In defense of the good faith standard in contract cases: a critique of Victor Goldberg

We need to update our priors again! We have been reading Victor Goldberg’s 2006 book “Framing Contract Law” and have already posted some positive reviews of various chapters of his book. (See here, for example.) One of the major themes in the book is Professor Goldberg’s disdain (if not utter contempt) for “the good faith standard” in contract cases. To summarize Professor Goldberg’s position, courts do not apply the good faith standard evenly, for “good faith” is too vague a rule to police contract disputes. Initially, we agreed with Professor Goldberg’s devastating critique of the good faith standard, but the more we think about his critique, the more we realize that it is Goldberg who is wrong, not the judges! It turns out many contract disputes involve some form of “post-contractual opportunism.” (Indeed, there is an extensive academic literature about this problem. See image below for an example.) So, as good Bayesians, we are updating our position on the good faith standard and our review of Goldberg’s book. To the extent that opportunism is a genuine problem in many contractual relationships (and the reported cases confirm this observation), the good faith standard (though vague) is probably a good second-best judicial solution in response to the problem of post-contractual opportunism.

Image result for post contractual opportunism

Credit: Carmella Merritt

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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