Also known as: reasonable commercial standard of fair dealing
Written by attorneys · grounded in primary & secondary sources — see below
An objective standard of conduct incorporated into the definition of good faith that requires parties to conform their actions to norms of fairness observed in the relevant commercial trade or industry.
Redwood Bank allowed a member to draw immediately on three checks exceeding $120,000 drawn on an out-of-state insurer. The bank followed its usual policy and expert testimony showed similar practices at other credit unions. A jury found the bank failed the standard because it neither investigated the checks further nor placed a hold to permit irregularities to surface.
Shell Oil notified Nanakuli Paving of a $32 price increase effective the next day in a letter received four days later. Trade practice in the asphaltic paving industry required advance notice of price changes. The court held Shell had not observed reasonable commercial standards of fair dealing by departing from that established usage.
Select any source to read its text and confirm it supports the definition.
Eastern Air Lines varied daily fuel purchases from Gulf Oil stations in response to weather and schedule changes. Gulf claimed the variations breached an output contract. The court found Eastern's conduct consistent with good faith because substantial fluctuations were the established commercial practice in aviation fueling.
Oloffson purchased corn from Coomer without disclosing a known trade usage requiring prompt notice of a seller's intent to cover. Coomer therefore missed the commercially reasonable window to protect himself. The court concluded Oloffson's silence violated the standard of fair dealing between merchants.
The phrase supplies an objective test that measures conduct against industry norms of fairness. A party may be honest in fact yet still fail the standard if its actions deviate from accepted commercial practices of fair dealing.
No. The standard addresses unfairness rather than mere carelessness. A party's failure to investigate or follow best practices violates the standard only when the conduct amounts to a departure from norms of fair dealing.
No. The standard requires observance only of those practices that embody fair dealing. Courts may reject a trade usage that itself falls below reasonable commercial standards of fairness.
Only if the policy itself aligns with reasonable commercial standards of fair dealing. Expert testimony that many firms follow a similar policy is relevant but not conclusive when the policy permits conduct that treats other parties unfairly.
…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., Comment 3. However,…