Opinion ID: 707537
Heading Depth: 2
Heading Rank: 3

Heading: Implied Covenant of Good Faith Claim

Text: 39 Finally, Baxter alleges that O.R. breached the duty of good faith and fair dealing by competing with Baxter. Section 1-203 of the UCC provides that [e]very contract or duty within this Act imposes an obligation of good faith in its performance or enforcement. 810 ILCS 5/1-203. Good faith is defined as honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. 810 ILCS 5/2-103(b). 40 However, under Illinois law the covenant of good faith and fair dealing is not an independent source of duties for the parties to a contract. Beraha v. Baxter Health Care Corp., 956 F.2d 1436, 1443 (7th Cir.1992). Instead, the covenant merely guides the construction of the explicit terms in the agreement. Id. As stated in Kham & Nate's Shoes No. 2 v. First Bank of Whiting, 908 F.2d 1351 (7th Cir.1990), 41  'Good faith' is a compact reference to an implied undertaking not to take opportunistic advantage in a way that could not have been contemplated at the time of drafting, and which therefore was not resolved by the parties. When the contract is silent, principles of good faith--such as the UCC's standard of honesty in fact, UCC Sec. 1-201(19), and the reasonable expectations of the trade, UCC Sec. 2-103(b) ... fill the gap. Id. at 1357. 42 This is not a situation where the duty of good faith is required to fill a gap in a contract. There is nothing to suggest that the parties could not have contemplated O.R. selling Thermadrape to other buyers. In fact, Baxter admits that it knew that O.R. had previous relationships with other distributors and that those distributors would continue to bid on Thermadrape. Where Baxter and O.R. wanted an exclusive distribution relationship to exist, namely for new products, they included language in the Agreement to provide for it. They included nothing in the Agreement to prohibit O.R. from selling to other buyers. As such, O.R. was free to do so. 43 Baxter asks that we use the duty of good faith not to guide the construction of the Agreement, but to imply additional obligations that were not bargained for. But as this Court stated in Kham, [f]irms that have negotiated contracts are entitled to enforce them to the letter, even to the great discomfort of their trading partners, without being mulcted for lack of 'good faith.'  Kham at 1357. The district court properly dismissed Baxter's claim for breach of the implied covenant of good faith.