the Covenant of Good Faith and Fair Dealing Has Been Violated: A Framework for Resolving the Mystery, 47 Hastings L.J. 585, 594 (1996).[back]

97. Id. at 598-99.[back]

98. Id.[back]

99. Id.[back]

100. Krapf, 439 Mass. at 106, citing Nile, 432 Mass at 398-99.[back]

101. 441 Mass. 376 (2004).[back]

102. Id. at 386.[back]

103. 1989 U.S. Dist. LEXIS 16104 (D. Mass. July 25, 1989).[back]

104. Id. at *23; see also Gloucester Landing Assoc. Ltd. P'ship v. Gloucester Redev. Auth., 60 Mass. App. Ct. 403, 413 (2004) (duty of good faith and fair dealing does not require urban redevelopment authority to assist developer in quest for license in connection with development project).[back]

105. Uno, 441 Mass. at 385.[back]

106. Id. at 385.[back]

107. Note, Lender Liability and Good Faith, 68 B.U.L. Rev. 653 (1988).[back]

108. Williams v. Resolution GGF OY, 417 Mass. 377, 382-83 (1994).[back]

109. Pemstein v. Stimpson, 36 Mass. App. Ct. 283, 287 (1994).[back]

110. Shawmut Bank, N.A. v. Wayman, 34 Mass. App. Ct. 20, 25 (1993).[back]

111. Shawmut Bank, N.A. v. Miller, 415 Mass. 482, 485 (1993).[back]

112. Green v. Blue Cross & Blue Shield of Mass., Inc, 47 Mass. App. Ct. 443, 448 (1999) (quoting Sarnafil, Inc. v. Peerless Ins. Co., 34 Mass. App. Ct. 248, 254 (1993)).[back]

113. Sarnafil, 34 Mass. App. Ct. at 254 (quoting Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 324 (1991)).[back]

114. Murach v. Mass. Bonding & Ins. Co., 339 Mass. 184, 187 (1959).[back]

115. Hartford Cas. Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115, 120 (1994).[back]

116. The duty of good faith and fair dealing has also recently been found applicable to a criminal plea agreement. In that context, the court will evaluate whether the prosecution has not only literally complied with the plea agreement, but whether its conduct was reasonably consistent with the promises contained in the agreement. See United States v. Cruz-Mercado, 360 F.3d 30 (1st Cir. 2004); United States v. Frazier, 340 F.3d 5 (1st Cir. 2003).[back]

117. Meinhard v. Salmon, 249 N.Y. 458, 463-64 (1928).[back]

118. Krapf, 439 Mass. at 103.[back]

119. Micromuse, Inc. v. Micromuse, PLC, 2004 U.S. Dist. LEXIS 2205 (D. Mass. 2004).[back]

120. Starr v. Fordham, 420 Mass. 178, 183 (1995).[back]

121. Rutanen v. Ballard, 424 Mass. 723, 728-733 (1997).[back]

122. Wilkes v. Springside Nursing Home, Inc., 370 Mass. 842, 848-49 (1976); Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 593 (1975); see also Jernberg v. Mann, 358 F.3d 131 (1st Cir. 2004) (good faith and fair dealing applicable to corporate officers); Cecconi v. Cecco, Inc., 739 F. Supp. 41, 45 (D. Mass. 1990) (officers and directors owe a fiduciary duty to protect the interests of the corporation they serve).[back]

123. Geller v. Allied-Lyons PLC., 42 Mass. App. Ct. 120, 126-27 (1997) (full and complete disclosure required by corporate fiduciaries).[back]

124. See Starr, 420 Mass. at 183 (unfair determination of law partner's respective share of partnership earnings is breach of both fiduciary duty and duty of good faith and fair dealing).[back]

125. Office One, Inc. v. Lopez, 437 Mass. 113, 125 (2002).[back]

126. McAdams v. Mass. Mut. Life Ins. Co., 2000 U.S. Dist. LEXIS 22068 (D. Mass. 2000) (arm's length transaction will generally not give rise to fiduciary duties).[back]

127. See e.g., Nei v. Burley, 388 Mass. 307, 311 (1983) (no fiduciary duty between sellers and buyers or brokers and buyers including any particular "duty to speak").[back]

128. See Production Mach. Co. v. Howe, 327 Mass. 372 (1951).[back]

129. Id. at 374.[back]

130. See Hawkes v. Lackey, 207 Mass. 424, 432 (1911).[back]

131. Clark v. Rowe, 428 Mass. 339, 342 (1998) (fiduciary relationships are never arms length).[back]

132. 57 Mass. App. Ct. 888 (2003).[back]

133. Id. at 896.[back]

134. Id. (quoting Restatement (Second) of Contracts § 204).[back]

135. Id.[back]

136. 344 F.3d 22 (1st Cir. 2003).[back]

137. Id. at 24.[back]

138. Id. at 27-28.[back]

139. See Kham & Nate's Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990); accord Taylor Equip, Inc. v. John Deere Co., 98 F.3d 1028, 1032-33 (8th Cir. 1996) (good-faith doctrine is gap filler); see also Tymshare v. Covell, 727 F. 2d 1145 (D.C. Cir. 1984) (Scalia, J.) (significance of good faith in contracts is in implying terms).[back]

140. Duquette v. Burtch, 2003 Mass. Super LEXIS 121, *2 (2003).[back]

141. Hawthorne's, Inc. v. Warrenton Realty, Inc., 414 Mass. 200, 209-10 (1993).[back]

142. Northern Heel Corp., 851 F.2d at 471.[back]

143. Id.[back]

144. Cofer v. Sunoco, Inc., 2003 U.S. Dist. LEXIS 7488 (D. Mass. 2002) (Zobel, J.) (summary judgment denied where it was disputed there were complaints about services).[back]

145. Id. See also Rey v. Lafferty, 990 F.2d 1379 (1st Cir. 1993) (license contract reserving to the owner of Curious George the right to approve certain ancillary products, permitted disapproval based on integrity and creative interest of owner).[back]

146. 57 Mass. App. Ct. 173 (2003).[back]

147. Id. at 178.[back]

148. Id. at 175-76.[back]

149. Id.[back]

150. Id. at 177.[back]

151. Turkanjian, 57 Mass. App. Ct. at 175-78.[back]

152. Market Street, 941 F.2d at 595-96 (Posner, J.)[back]

153. Nile, 432 Mass. at 398-99; Krapf, 439 Mass. 97 (2003).[back]

154. Nile, 432 Mass. at 391-93.[back]

155. Id. at 399.[back]

156. Id. at 398-99.[back]

157. 439 Mass. 97 (2003).[back]

158. Id. at 98-102.[back]

159. Id. at 105.[back]

160. Id. at 106.[back]

161. Id. at 107 (quoting Larson v. Larson, 37 Mass. App. Ct. 106, 110 (1994)) (husband violated duty of good faith to separation agreement when he retired from successful career and good health without making some other provision to his wife thereby "evading the spirit of the bargain"); Nile, 432 Mass. at 398-99 (breach of implied covenant of good faith and fair dealing does not require showing of bad faith; lack of good faith may be inferred by considering totality of circumstances).[back]

162. 55 Mass. App. Ct. 361 (2002).[back]

163. Id. at 361.[back]

164. See id. at 361-64.[back]

165. Id. at 365.[back]

166. Id. at 366.[back]

167. Id. at 368.[back]

168. Blank v. Chelmsford OB/GYN, P.C., 420 Mass 404, 408-09 (1995).[back]

169. Zapatha, 381 Mass. at 291.[back]

170. See Zapatha v. Dairy Mart, 381 Mass. 284; accord Piantes v. Pepperidge Farm, Inc., 875 F. Supp 929 (D. Mass. 1995).[back]

171. Piantes, 875 F. Supp. at 938.[back]

172.Resorting to the express terms of the agreement, the court held that "[w]hat is missing . . . is any evidence that their actions were motivated by a desire to deprive [plaintiff] of what he reasonably could have expected to receive under the contract, namely continued work on his route, or, the contractually determined compensation which he was offered." Piantes, 875 F. Supp. at 938.[back]

173. 41 Mass. App.Ct. 125 (1996).[back]

174. See generally McNulty v. W.S. Libbey Co., 1987 U.S. Dist. LEXIS 2762 (D. Mass. 1987) (notice may be required in at-will termination if change of position or special injuries could have been avoided by notice).[back]

175. 199 F.3d 6 (1st Cir. 1999).[back]

176. Id. at 15.[back]

177. Boyle v. Douglas Dynamics, LLC., 99 Fed. Appx. 243 (1st Cir. 2004).[back]

178. Id. at *9.[back]

179. See Williams v. B & K Med. Sys., 49 Mass. App. Ct. 563, 564-66 (2000).[back]

180. 425 Mass. 1 (1997).[back]

181. Id. at 5-13.[back]

182. See, e.g., Jaguar Cars v. Lee Imported Cars, Inc., 2004 U.S. Dist. LEXIS 8781, n.7 (D. Mass. May 18, 2004); Boyle v. Douglas Dynamics, LLC., 292 F. Supp. 2d. 198 (D. Mass. 2003), aff'd, 99 Fed. Appx. 243 (1st Cir. 2004) (good faith and fair dealing directed to the manner of performance, not to invoking rights and duties not in the contract); see also Chokel v. Genzyme Corp., 2003 Mass. Super. LEXIS 417 (Nov. 12, 2003) (Van Gestel, J.) ("New or independent duties separate from those already in contract cannot be added by a judge under the cloak of an implied covenant of good faith and fair dealing"); Kroutik v. Momentix, Inc., 2003 Mass. Super. LEXIS 112 (Apr. 2, 2003); Owen v. Kessler, 56 Mass. App. Ct. 466 (2002) (same); Dunkin' Donuts Inc. v. Panagakos, 5 F. Supp. 2d 57, 64 (D. .Mass 1998).[back]

183. Northern Heel Corp. v. Compo Indus., Inc., 851 F.2d 456, 466 (1st Cir. 1988); see also Kroutik v. Momentix, Inc., 2003 Mass. Super. LEXIS 112 (Apr. 2, 2003) ("the court cannot, through the vehicle of the implied covenant, add obligations to a contractual undertaking that the parties did not impose on themselves").[back]

184. Epstein, Becker & Green, P.C. v. Atlas Venture, 2003 Mass. Super. LEXIS 84, *10 (May 24, 2003) (Cratsley, J.) (citing Rogaris v. Albert, 431 Mass. 833, 835 (2000)).[back]

185. 99 Fed. Appx. 243 (1st Cir. 2004).[back]

186. Id. at 246.[back]

187. Id. at 247.[back]

188. Id.[back]

189. Id. at 246. The district court found similarly, stating that good faith could not be used to "rewrite [the parties'] agreement." Boyle, 292 F. Supp. 2d at 210.[back]

190. 56 Mass. App. Ct. 466 (2002).[back]

191. Id. at 466-67.[back]

192. Id. at 467-69.[back]

193. Id. at 471-72.[back]

194. Uno, 441 Mass. at 385.[back]

195. Id.[back]

196. Id. at 386.[back]

197. See, e.g., Kham & Nate's Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990); Empire Gas, 840 F.2d at 1335.[back]

198. See Lafayette Place Assocs. v. Boston Redev. Auth., 427 Mass. 509, 517 (1998); Schwanbeck v. Federal-Mogul Corp., 412 Mass. 703 (1992); Levenson v. L.M.I. Realty Corp., 31 Mass. App. Ct. 131 (1991); see also Accusoft Corp. v. Palo, 237 F.3d 31, 45 (1st Cir. 2001); FDIC v. LeBlanc, 85 F.3d 815 (1st Cir. 1996); JBL Bus. Co. v. MBTA, 13 Mass. L. Rptr. 486 (2001) (no claim under implied covenant of good faith and fair dealing for contract negotiations); Abrams v. Chase, 1996 Mass. Super. LEXIS I (1996).[back]

199. Levenson v. LMI Realty Corp., 31 Mass. App. Ct. 127, 131 (1991); Realty Central, L.L.C. v. Re/Max of New England, Inc., 2003 Mass. Super. LEXIS 254, *18-19 (Aug. 12, 2003).[back]

200. The restatement also provides that the duty of good faith and fair dealing does not apply to contractual negotiations. Restatement (Second) of Contracts § 205 cmt. c.[back]

201. 412 Mass. 703 (1992).[back]

202. Schwanbeck, 412 Mass. at 706.[back]

203. 31 Mass. App. Ct. 390, 398.[back]

204. Id.[back]

205. See also Abrams v. Chase 996 Mass. Super LEXIS 1 (1996) (rejected assertion that Schwanbeck stands for proposition that agreement to negotiate is of no binding effect, but there was no violation of the duty of good faith as no evidence of "ulterior motive").[back]

206. Channel Home Ctrs. v. Grossman, 495 F.2d 291, 294 (3rd Cir. 1986).[back]

207. Woods Hole Oceanographic, Inst. v. United States, 1981 U.S. App. LEXIS 15182 (1st Cir. 1981).[back]

208. Candid Prods., Inc. v. Int'l Skating Union, 530 F. Supp. 1330, 1337 (S.D.N.Y. 1982).[back]

209. Ysiem Corp. v. Commercial Net Lease Realty, Inc., 328 F. 3d 20, 23 (1st Cir. 2003).[back]

210. Id.[back]

211. Id. See generally, Friedrich Kessler & Edith Fine, Culpa de Contrahendo, Bargaining in Good Faith and Freedom of Contract: A Comparative Study, 73 Har. L. Rev. 401 (1964).[back]

212. Ysiem Corp., 328 F.3d at 23-24.[back]

213. The Appeals Court in Schwanbeck recognized:

Not allowing reasonable freedom to terminate negations injects an undesirable [time] factor into preliminary negotiations, which plants the seed of protracted litigation in every deal that goes sour.

Id. at 398-99.[back]

214. See Van Alstine, Of Textualism, supra note 42, at 1292-1311.[back]

215. Wilshire Credit Corp. v. Wehmeyer Realty Trust, 1999 Mass. Super. LEXIS 211 (April 28, 1999) (Fecteau, J.) (citing Cambridgeport Sav. Bank, N.A. v. Boersner, 413 Mass. 432, 443-44 (1992); see also Shawmut Bank, N.A. v. Wayman, 34 Mass. App. Ct. 20, 24-25 (1993) (skirting issue of whether waiver in guarantee includes waiving obligation of good faith by finding even if it did not, no evidence shown of dishonest act or design to deprive borrower of benefits of contract).[back]

216. See Van Alstine, Of Textualism, supra note 42, at 1281-1311.[back]

217. See id. at 1223 (citing Tymshare, Inc. v. Covell, 727 F.2d 1145, 1153 (D.C. Cir. 1984) (Scalia, J.) (quoting MacDougald Constr. Co. v. State Highway Dep't, 125 Ga. App. 591, 594, 188 S.E. 2d 405, 407 (1972)).[back]

218. Mass. Gen. Laws ch. 106, § 1-102(3) (2002).[back]

219. Van Alstine, Of Textualism, supra note 42, at 1296.[back]

220. Id. at 1295-96.[back]

221. See, e.g., The Garshman Co. v. Gen. Elec. Co., 993 F. Supp. 25 (D. Mass. 1998) (discussing Nevada law).[back]

222. Starr, 420 Mass. at 194.[back]

223. See e.g., Schink v. Baker, 2002 Conn. Super LEXIS 612 (2002) (measure of damages for violation of good faith and fair dealing is same as contractual).[back]

224. See generally Laurin v. DeCarolis Constr. Co., 372 Mass. 688, 691 (1977); DCPB, Inc v. City of Lebanon, 957 F.2d 913, 916 (1st Cir. 1992) (breach of duty of good faith and fair dealing has historically been addressed by awarding compensatory damages).[back]

225. DCPB, Inc. v. City of Lebanon, 957 F.2d 913, 915-16 (1st Cir. 1992).[back]

226. See, e.g., Linkage Corp. v. Trs. of Boston Univ., 425 Mass. 1, 28-29 (1997) (damages under breach of implied covenant of good faith and fair dealing found duplicative of breach of contract damages).[back]

227. Compare Kroutik v. Momentix, Inc., 2003 Mass. Super. LEXIS 112 (Apr. 2, 2003) (without breach of contract no breach of duty of good faith and fair dealing) with Marx v. Globe Newspaper Co., 2001 Mass. LEXIS 9, *10-11 (2001) (a party may breach the covenant of good faith and fair dealing without breaching any express terms of the underlying contract); see also Fortune, 373 Mass. at 101 (no breach of literal reading of contract but a violation of good faith and fair dealing).[back]

228. King v. Driscoll, 424 Mass. 1, 7 (1996); Kravetz v. Merchants Distribs., Inc., 387 Mass. 457, 463 (1982).[back]

229. Cherick, 41 Mass. App. Ct. at 129. [back]

230. See, e.g., Canha v. LaRoche, 1996 Mass. Super LEXIS 527 at *15-16 (1996) (Houston, J.); Cherick, 41 Mass. App. Ct. at 129.[back]

231. 411 Mass. 200 (1993).[back]

232. Id. at 211.[back]

233. See Okerman v. VA Software Corp., 2003 Mass. Super. LEXIS 212, *18 (July 9, 2003) (Cratsley, J.) (citing LaBonte v. Hutchins & Wheeler, 424 Mass. 813, 820 (1997)).[back]

234. See, e.g., Carey v. New England Organ Bank, 2004 Mass. Super. LEXIS 132, *12-13 (2004).[back]

235. 441 Mass. 376.[back]

236. 363 F.3d 70 (1st Cir. 2004).[back]

237. Id. at 74.[back]

238. See Levings v. Forbes & Wallace Inc., 8 Mass. App. Ct. 498 (1979); see also Atkinson v. Rosenthal, 33 Mass. App. Ct. 219, 226 (1992).[back]

239. Pepsi-Cola Metro Bottling Co. v. Checkers, Inc., 754 F.2d 10, 18 (1st Cir. 1985); Madan v. Royal Indem. Co., 26 Mass. App. Ct. 756, 762 (1989).[back]

240. Anthony's Pier Four, 411 Mass. at 451.[back]

241. PH Group Ltd. v. Birch, 985 F. 2d 649, 652-53 (1st Cir. 1993).[back]

242. Marx v. Globe Newspaper Co., 2002 Mass. Super. LEXIS 455, *14 (Nov. 26, 2002).[back]

243. See Mass. Employers Ins. Exch. v. Propac-Mass, Inc., 420 Mass. 39, 42-43 (1995); see also Diamond Crystal Brands, Inc. v. Blackleaf, L.L.C., 60 Mass. App. Ct. 502 (2004).[back]

244. Arthur D. Little, Inc. v. Do Yang Corp., 147 F. 3d 47, 55 (1st Cir. 1998); Atkinson v. Rosenthal, 33 Mass. App. Ct. 219 (1992); Pepsi-Cola, 754 F.2d at 17-19; see also NASCO, Inc. v. Public Storage, Inc., 29 F.3d 28 (1st Cir. 1994) (summary judgment for defendant on 93A claim reversed as reasonable jury could conclude from evidence that defendant breached contract in order to obtain for itself unbargained for benefits to the detriment of the plaintiff).[back]

245. Diamond Crystal Brands, Inc. v. Blackleaf, L.L.C., 60 Mass. App. Ct. 502 (2004).[back]

246. Wang Lab., Inc. v. Bus. Incentives Inc., 398 Mass. 854, 856-59 (1986).[back]

247. Clamp-All Corp. v. Foresta, 53 Mass. App. Ct. 795 (2002).[back]

248. Poznik v. Mass. Med. Prof'l Ins. Ass'n, 417 Mass. 48, 53 (1994) (citation omitted).[back]

249. Manning v. Zuckerman, 388 Mass. 8, 12 (1983).[back]

250. See, e.g., MSM Invs. Co. v. Carolwood Corp., 2004 U.S. App. LEXIS 4739, *3 (9th Cir. 2004); see also Steven Burton & Eric Andersen, Contractual Good Faith: Formation, Performance, Breach, Enforcement 63-64 (1995) (emphasizing that express terms have priority in determining contractual expectations).[back]

251. Van Alstine, Of Textualism, supra note 42, at 1274-75 (citing 3 Corbin on Contracts 570(A) (Supp. 1998)).[back]

252. Id. at 1312.[back]

hapter 93A XVII. A Responsible and Modern Duty of Good Faith and Fair Dealing I. Introduction In Massachusetts, the duty or covenant of good faith and fair dealing in all contracts is well-established. Despite its time-honored status, however, its scope and application remain elusive and ill-defined. Instead of setting forth a definitive standard or criteria for assessing challenged conduct, courts have opted to address claims on an individualized, fact-specific basis. The elusiveness stems from the controversy that the principle of good-faith performance engenders in the law of contracts. Hailed by some as an indispensable measure of "contractual morality,"1 it is referred to by others as a "chameleon,"2 as well as an unwarranted invitation to the judiciary to impermissibly intrude into freedom of contract.3 This article reviews both the historical underpinnings and recent case developments as to the duty of good faith and fair dealing in commercial contracts in Massachusetts and the underlying tension between implied obligations of good faith and fair dealing and the right of parties to construct their bargains free from judicial or external notions of good faith. II. Early Seeds and Instinctive Obligation Good faith and fair dealing in contractual relations has deep roots extending back as far as Roman law.4 It likewise has long been part of the law of countries such as Germany that follow a "civil code."5 Under some civil-code systems, the duty encompasses not only the generalized obligation of contracting parties to act reasonably but requires a relationship of trust based on commercial dealings of the transacting parties.6 Some jurisdictions, in fact, impose the duty not only on contractual performance but also on contractual negotiation, allowing for a claim in tort for any breach as well as otherwise rendering any term or agreement contrary to "good faith" void and unenforceable.7 The development of the duty of good faith and fair dealing in American law, including Massachusetts, has been more circumscribed. Nonetheless, very early Massachusetts recognized that "good faith" had a role in contractual relations. In 1808, Justice Sedgwick of the Supreme Judicial Court observed that "not only good morals, but the common law, requires good faith, and that every man in his contracts should act with common honesty."8 Good faith emerged in the early common law's willingness to "imply" both promises and terms to contractual relations. Implied promises were found to render enforceable transactions or obligations that would otherwise not be due to lack of mutuality or consideration.9 According to the Supreme Judicial Court, in 1841: [V]ery many equity principles have been adopted by courts in modern times, allowing actions to be maintained on implied promises by the party to do what justice and equity require to be done, where there is no [enforceable] express contract.10 The most famous "implied promise" case, of course, is Justice Cardozo's decision in Wood v. Lucy, Lady Duff-Gordon.11 Decided in 1917, Justice Cardozo found an agreement to market clothing designs enforceable as it implicitly required "reasonable efforts" and as the court would not "suppose that one party was to be placed at the mercy of the other."12 According to Justice Cardozo: The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view today. A promise may be lacking and yet the whole writing may be "instinct with an obligation," imperfectly expressed.13 In addition to recognizing implied promises, courts often would supply terms to a parties' bargain. This power was utilized when the parties' express agreement did not resolve the dispute because the agreement was either silent or ambiguous about the post-formation conduct at issue. This was seen as a necessary gap-filling role in order to effectuate the common, albeit unexpressed, expectations of the parties.14 The power to imply and the belief that contracts can be "instinct with obligation," comprised the foundation for the recognition of an obligation of "good faith" in a variety of transactions. By 1919, Massachusetts noted that it had, "where equity in the interest of good faith and fair dealing"15 required, prohibited the use of information acquired through employment,16 protected the good will of a vendee against setting up a rival business by the vendor17 and precluded the appropriation of property.18 These holdings all reflected "equitable doctrines engrafted on written instruments silent upon the subject because consonant with fundamental ethical rules of right and wrong."19 Massachusetts proceeded to recognize a number of additional "implied promises" or covenants and imposed "good faith" in an increasing number of contractual relations. For example, it was recognized that even though a party failed to fully perform under a contract it could still recover the value of the services rendered where the party acted in good faith and had unintentionally failed to perform the full contract.20 Similarly, contracts containing "satisfaction clauses" were subject to "reasonableness" and "good faith," with the courts stating that if the service at issue was satisfactory to a reasonable person in view of all the circumstances "there is read into the contract the rule that, that which the law says a party ought to be satisfied with, the law will say he is satisfied with."21 III. 'Men of Honor' and the 'Right to the Fruits' It was not long before Massachusetts expressly provided that good faith was applicable to all contracts. Indeed, in 1929, the Supreme Judicial Court, in addressing a breach of contract claim under an option agreement for the purchase of stock in an oil-producing leasehold, expressly stated, for the first time, that there was an obligation of good faith and fair dealing in all contracts.22 The court referred to the parties as "men of honor" and emphasized that a business contract "is to be interpreted as a business transaction entered into by practical men to accomplish an honest and straightforward end."23 Beginning in 1936, the duty of good faith was defined as a covenant "that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract."24 This formulation originated from Justice Hubbs of the high court in New York25 and was adopted and restated three years later by the First Circuit in holding that a contract to prepare radio advertisements impliedly obligated that the advertisements or related materials could not be assigned by the creator for the benefit of another.26 The court found that to allow such post-formation conduct would result in the loss of the benefits sought by the purchaser of the advertisements in entering into the contract. This "fruits" articulation of the duty of good faith remains intact today and is regularly quoted as the operative standard.27 IV. Countervailing Power of Contractual Text At the time that good-faith obligation was gaining a foothold in Massachusetts jurisprudence, certain opposing canons of contract construction were already entrenched. These fundamental canons of construction served, and continue to serve, to severely restrict the scope and meaning of any implied duty of good faith. Indeed, Massachusetts gave homage (and continues to do so today) to the principle that utmost primacy must be given to the words and terms used in the parties' express agreement.28 If unambiguous, it was to be construed solely by the instrument's "plain terms' or within the "four corners" of the document.29 Moreover, in 1877, the Supreme Judicial Court proclaimed that "[e]ven if it be found that the contract, according to its true meaning . . . fails to become operative, it is not for the court, in order to give it operation, to suppose a meaning which the parties have not expressed."30 The parol evidence rule buttressed the "plain term," "four corner" means of resolving contractual disputes by barring introduction of any extrinsic evidence that would contradict or supplement the express terms.31 Such an approach places great faith and certainty in the written word as well as in the parties to identify and resolve all possible issues and to otherwise predict the future. Accordingly, early common law saw the development of two seemingly opposing forces - implied notions of good faith and the sanctity of express contractual terms. In an 1885 decision, the Supreme Judicial Court touched on the tension between the written word and the power to imply in a claim that a lease contained an implied covenant that the lessee was to manufacture bricks. According to the court: No precise words are necessary to constitute a covenant provided we are able to collect an agreement by the parties that a certain thing shall be done, that will be sufficient to enable us to say that a covenant is created. But we must be satisfied that the language does not merely show that the parties contemplated that the thing might be done, but it must amount to a binding agreement upon them that the thing shall be done.32 The recognition of the confluence of these opposing forces is essential to both a proper understanding of the duty of good faith and fair dealing in Massachusetts as well as in any efforts to further define its modern contours and application. V. Contractual Context Massachusetts common law eventually developed a less rigid approach of contractual interpretation by recognizing the need to interpret and apply the contract in "context." As Justice Holmes observed in 1918, "a word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and context according to the circumstances and the time in which it is used."33 Not only could courts, in certain circumstances, supply or imply terms or obligations into an agreement34 but under a "contextual" view of contract interpretation, they could also consider "the facts and circumstances of the transaction."35 This includes "the situation and relations of the parties for the purpose of applying the terms of the written contract to the subject matter and removing and explaining any uncertainty or ambiguity which arose from such application."36 While it has been held that "[c]ourts cannot . . . use commercial context to override express provisions of a contract,"37 contract interpretation remains as an "individualized process, with the conclusion in a particular case turning on the particular language used against the background of other indicia of the parties' intention."38 Accordingly, a contract is to be construed "with reference to the situation of the parties when they made it and to the objects sought to be accomplished."39 It should also be accorded a construction that effectuates "[j]ustice, common sense and the probable intention of the parties"40 and gives the agreement effect "as a rational business instrument."41 The recognition of a "contextual" approach to contract construction was a move away from the "formalistic" contractual interpretation rules and is consistent with the notion of good faith and fair dealing.42 Further, such an approach suggests a possibly broader application of the duty of good faith and fair dealing.43 As more fully set forth below, recent applications of the duty demonstrate that this has not been the case. Nonetheless, the contextual approach to contract dispute resolution remains important to a workable and just application of good faith in modern commercial contracts.44 VI. The Uniform Commercial Code and The Restatement (Second) of Contracts The most significant historical development as to the duty of good faith and fair dealing in Massachusetts took place with the adoption of the Uniform Commercial Code (UCC) and the publishing of the Restatement (Second) of Contracts.45 Both are significant authority in Massachusetts jurisprudence and set forth what may be considered to be the high water mark for the doctrine. A. The UCC Massachusetts first adopted a version of the UCC in 1957 and was the second state to do so.46 The notion of good faith and fair dealing plays a significant role in the UCC. Although the UCC is "not a comprehensive codification of commercial law," is not applicable to a majority of commercial transactions and leaves many issues such as contract formation to the "common law,"47 it does specifically incorporate the duty of good faith. Indeed, "good faith" is referenced in at least 50 different UCC provisions.48 Various UCC sections expressly impose a "good faith" limitation on a number of discretionary powers provided for under the UCC such as specifying a price term, unspecified quantities under output or requirement contracts, acceleration of performance and other aspects of performance.49 The primary UCC provisions pertaining to good faith are sections 1-103, 1-201(19) and 2-103. Section 1-203 of the UCC's general provisions, as adopted in Massachusetts, states that "[e]very contract or duty within this chapter imposes an obligation of good faith in its performance or enforcement."50 Section 1-201(19), in turn, defines good faith as only "honesty in fact in the conduct or transaction concerned." With regard to "merchants" and the "sale of goods" (Article 2) and contracts governed by Article 9, however, good faith is further defined to mean "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade."51 As a result, the UCC has two varying definitions of good faith: a narrow subjective definition and a broader objective standard. Under the "honesty in fact" definition, a subjective internal standard involving only a determination of the intent or state of mind of the party is at issue.52 This so called "pure heart empty head"53 approach looks only to the actual belief of the party and not the reasonableness of that belief.54 Under the broader definition, an objective standard applies and includes not only the actual belief of the party but also the reasonableness of the belief and conduct.55 These divergent views underscore the fundamental debate with good faith obligation in private contract; i.e. whether and to what extent external standards should be imposed to regulate post-formation conduct. B. The Restatement The Restatement (Second) of Contracts first emerged in 1981 and like the UCC constitutes another fundamental and important source of the duty of good faith in contractual relations. The operative provision is found in section 205, which provides in direct and succinct terms: Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. Unlike the UCC, the restatement speaks in terms of "good faith and fair dealing" not just "good faith." In the accompanying comments, good faith is described as "faithfulness to an agreed common purpose and consistency with the justified expectations of the other party" and as requiring "more than honesty." Like the UCC and using the "excluder"56 approach, the comments to section 205 proceed to define "good faith" by what constitutes "bad faith." A complete catalogue of types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party's performance.57 VII. Excluder, Context and Presumption of Good Faith Both the UCC and the restatement are compelling authoritative sources of the duty of good faith and fair dealing in commercial contracts. The restatement, including section 205, is frequently cited and referred to.58 The UCC, in turn, is authoritative even for contracts outside its scope, as the common law permits the "selective application" of "legislative statements of policy," including those as to "good faith," where analogous and reasonable.59 Both sources, in utilizing the "excluder" approach to defining good faith and fair dealing, eschew a more concrete definition, leaving the courts to develop the boundaries of the duty based on the particular contract, transaction and applicable commercial standards.60 This approach is based on the belief that attempts to impose a more definitive standard would be impossible and undesirable and that the need for flexibility outweighs the benefits of increased certainty.61 This is in keeping with the admonition that "[i]f an obligation of good faith is to do its job, it must be open ended rather than sealed off in a definition."62 Both sources likewise employ a contextual approach to contract construction.63 The restatement, for instance, makes clear that "[w]ords and other conduct are interpreted in the light of all the circumstances."64 Moreover, under the restatement, not only is there no need for a showing of ambiguity before extrinsic evidence as to the parties' understanding can be considered but even where the writing is integrated, extrinsic evidence such as usage of trade, prior and subsequent conduct, course of dealing and course of performance can be looked at to supplement, explain or qualify the writing.65 The UCC, in turn, emphasizes the necessary relationship of good faith and context by making clear that the concept of agreement is not limited to the terms of the writing but requires that the language be read and interpreted through the parties' actions, in light of the commercial practices, circumstances and context.66 A recent code commentary on the subject explains that: [T]he requirements of "good faith" . . . is but a recognition that the . . . parties . . . have understandings or expectations that were so fundamental that they did not need to negotiate about those expectations. When the court . . . holds that "good faith" requires a party not to violate those expectations, it is recognizing that sometimes silence says more than words, and it is understanding its duty to the spirit of the bargain is higher than its duty to the technicality of the language.67 Neither the UCC nor the restatement resolve the fundamental tension between implying general obligations of good faith to contractual relations and the right of parties to freely construct their bargains without undue imposition by a court's view of commercial reasonableness.68 For instance, the restatement appears at one point to limit and tie the duty of good faith to the formal expressions of the parties by stating that "[g]ood faith performance emphasizes faithfulness to an agreed common purpose and consistency with the judicial expectations of the other party."69 The restatement, however, does make clear that the duty encompasses broader social policy concerns such as "fairness and reasonableness" by providing that good faith excludes types of conduct involving bad faith "because they violate community standards of decency, fairness or reasonableness."70 The UCC appears to make a more concerted effort to reconcile the duty of good faith with contractual freedom. The UCC imposes the duty of good faith as a matter of law and provides that it cannot be disclaimed.71 It also provides, however, that the parties may by agreement determine the standards by which the good faith obligation is to be measured "if such standards are not manifestly unreasonable."72 In essence, a presumption of good faith is created, which presumption can be displaced or refined by the parties if they so desire and expressly provide. VIII. Fortune/Gram: At-will Termination A further benchmark in the development of the covenant of good faith and fair dealing was the Supreme Judicial Court's seminal decision in Fortune v. National Cash Register Co.73 where it expressly recognized and imposed the obligation of good faith and fair dealing on the right of an employer to terminate an at-will employment contract. Fortune involved an at-will contract between a salesman and employer that required the salesman be paid a salary and bonus for sales. The contract expressly provided for termination without cause by either party upon written notice. Although the salesman was terminated shortly before the receipt of a substantial sale, it was undisputed that he had been paid all commissions owing and provided written notice of termination. The Supreme Judicial Court agreed that under a "literal reading" of the contract there was no breach or liability.74 Nonetheless, the court affirmed the judgment for the salesman and held that the contract contained an implied covenant of good faith and fair dealing and that a termination made in "bad faith" constituted a breach of contract. While the court recognized the general rule that at-will contracts allow termination "without reason," it also recognized that it was "the general requirement in this Commonwealth that parties to contracts and commercial transactions must act in good faith toward one another."75 Citing to the UCC, it called the duty of good faith and fair dealing between parties "pervasive requirements in [Massachusetts] law."76 The court further determined the finding of bad faith was supported by evidence that the termination was motivated by a desire to pay the salesman as little as possible of the bonus credit otherwise due or for which he was on the "brink' of earning. Under the Fortune articulation, the duty of good faith precludes an employer from terminating an at-will employee in "bad faith" for the purpose of depriving the employee of benefits or compensation due or forthcoming at the time of discharge.77 In its subsequent decision in Gram v. Liberty Mutual Insurance. Co.,78 the Supreme Judicial Court again addressed the issue of good faith and fair dealing in at-will employment. There, it was held that even where there is no "bad faith" as to the termination, a termination without "good cause," resulting in deprivation of reasonably ascertainable "compensation based on past services," was actionable pursuant to the duty of good faith and fair dealing.79 The Fortune-Gram articulation of the duty of good faith and fair dealing is notable in that it utilized an essentially contextual instead of literal approach to the employee-employer at-will contract. It recognized that employers did and should have flexibility to control their workforce but that this right would not be unduly interfered with by an implied obligation to act in good faith and fair dealing in any termination.80 While it is considered an "isthmian exception" to the general right in at-will relationships to terminate for any reason,81 and although it could be argued that the standard should be limited to the employer-employee relationship, it has been readily applied in other contexts as well and represents a very narrow application of good faith to challenges to at-will commercial contracts. IX. Discretionary Rights and The Recapture of Foregone Opportunities: Anthony's Pier Four Perhaps the most seminal modern day Massachusetts decision addressing the duty of good faith and fair dealing after the UCC and restatement was Anthony's Pier Four, Inc. v. HBC Associates.82 There, it was found that the duty of good faith as well as Massachusetts General Laws chapter 93A limited conduct taken pursuant to a discretionary right under a real estate development contract entered into between sophisticated parties. The real estate development contract at issue provided for the purchase and development of Boston's Fan Pier.83 The development plans included a high-rise hotel, office towers, luxury condominiums and a marina.84 The contract also contained rights of the owner for approval of the developer's development plan.85 Under the provision, approval by the owner was only needed if changes to the development plan would have a "materially adverse effect."86 The owner subsequently claimed that the development plan had not been approved, and when submitted by the developer the owner disapproved of the plan.87 This disapproval resulted in the developer being unable to obtain the financial backers and the necessary governmental permits resulting in the abandonment of the project.88 The jury verdict on the breach of the implied covenant of good faith and fair dealing claim was upheld by the court. In so doing, the Supreme Judicial Court rejected the contention that the implied covenant should not be implied "between sophisticated business people" and held that there was sufficient evidence to support the trial finding that the owner's disapproval of the development plan "destroyed or injured [the developer's] right to receive the fruits of the contract."89 Central to the decision was evidence that the disapproval of the plan was not due to any problems with the plan but that the owner wanted more money.90 According to the court: [A] number of the positions and actions taken by [the owner], culminating with the purported disapproval of the [development plan], were designed to force financial concessions from [the developer]. [The owner's] approval was crucial to [the developer's] efforts to obtain financial backing as well as governmental permits and approvals. Knowing that it thus could apply pressure on [the developer], [the owner] withheld its approval in an attempt to force [the developer] to sweeten the deal. [The owner's] use of a discretionary right under the agreement as a pretext justifies the judge's ruling that [the owner] breached the covenant of good faith and fair dealing.91 Given the long-standing development and presence of good faith and fair dealing in Massachusetts common law, the holding in Anthony's Pier Four was not a surprise. Nonetheless, it remains significant as it was an unequivocal application of the duty to a discretionary right in a commercial contract and was a construction made not solely on the basis of the terms of the contract but its context. Anthony's Pier Four also confirms that the duty of good faith applies even in contracts between sophisticated business persons and that the duty is violated where a discretionary right set forth in the contract is used to "recapture opportunities . . . determined by the other party's reasonable expectations."92 X. The Present Standard: Meaning Through Context The present formulation of the standard for the implied covenant or duty of good faith and fair dealing in Massachusetts is an amalgam of the "fruits," restatement and "recapture forgone opportunities" articulations. Recent decisions almost always reiterate that the duty of good faith and fair dealing requires that "neither party shall do anything that shall have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Most courts will likewise add "[w]here one party has the right to exercise discretion under the contract, it is bad faith to use that discretion to 'recapture opportunities foregone on contracting as determined by the other party's reasonable expectations.'"93 Recent Appeals Court decisions drew directly from the restatement stating that the implied obligation was better understood as a "duty" than a "covenant" and 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."94 It is this formulation that is at the heart of a proper and just role for the doctrine in Massachusetts commercial contracts. While the standard rule of good faith and fair dealing is easily and generally stated, Massachusetts has not endeavored to set forth a more specific standard or identify a set of universal criteria for identifying prohibited conduct. Some Massachusetts courts state that a violation requires "a dishonest purpose, consciousness of wrong, or ill-will in the nature of fraud" with little other explanation.95 Even under the restatement and UCC and their "excluder" approach, identifying conduct that is excluded from the realm of good faith, meaningful guidance is lacking. The restatement's categories such as "evasion of the spirit of the bargain," "lack of diligence and slacking off" and "abuse of power to determine compliance" are not particularly instructive. Equally evasive is interference with the "fruits of a contract" or the attempt to "recapture foregone opportunities." The difficulty is in ascertaining whether particular conduct represents a "foregone opportunity" of the contract as it may not be expressly contained in the contract. As one commentator noted, "[w]hen the contract does not indicate the permissibility of conduct, there is no agreed-upon source for determining whether the parties reasonably expected that the conduct would constitute a foregone opportunity."96 Similarly, the "fruits" of the contract aphorism can be misleading to the extent it suggests that any conduct that destroys or injures the right of the other party to receive the benefits of the contract is a violation.97 As with the foregone opportunities formulation, the "fruits" of the contract are the equivalent of the parties' reasonable expectations that may or may not be set out expressly in the contract.98 Further, while a party must not unreasonably or unduly injure the other's benefits under the contract, determining what constitutes impermissible conduct remains difficult to identify.99 Slightly more instructive is the recent confirmation by the Supreme Judicial Court that a breach of the implied duty of good faith and fair dealing does not require "bad faith" as lack of good faith can be inferred by considering the totality of the circumstances.100 In that case, the mere size of the transfer by the husband from his estate to his second wife was found, as a matter of law, to have violated the implied duty of good faith and fair dealing owed by the husband to his son of his first marriage under a divorce agreement. Somewhat complicating the search for a more meaningful definition is the recognition that the duty of good faith and fair dealing can encompass "inaction" or the failure to cooperate. In Uno Restaurants, Inc. v. Boston Kenmore Realty Corp,101 the Supreme Judicial Court, following the lead of the restatement, stated "[i]naction amounts to a lack of good faith in contract performance only when the contracting party had a duty to act."102 In Brennan v. Carvel Corp,103 the court explained "a party may be under the duty not only to refrain from hindering or preventing the occurrence of his own duty or the performance of the other party's duty, but also to take positive steps to cooperate with the other party in achieving these objectives."104 This is in keeping with the notion that a contractual relationship is at its core a cooperative venture. As to when a duty to act or positive action would be required remains fact specific. Importantly, and consistent with the notion that the implied duty of good faith and fair dealing is dependent upon the particular contract and context, Massachusetts courts have slightly varied the generalized standard in response to the specific contractual relationship. Indeed, it is the specific contract, contractual relation and context that provide the duty its functional meaning. The Supreme Judicial Court, in the Uno decision, re-emphasized the importance of context in addressing claims under the duty of good faith and fair dealing.105 There, the court addressed a claim of breach of the duty of good faith and fair dealing as to a right of first refusal under a commercial lease. The court held that "in the absence of collusion, a determination of good faith and fair dealing in the context of a right of first refusal rests on the adequacy of the notice afforded the holder of the right regarding any third party offer."106 The court rejected the contention that the duty imposed any other obligation. The duty of good faith and fair dealing has likewise developed in bank-lender disputes.107 For example, a mortgagee's responsibility to its mortgagor in the exercise of the power of sale is "good faith and . . . reasonable diligence to protect the interest of the mortgagor."108 In such circumstances, the alleged bad faith or lack of reasonable diligence must be "of an active and conspicuous character."109 Similarly, the duty of good faith and fair dealing requires a bank to be "honest" in its dealings with guarantors and to refrain from purposefully injuring the right to obtain benefits under contract.110 As to demand notes, however, Massachusetts has held the UCC's obligations of good faith to be inapplicable.111 The duty of good faith and fair dealing in contracts of insurance has been provided a specialized meaning akin to negligence, due to the special status the law bestows on the insurer-insured relationship. Massachusetts requires the insurer to deal with the insured with "candor and fairness"112 and not to act "to defeat any intended coverage or diminish the protection purchased by the insured."113 Where a term in the contract is subject to the discretion of the insurer "its privilege in this respect imports a reciprocal obligation for its exercise" to act in good faith.114 Moreover, the good-faith obligation of an insurer concerning settlement is a "negligence standard."115 These subtle but distinct formulations of the duty of good faith and fair dealing demonstrate that the duty is fluid, deriving its meaning from the particular contract and context.116 XI. Fiduciary Duty Distinguished Justice Cardozo famously remarked: "[m]any forms of conduct permissible in a workaday world for those acting at arm's length are forbidden to those bound by fiduciary ties."117 This recognition of the distinction between fiduciary obligation and arm's length transactions is informative in the search for a responsible duty of good faith and fair dealing. Fiduciaries or parties to a "special relationship" are bound by a heightened duty of good faith. For instance, parties to a separation agreement are deemed fiduciaries to each other and held to the "highest standards of good faith and fair dealing" in the performance of contractual obligations.118 This heightened standard applies to joint ventures,119 partnerships,120 closely held shareholders, trusts121 and senior executives, directors and officers.122 In these situations, the implied obligation is one of "utmost" good faith and fair dealing, including a stringent duty of loyalty and obligation of full and honest disclosure.123 Both fiduciary duty and the duty of good faith contractual performance are in a very general sense similar.124 They both can limit unfair dealing and self-interested action. Both duties are likewise defined by and depend upon the particular context.125 However, and despite the use of "good faith" in both formulations, there are manifest distinctions that must be maintained especially as to arm's length commercial transactions.126 Fundamental is that the heightened duty for fiduciaries is imposed by law due to the unique relationship between the parties and is not dependent on any contract.127 The fiduciary, unlike the party to an arm's length commercial contract, owes a paramount duty to the beneficiary that is superior to the fiduciary's own personal or pecuniary interests.128 Indeed, fiduciary obligation can be breached without there being dishonesty or bad faith and where the fiduciary merely fails to recognize its fiduciary obligation.129 Elemental to the fiduciary or special relationship and the resultant heightened duty of good faith is the placement of one party's trust and confidence in another.130 Unlike a fiduciary, parties to an arm's length commercial transaction can act in their own self-interest so long as they honor their contractual obligations.131 There is no dependent relationship, no "special relationship" and no special trust and confidence. To the contrary, in most commercial transactions the parties are independent entities who have freely negotiated over the terms of their bargain. In such relations, there is no "heightened" duty of good faith and courts must be vigilant in maintaining the distinction and not unwittingly foist fiduciary obligation upon commercially contracting parties. XII. Recent Application Despite the lack of clear or universal criteria, recent developments show that certain lines of demarcation have been drawn. Specifically, the duty of good faith and fair dealing is implicated where the contract is either silent or ambiguous as to the conduct at issue, with the duty viewed as an interpretative aid. Its most prominent role is to regulate post-formation conduct that was (a) undertaken pursuant to a specific discretionary grant set forth in the contract or (b) aimed at or resulted in injuring or depriving a party of his or her reasonable and justifiable expectations. The duty, however, is generally inapplicable to contractual negotiations. Most importantly, and a familiar refrain of many recent decisions, is that the duty cannot be used to "rewrite" the express terms of the contract. A. Gap-Filler and Implied Promises A recent example of the duty of good faith and fair dealing as an interpretative tool or "gap filler" is found in President and Fellows of Harvard College v. PECO Energy Co.132 There, the Appeals Court held that contracts between an electricity provider and certain purchasers were ambiguous as to whether the purchasers could select either one or both of two extensions (either two years or five years) provided under the contracts. The court also noted that extrinsic evidence may not provide a resolution as "this may be a question that the parties simply never considered."133 If so, it stated that the rule that, if a contract is ambiguous or uncertain and extrinsic evidence does not reveal the intention of the parties, then a court is to supply "a term which is reasonable under the circumstances" would apply.134 In so doing, it made clear that the supplied term must "comport . . . with community standards of fairness and policy rather than analyze a hypothetical model of the bargaining process."135 In Bacou Dalloz USA, Inc. v. Continental Polymers, Inc.,136 the court recognized the duty as rendering enforceable what would otherwise be an illusory obligation. There, a letter agreement outlining an agreement to purchase requirements for polyurethane prepolymer provided "that the quality and price of such raw material are equivalent to that which is then used by [purchaser] and available from third-party suppliers."137 The First Circuit rejected the finding of the trial court that the promise was illusory because, among other things, the implied duty of good faith and fair dealing imposed upon the buyer the "contractual duty" to determine in good faith the quality of the seller's product as compared to third-party vendors.138 This gap-filling role of the duty of good faith is perhaps the least controversial. It serves as a further interpretative tool to effectuate the intention of the parties and does not raise the specter of unwarranted judicial interference with the express bargain of the parties. Indeed, as stated in PECO, there first must be an ambiguity or uncertainty as well as no helpful extrinsic evidence before the court may resort to gap filling. Some commentators believe this should be the only role for the duty of good faith and fair dealing in contractual disputes.139 B. Discretionary Rights, Deprivation of Expectations and Opportunistic Behavior The most fertile grounds for the duty of good faith and fair dealing is where the conduct in question is taken pursuant to a discretionary right in the contract and no governing criteria for the exercise of that discretion have been expressly designated. The discretionary rights that are implicated vary and include such things as plan approvals, output or requirement provisions, satisfaction clauses, consents to assignment, option election rights, appraisal rights and service-level provisions, among others. The concept covers any provision of a contract where performance of one party is controlled or materially affected by the sole discretion of the other. In Anthony's Pier Four, the owner had used the discretionary right to approve the development as a pretext to extract additional monies beyond that already agreed to. Other decisions addressing discretionary powers include the following: ¥ Real estate contract provision making sale contingent on seller finding "suitable housing" held to include duty of good faith and fair dealing imposing on seller an "affirmative duty . . . to use reasonable efforts to find suitable housing."140 ¥ Commercial lease containing "right of first refusal" was subject to duty of good faith and fair dealing, and lessee violated duty based on various actions taken after learning of the lessor's contract with another to sell the lessor's entire interest in the property. The court found that "[r]ather than exercising its rights under the lease . . . [the lessee] engaged in unfair conduct, involving delay, misrepresentation and manipulation" causing the lessor to lose its ability to sell its entire interest.141 ¥ Duty of good faith applied to a party's right to seek repudiation that was breached where the right to repudiate the contract was exercised as "a tool engineered to serve [the] illicit purpose [of extracting price concessions]."142 The evidence showed that the damaged party had relied on the contract, provided its financial statements and internal business documents, informed its customers, suppliers and employees of the purchase under the agreement followed by the "abrupt" repudiation and then a request to renegotiate.143 More recently, the Federal District Court of Massachusetts confirmed the understanding that contractual performance that is subject to the other party's satisfaction is governed by good faith. Thus, an agreement that provided that a corporate party could award a substitute contract to another vendor where "the primary contractor is not able to fulfill the job requirements as determined by [the corporation]" was subject to good faith in such a determination.144 The court denied summary judgment, finding it was disputed whether poor service was provided.145 The applicability of good faith and fair dealing does not necessarily require the presence of a discretionary right. It can arise where a party engages in unwarranted opportunistic behavior or, more specifically, where there is concerted post-formation conduct that defeats the other party's reasonable expectations under the contract. In Turkanjian v. Rockland Trust Co,146 for example, the Appeals Court recently upheld a verdict for the plaintiff on a claim of breach of the duty of good faith and fair dealing by a bank under a commitment letter.147 Notably, the plaintiff claimed that he was repeatedly assured of a certain fixed interest rate.148 The bank failed to provide the interest rate, forcing plaintiff to get alternative financing.149 Although the commitment letter did not contain the claimed interest rate and, in fact, had an integration clause, the court nonetheless found that "a number of positions and actions taken by the Bank [after execution of the commitment letter] were designed to force concessions."150 The court relied on the repeated attempts by the bank to obtain more favorable financing terms; the bank portraying the plaintiff in a negative light before a Small Business Administration meeting and denigrating the ability of the plaintiff to repay the loan; the bank's failure to complete a timely appraisal; and its failure to honor the promised interest rate to support a finding of a violation of the duty of good faith and fair dealing.151 It should be noted that the focus in Turkanjian was not so much on the failure to provide the orally promised interest rate (which would be precluded under a strict construction of the integration clause), but rather on the bank's other actions after it had agreed to provide the loan. The court found this subsequent conduct by the bank to be aimed at obtaining a better deal and interfering with plaintiff's expectations instead of honoring the bank's obligations. C. Long-Term Contracts and Unforeseen Developments Unforeseen developments under long-term contracts are also potential fodder for application of the duty of good faith and fair dealing. As one noted jurist has stated: At the formation of the contract the parties are dealing in present realities; performance still lies in the future. As performance unfolds, circumstances change, often unforeseeably; the explicit terms of the contract become progressively less apt to the governance of the parties' relationship; and the role of implied conditions - and with it the scope and bite of the good-faith doctrine - grows.152 Examples of long-term contracts implicating the duty of good faith and fair dealing that also have recently been addressed by the courts include divorce and separation agreements. In two recent decisions, the Supreme Judicial Court found that the duty of good faith and fair dealing invalidated certain post-contractual conduct.153 In one case, Nile v. Nile, a divorce agreement provided that the husband would leave two-thirds of his estate to the children of his first marriage.154 Prior to his death, he transferred $4 million out of $4.6 million to a trust for the benefit of his second wife leaving the remaining $600,000 to be transferred to his only child of the first marriage. The Supreme Judicial Court upheld the entry of summary judgment for the son on his claim for breach of the implied covenant of good faith and fair dealing, holding that the duty obligated the father to refrain from disproportionately divesting his son from his inheritance as required under the divorce agreement.155 In so doing, the court reiterated that breach of the duty of good faith and fair dealing did not require a showing of bad faith but only lack of good faith based on all the circumstances.156 Similarly, in Krapf v. Krapf,157 the Supreme Judicial Court addressed the duty of good faith under a separation agreement. There, 12 years after a separation and divorce, the husband, a military reservist, developed a disability and applied for and was awarded veteran disability benefits. Due to the statutory structure of such benefits and its relationship to pension and retirement pay, he elected to waive pension benefits. Under federal law, retirement benefits waived to receive disability benefits were not subject to divisibility upon divorce. The election resulted in the former wife receiving an 86 percent drop in pension pay otherwise required under the prior separation agreement.158 The court relied upon, among other things, the duty of good faith and fair dealing and found that although it could not order the division of the disability benefits, it could (and did) order the husband to satisfy his financial obligation under the agreement out of "whatever resources" he had. In so finding, the court stated it was: [H]ighly unlikely that [the wife] negotiated [the separation agreement where pension rights were the most valuable asset] intending to give [the husband] carte blanche to reduce the value of her pension to a pittance in order to benefit himself. Nothing in the agreement suggests such authorization. We think it far more likely that the agreement gave her a "reasonable expectation" that she would receive pension income in her later years.159 The court was mindful of the husband's important service to his country and the unexpected development of a disability,160 but found that his action resulted in his benefit to the detriment of the wife in violation of his "ongoing" duty of good faith and fair dealing. According to the court "equity will not sanction voluntary action that amounts to the 'evasion of the spirit of the bargain.'"161 While Nile and Krapf involve domestic relations agreements imposing a "heightened" duty of good faith and fair dealing, they are notable as both decisions found a violation of the duty even though there was no evidence of ill will or malevolent motive. Contractual guaranties are another type of long-term contractual obligation. In Cadle Co. v. Vargas,162 the Appeals Court relied on the duty of good faith to invalidate a personal loan guaranty.163 The guaranty had been signed by the wife of the borrower guaranteeing any debt of the husband-borrower164 and was unlimited both to amount and to time. The original loan and guaranty were associated with a corporate loan for the husband's business. Several years later, however, the husband borrowed additional money to fund a subsequent divorce from the wife and later defaulted. Judge Kaplan found that the equities demanded that the guaranty be unenforceable (i.e. it was anomalous to have wife fund her own divorce settlement). He likewise referenced the applicability of the duty of good faith and fair dealing to long-term contracts where there has been the development of an "unforeseen" circumstance.165 "In such cases of discordance between text and reality, courts strive to bring to bear the familiar standard [of good faith and fair dealing]."166 The court further noted that this was an unusual factual circumstance and that in most instances guaranties would be enforced according to their express terms.167 D. Termination The duty of good faith and fair dealing is commonly invoked in actions challenging terminations of commercial relations. The Supreme Judicial Court has made clear that the "duty of good faith and fair dealing exists during the course of events leading up to and including termination but that duty is to be evaluated in light of an agreement that permits termination by either party without cause or notice."168 Not surprisingly, Massachusetts has held that termination without cause provisions in commercial contracts are not unenforceable or "oppressive," as to hold otherwise "would establish an unwarranted barrier to the use of termination at will clauses in contracts in this Commonwealth, where each party received the anticipated and bargained for consideration during the full term of the agreement."169 Without much discussion as to whether the Fortune/Gram formulation of the duty of good faith and fair dealing should be applicable outside the employer-employee at-will relationship, courts have routinely utilized the criteria in evaluating claims of bad faith terminations in various types of commercial contracts. For instance, in franchise agreements it has been held that terminations due to the refusal to sign a new franchise agreement or the refusal of a franchisee of 25 years to agree to a reorganization of routes did not constitute bad faith absent a "deprivation of earnings, good will or loss of investment."170 The courts make clear that the lack of good reason for the termination absent evidence of "other indicia of lack of honesty or taking unfair advantage; or bad faith" is not sufficient to make out a claim. "In a word, the absence of good cause is not the equivalent of absence of good faith."171 In one case, the court found that allegations that the franchisor's managers wanted to individually profit from the termination or that the termination was due to personal animosity or both were not sufficient.172 Good faith and fair dealing challenges have been made to termination notices associated with "without cause" termination provisions with mixed results. In Cherick Distributors, Inc. v. Polar Corp.,173 a beverage distributor was terminated on four-days notice after the beverage supplier learned that the distributor was arranging a meeting of all distributors of the supplier to form an association to negotiate with the supplier. Although the contract was an at-will distributorship, the Appeals Court upheld the jury verdict for the distributor on the good faith claims and claims under Massachusetts General Laws chapter 93A. Referencing the UCC, the court found that whether the four-day notice constituted reasonable notice under commercial standards of good faith was properly before the jury and the fact that the supplier had abruptly terminated the distributor on the eve of the scheduled meeting was sufficient for a finding that the supplier intended to put the distributor out of business. The court noted that the notice left no time for the distributor to secure another supplier, adjust its equipment and warehouse or maintain its staff.174 In Serpa Corp. v. McWane, Inc.,175 the court rejected a similar claim by an exclusive plumbing supply distributor where the distributor was provided commissions for a 30-day period following the termination. The court found that the evidence supported that the termination was based on efficiency concerns and that there was no evidence that 30 days was insufficient notice or that the termination was based on a retaliatory motive or bad faith or was calculated to injure.176 More recently, the First Circuit rejected the contention that good faith and fair dealing required a manufacturer to give notice to a distributor as to the appointment of a new and competing distributor.177 The court rejected any analogy to Cherick as the distributorship agreement at issue did not require notice and implying such notice would be unwarranted, because the harm to the distributor by such appointment was not "of the same magnitude" as the harm from the termination of a distributorship agreement.178 The duty of good faith has also arisen in claims addressing the manner of termination.179 Specifically, the Appeals Court affirmed a finding that the duty of good faith as to a severance agreement was violated where the company refused to allow the employee to respond to allegations of improperly collected commissions and benefits, insisted on limiting severance payments and threatened to ruin the employee's career. Similarly, in Linkage Corp. v. Trustees of Boston University,180 the Supreme Judicial Court upheld a jury verdict on a contractor's claims under Massachusetts General Laws chapter 93A and the implied covenant of good faith and fair dealing. There, under a somewhat unique and egregious set of facts, Boston University terminated a contractor who was providing education and training seminars. According to the evidence, the university had led the contractor to believe that the contract would be renewed; a hostile confrontation had occurred during a meeting where the contractor had been asked to present a business plan; the university performed an unannounced audit of the contractor; the university secretly contacted certain employees of the contractor and made a concerted effort to hire the employees despite a no-hire provision in the contract; the university presented a termination letter only after the contractor refused to allow it to hire his employees; at the same time the university sent security personnel to the facility being used by contractor in order to "secure" the facility; and the university informed the contractor's employees that he had been terminated for cause.181 E. Contractual Rewriting Despite the above examples, the great majority of recent decisions have rejected claims based on alleged breaches of the duty of good faith and fair dealing. A familiar refrain of these court decisions is that the duty cannot be used to "rewrite the parties' agreement."182 Indeed, the First Circuit proclaimed that it is "unbefitting that we accomplish by judicial fiat what [a party] neglected to achieve contractually."183 This view merits careful consideration especially as to commercial contracts. Where a sophisticated and knowledgeable party chooses to embody its relationship in a simple written instrument crafted by it, it is entitled to and should be held to the contractual language it chose. Any court should be careful not to impose its external views on the contracting parties or to let matters outside the four corners of the instrument that are specifically anticipated and addressed within the agreement overwhelm or change the contract itself. What the court must not do is attempt to rewrite the parties' contract to conform to the court's sense of equity or preference for a different outcome, no matter how appealing.184 In the recent First Circuit decision in Boyle v. Douglas Dynamics, LLC,185 a judgment for a manufacturer against a claim for breach of the duty of good faith and fair dealing was affirmed. There, the plaintiff became distributor of defendant manufacturer's ice and snow removal products upon purchase of another business. It was claimed that the defendant breached the distributorship agreement by promoting plaintiff's largest customer from a limited pool distributor to a full-time distributor resulting in it becoming plaintiff's direct competitor. The distributor relied in large part on certain "reassuring comments" by the manufacturer.186 The contract was silent as to the right to appoint additional distributors.187 The court found no good-faith violation as the contract did not prevent defendant from adding distributors and there was no express promise not to do so.188 The First Circuit emphasized that the "covenant may not . . . be invoked to create rights and duties not otherwise provided for in the existing contractual relationship."189 In Owen v. Kessler,190 the Appeals Court also voiced concern about the duty of good faith being used to alter the terms of an express agreement. There, a real estate commitment agreement provided that "time is of the essence" and set forth a specific time by which a signed purchase and sale agreement was to be provided.191 The seller refused to sell the property when the buyer delivered the purchase and sale agreement 15 to 20 minutes after the set deadline.192 The court rejected the contention that the seller's rejection of the late delivery was a violation of the duty of good faith and fair dealing. The court held that it was obliged to enforce the express terms of the parties' agreement. It likewise emphasized that the duty could not be used to override an express term, that there was no pretextual use of a discretionary right and "no evidence of any clandestine attempts by the seller to sabotage any aspect of the deal."193 In a recent decision, the Appeals Court stated that the "the covenant . . . may not be invoked to create rights and duties not otherwise provided for in the existing contractual relationship, as the purpose of the covenant is to guarantee that the parties remain faithful to the intended and agreed expectations of the parties in their performance."194 The court refused to read any other duty or obligation into the express right of first refusal under a lease other than the obligation to give reasonable notice of an offer by a third party.195 Addressing the claim through the specific context, the court stated: Where there are many varying methods by which the holder's right of first refusal may be protected in the event an offer for that property also includes other property, we are reluctant to conclude that the covenant of good faith and fair dealing has, sub silentio, provided a specific form of protection that is not mentioned in the parties' contract.196 Notably, it is under the "rewrite the contract" rubric that the pure textualists to contract dispute resolution rally to assert that the implied duty of good faith and fair dealing has a very limited place in contract law. Under such a view, the duty of good faith and fair dealing is seen as the last refuge of contractual parties seeking to salvage losses traceable to their own failure to negotiate sufficient contractual rights and protections.197 F. Contractual Negotiations and Culpa in Contrahendo Massachusetts does not generally recognize an implied duty of good faith and fair dealing in contract negotiations absent a binding agreement expressly so stating.198 This stems from the view that there is no implied covenant of good faith and fair dealing absent a contract,199 the assumption that parties must be allowed wide latitude to break off contractual negotiations and the concern that imposing implied obligations upon negotiations would wrongly result in creating legally binding obligations that a party did not knowingly assume.200 Schwanbeck v. Federal-Mogul Corp. exemplifies the existing reluctance to impose a duty of good faith and fair dealing in contract negotiations201 There, the parties were negotiating the purchase of certain business assets and had executed a letter of intent in which it was agreed that the purchasing party was "interested" in purchasing the assets of the other. The letter agreement contained an express disclaimer that neither party intended to be bound by the letter, which was followed by a provision providing "[h]owever, the parties understand and acknowledge that they will proceed in good faith in the negotiation of [a] binding definitive agreement."202 The Appeals Court, construing the two provisions together, held that the reference to "good faith" did impose a binding obligation despite the disclaimer. The Appeals Court further held that the obligation to negotiate in good faith "means that neither party may enter into the preliminary agreement for some ulterior purpose" but that the duty had not been breached. While the court made clear that the good-faith obligation "means something less than unremitting efforts to get to 'yes' with the players at all times playing their cards face up," absent entering into the negotiations for "some ulterior purpose," a breach of good faith in negotiations will not be found.203 According to the court, good faith will likely be met where the party simply takes "some action such as exchanging drafts which flesh out details of the business points agreed to in the preliminary document."204 The Supreme Judicial Court upheld the result but rejected the Appeals Court's finding that there was a binding obligation to negotiate in good faith. The court summarily found that the fact that the "expression of intent" in the letter to proceed to a definitive agreement in good faith followed the disclaimer of binding effect and began with the word "however" did not "elevate its status" to a binding obligation. The court expressly refused to discuss what would constitute either a duty or violation to negotiate in good faith.205 Some courts do not require an explicit provision before imposing a duty of good faith in contractual negotiations. For example, the words "you will withdraw the [s]tore from the rental market, and only negotiate the above described leasing transaction to completion" were found sufficient to impose the obligation to negotiate in good faith.206 In another case, a letter providing that "rates and terms are subject to further negotiations" was also deemed to be sufficient.207 Other courts reject any such implied duty even where an obligation of good faith is expressly stated or inferred from the terms of a preliminary agreement. An agreement to negotiate in good faith is amorphous and nebulous, since it implicates so many factors that are themselves indefinite and uncertain that the intent of the parties can only be fathomed by conjecture and surmise.208 The First Circuit recently touched upon the duty of good faith in contractual negotiations stating that as a matter of federal common law "liability for bad faith bargaining is limited," although claims for fraud or estoppel are possible.209 The court also acknowledged that "depending upon language and inclination, courts sometimes construe letters of intent as themselves creating contractual or quasi-contractual obligation to negotiate in good faith toward a final contract."210 It went on to address a claim under Puerto Rican law pursuant to the doctrine of "culpa in contrahendo," which was stated to be the rule that "negotiations toward an agreement can even without a letter of intent give rise to mutual expectations that the parties will bargain in good faith and refrain from misconduct."211 The rule is aimed at protecting the "reliance interest" as opposed to the "expectation interest" with the applicable test requiring an evaluation of "the conduct, reasonable expectations, and virtually any other relevant circumstances."212 Applying this amorphous test, the court found no violation where a landowner claimed that a developer had failed to negotiate a commercial ground lease in good faith. The developer had delayed in executing the ground lease due to difficulties in finalizing a lease with a store chain needed for the project. Although the court agreed that the developer could be criticized for not telling the landowner that execution of the ground lease required that the negotiations with the store chain bear fruit, it found no bad faith because this conduct was not deliberate, was otherwise limited and was the result of trying to save the overall project. Where parties have expressly agreed to negotiate a further agreement in good faith, such an agreement should be given meaning and effect. Certainly, the scope of any such obligation should be fairly narrow and require much less than in either the contractual performance or enforcement context. Indeed, as the Appeals Court stated in Schwanbeck, absent entering into negotiations for some ulterior purpose, making minimal efforts to reach the anticipated agreement should satisfy the good-faith obligation. Imposing such a limited obligation does no harm to the right of parties to break off negotiations without justification, nor does it unnecessarily or unfairly inject judicial notions of good faith into the parties' bargain. To the contrary, it gives substance to the parties' bargain and promotes minimum notions of equitable behavior in the marketplace.213 XIII. Waiver Another area that exemplifies the tension between contractual autonomy and implied notions of good faith and fair dealing is found in waiver of a contracting party's legal rights.214 Massachusetts has not yet expressly addressed the issue, although the superior court has held that waiver provisions in a guaranty, while enforceable, "do not immunize a mortgagee from the duty to act in good faith and use reasonable diligence to protect the interests of the mortgagor in the foreclosure sale process."215 The issue of waiver is especially significant in the context of discretionary powers,216 in particular whether an express discretionary power can be insulated from external notions of good faith and fair dealing.217 The UCC approach is that the duty is not waivable by the parties but that the parties do have the power to set out their own specific standards to govern any discretionary power. Massachusetts General Laws chapter 106, section 1-102(3) provides: The effect of provisions of this chapter may be varied by agreement, except as otherwise provided in this chapter and except that obligations of good faith, diligence, reasonableness and care prescribed by this chapter may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligation is to be measured if such standards are not manifestly unreasonable.218 Accordingly, if the parties wish to insulate the discretionary power, they can do so as long as it is not "manifestly unreasonable." The burden to show waiver should be "exacting."219 As one commentator has noted: The burden of expression regarding an agreed displacement of the external standards of good faith and fair dealing with respect to a particular discretionary power will fall to the party seeking to obtain such discretion. This burden proceeds from the prudential notion that the expectations of good faith performance are so fundamental that any attempt to deviate from them by agreement should be subject to heightened obligations of explicitness and prominence.220 XIV. Damages Recoverable damages for violation of the duty of good faith have gotten scant attention by the courts to date. Some jurisdictions refer to breach of the duty as a tort.221 Massachusetts courts have viewed the implied duty as a "contractual obligation.'222 As such, the contractual measures of damages of restitution, reliance or expectation would apply.223 Expectancy damages would be the most common measure and would include those damages that would allow the aggrieved party to be placed in the same position as it would have been had the other party not breached its performance obligation.224 It would also logically include "consequential" damages so long as foreseeable at the time of the contract.225 In a great majority of cases, there will be both a violation of the duty of good faith and fair dealing and breach of contract. Accordingly, if the breaches are based on the same set of facts the damages would be the same, with only one recovery appropriate.226 Notably, however, Massachusetts courts differ as to whether there can be a breach of the implied covenant absent a breach of contract.227 This anomaly is largely academic as it turns on whether the duty is viewed solely as an interpretative aid or is a separate duty that, while derived and dependent upon the contractual expectations, is independent. Under either view, the duty polices contractual performance and determining damages remains the same. Under the Fortune/Gram cases, the damage rule is specialized. There, recoverable damages are limited to the amount required to prevent the terminating party from being unjustly enriched by depriving the aggrieved party of money that it had fairly earned and legitimately expected.228 Damages are thus limited to those monies already earned and do not include lost future wages or benefits. In non-employee at-will termination cases, the rule is similar but not as limited. In Cherick, for instance, where an at-will distributor was terminated by its supplier on four-days notice in breach of the duty of good faith and fair dealing, the court upheld the award of a portion of the distributor's resulting loss of business.229 Recoverable damages, in other instances, will depend on the particular conduct that is found violative. Such items as lost profits, loss of business and loss of good will would be recoverable in appropriate circumstances subject to the obligation to mitigate.230 It has been held that a party's breach of the obligation of good faith and fair dealing can preclude the award of damages. In Hawthorne's Inc. v. Warrenton Realty, Inc,231 the court found that a lessee was not entitled to either damages or specific performance under a right of first refusal pursuant to a commercial lease. The court held that the lessee had not acted "honestly or in good faith in its dealings concerning its option rights" and that where "a party has committed a breach of the covenant of good faith and fair dealing [it] may not obtain relief based on the effects of its own breach."232 XV. Procedural Issues As a claim for violation of the duty of good faith and fair dealing will almost always be asserted together with a claim of breach of contract, it can raise certain procedural issues. One issue concerns how such claims are treated at summary judgment. It is black letter law that contracts are to be interpreted by the court as a matter of law. Most commercial contracts are entered into with at least some amount of sophistication on both sides together with a negotiated written agreement. As such, many contractual disputes are presented to the court on summary judgment where a contract is set before the court for interpretation and where both the viability of the theory of liability and the supporting proof are assessed to determine whether there is a triable issue. However, claimants asserting a breach of the duty of good faith accompanying the contract will inevitably oppose such motions with the mantra that such claims "are rarely appropriate for summary judgment."233 The assertion is that violation of the duty of good faith turns on intent, motive or state of mind that are inherently factual issues inappropriate for summary judgment.234 In many disputes there will be factual issues inappropriate for summary judgment. This is especially so where a duty of good faith has been alleged and there is a factual dispute regarding whether the duty was breached by the conduct in question. Nonetheless, courts should not shrink from evaluating good-faith breach claims at summary judgment and should ensure that (a) the claimant has properly alleged a cognizable duty of good faith claim in the contractual context and (b) has presented sufficient and competent proof creating a material issue of disputed fact. It should not be sufficient to defeat summary judgment simply by generally alleging "a breach of the duty of good faith and fair dealing." Courts should ensure that the proponent of such a position is setting forth a claim as to a matter of performance and has specifically articulated how the post-formation conduct at issue violated the duty of good faith and fair dealing. The obligation claimed to have been violated under the duty of good faith must be identified with specificity and must derive from the parties' justified expectations as distinct from an effort to create legal obligations not otherwise provided for in the parties' contractual relationship and expectations. This is a question of law appropriate for summary judgment resolution. The recent Supreme Judicial Court decision in Uno is informative concerning summary judgment.235 As discussed above, the court rejected the assertion that the duty of good faith as to a holder's right of first refusal to purchase certain property imposed any obligation besides seasonable notice of a third-party's offer. Accordingly, any other claimed obligation would not be cognizable as a matter of law. Stated another way, any other challenged action or inaction unrelated to the issue of notice is irrelevant and cannot be the subject of a viable claim. Such a focused approach serves to maintain the integrity of the summary judgment procedure, the interpretation of contracts and the proper boundaries of the duty of good faith. An additional procedural pitfall associated with good faith claims recently was addressed by the First Circuit in Zachar v. Lee.236 At issue, was preservation of argument for appeal. The court rejected a challenge to a jury verdict awarding damages to the buyers of a home on Nantucket for breach of the duty of good faith and fair dealing arising out of the sale of a home. After placing a deposit on the property, the buyers were no longer interested in the property due to a sudden job relocation. They entered into an agreement with the sellers whereby the buyers would be able to potentially recoup their deposit if the property were resold. Under the terms of the agreement, the sellers were required to "market and sell the property in a reasonable commercial manner." It was claimed that the sellers listed the property at an inflated value and undertook insufficient marketing efforts. The jury found no violation of the express agreement (which included the reasonable marketing efforts obligation) but did find a violation of the implied duty of good faith and fair dealing. On appeal, the sellers contended that, since the jury found no breach of the express agreement, there could be no basis for finding a breach of the obligation of good faith. The court rejected this argument because no objection had been made to the jury instructions on the duty of good faith and fair dealing, this issue had not been raised in post-trial motions and no timely objection had been made to the jury verdict. According to the court: If the [defendants] believed that the breach of a contract is a sine qua non in any claim for breach of the implied covenant of good faith and fair dealing, they would - and should - have asked for such an instruction. They did not, and by failing to do so, [they] forfeited their argument.237 XVI. Relationship to Massachusetts General Laws Chapter 93A Massachusetts appellate courts have yet to directly address whether the breach of the duty of good faith and fair dealing constitutes a per se violation of Massachusetts General Laws chapter 93A. Neither the long-standing and colorful references to "rascality" and "rancid flavor of unfairness" nor the understanding that violative conduct must be either (a) within at least the penumbra of some common law, statutory or other established concept of unfairness or (b) immoral, unethical, oppressive or unscrupulous, offer much practical guidance.238 Also unhelpful are the established yet somewhat conflicting chapter 93A principles that a mere breach of contract without more is insufficient to constitute an "unfair and deceptive" act or practice239 and that "conduct in disregard to known contractual arrangements and intended to secure benefits to the breaching party constitutes an unfair act or practice."240 Given the lack of clarity, it is not surprising that courts that have addressed the issue have come to differing conclusions. For instance, the First Circuit has summarily held that violations of chapter 93A must meet "a higher standard" of liability than do breaches of the duty of good faith and fair dealing.241 A recent superior court judge, however, held to the contrary, stating that "[s]ince a breach of the implied covenant of good faith and fair dealing means that the defendant has acted in bad faith or engaged in unfair dealing" a breach supports a finding of a violation of chapter 93A.242 It would not appear that a blanket rule can or should be laid down, as it will depend on the particular conduct and circumstances. Indeed, recent cases have made clear that assessing a chapter 93A claim requires an evaluation of the challenged conduct together with its purpose and effect.243 In many instances, it would appear that conduct violative of the duty of good faith and fair dealing would also run afoul of chapter 93A. As set forth above, the duty is breached through the pretextual use of discretionary rights under a contract or where parties deliberately and knowingly engage in conduct aimed at either recapturing foregone opportunities or interfering with the reasonable expectations of the parties. Chapter 93A violations have been found in analogous conduct such as where one party to an agreement breaches a contract in order to gain an unfair advantage over the other or as a "wedge" to enhance bargaining power.244 Most recently, the Appeals Court found that a lessor's position under a lease provision, even where the court had to insert a missing term to resolve the dispute, coupled with its notice of eviction to the lessee was "extortionate in intent and effect" supporting chapter 93A liability.245 Similarly, courts have found violations of chapter 93A based on conduct akin to that addressed under the Fortune articulation of good faith and fair dealing. For instance, a chapter 93A violation was found where an independent tax advisor was denied commissions due under contract after a decision to handle tax matters in-house246 as well as where a marketing agreement was terminated to compel acceptance of lower commissions.247 Such cases appear to be in keeping with the major design of chapter 93A which is to "encourage more equitable behavior in the marketplace . . . [and impose] liability on persons seeking to profit from unfair practices,"248 and while the statute "does not contemplate an overly precise standard of ethical or moral behavior [i]t is the standard of the commercial marketplace."249 Nonetheless, a violation of the contractual duty of good faith and fair dealing may not necessarily equate to an "unfair and deceptive" act or practice. For instance, in those instances of unforeseen circumstances and long-term contracts such as those involved in Krapf, and Vargas, absent a knowing breach of the agreement, intent to injure or to benefit unfairly, a court would be hard pressed to find a chapter 93A violation. XVII. A Responsible and Modern Duty of Good Faith and Fair Dealing The contractual duty of good faith enjoys a long and distinguished heritage in Massachusetts. Despite this history, the duty remains elusive, due in large part to the broad, generalized articulations long used by the courts. On closer inspection, however, the duty's essential purpose is to protect the justified expectations of the contracting parties and, as such, derives its functional meaning from the specific contractual relation and circumstances at issue. To be sure, courts need to ensure that the duty is not misused and resorted to as a means to impose duties and obligations beyond the parties' negotiated bargain and justified expectations. Disgruntled parties to a contract should not, especially after entering into an arm's length bargain, utilize the duty of good faith as a means to obtain from the court obligations they failed to achieve contractually. Courts likewise need to be vigilant in maintaining the distinction between fiduciary obligation and contractual good faith so that the heightened fiduciary obligations are not unwittingly foisted upon arm's length transacting parties. Notwithstanding these important concerns, the key to a proper modern duty of good faith in contractual performance lies with the protection of the parties' justified expectations. It is a means of implementing the "spirit of the bargain" and a recognition that minimum principles of fairness and honesty apply to performance under commercial contracts. Defining the contours of such a duty in modern commercial contracts begins with the parties' express bargain. Indeed, primacy must be given to the express terms used by the parties in determining the nature and scope of their justified expectations.250 This is necessary in order to properly respect the right of private and sophisticated parties to negotiate and contract in the commercial marketplace. While substantial deference should be accorded the express terms of the contract, contractual expectations are not always apparent from the written terms. Some expectations may be so fundamental that neither party reduced them to writing or circumstances simply developed later that were never contemplated or foreseen.251 Where the express terms of the agreement do not sufficiently delineate the parties' expectations or the permissibility of the post-formation conduct, the contractual context, including the subject matter, the parties' relationship and experience, their course of dealing, usage of trade and the like can provide and define the applicable obligations. Such an analysis is in keeping with the modern contextual approach to contract interpretation. The duty of good faith and fair dealing's primary domain in commercial contracts lies with discretionary rights. Indeed, in this setting, good faith can be understood as not a question of what a party has a right to do under a contract but rather how that right is exercised. Absent express direction by the parties, the purpose and function of the generalized discretionary power must be assessed in context together with the reasons or justifications behind the post-formation conduct at issue. If the reason for the challenged post-formation conduct was within the contemplation of the parties, the conduct should not be actionable even if a court otherwise believes the conduct to be questionable. Conduct that is dishonest or intended to gain back risks or obligations given up under the contract or contrary to the parties' justified contractual expectations and which are not specifically addressed by the express terms, however, will violate the obligation of good faith. While commercially sophisticated parties should be able to grant one or the other a discretionary power insulated from any external notions of fairness, they should be required to do so clearly. The law should not "easily assume that one party would put itself at the mercy of another in such a fashion."252 Protecting both the integrity of the parties' express bargain as well as implied notions of good faith and fair dealing in commercial contractual performance will be a continuing battleground for courts and litigants. Striking a proper balance lies in acknowledging that the duty of good faith and fair dealing has a viable role in the law of contract, that the duty's contours should be defined and limited by the particular contract and context and that the duty is not a means for either parties or courts to impose rights or duties outside of the parties' justified expectations. End Notes 1. Robert S. Summers, The General Duty of Good Faith - Its Recognition and Conceptualization, 67 Cornell L. Rev. 810, 811 (1982) [hereinafter Summers, Good Faith]; E. Allan Farnsworth, Good Faith Performance and Commercial Reasonableness Under the Uniform Commercial Code, 30 U. Chi. L. Rev. 666 (1962) [hereinafter Farnsworth, Good Faith].[back] 2. Empire Gas Corp. v. Am. Bakeries Co., 840 F.2d 1333, 1339 (7th Cir. 1988) (Posner, J.).[back] 3. See e.g., N. Heel Corp. v. Comp. Indus., 851 F.2d 456, 466 (1st Cir 1988) ("[not our role to] accomplish by judicial fiat what a party has neglected to achieve contractually"), quoting RCI Northeast Servs. Div. v. Boston Edison Co., 822 F.2d 199, 204 (1st Cir. 1987); Mkt. St. Assocs. Ltd. P'ship v. Frey, 941 F.2d 588, 595-96 (7th Cir. 1991) (suggesting modern contract law could do without a doctrine of good faith).[back] 4. Farnsworth, Good Faith, supra note 1, at 669-70.[back] 5. Under a provision of the civil code in Germany known as the "Treu and Glauben," for example, it is provided that the "debtor is bound to effect performance according to requirements of good faith giving consideration in common usage." See Peter Schlechtriem, Good Faith in German Law and in International Uniform Laws (1997), available at http://www.crdcs.org/frames24.htm (last visited Aug. 3, 2004); Paul J. Powers, Defining the Undefinable: Good Faith and the United Nations Convention on Contracts for International Sale of Goods, 18 J.L. & Com. 333 (1999); see also Friedrich Kessler & Edith Fine, Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study, 77 Harv. L. Rev. 401, 420 (1964) (comparing common law and German views on good faith in contract).[back] 6. Allan E. Farnsworth, The Concept of Good Faith in American Law at 2-6, at http://w3.uniroma1.it/idc/centro/publications/10farnsworth.pdf (last visited Aug. 3, 2004); Emily M. Weitzenbock, Electronic Agents and Contract Performance: Good Faith and Fair Dealing, at http://www.cirfid.unibo.it/~lea-02/pp/Weitzenboeck.pdf (last visited Aug. 3, 2004).[back] 7. Farnsworth, supra note 6, at 2-6.[back] 8. Bliss v. Thompson, 4 Mass. 488, 492 (1808).[back] 9. See Bishop v. Shepard, 40 Mass. 492, 494 (1839) (court found and imposed implied promise of ship owner to pay father of son who deserted from whaling ship based on "equitable consideration"); Appleton v. Bascom, 44 Mass. 169, 171 (1841) (law implied promise of principal of surety to pay surety for surety's payment of principal's debt).[back] 10. Appleton, 44 Mass. at 171.[back] 11. 222 N.Y. 88, 118 N.E. 214 (1917).[back] 12. Lucy, Lady-Duff Gordon, 222 N.Y. at 91, 118 N.E. at 214.[back] 13. Id. quoting McCall Co. v. Wright, 117 N.Y. Supp. 775, 133 A.D. 62 (1909).[back] 14. See Lawrence v. City of Cambridge, 422 Mass. 406, 411 (1996).[back] 15. Eaton v. Eaton, 233 Mass. 351, 376 (1919).[back] 16. Essex Trust Co. v. Enwright, 214 Mass. 507 (1913).[back] 17. Foss v. Roby, 195 Mass. 292, 298 (1907).[back] 18. Shattuck v. Burrage, 229 Mass. 448, 451-52 (1918).[back] 19. Eaton, 233 Mass. at 376.[back] 20. Russo v. Charles I. Hosmer, Inc., 312 Mass. 231, 233 (1942); Reed v. Inhabitants of Scituate, 87 Mass. 120, 123 (1862); Gleason v. Smith, 63 Mass. 484, 486 (1852); see also Chandler, Gardner & Williams, Inc. v. Reynolds, 250 Mass. 309, 314 (1924).[back] 21. Gleason, 63 Mass. at 486. Additional early implied promises or covenants included the implied covenant of quiet enjoyment in a lease (Burofsky v. Turner, 274 Mass. 574, 581 (1931); Dexter v. Manley, 58 Mass. 14, 17-18 (1849)), the implied contractual obligation of innkeepers regarding quality and character of food provided (Friend v. Childs Dining Hall Co., 231 Mass. 65 (1918)) and the implied warranty of merchantable quality in commercial contracts for goods. (eee, e.g., Murchie v. Cornell, 155 Mass. 60, 63 (1891); Gould v. Stein, 149 Mass. 570, 574 (1889); Wilson v. Lawrence, 139 Mass. 318, 322 (1885)). Other obligations of good faith were found applicable to a mortgagee's power of sale under a mortgage contract (Levey v. Higginson, 266 Mass. 381, 385 (1929)); requirement and output contracts (Neofotistos v. Harvard Brewing Co., 341 Mass. 684, 689 (1961)); a construction contract between a contractor and subcontractor (Dahlstrom Metallic Door Co. v. Evatt Constr. Co., 256 Mass. 404, 413 (1926)); a personal service contract for radio advertisements (UpRoar Co. v. Nat'l Broad. Co., 81 F. 2d 373, 377 (1st Cir. 1936)); a freight contract (E. Mass. St. Ry. Co. v. Union St. Ry. Co., 269 Mass. 329, 334 (1929)); an agreement for stock appraisal (Krauss v. Kuechler, 300 Mass. 346, 349 (1938)); a broker's commission (Elliott v. Kazajian, 255 Mass. 459, 462 (1926)); and negotiable instruments (Macklin v. Macklin, 315 Mass. 451, 455 (1944)) ("The rights of a holder of a negotiable instrument are to be determined by simple test of honesty and good faith.").[back] 22. Clark v. State St. Trust Co., 270 Mass. 140 (1930).[back] 23. Id. at 153.[back] 24. UpRoar, 81 F.2d at 376. The reference to the benefits under a contract as "fruits" appeared as early as 1818. In Russell v. DeGrand, 15 Mass. 35 (1818), the Supreme Judicial Court addressed a claim under a vessel insurance policy stating that "[t]he rule of law is of universal operation, that none shall, by the aid of a court of justice, obtain the fruits of an unlawful bargain." Id. at 39.[back] 25. Kirke La Shelle Co. v. Paul Armstrong Co., 263 N.Y. 79, 89, 188 N.E. 163, 167 (1933).[back] 26. Uproar, 81 F.2d. at 337. [back] 27. See Tufankjian v. Rockland Trust, Co., 57 Mass. App. Ct. 173, 177 (2003); see also Anthony's Pier Four, Inc. v. HBC Assocs., Inc., 411 Mass. 451, 471-72 (1991);. Druker v. Roland Wm. Jutras Assocs., Inc., 370 Mass. 383, 385 (1976); Uproar, 81 F.2d at 377; Kirke La Shelle, 263 N.Y. at 89, 188 N.E. at 167.[back] 28. This appears to be a corollary to the broader recognition that "it is in the public interest to accord individuals broad powers to order their affairs through legally enforceable agreements." Beacon Hill Civic Ass'n v. Ristorante Toscano, Inc., 422 Mass. 318, 320 (1996), quoting E.A. Farnsworth, Contracts, 5.1 at 345 (2d ed. 1990).[back] 29. Electric Welding Co. v. Prince, 195 Mass. 242, 246 (1907); Farquhar v. Farquhar, 194 Mass. 480, 405 (1907) (until set aside by mistake contract contains within its "four corners" the statement and only statement of the obligations); accord Hiller v. Submarine Signal Co., 325 Mass. 546, 550 (1950); Ober v. Nat'l Cas. Co., 318 Mass. 27, 30 (1945).[back] 30. Shoe & Leather Nat'l Bank v. Dix, 123 Mass. 148, 150 (1877).[back] 31. Queenin v. Blank, 268 Mass. 432, 435 (1929); Starks v. O'Hara, 266 Mass. 310, 314 (1929).[back] 32. Smiley v. McLauthlin, 138 Mass. 363, 364-65 (1885), quoting Baron Parke in James v. Cochrane, 7 Exch. 170.[back] 33. Towne v. Eisner, 245 U.S. 418, 425 (1918) (interpreting statute); see also Dittemore v. Dickey, 249 Mass. 95, 104-05 (1924).[back] 34. "Course of dealing" has also been recognized to establish a contractual agreement or define the parties' contractual obligations. Delano Growers' Coop Winery v. Supreme Wine Co., 393 Mass. 666, 672-74 (1985) (where parties used same procedure for processing wine for approximately five years this established course of dealing that defined parties' contractual obligations).[back] 35. Keating v. Stadium Mgmt. Corp., 24 Mass. App. Ct. 246, 249-50 (1987) (quoting Robert Indus., Inc. v. Spence, 362 Mass. 751, 753 (1973)); see also Krapf v. Krapf, 439 Mass. 97, 100 (2003) (court to give effect to language of contract considered in light of the context of the transaction and the purpose to be accomplished); Starr v. Fordham, 420 Mass. 178, 190 (1995) (same).[back] 36. Keating, 24 Mass. App. Ct. at 250. An early example is Eastern Massachusetts Street Railway Co. v. Union Street Railway Co., 269 Mass. 329 (1929). There, the parties contractually agreed to joint use of tracks, freight cars and terminals for five years with the right of either party to terminate upon six month's notice. The plaintiff ceased operating as a freight business without giving notice. Plaintiff sued for an accounting while the defendant claimed a set-off. It was held that [t]he provisions of the contract, when interpreted in the light of the circumstances and purpose to be accomplished, mean that the plaintiff was under an obligation to carry on a freight trolley business during its term and not voluntarily to stop the normal flow of that business. The continuance of that business was essential to the carrying out of the terms of the contract and hence an agreement to that effect is implied. Id. at 332 (citations omitted); see also Campion v. Boston & Me. Ry., 269 Mass. 579, 581 (1930) (term of contract to be construed in light of circumstances surrounding the making of the contract and the situation and relation of the parties).[back] 37. Plymouth Rubber Co., Inc. v. Ins. Co. of N. Am., Inc., 18 Mass. App. Ct. 364, 369 (1984).[back] 38. Shea v. Bay State Gas Co., 383 Mass. 218, 222-23 (1981).[back] 39. Id. at 223 (quoting Bryne v. Gloucester, 297 Mass. 156, 158 (1937)).[back] 40. Stop & Shop, Inc. v. Ganem, 347 Mass. 697, 701 (1964).[back] 41. Shane v. Winter Hill Fed. Sav. & Loan Ass'n, 397 Mass. 479, 483 (1986); Bray v. Hickman, 263 Mass. 409, 412 (1928); see also Kerrigan v. Boston, 361 Mass. 24, 33 (1972) ("we are to look 'through the form to the substance and purpose of the agreement") (quoting Clark v. State St. Trust Co., 270 Mass. 140, 153 (1930)).[back] 42. Michael P. Van Alstine, Of Textualism, Party Autonomy, and Good Faith, 40 Wm. & Mary L. Rev. 1223, 1236-46 (1999) [hereinafter Van Alstine, Of Textualism]. Van Alstine's article is an excellent discussion of good-faith contractual performance and its modern standing in light of reemphasis by courts on textualist approach to contract dispute resolution.[back] 43. Id. at 1242-43 (citing Farnsworth, Good Faith supra note 1, at 671); Restatement (Second) Contracts § 205 (1981).[back] 44. Van Alstine, Of Textualism, supra note 42, at 1224-25 (suggesting that the duty of good faith and fair dealing has undergone severe restriction by many modern courts by the "forces of formalism in contract").[back] 45. Id. at 1242-43.[back] 46. James J. White & Robert S. Summers, Uniform Commercial Code § 4 (3rd ed. 1988).[back] 47. Id. at 6.[back] 48. Powers, supra note 5, at 339 (citing E. Allan Farnsworth, Duties of Good Faith and Fair Dealing Under the UNIDROIT Principles, Relevant International Conventions, and National Laws, 3 Tul. J. Int'l & Comp. L. 47, 52 (1995); see also Van Alstine, Of Textualism, supra note 42, at 1242-43.[back] 49. See Mass. Gen. Laws ch. 106, §§ 1-208; 2-508; 2-603; 2-614; 2-615; 1-205; 2-305(2); 2-306(1); 2-311(1); 1-208 (2002).[back] 50. Id. § 1-203.[back] 51. Mass. Gen. Laws ch. 106, § 2-103(b) (2002); Id. § 1-201(19); see also Mass. Gen. Laws ch. 106, § 3-103 (negotiable instruments; "'good faith' means honesty in fact and observance of reasonable commercial standards"). Pride Hyundai, Inc. v. Chrysler Fin. Co., L.L.C., 2004 U.S. App. LEXIS 10455 *3 (May 27, 2004).[back] 52. DeMoulas v. DeMoulas Super Mkts. Inc., 424 Mass. 501, 547 (1997); see also McCarthy, Kenney & Reidy, P.C. v. First Nat'l Bank of Boston, 402 Mass. 630, 635 (1988) (definition of good faith in UCC does not require commercial reasonableness); But see Pride Hyundai, 2004 U.S. App. LEXIS at *3.[back] 53. Robert Braucher, The Legislative History of the Uniform Commercial Code, 58 Colum. L. Rev. 798, 812 (1958).[back] 54. Demoulas, 424 Mass. at 547.[back] 55. See, e.g., Mass. Gen. Laws ch. 106, § 301-3(a)(4) (good faith as to negotiable instruments defined as "honesty in fact and the observance of commercially reasonable standards"); Mass. Gen. Laws ch. 106, § 2A-103(3) (same as to lease transactions); Mass. Gen. Laws ch. 106, § 8-102(a)(10) (same as to investment securities); R. Wilson Freyermuth, Enforcement of Acceleration Provisions and the Rhetoric of Good Faith, 1998 BYU L. Rev. 1035, 1064 n.84 (discussing amendments involving good faith to Articles 3, 4 and 4A).[back] 56. The "excluder" analysis to good faith was first articulated by Summers. See Summers, supra note 1; Robert S. Summers, "Good Faith" in General Contract Law and the Sales Provisions of the Uniform Commercial Code," 54 Va. L. Rev. 195, 196 (1968) [hereinafter Summers, General Contract Law].[back] 57. Restatement (Second) Contracts 205 cmt. d.[back] 58. See e.g., Krapf, 439 Mass. at 107; Nile v. Nile, 432 Mass. 390, 398-99 (2000); Lafayette Place Assocs. v. Boston Redev. Auth., 427 Mass. 509, 526 (1998); Hawthorne's, Inc. v. Warrenton Realty, Inc., 414 Mass. 200, 211 (1993); Davidson v. Gen. Motors Corp., 57 Mass. App. Ct. 637, 647 (2003); Cadle Co. v. Vargas, 57 Mass. App. Ct. 361, 365-66 (2003); Tufankjian v. Rockland Trust Co., 57 Mass. App. Ct. 173, 174 (2003).[back] 59. Zapatha v. Dairy Mart, Inc, 381 Mass. 284, 291 (1980) (applying UCC's good-faith obligation to franchise agreement not covered by UCC); Waste Stream Environmental, Inc. v. Lynn Water and Sewer Comm'n, 2003 Mass. Super LEXIS 43, *26 n. 29 (Whitehead, J.) ("Common law cases are governed by analogous UCC principles when the UCC evolved from considerations comparable to those in common law.").[back] 60. Summers, General Contract Law, supra note 56, at 206, 264. Summers described "good faith" as a "phrase which has no general meaning or meaning of its own but which serves to exclude many heterogeneous forms of bad faith." Id. at 196.[back] 61. Id.[back] 62. Id. at 215.[back] 63. Restatement (Second) Contracts § 205.[back] 64. Van Alstine, Of Textualism, supra note 42, at 1240 (quoting Restatement (Second) Contracts § 202(1)).[back] 65. Restatement (Second) Contracts §§ 202 cmt. a; 212 cmt. b; 214 cmt. b; 214(c); 222(3); 202(4); 223(2); see also Krapf, 439 Mass. at 107 (separation agreement interpreted by its terms and context).[back] 66. Mass. Gen. Laws ch. 106, §§ 1-201(11), 1-201(3), 1-205 (2002).[back] 67. Uniform Commercial Code's Permanent Editorial Board (PEB) Commentary on UCC, PEB Commentary No. 10 Final Draft, at 3 n.12, UCC Rep. Serv. (Callahan) (Feb. 10, 1994) (quoting 3 A. Corbin, Corbin on Contracts § 570 (West Supp. 1993).[back] 68. Van Alstine, Of Textualism, supra note 42, at 1252-54.[back] 69. Id. (citing Restatement (Second) of Contracts § 205 cmt. a).[back] 70. Id. at 1252-53 (citing Restatement (Second) of Contracts § 205 cmt. a).[back] 71. Mass. Gen. Laws ch. 1-102(3) (2002).[back] 72. Id.[back] 73. 373 Mass. 96 (1977).[back] 74. Id. at 101.[back] 75. Id. at 102.[back] 76. Id. [back] 77. Id. at 104. Notably, the Supreme Judicial Court in Fortune held that the defendant-employer's written contract with its employee "contain[ed] an implied covenant of good faith and fair dealing and a termination not made in good faith constitutes a breach of the contract." Fortune, 373 Mass. at 101.[back] 78. 391 Mass. 333 (1984) (Gram II).[back] 79. Id. at 335.[back] 80. Fortune, 373 Mass. at 101-02.[back] 81. Cochran v. Quest Software, Inc., 328 F.3d 1, 14 (1st Cir. 2003).[back] 82. 411 Mass. 451 (1991).[back] 83. Id. at 455-56.[back] 84. Id.[back] 85. Id. at 455.[back] 86. Id.[back] 87. Anthony's Pier Four, 411 Mass. at 458.[back] 88. Id. at 462-63.[back] 89. Id. at 472.[back] 90. There was evidence that the owner's representative had stated that "I'd rather look out of my window on nothing than on a lousy deal." Id. at 462.[back] 91. Id. at 472-73.[back] 92. Id. at 473 (quoting Steven J. Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harv. L. Rev. 369, 372-73 (1980)); see also James L. Miniter Ins. Agency, Inc. v. Ohio Indem. Co., 112 F.3d 1240, 1250-51 (1st Cir. 1997) ("the existence of the covenant in no way depends on the level of sophistication of the parties").[back] 93. Piantes v. Pepperidge Farm, Inc., 875 F. Supp. 929, 938 (D. Mass. 1995) (quoting Anthony's Pier Four, 411 Mass. at 473).[back] 94. Cadle Co., 55 Mass. App. Ct. at 366 (quoting Restatement (Second) of Contracts § 205); accord Davidson, 57 Mass. App. Ct. at 647; Tufankjian, 57 Mass. App. Ct. at 177.[back] 95. Equipment & Systems for Industry, Inc. v. Northmeadows Construction Co., 59 Mass. App. Ct. 931, 933 (2003), citing Nagel v. Provident Mut. Life Ins. Co. of Philadelphia, 51 Mass. App. Ct. 763, 768-69 (2001).[back] 96. Thomas A. Diamond & Howard Foss, Proposed Standards for Evaluating When the Covenant of Good Faith and Fair Dealing Has Been Violated: A Framework for Resolving the Mystery, 47 Hastings L.J. 585, 594 (1996).[back] 97. Id. at 598-99.[back] 98. Id.[back] 99. Id.[back] 100. Krapf, 439 Mass. at 106, citing Nile, 432 Mass at 398-99.[back] 101. 441 Mass. 376 (2004).[back] 102. Id. at 386.[back] 103. 1989 U.S. Dist. LEXIS 16104 (D. Mass. July 25, 1989).[back] 104. Id. at *23; see also Gloucester Landing Assoc. Ltd. P'ship v. Gloucester Redev. Auth., 60 Mass. App. Ct. 403, 413 (2004) (duty of good faith and fair dealing does not require urban redevelopment authority to assist developer in quest for license in connection with development project).[back] 105. Uno, 441 Mass. at 385.[back] 106. Id. at 385.[back] 107. Note, Lender Liability and Good Faith, 68 B.U.L. Rev. 653 (1988).[back] 108. Williams v. Resolution GGF OY, 417 Mass. 377, 382-83 (1994).[back] 109. Pemstein v. Stimpson, 36 Mass. App. Ct. 283, 287 (1994).[back] 110. Shawmut Bank, N.A. v. Wayman, 34 Mass. App. Ct. 20, 25 (1993).[back] 111. Shawmut Bank, N.A. v. Miller, 415 Mass. 482, 485 (1993).[back] 112. Green v. Blue Cross & Blue Shield of Mass., Inc, 47 Mass. App. Ct. 443, 448 (1999) (quoting Sarnafil, Inc. v. Peerless Ins. Co., 34 Mass. App. Ct. 248, 254 (1993)).[back] 113. Sarnafil, 34 Mass. App. Ct. at 254 (quoting Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 324 (1991)).[back] 114. Murach v. Mass. Bonding & Ins. Co., 339 Mass. 184, 187 (1959).[back] 115. Hartford Cas. Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115, 120 (1994).[back] 116. The duty of good faith and fair dealing has also recently been found applicable to a criminal plea agreement. In that context, the court will evaluate whether the prosecution has not only literally complied with the plea agreement, but whether its conduct was reasonably consistent with the promises contained in the agreement. See United States v. Cruz-Mercado, 360 F.3d 30 (1st Cir. 2004); United States v. Frazier, 340 F.3d 5 (1st Cir. 2003).[back] 117. Meinhard v. Salmon, 249 N.Y. 458, 463-64 (1928).[back] 118. Krapf, 439 Mass. at 103.[back] 119. Micromuse, Inc. v. Micromuse, PLC, 2004 U.S. Dist. LEXIS 2205 (D. Mass. 2004).[back] 120. Starr v. Fordham, 420 Mass. 178, 183 (1995).[back] 121. Rutanen v. Ballard, 424 Mass. 723, 728-733 (1997).[back] 122. Wilkes v. Springside Nursing Home, Inc., 370 Mass. 842, 848-49 (1976); Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 593 (1975); see also Jernberg v. Mann, 358 F.3d 131 (1st Cir. 2004) (good faith and fair dealing applicable to corporate officers); Cecconi v. Cecco, Inc., 739 F. Supp. 41, 45 (D. Mass. 1990) (officers and directors owe a fiduciary duty to protect the interests of the corporation they serve).[back] 123. Geller v. Allied-Lyons PLC., 42 Mass. App. Ct. 120, 126-27 (1997) (full and complete disclosure required by corporate fiduciaries).[back] 124. See Starr, 420 Mass. at 183 (unfair determination of law partner's respective share of partnership earnings is breach of both fiduciary duty and duty of good faith and fair dealing).[back] 125. Office One, Inc. v. Lopez, 437 Mass. 113, 125 (2002).[back] 126. McAdams v. Mass. Mut. Life Ins. Co., 2000 U.S. Dist. LEXIS 22068 (D. Mass. 2000) (arm's length transaction will generally not give rise to fiduciary duties).[back] 127. See e.g., Nei v. Burley, 388 Mass. 307, 311 (1983) (no fiduciary duty between sellers and buyers or brokers and buyers including any particular "duty to speak").[back] 128. See Production Mach. Co. v. Howe, 327 Mass. 372 (1951).[back] 129. Id. at 374.[back] 130. See Hawkes v. Lackey, 207 Mass. 424, 432 (1911).[back] 131. Clark v. Rowe, 428 Mass. 339, 342 (1998) (fiduciary relationships are never arms length).[back] 132. 57 Mass. App. Ct. 888 (2003).[back] 133. Id. at 896.[back] 134. Id. (quoting Restatement (Second) of Contracts § 204).[back] 135. Id.[back] 136. 344 F.3d 22 (1st Cir. 2003).[back] 137. Id. at 24.[back] 138. Id. at 27-28.[back] 139. See Kham & Nate's Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990); accord Taylor Equip, Inc. v. John Deere Co., 98 F.3d 1028, 1032-33 (8th Cir. 1996) (good-faith doctrine is gap filler); see also Tymshare v. Covell, 727 F. 2d 1145 (D.C. Cir. 1984) (Scalia, J.) (significance of good faith in contracts is in implying terms).[back] 140. Duquette v. Burtch, 2003 Mass. Super LEXIS 121, *2 (2003).[back] 141. Hawthorne's, Inc. v. Warrenton Realty, Inc., 414 Mass. 200, 209-10 (1993).[back] 142. Northern Heel Corp., 851 F.2d at 471.[back] 143. Id.[back] 144. Cofer v. Sunoco, Inc., 2003 U.S. Dist. LEXIS 7488 (D. Mass. 2002) (Zobel, J.) (summary judgment denied where it was disputed there were complaints about services).[back] 145. Id. See also Rey v. Lafferty, 990 F.2d 1379 (1st Cir. 1993) (license contract reserving to the owner of Curious George the right to approve certain ancillary products, permitted disapproval based on integrity and creative interest of owner).[back] 146. 57 Mass. App. Ct. 173 (2003).[back] 147. Id. at 178.[back] 148. Id. at 175-76.[back] 149. Id.[back] 150. Id. at 177.[back] 151. Turkanjian, 57 Mass. App. Ct. at 175-78.[back] 152. Market Street, 941 F.2d at 595-96 (Posner, J.)[back] 153. Nile, 432 Mass. at 398-99; Krapf, 439 Mass. 97 (2003).[back] 154. Nile, 432 Mass. at 391-93.[back] 155. Id. at 399.[back] 156. Id. at 398-99.[back] 157. 439 Mass. 97 (2003).[back] 158. Id. at 98-102.[back] 159. Id. at 105.[back] 160. Id. at 106.[back] 161. Id. at 107 (quoting Larson v. Larson, 37 Mass. App. Ct. 106, 110 (1994)) (husband violated duty of good faith to separation agreement when he retired from successful career and good health without making some other provision to his wife thereby "evading the spirit of the bargain"); Nile, 432 Mass. at 398-99 (breach of implied covenant of good faith and fair dealing does not require showing of bad faith; lack of good faith may be inferred by considering totality of circumstances).[back] 162. 55 Mass. App. Ct. 361 (2002).[back] 163. Id. at 361.[back] 164. See id. at 361-64.[back] 165. Id. at 365.[back] 166. Id. at 366.[back] 167. Id. at 368.[back] 168. Blank v. Chelmsford OB/GYN, P.C., 420 Mass 404, 408-09 (1995).[back] 169. Zapatha, 381 Mass. at 291.[back] 170. See Zapatha v. Dairy Mart, 381 Mass. 284; accord Piantes v. Pepperidge Farm, Inc., 875 F. Supp 929 (D. Mass. 1995).[back] 171. Piantes, 875 F. Supp. at 938.[back] 172.Resorting to the express terms of the agreement, the court held that "[w]hat is missing . . . is any evidence that their actions were motivated by a desire to deprive [plaintiff] of what he reasonably could have expected to receive under the contract, namely continued work on his route, or, the contractually determined compensation which he was offered." Piantes, 875 F. Supp. at 938.[back] 173. 41 Mass. App.Ct. 125 (1996).[back] 174. See generally McNulty v. W.S. Libbey Co., 1987 U.S. Dist. LEXIS 2762 (D. Mass. 1987) (notice may be required in at-will termination if change of position or special injuries could have been avoided by notice).[back] 175. 199 F.3d 6 (1st Cir. 1999).[back] 176. Id. at 15.[back] 177. Boyle v. Douglas Dynamics, LLC., 99 Fed. Appx. 243 (1st Cir. 2004).[back] 178. Id. at *9.[back] 179. See Williams v. B & K Med. Sys., 49 Mass. App. Ct. 563, 564-66 (2000).[back] 180. 425 Mass. 1 (1997).[back] 181. Id. at 5-13.[back] 182. See, e.g., Jaguar Cars v. Lee Imported Cars, Inc., 2004 U.S. Dist. LEXIS 8781, n.7 (D. Mass. May 18, 2004); Boyle v. Douglas Dynamics, LLC., 292 F. Supp. 2d. 198 (D. Mass. 2003), aff'd, 99 Fed. Appx. 243 (1st Cir. 2004) (good faith and fair dealing directed to the manner of performance, not to invoking rights and duties not in the contract); see also Chokel v. Genzyme Corp., 2003 Mass. Super. LEXIS 417 (Nov. 12, 2003) (Van Gestel, J.) ("New or independent duties separate from those already in contract cannot be added by a judge under the cloak of an implied covenant of good faith and fair dealing"); Kroutik v. Momentix, Inc., 2003 Mass. Super. LEXIS 112 (Apr. 2, 2003); Owen v. Kessler, 56 Mass. App. Ct. 466 (2002) (same); Dunkin' Donuts Inc. v. Panagakos, 5 F. Supp. 2d 57, 64 (D. .Mass 1998).[back] 183. Northern Heel Corp. v. Compo Indus., Inc., 851 F.2d 456, 466 (1st Cir. 1988); see also Kroutik v. Momentix, Inc., 2003 Mass. Super. LEXIS 112 (Apr. 2, 2003) ("the court cannot, through the vehicle of the implied covenant, add obligations to a contractual undertaking that the parties did not impose on themselves").[back] 184. Epstein, Becker & Green, P.C. v. Atlas Venture, 2003 Mass. Super. LEXIS 84, *10 (May 24, 2003) (Cratsley, J.) (citing Rogaris v. Albert, 431 Mass. 833, 835 (2000)).[back] 185. 99 Fed. Appx. 243 (1st Cir. 2004).[back] 186. Id. at 246.[back] 187. Id. at 247.[back] 188. Id.[back] 189. Id. at 246. The district court found similarly, stating that good faith could not be used to "rewrite [the parties'] agreement." Boyle, 292 F. Supp. 2d at 210.[back] 190. 56 Mass. App. Ct. 466 (2002).[back] 191. Id. at 466-67.[back] 192. Id. at 467-69.[back] 193. Id. at 471-72.[back] 194. Uno, 441 Mass. at 385.[back] 195. Id.[back] 196. Id. at 386.[back] 197. See, e.g., Kham & Nate's Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990); Empire Gas, 840 F.2d at 1335.[back] 198. See Lafayette Place Assocs. v. Boston Redev. Auth., 427 Mass. 509, 517 (1998); Schwanbeck v. Federal-Mogul Corp., 412 Mass. 703 (1992); Levenson v. L.M.I. Realty Corp., 31 Mass. App. Ct. 131 (1991); see also Accusoft Corp. v. Palo, 237 F.3d 31, 45 (1st Cir. 2001); FDIC v. LeBlanc, 85 F.3d 815 (1st Cir. 1996); JBL Bus. Co. v. MBTA, 13 Mass. L. Rptr. 486 (2001) (no claim under implied covenant of good faith and fair dealing for contract negotiations); Abrams v. Chase, 1996 Mass. Super. LEXIS I (1996).[back] 199. Levenson v. LMI Realty Corp., 31 Mass. App. Ct. 127, 131 (1991); Realty Central, L.L.C. v. Re/Max of New England, Inc., 2003 Mass. Super. LEXIS 254, *18-19 (Aug. 12, 2003).[back] 200. The restatement also provides that the duty of good faith and fair dealing does not apply to contractual negotiations. Restatement (Second) of Contracts § 205 cmt. c.[back] 201. 412 Mass. 703 (1992).[back] 202. Schwanbeck, 412 Mass. at 706.[back] 203. 31 Mass. App. Ct. 390, 398.[back] 204. Id.[back] 205. See also Abrams v. Chase 996 Mass. Super LEXIS 1 (1996) (rejected assertion that Schwanbeck stands for proposition that agreement to negotiate is of no binding effect, but there was no violation of the duty of good faith as no evidence of "ulterior motive").[back] 206. Channel Home Ctrs. v. Grossman, 495 F.2d 291, 294 (3rd Cir. 1986).[back] 207. Woods Hole Oceanographic, Inst. v. United States, 1981 U.S. App. LEXIS 15182 (1st Cir. 1981).[back] 208. Candid Prods., Inc. v. Int'l Skating Union, 530 F. Supp. 1330, 1337 (S.D.N.Y. 1982).[back] 209. Ysiem Corp. v. Commercial Net Lease Realty, Inc., 328 F. 3d 20, 23 (1st Cir. 2003).[back] 210. Id.[back] 211. Id. See generally, Friedrich Kessler & Edith Fine, Culpa de Contrahendo, Bargaining in Good Faith and Freedom of Contract: A Comparative Study, 73 Har. L. Rev. 401 (1964).[back] 212. Ysiem Corp., 328 F.3d at 23-24.[back] 213. The Appeals Court in Schwanbeck recognized: Not allowing reasonable freedom to terminate negations injects an undesirable [time] factor into preliminary negotiations, which plants the seed of protracted litigation in every deal that goes sour. Id. at 398-99.[back] 214. See Van Alstine, Of Textualism, supra note 42, at 1292-1311.[back] 215. Wilshire Credit Corp. v. Wehmeyer Realty Trust, 1999 Mass. Super. LEXIS 211 (April 28, 1999) (Fecteau, J.) (citing Cambridgeport Sav. Bank, N.A. v. Boersner, 413 Mass. 432, 443-44 (1992); see also Shawmut Bank, N.A. v. Wayman, 34 Mass. App. Ct. 20, 24-25 (1993) (skirting issue of whether waiver in guarantee includes waiving obligation of good faith by finding even if it did not, no evidence shown of dishonest act or design to deprive borrower of benefits of contract).[back] 216. See Van Alstine, Of Textualism, supra note 42, at 1281-1311.[back] 217. See id. at 1223 (citing Tymshare, Inc. v. Covell, 727 F.2d 1145, 1153 (D.C. Cir. 1984) (Scalia, J.) (quoting MacDougald Constr. Co. v. State Highway Dep't, 125 Ga. App. 591, 594, 188 S.E. 2d 405, 407 (1972)).[back] 218. Mass. Gen. Laws ch. 106, § 1-102(3) (2002).[back] 219. Van Alstine, Of Textualism, supra note 42, at 1296.[back] 220. Id. at 1295-96.[back] 221. See, e.g., The Garshman Co. v. Gen. Elec. Co., 993 F. Supp. 25 (D. Mass. 1998) (discussing Nevada law).[back] 222. Starr, 420 Mass. at 194.[back] 223. See e.g., Schink v. Baker, 2002 Conn. Super LEXIS 612 (2002) (measure of damages for violation of good faith and fair dealing is same as contractual).[back] 224. See generally Laurin v. DeCarolis Constr. Co., 372 Mass. 688, 691 (1977); DCPB, Inc v. City of Lebanon, 957 F.2d 913, 916 (1st Cir. 1992) (breach of duty of good faith and fair dealing has historically been addressed by awarding compensatory damages).[back] 225. DCPB, Inc. v. City of Lebanon, 957 F.2d 913, 915-16 (1st Cir. 1992).[back] 226. See, e.g., Linkage Corp. v. Trs. of Boston Univ., 425 Mass. 1, 28-29 (1997) (damages under breach of implied covenant of good faith and fair dealing found duplicative of breach of contract damages).[back] 227. Compare Kroutik v. Momentix, Inc., 2003 Mass. Super. LEXIS 112 (Apr. 2, 2003) (without breach of contract no breach of duty of good faith and fair dealing) with Marx v. Globe Newspaper Co., 2001 Mass. LEXIS 9, *10-11 (2001) (a party may breach the covenant of good faith and fair dealing without breaching any express terms of the underlying contract); see also Fortune, 373 Mass. at 101 (no breach of literal reading of contract but a violation of good faith and fair dealing).[back] 228. King v. Driscoll, 424 Mass. 1, 7 (1996); Kravetz v. Merchants Distribs., Inc., 387 Mass. 457, 463 (1982).[back] 229. Cherick, 41 Mass. App. Ct. at 129. [back] 230. See, e.g., Canha v. LaRoche, 1996 Mass. Super LEXIS 527 at *15-16 (1996) (Houston, J.); Cherick, 41 Mass. App. Ct. at 129.[back] 231. 411 Mass. 200 (1993).[back] 232. Id. at 211.[back] 233. See Okerman v. VA Software Corp., 2003 Mass. Super. LEXIS 212, *18 (July 9, 2003) (Cratsley, J.) (citing LaBonte v. Hutchins & Wheeler, 424 Mass. 813, 820 (1997)).[back] 234. See, e.g., Carey v. New England Organ Bank, 2004 Mass. Super. LEXIS 132, *12-13 (2004).[back] 235. 441 Mass. 376.[back] 236. 363 F.3d 70 (1st Cir. 2004).[back] 237. Id. at 74.[back] 238. See Levings v. Forbes & Wallace Inc., 8 Mass. App. Ct. 498 (1979); see also Atkinson v. Rosenthal, 33 Mass. App. Ct. 219, 226 (1992).[back] 239. Pepsi-Cola Metro Bottling Co. v. Checkers, Inc., 754 F.2d 10, 18 (1st Cir. 1985); Madan v. Royal Indem. Co., 26 Mass. App. Ct. 756, 762 (1989).[back] 240. Anthony's Pier Four, 411 Mass. at 451.[back] 241. PH Group Ltd. v. Birch, 985 F. 2d 649, 652-53 (1st Cir. 1993).[back] 242. Marx v. Globe Newspaper Co., 2002 Mass. Super. LEXIS 455, *14 (Nov. 26, 2002).[back] 243. See Mass. Employers Ins. Exch. v. Propac-Mass, Inc., 420 Mass. 39, 42-43 (1995); see also Diamond Crystal Brands, Inc. v. Blackleaf, L.L.C., 60 Mass. App. Ct. 502 (2004).[back] 244. Arthur D. Little, Inc. v. Do Yang Corp., 147 F. 3d 47, 55 (1st Cir. 1998); Atkinson v. Rosenthal, 33 Mass. App. Ct. 219 (1992); Pepsi-Cola, 754 F.2d at 17-19; see also NASCO, Inc. v. Public Storage, Inc., 29 F.3d 28 (1st Cir. 1994) (summary judgment for defendant on 93A claim reversed as reasonable jury could conclude from evidence that defendant breached contract in order to obtain for itself unbargained for benefits to the detriment of the plaintiff).[back] 245. Diamond Crystal Brands, Inc. v. Blackleaf, L.L.C., 60 Mass. App. Ct. 502 (2004).[back] 246. Wang Lab., Inc. v. Bus. Incentives Inc., 398 Mass. 854, 856-59 (1986).[back] 247. Clamp-All Corp. v. Foresta, 53 Mass. App. Ct. 795 (2002).[back] 248. Poznik v. Mass. Med. Prof'l Ins. Ass'n, 417 Mass. 48, 53 (1994) (citation omitted).[back] 249. Manning v. Zuckerman, 388 Mass. 8, 12 (1983).[back] 250. See, e.g., MSM Invs. Co. v. Carolwood Corp., 2004 U.S. App. LEXIS 4739, *3 (9th Cir. 2004); see also Steven Burton & Eric Andersen, Contractual Good Faith: Formation, Performance, Breach, Enforcement 63-64 (1995) (emphasizing that express terms have priority in determining contractual expectations).[back] 251. Van Alstine, Of Textualism, supra note 42, at 1274-75 (citing 3 Corbin on Contracts 570(A) (Supp. 1998)).[back] 252. Id. at 1312.[back]

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