5.3 Weakness of a Good Faith/Bad Faith Analysis
The weakness of a good faith/bad faith analysis is that it may punish the forthright and reward the cunning. In the Clancy case, the court uses an illustration from the television comedy, Jerry Seinfeld, to highlight that the good faith standard is a subjective test based on a partner’s motive rather than on the consequences of a partner’s overt acts:
Jerry Seinfeld, perhaps an unlikely legal illustrator, once epitomized the duty of good faith in contract. In an episode of his television show, Jerry’s character purchased a jacket at a men’s clothing shop. The terms of the contract permitted Jerry to return the item for a refund at his discretion. When Jerry attempted to return the jacket after an unrelated personal quarrel with the salesman, the following discussion took place.
“Jerry: Excuse me, I’d like to return this jacket.
Clerk: Certainly. May I ask why?
Jerry: For spite.
Jerry: That’s right. I don’t care for the salesman that sold it to me.
Clerk: I don’t think you can return an item for spite.
Jerry: What do you mean?
Clerk: Well, if there was some problem with the garment. If it were unsatisfactory in some way, then we could do it for you, but I’m afraid spite doesn’t fit into any of our conditions for a refund.
Jerry: That’s ridiculous, I want to return it. What’s the difference what the reason is?
Clerk: Let me speak to the manager … excuse me … Bob!
Bob: What seems to be the problem?
Jerry: Well, I want to return this jacket and she asked me why and I said for spite and now she won’t take it back.
Bob: Well you already said spite so….
Jerry: But I changed my mind.
Bob: No, you said spite. Too late.”
Seinfeld: The Wig Master (NBC original television broadcast 4 April 1996).
In attempting to exercise his contractual discretion out of “spite,” Jerry breached his duty to act in good faith towards the other party to the contract. Jerry would have been authorized to return the jacket if, in his good faith opinion, it did not fit or was not an attractive jacket. He may not return the jacket, however, for the sole purpose of denying to the other party the value of the contract. Jerry’s post hoc rationalization that he was returning the jacket because he did not “want it” was rejected properly by Bob as not credible.
It may be unusual for courts to look to television programs for guidance in applying contract terms to partnerships. In point of fact, however, the Jerry Seinfeld example closely parallels Professor Burton’s example involving a tenant’s diversion of business from the store governed by a gross receipts rental to one not so covered. Both examples illustrate the essential subjective nature of the contract good faith standard.