“Dishonesty” in Fact: The Future Uncertainty of Maryland’s Statutory Interpretation of Good Faith & Encouraging Lax Lender Liability

Kara N. Achilihu

Commercial law, ever-present in most aspects of people’s modern lives, is an intricate system of laws that governs businesses, commerce, and consumer transactions. The Uniform Commercial Code, originally published in 1952, serves as a vessel for commercially related transactions occurring in the United States—transcribing measures and policies for consumers, merchants, and institutions alike to follow. Each separate article of the Uniform Commercial Code (“UCC” or “Code”) addresses a particular area of commercial law, and Article 1 sets the stage for how those principles of interpretation are to be made. Article 1 contains the two-prong definition of good faith—“honesty in fact and the observance of reasonable commercial standards of fair dealing”—which relates to the Code-wide obligation of good faith. Notably, the good faith standard regulates the behavior of commercial machines such as banks, which continue to gain negative press for malfeasance against customers.

Although the Uniform Commercial Code is not federal law, all fifty states have adopted this model set of laws; thus, nearly all states closely follow its provisions and amendments within their own statutory schemes. Exceptions do exist, however. Maryland is one of the few states that have yet to adopt the two-prong standard of good faith, leaving the Maryland Uniform Commercial Code’s definition as merely “honesty in fact in the conduct or transaction concerned.”

Part I of this Comment begins by exploring the origins and legislative history of the Uniform Commercial Code. Part I also delves into the development of Article 1’s good faith standard—both through the subjective and objective characterization—and how such changes shifted to other Articles. Next, this Comment presents Maryland’s “version” of the UCC, including its departure from the Uniform Commercial Code’s homogenous definition of good faith, leaving the sole “honesty in fact” definition. A brief summary of cases decided under both the subjective and subjective-objective standard will follow, analyzing the various consequences in a banking context specifically.

Part II of this Comment presents arguments in favor of the Maryland General Assembly adopting the Uniform Commercial Code’s amendment to Article 1 in its entirety for the sake of promoting commercial uniformity with other states, clarity on how the judicial application of the standard should occur, and fairness to consumers and others involved in relationships with banks. In conclusion, this Comment recommends that the Maryland General Assembly adopt the Uniform Commercial Code’s amendment to Article 1’s definition of good faith to include the “observance of reasonable commercial standards of fair dealing.”