Also known as: reasonable commercial standard · objective good faith · commercial reasonableness
Written by attorneys · grounded in primary & secondary sources — see below
A standard of conduct requiring a merchant or other business participant to follow the practices that prevail among similar firms in the same locality and line of trade. The standard supplies the content of ordinary care for banks and other commercial actors and forms part of the definition of good faith when parties must perform or enforce contracts.
Zimmerman Bank employees knew McKenna served as office manager for O & K and cashed several checks payable to O & K at his request. The bank accepted the instruments without verifying McKenna's authority or requiring corporate indorsements. Because the bank's procedures departed from ordinary care measured by reasonable commercial standards, O & K could still assert the forged indorsements against the bank.
Shell Oil raised its posted price for asphalt supplied to Nanakuli Paving by thirty-two dollars per ton with only one day's written notice. Trade usage in the paving industry required sellers to give buyers advance warning of any price change. Shell's sudden increase violated reasonable commercial standards of fair dealing and therefore breached its duty of good faith under the supply contract.
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Eastern Air Lines continued to draw fuel from Gulf Oil stations under a requirements contract even though daily volumes fluctuated with weather and schedules. Gulf claimed the swings breached an implied duty to maintain steady purchases. The court measured Eastern's conduct against reasonable commercial standards in the aviation industry and found no breach because such variations were customary.
Coomer told Oloffson on June 3 that he would not deliver the contracted corn because he had already sold his crop elsewhere. Oloffson waited until late June before purchasing replacement corn at a higher price. The court held that a commercially reasonable time to cover had already expired under prevailing grain-trade standards, so Oloffson could not recover the full difference in price.
Reasonable commercial standards require a merchant to follow prevailing trade practices in the relevant locality and business, whereas honesty in fact only demands subjective good faith. The UCC combines both elements when defining good faith for merchants.
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No. Reasonable commercial standards permit a bank to process instruments by automated means without examining each item provided the bank's internal procedures are followed and those procedures do not deviate unreasonably from general banking usage.
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Ordinary negligence does not automatically bar relief. Only conduct that amounts to bad faith or falls below reasonable commercial standards of fair dealing will prevent a party from asserting rights based on mistake, misrepresentation, or similar defenses.
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A secured party that undertakes collection from account debtors or enforcement of collateral must proceed in a commercially reasonable manner if it wishes to charge back uncollected amounts to the debtor.
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…means a price for him to fix in good faith,” Haw.Rev.Stat. § 490:2-305(2). For a merchant good faith means “the observance of reasonable commercial standards of fair dealing in the trade.” Id. 490:2-103(l)(b). The comment to Section 2-305 explains, “[I]n the normal case a ‘posted price’ . . . satisfies the good faith requirement.” Id.,…