Ark. Code Ann. § 4-1-304 (2026)

Research References

Ark. L. Rev.

Comment, Gordon v. Planters & Merchants Bancshares: Punitive Damages May Be Awarded For Bank's Wrongful Charge-Back, 51 Ark. L. Rev. 611.

Case Notes

Applicability.

Failure to exercise good faith under this section raises the issue of breach of contract but is not present in a case where the only contract at issue between the parties is a promissory note. Affiliated Foods S.W., Inc. v. Moran, 322 Ark. 808, 912 S.W.2d 8 (1995).

Bad Faith.

This section permits the consideration of the lack of good faith of party who first perfected security interest toward the second lienholder to alter priorities which otherwise would be determined under chapter 9 of this title. Thompson v. United States, 408 F.2d 1075 (8th Cir. 1969).

Bank had had a clear duty under § 4-4-215 to refrain from charging-back a check against customer's account once payment had become final; the Bank's breach of this duty could have been construed to be an exercise of bad faith strictly prohibited by this section. Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).

Breach.

To establish a breach of the obligation of good faith, the plaintiff must demonstrate that the defendant was not honest in fact and that he acted with a bad motive. Southern Implement Co. v. Deere & Co., 122 F.3d 503 (8th Cir. 1997).

Contractual Terms.

The UCC good faith provision may not be used to override explicit contractual terms. Frank Lyon Co. v. Maytag Corp., 715 F. Supp. 922 (E.D. Ark. 1989).

Demand Loans.

In the face of a demand note, there is no lack of good faith defense available, much less an action in tort for bad faith; a bank is entitled to terminate the loan for any reason or for no reason and it cannot be held liable for refusing to extend when it has no obligation to do so. Zeno Buick-GMC, Inc. v. GMC Truck & Coach, 844 F. Supp. 1340 (E.D. Ark. 1992), aff'd without op., 9 F.3d 115 (8th Cir. 1993), aff'd, 9 F.3d 115 (8th Cir. 1993).

Good Faith.

The Uniform Commercial Code places a general obligation of good faith on the parties to a contract. Ripplemeyer v. National Grape Coop. Ass'n, 807 F. Supp. 1439 (W.D. Ark. 1992).

Whether or not agreements are governed by the Uniform Commercial Code, it appears that there is an implied covenant of good faith and fair dealing; a breach of this implied covenant would constitute a breach of contract. Ripplemeyer v. National Grape Coop. Ass'n, 807 F. Supp. 1439 (W.D. Ark. 1992).

The fact that every contract imposes an obligation to act in good faith does not create a cause of action for a violation of that obligation. Country Corner Food & Drug, Inc. v. First State Bank & Trust Co., 332 Ark. 645, 966 S.W.2d 894 (1998).

Punitive Damages.

Punitive damages can be awarded for bad faith Article 4 violations, where the statute does not specifically prohibit them, without the necessity that an alternative, common law tort be pled. Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).