In a real estate transaction, buyers and sellers are inherently expected to act “honestly and in good faith” when under contract. This exists in part because few contracts specify with sufficient absolute detail how a party is to perform a contract exactly. The implied covenant of good faith looks at the actions of parties in light of reasonable expectations of the parties. It does not contradict contract terms; it does not remedy unpleasant motivations, but rather ensures that neither party will engage in acts that have the effect of “destroying or injuring the right of the other party to receive the fruits of the contract.” Perkins v. Standard Oil Co., 235 Or 7 (1963). For example, if you purchase health insurance, there is an inherent expectation that the insurer will review claims for appropriate coverage and won’t just disapprove all claims with a rubber stamp. [See McKenzie v. Pacific Health and Life Ins. Co., 118 Or. App. 377 (1993) for that story]. If you enter a contract with someone and they are to, for example, send you a disclosure document, there is an expectation that they will act in good faith to fulfill that obligation. [good faith in this case defined as “an absence of fraudulent intent and intention to observe performance of duties]. If you sign a contract to provide materials to a job site within 10 days, it is expected that the materials will be there within 10 days, or that you have made a good-faith effort to accomplish that task. Sometimes a giant boat gets stuck in the Suez Canal, and it stops your ability to perform, but that sort of failure is not one resulting from bad faith.
Worth noting, however: dealing in good faith does not prevent seeking out any reason whatsoever to terminate the contract when better opportunities arise. In Flynn v. Hanna, 204 Or. App. 760 (2006), a set of sellers refused to honor a first right of refusal and had their lawyer review the agreement for any reason to disapprove the contract, and the courts ruled that it was part of the reasonable expectations of the parties that a lawyer would look over the contract and find issues with it that rendered the contract inert. In other words, good faith dealing means attempting to follow the contract, but if the contract allows you to terminate, the contractually contemplated act of termination is not in bad faith.
