Eddy v. Anderson

                                      176

    Argued and submitted September 16, 2019; decision of Court of Appeals
reversed, judgment of circuit court reversed, and case remanded to circuit court
                 for further proceedings February 21, 2020


                       Janet EDDY
                     and Rodger Eddy,
                  Respondents on Review,
                             v.
                    Staci ANDERSON,
                   Petitioner on Review,
                            and
                    James ANDERSON
                   and Deborah Rocha,
                        Defendants,
         (CC CV15050554) (CA A162867) (SC S066301)
                                  

     Landlords filed an action for unpaid rent and other damages against ten-
ants under the Oregon Residential Landlord and Tenant Act (ORLTA). Tenants
counterclaimed for diminution in rental value under ORS 90.360(2), alleging
that landlords violated the ORLTA habitability requirements. The trial court
dismissed tenants’ counterclaim, reasoning that they had not provided landlords
with written notice of the alleged violation, that they had been motivated by
desire to pay less in rent rather than to remedy any habitability issue, and that
they consequently had not acted in good faith, defined in the ORLTA as “hon-
esty in fact in the conduct of the transaction concerned.” The Court of Appeals
affirmed, reasoning that the trial court’s findings regarding tenants’ motivation
for bringing the counterclaim supported the conclusion that tenants had not
acted in good faith. Held: (1) The context and history of the ORLTA show that the
legislature intended to adopt a narrow, specific, and subjective concept of good
faith that depends on whether a party has behaved honestly as to the matter in
question, rather than on the party’s motivations or whether the party has acted
in an objectively reasonable manner; (2) the lower courts were therefore incorrect
to the extent that they understood the “good faith” inquiry to depend on tenants’
motivation for bringing their counterclaim, rather than on whether they had
acted with “honesty in fact”—that is, whether they had brought a claim that they
subjectively believed to have merit; and (3) the trial court erred in concluding
that tenants were required to first give written notice to landlords before pursu-
ing their counterclaim under ORS 90.360(2), which requires only actual notice.
    The decision of the Court of Appeals is reversed. The judgment of the cir-
cuit court is reversed, and the case is remanded to the circuit court for further
proceedings.

    On review from the Court of Appeals.*
______________
   * On appeal from Clackamas County Circuit Court, Katherine E. Weber,
Judge. 

, 

 (2018).
Cite as 

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   Harry Ainsworth, Portland, argued the cause for peti-
tioner on review. Craig P. Colby, Craig P. Colby, Attorney,
LLC, Portland, filed the brief. Also on the brief were Harry
Ainsworth and Frank Wall, Portland.
    No appearance on behalf of respondents on review.
   Emily Rena-Dozier, Legal Aid Services of Oregon,
Portland, argued the cause and filed the brief on behalf of
amici curiae Legal Aid Services of Oregon and Oregon Law
Center.
   Before Balmer, Nakamoto, Flynn, Duncan, Nelson, and
Garrett, Justices, and Baldwin, Senior Judge, Justice pro
tempore.**
    GARRETT, J.
   The decision of the Court of Appeals is reversed. The
judgment of the circuit court is reversed, and the case is
remanded to the circuit court for further proceedings.




______________
    ** Walters, C. J., did not participate in the consideration or decision of this
case.
178                                                Eddy v. Anderson

          GARRETT, J.
         This case requires us to construe the term “good
faith” for purposes of the Oregon Residential Landlord and
Tenant Act (ORLTA). ORS 90.130 imposes an obligation of
good faith on those who are performing or enforcing either a
“duty” or an “act” that is “a condition precedent to the exer-
cise of a right or remedy” under the ORLTA. In this case,
after defendants (tenants) were sued for collection of unpaid
rent, they alleged a counterclaim for damages under ORS
90.360(2) on the ground that plaintiffs (landlords) had not
maintained the premises in a habitable condition. The trial
court dismissed that counterclaim, reasoning that tenants
had failed to provide landlords with written notice of the
alleged violation and had acted with “unclean hands.” The
Court of Appeals affirmed on somewhat different grounds,
concluding that, in light of the trial court’s findings, tenants
had failed to act in good faith for purposes of ORS 90.130
and that their counterclaim was therefore barred. Eddy v.
Anderson, 

, 

 (2018). We
allowed review and, for the reasons that follow, reverse.
                   STATUTORY OVERVIEW
         We begin with a brief overview of pertinent provi-
sions of the ORLTA. The ORLTA was enacted in 1973 “to
clarify and restate the rights and obligations of tenants
and landlords.”1 L & M Investment Co. v. Morrison, 

, 

 (1979). Beginning with provisions
of general applicability (ORS 90.100 - 90.148), the ORLTA
imposes obligations on both landlords and tenants (ORS
90.303 - 90.340), and it spells out their respective reme-
dies (ORS 90.360 - 90.440). One of the basic requirements
imposed on landlords is the obligation to maintain premises
in a “habitable condition,” as provided by ORS 90.320. Davis
v. Campbell, 

, 

 (1998).
        Provisions for a tenant’s remedies “are found both in
the general and in the more specific sections” of the ORLTA.
Brewer v. Erwin, 

, 

 (1979),
   1
     The ORLTA was originally codified in ORS chapter 91. In 1989, the
ORLTA was renumbered to ORS chapter 90. See ORS ch 91 (1989) (setting out
renumbering).
Cite as 

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overruled on other grounds by McGanty v. Staudenraus, 

, 

 (1995). The general provisions set forth
the actions by which a tenant can seek to remedy a land-
lord’s violation of the ORLTA; they also impose obligations
on a tenant who brings such an action. For example, ORS
90.125(2) explains that any “right or obligation” under the
ORLTA is enforceable by an “action,” which ORS 90.100(2)2
defines to include “recoupment, counterclaim, setoff, suit in
equity and any other proceeding in which rights are deter-
mined, including an action for possession.”
         The more specific provisions of the ORLTA explain
which remedies are available to a tenant when enforcing a
landlord’s obligations. As relevant to this case, ORS 90.360
provides a tenant with “two separate and independent rem-
edies” to address a landlord’s failure to comply with either
the rental agreement or the statutory obligation to maintain
the premises in a habitable condition under ORS 90.320. See
L & M Investment Co., 

 (so stating under for-
mer ORS 91.800 (1979), renumbered as ORS 90.360 (1989));
ORS 90.360(3) (“The remedy provided in [ORS 90.360(2)] is
in addition to any right of the tenant arising under [ORS
90.360(1)(a)].”).
         First, ORS 90.360(1)(a) allows a tenant to termi-
nate a lease after giving the landlord written “fix or I leave”
notice and an opportunity to cure the defect. See L & M
Investment Co., 

 (so stating under former ORS
91.800(1) (1979)). Second, ORS 90.360(2) allows a tenant to
“recover damages and obtain injunctive relief” for any non-
compliance by the landlord with the rental agreement or
habitability requirements. However, if the “landlord neither
knew nor reasonably should have known of the condition
that constituted the noncompliance,” and the “tenant knew
or reasonably should have known of the condition and failed
to give actual notice to the landlord in a reasonable time
prior” to the damage, the tenant is not “entitled to recover
damages” for the landlord’s noncompliance with the habit-
ability requirements. ORS 90.360(2).
    2
      ORS 90.100 was amended in 2019, after this action was commenced.
However, those amendments do not affect the analysis of the issues on review.
In this opinion, unless otherwise noted, we refer to the current version of the
statute.
180                                                     Eddy v. Anderson

        Thus, whereas paragraph (1)(a) of ORS 90.360
allows a tenant to terminate the rental agreement but
expressly requires written notice as a prerequisite for that
remedy, subsection (2) addresses different remedies and is
framed in terms of whether a landlord knew or reasonably
should have known of the problem leading to the dispute.
         The ORLTA also provides two remedies, depend-
ing on the circumstances, for a landlord’s failure to supply
“essential services.”3 First, under ORS 90.365(1), if a land-
lord “intentionally or negligently fails to supply any essen-
tial service,” then the tenant may give “written notice to
the landlord specifying the breach and that the tenant may
seek substitute services, diminution in rent damages or sub-
stitute housing.” See L & M Investment Co., 

(that statute allows a tenant to either sue for damages based
on a diminution in the fair rental value or take advantage
of various “self-help” remedies, such as securing alternative
housing or services, or repairing the problem and deduct-
ing the cost from the rent). Second, under ORS 90.365(2), if
a landlord fails to supply an essential service, “the lack of
which poses an imminent and serious threat to the tenant’s
health, safety or property,” then the tenant may give the
landlord a written “fix or I leave” notice, stating that the
rental agreement will terminate in 48 hours unless the
breach is remedied within that period.
        More specific provisions of the ORLTA also set forth
additional requirements for a tenant who is asserting a
counterclaim in a landlord’s action for possession or rent.
See ORS 90.370. As relevant to this case, ORS 90.370(1)(a)
requires a tenant to “prove that[,] prior to the filing of the
landlord’s action[,] the landlord reasonably had or should
have had knowledge or had received actual notice of the

    3
     As relevant here, “essential service” means
       “(A) Heat, plumbing, hot and cold running water, gas, electricity, light
   fixtures, locks for exterior doors, latches for windows and any cooking appli-
   ance or refrigerator supplied or required to be supplied by the landlord; and
       “(B) Any other service or habitability obligation imposed by the rental
   agreement or ORS 90.320, the lack or violation of which creates a serious
   threat to the tenant’s health, safety or property or makes the dwelling unit
   unfit for occupancy.”
ORS 90.100(13)(a)(A) - (B).
Cite as 

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facts that constitute the tenant’s counterclaim.” See ORS
90.370(2) (making the requirements of paragraph (1)(a)
applicable when a tenant asserts a counterclaim in a land-
lord’s action for rent).
         As this court has previously noted, a “net effect” of
the foregoing statutes is the creation of an “implicit with-
holding remedy: if the landlord is in noncompliance with his
obligations under the ORLTA to the monetary damage of
the tenant, the tenant can withhold rent, and if the landlord
commences an FED action, the tenant can counterclaim” for
diminished rental value damages. Napolski v. Champney,

, 

 (1983). With that background
in mind, we turn to the facts of this case.
      FACTS AND PROCEDURAL BACKGROUND
         In November 2013, landlords and tenants entered
into a rental agreement for a residential property. At trial,
evidence was presented that, within a few days of moving
in, tenants gave landlords a written list of items that they
thought needed repair. One item on that list was “water
backup in [the] bathroom drain downstairs.” Shortly after
receiving the list, landlords repaired the drain.
        Several months into the tenancy, around March
2014, tenants notified landlords that the bathroom drain
was clogged again. Landlords fixed the drain and gave ten-
ants a plumbing tool to use if the problem recurred.
        In May 2014, tenants tendered landlords a late rent
payment that was less than the full $1,400 that was due.
In an accompanying letter, tenants stated that the rent
was very expensive and asked landlords to lower the rent
“to a more reasonable cost since there is so much repair to
be done” in terms of “leaks and flooding in the basement.”
Landlords replied that they would not consider lowering the
rent until tenants paid amounts due for unpaid move-in
charges, back rent, and unpaid utility bills. From May to
December, tenants continued to tender late partial rental
payments.
        In mid-December 2014, tenants wrote landlords
and left a phone message informing them that the bath-
room drain had backed up again. In the letter, tenants said
182                                            Eddy v. Anderson

that “this will make it about the 6th or 7th time this has
happened since we have lived here.” Landlords returned the
phone call and sent a letter acknowledging tenants’ letter
and phone message. In the letter, landlords wrote that they
had spoken to a member of tenants’ family, who said that
the plumbing tool supplied by landlords “immediately broke
up some blockage in the line.” In that letter, landlords also
stated that they were “not aware that [tenants] report[ed]
6 or 7 blockages” during their tenancy.
         Tenants defaulted on their rent payments, and land-
lords brought an eviction action against them. In that pro-
ceeding, tenants agreed to vacate the premises. After they
did so, landlords brought this action for unpaid rent and
other damages. Tenants asserted a counterclaim under ORS
90.360(2) for damages based on landlords’ alleged failure to
maintain the premises in a habitable condition. According
to tenants, the residence was not habitable because, among
other things, the sewer had backed up several times, caus-
ing damage to their personal property and diminishing the
rental value of the premises.
       At the conclusion of the trial, the trial court
addressed tenants’ counterclaim, stating:
      “I find the [tenants] did not comply with ORS 90.365(1)
   and did not properly notify the landlord[s] of problems, as
   required by that statute in writing. As a result, the tenants
   unlawfully withheld rent and are with unclean hands.
      “* * * * *
      “Furthermore, I find that this is a case about the ten-
   ants not wanting to pay the agreed-upon rent as opposed to
   any deficiency by the landlord[s] in [their] actions on this
   case.”
        Tenants objected, explaining that their counter-
claim had been alleged under ORS 90.360(2), not ORS
90.365(1), and written notice therefore was not required.
The trial court responded:
      “There was a requirement to withhold rent, that the
   tenant notify the landlord of specific deficiencies in the
   property, and that is required to be done in writing. That
   was not done. As a result, your client is here with unclean
   hands.
Cite as 

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       “The failure of paying rent changed the entirety of this
    case. Had your client decided to pay rent, [they] would be
    in a very different position vis-à-vis any claim that [they]
    bring[ ] before the Court. The choice to withhold rent trig-
    gers a requirement, and that requirement was not followed
    through with.”
                   COURT OF APPEALS DECISION
          Tenants appealed, assigning error to the trial
court’s dismissal of their habitability counterclaim and argu-
ing that the trial court had misconstrued ORS 90.360(2) as
requiring written notice as a prerequisite for asserting a
claim. In response, landlords focused on the issue of unclean
hands, arguing that sufficient evidence supported the trial
court’s finding in that regard.
         Initially, the Court of Appeals framed the issue as
whether a tenant “may always forgo” the “specific reme-
dies” in the essential services statute, ORS 90.365, “which
require giving a landlord written notice and an opportunity
to cure, and proceed under the general damages provision of
ORS 90.360(2) instead.” 4 Eddy, 

. However,
that court deemed it unnecessary to resolve that question,
reasoning that the trial court’s findings had amounted to
a determination that tenants had not brought their coun-
terclaim in “good faith” as required by ORS 90.130, which
“fully resolves tenant[s’] counterclaim[.]” 

.
        The Court of Appeals explained that the trial court
had used “ ‘unclean hands’ as a shorthand for its express
finding that tenants were improperly motivated in bring-
ing their damages counterclaim.” 

 at 178 n 14. Quoting
Napolski, 

, the court explained that the “stat-
utory good faith obligation protects a landlord against
    4
       In framing the issue that way, the Court of Appeals appears to have
assumed that the habitability violation alleged by tenants—the clogged drain in
the downstairs bathroom—“also amount[ed] to a failure to supply an ‘essential
service’ that falls within [the] specific remedial provisions of ORS 90.365.” See
Eddy, 

. However, tenants did not make any “essential service”
allegation at trial, and landlords conceded before the Court of Appeals that ten-
ants’ counterclaim did not implicate an “essential service.” The trial court also
did not make any finding that tenants’ counterclaim involved an “essential ser-
vice,” and it is not obvious that it does. We need not resolve that issue, because
the Court of Appeals’ disposition did not turn on whether tenants’ counterclaim
had involved an essential service.
184                                                     Eddy v. Anderson

spurious, frivolous, or improperly motivated counterclaims
asserted to justify the withheld rent.” Eddy, 

 (internal quotation marks omitted; brackets omitted).
The court reasoned that “the trial court was entitled to con-
sider tenants’ failure to avail themselves of a remedy that
potentially could have remedied a condition that they now
claim made the dwelling unfit for occupancy and valueless
as a rental.” 

.
         The court then explained that, “[r]ather than alert
landlord[s] to the alleged deficiency in writing and forewarn
landlord[s] that they would withhold rent or engage in other
self-help actions, as the ‘essential services’ statute requires,
tenants instead told landlord[s] that they were struggling
financially and repeatedly asked landlord[s] to lower the
rent.” 

 The trial court thus had “concluded from the evi-
dence that tenants’ counterclaim [had been] motivated by
the desire to avoid their obligation to pay rent, not a desire
to remedy a habitability issue with the premises.” 

 And
because “[t]hat finding on the trial court’s part defeat[ed]
tenants’ counterclaim, regardless of whether tenants were
entitled to pursue damages under ORS 90.360(2) or were lim-
ited to the ‘essential services’ remedies in ORS 90.365(1)[,]”
“the trial court did not err in dismissing tenants’ * * *
counterclaim.” 

 Tenants petitioned for review, which we
allowed.
                          ANALYSIS
         On review, tenants argue that the trial court and
the Court of Appeals erred. Amici curiae, Legal Aid Services
of Oregon and Oregon Law Center, join in that argument.5
Together, tenants and amici address two principal issues.6
First, they argue that ORS 90.360(2) makes clear that
“actual notice,” not written notice, is a prerequisite for pur-
suing a habitability action under that statute. Thus, the
trial court’s conclusion that written notice was required
under ORS 90.360(2) was legal error.
    5
      Landlords did not file a brief on review.
    6
      Tenants make two other arguments—first, that the trial court’s factual
finding that tenants did not provide written notice was erroneous, and, second,
that a lack of good faith under ORS 90.130 is an affirmative defense that must be
raised in a responsive pleading. Neither argument was preserved below, and we
do not reach those issues.
Cite as 

 (2020)                                  185

         Second, tenants and amici argue that the Court of
Appeals misconstrued ORS 90.130 when it affirmed the trial
court on the ground that tenants had failed to act in “good
faith.” ORS 90.100(19) defines “good faith” for purposes of
the ORLTA simply to mean “honesty in fact in the conduct
of the transaction concerned.” Tenants and amici argue that
the Court of Appeals relied on a broader understanding of
the term “good faith” than is found in the statute. Amici also
observe that “the fundamental principle of the ORLTA’s rent
withholding remedy [is] that a tenant whose housing fails to
meet the legal standard of habitability has no obligation to
pay full rent.” (Emphasis in original.) Amici point out that
a tenant alleging habitability violations may be motivated
by the desire for the landlord to abate the problem but also
by the desire not to pay full rent. Thus, in the view of amici,
because the legislature has expressly allowed rent withhold-
ing as a remedy for habitability violations, a tenant’s finan-
cial motivations cannot provide a basis for finding a lack of
“good faith” under ORS 90.130.
         Because the Court of Appeals viewed the issue of
good faith as dispositive, we begin there. As we will explain,
we conclude that the Court of Appeals applied a broader con-
cept of good faith than is embodied in the ORLTA; conse-
quently, that court’s rationale for affirming the trial court
was incorrect.
         The meaning of good faith under ORS 90.130 pres-
ents a question of statutory interpretation that we resolve by
considering the text, context, and any helpful legislative his-
tory. State v. Gaines, 

, 

 (2009).
We begin with the statutory text. ORS 90.130 provides:
       “Every duty under this chapter and every act which
   must be performed as a condition precedent to the exercise
   of a right or remedy under this chapter imposes an obliga-
   tion of good faith in its performance or enforcement.”
In turn, the legislature defined “good faith” for purposes of
the ORLTA as “honesty in fact in the conduct of the transac-
tion concerned.” ORS 90.100(19).
        The legislature did not define “honesty in fact,” but
the legislative history provides important insight about
186                                                     Eddy v. Anderson

what the legislature understood that phrase to mean. The
ORLTA, which includes ORS 90.130 and ORS 90.100(19),
was enacted in 1973. Or Laws 1973, ch 559.7 The ORLTA
was modeled on the Uniform Residential Landlord and
Tenant Act (1972) (URLTA). Elk Creek Management Co.
v. Gilbert, 

, 

 (2013). As orig-
inally enacted, ORS 90.130 and ORS 90.100(19) mir-
rored URLTA sections 1.3028 and 1.301(4)9 respectively.
Compare former ORS 91.730 (1973), renumbered as ORS
90.130 (1989), and former ORS 91.705 (1973), renumbered as
90.100 (1989), with URLTA § 1.302 (1972), reprinted in 7A
Uniform Laws Annotated 516 (1978), and URLTA § 1.301(4)
(1972), reprinted in 7A Uniform Laws Annotated 513
(1978).
         Section 1.302 of the URLTA included a comment
explaining that the section was adapted, in turn, from
section 1-203 of the Uniform Commercial Code (UCC).
URLTA § 1.302 Commissioners’ Commentary (1972) (so
stating), reprinted in 7A Uniform Laws Annotated 516
(1978). At that time, UCC section 1-203 provided: “Every
contract or duty within this Act imposes an obligation
of good faith in its performance or enforcement.” UCC
§ 1-203 (1966), reprinted in 1 Uniform Laws Annotated 50
(1968). The UCC, like the URLTA, further defined good
faith as “honesty in fact in the conduct or transaction con-
cerned.”10 Compare UCC § 1-201(19) (1966), reprinted in 1

    70
       As stated above, the ORLTA was renumbered in 1989. See ORS ch 91
(1989) (setting out renumbering); see also former ORS 91.730 (1973), renumbered
as ORS 90.130 (1989); former ORS 91.705 (1973), renumbered as ORS 90.100
(1989). Since that renumbering, the legislature has moved the definition of “good
faith,” which is now found in ORS 90.100(19). However, the text of the definition
has not changed.
    80
       URLTA section 1.302 provided:
         “Every duty under this Act and every act which must be performed as
    a condition precedent to the exercise of a right or remedy under this Act
    imposes an obligation of good faith in its performance or enforcement.”
    90
       URLTA section 1.301(4) provided that “ ‘good faith’ means honesty in fact
in the conduct of the transaction concerned[.]”
    10
       Other provisions of the UCC added to the definition of good faith for pur-
poses of those specific provisions. See, e.g., UCC § 2-103 (1968), reprinted in 1
Uniform Laws Annotated 73 (1968) (providing that, “good faith in the case of
a merchant means honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade” (emphasis added)).
Cite as 

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Uniform Laws Annotated 32 (1968), with URLTA § 1.301(4)
(1972), reprinted in 7A Uniform Laws Annotated 513
(1978).
         As noted, when the legislature enacted ORS 90.130
and ORS 90.100(19), it adopted the URLTA verbatim. In
light of the text and history, we conclude that, when the
legislature used the phrase “good faith” in ORS 90.130 and
defined it as “honesty in fact” in ORS 90.100(19), it intended
to follow the URLTA in incorporating the meaning of “good
faith” in UCC section 1-201(19).
         This court has previously interpreted that UCC
provision, originally codified in Oregon at ORS 71.2010(19)
(1963).11 See U.S. National Bank v. Boge, 

, 

 (1991); Community Bank v. Ell, 

, 

, reh’g den, 

, 

 (1977). In
Community Bank, we explained that the appropriate stan-
dard for “good faith” under ORS 71.2010(19) (1977) is a
“subjective one, looking to the intent or state of mind of
the party concerned.” 

. Similarly, in U.S.
National Bank, we explained that the UCC’s definition of
“good faith” sets out a subjective standard that is distin-
guishable from the common law’s objective standard of good
faith, which considers the reasonable expectations of the
parties. See 

 (“In contrast [to the UCC’s
definition of good faith], the common law standard of good
faith is an ‘objective’ one that considers the reasonable
expectations of the parties.”). We then explained that the
obligation of good faith under ORS 71.2010(19) (1991) does
“not vary the substantive terms of the bargain or of the stat-
ute, nor does it provide a remedy for an unpleasantly moti-
vated act that is expressly permitted by contract or statute.”

.
    11
       ORS 71.2010 (1963) adopted UCC 1-201. Or Laws 1961, ch 726, § 71.2010
(enacting ORS 71.2010). Accordingly, ORS 71.2010(19) (1963) provided, “ ‘Good
faith’ means honesty in fact in the conduct or transaction concerned.” As a result
of later amendments to the Oregon statutes codifying the UCC, see Or Laws
2009, ch 181, § 8, the relevant provision now defines “good faith” as “honesty in
fact and the observance of reasonable commercial standards of fair dealing.” ORS
71.2010(2)(t) (emphasis added). Our decisions in U.S. National Bank v. Boge, 

, 

 (1991) and Community Bank v. Ell, 

, 

(1977), discussed herein, construed the original, narrower definition, which is the
definition that continues to exist in the ORLTA.
188                                        Eddy v. Anderson

        The decisions in U.S. National Bank, 

,
and Community Bank, 

, instruct that, in apply-
ing ORS 90.130, “good faith” turns on a party’s subjective
intentions. And the obligation of good faith cannot vary the
substantive terms of the ORLTA. Thus, a person who acts
in a manner “expressly permitted” by the ORLTA does not
breach the duty of good faith unless the person has acted
dishonestly as to the matter. Whether (or not) his or her
actions meet an objective standard of “reasonableness”—or
are “unpleasantly motivated,” see U.S. National Bank, 311
Or at 567—is irrelevant.
         We turn to the Court of Appeals’ decision. As
explained, that court held that the trial court’s findings
about tenants’ conduct properly supported a conclusion that
they had failed to act in good faith. Eddy, 

.
Specifically, the Court of Appeals understood the trial court
to have found that tenants’ “counterclaim [had been] moti-
vated by the desire to avoid their obligation to pay rent, not
a desire to remedy a habitability issue with the premises.”

 And, as support for that conclusion, the Court of Appeals
cited the trial court’s findings that tenants had not provided
landlords with written notice and had stated their desire for
lower rent. 

         Given the meaning of “good faith” under the ORLTA,
the Court of Appeals was incorrect to frame the inquiry as
dependent on tenants’ “motivation,” rather than whether
they had acted with “honesty in fact,” ORS 90.100(19). In
doing so, the Court of Appeals appears to have imported the
broader concept of good faith that is frequently found in both
statute and common law. See, e.g., U.S. National Bank, 

 (“[T]he common law standard of good faith is
an ‘objective’ one that considers the reasonable expectations
of the parties.”); ORS 181A.670(3) (stating that presumption
of good faith can be rebutted upon showing that the entity
“disclosed the information * * * with malicious purpose”
(emphasis added)); ORS 71.2010(2)(t) (stating that good faith
means “honesty in fact and the observance of reasonable
commercial standards of fair dealing” (emphasis added)).
       The Court of Appeals relied in part on our state-
ment in Napolski that the obligation of “good faith” under
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former ORS 91.730 (1981) prohibits “[s]purious, frivolous, or
improperly motivated counterclaims.” See Eddy, 

, 178 (quoting Napolski, 

 (brackets in
Eddy)). We acknowledge that that statement, on its face, can
be read to embrace a broad concept of good faith like that
which the Court of Appeals adopted below. But, we never
elaborated in Napolski on what types of “motivations” might
be “improper.” See 

. More fundamentally, the
statement in Napolski was dicta—it was not necessary to our
holding that “a tenant is not in default of rent and a landlord
is not entitled to terminate the lease for nonpayment of rent
if the tenant has refused to pay the rent because of some
default of the landlord’s which entitles her to damages and
she tenders sufficient funds into court to cover any rent that
ultimately may be determined to be due.” 

.
Rather, that statement was part of our explanation of why
withholding is not as “formidable weapon in the tenant’s
arsenal” as it appears to be at first blush. 

. To the
extent that the reference in Napolski to “improperly moti-
vated” counterclaims could be read to mean that a tenant’s
subjective motivations alone may bar a counterclaim that a
tenant nonetheless believes to be meritorious, that sugges-
tion was unnecessary to the holding and was incorrect.
         The ORLTA, as we have explained, expressly incor-
porates a specific and narrow meaning of the term “good
faith.” Here, tenants violated the ORLTA’s obligation of good
faith only if they acted dishonestly with respect to the alle-
gation in their counterclaim—meaning that they alleged a
counterclaim that they knew to lack merit. So long as they
subjectively believed that the counterclaim had merit, and
so long as they did not knowingly fail to comply with any
prerequisite for asserting their claim, they were entitled
to bring it. Nothing else is required to meet the statutory
requirement of “honesty in fact.”
        Of course, the fact that the Court of Appeals adopted
too broad a construction of “good faith” under ORS 90.130
does not mean that the trial court erred. We turn, then, to
that court’s findings and rulings.
        The trial court found that tenants had acted with
“unclean hands.” We agree with the Court of Appeals that,
190                                         Eddy v. Anderson

in context, the trial court’s statement is properly under-
stood as a shorthand reference to the statutory obligation of
good faith under ORS 90.130. In support of that finding, the
trial court cited tenants’ failure to provide written notice
of the habitability issue and their desire to pay lower rent.
For two reasons, however, the trial court’s reasoning was
problematic.

         First, although the trial court stated that “this is
a case about the tenants not wanting to pay the agreed-
upon rent as opposed to any deficiency by the landlord[s] in
[their] actions on this case[,]” that statement falls short of a
finding that tenants did not subjectively believe that a hab-
itability violation existed. Neither did the trial court make
any finding that no habitability problem existed. Rather, the
trial court’s statement is consistent with a view that, even if
tenants genuinely had believed that a habitability violation
existed—indeed, even if one did exist—their counterclaim
was barred if their primary motivation was simply to pay
less rent. In other words, the trial court’s articulation of
its finding that tenants lacked good faith suggests that the
trial court acted with the same erroneous understanding
of “good faith” under ORS 90.130 that the Court of Appeals
adopted.

         Second, it is clear from the record that the trial
court based its good faith finding in significant part on its
understanding that tenants were required, and failed, to
provide landlords with written notice before availing them-
selves of a rent-withholding remedy. For reasons explained
next, that was incorrect.

        As noted above, written notice is a prerequisite for
“essential service” claims under ORS 90.365(1). Tenants,
however, asserted their counterclaim as a habitability claim
under ORS 90.360(2). That counterclaim was asserted in
response to landlords’ action for rent while tenants were not
in possession of the property. Thus, tenants’ counterclaim
was subject to the requirements of ORS 90.360(2) and ORS
90.370(2) (addressing notice requirements when a tenant
asserts a counterclaim in a landlord’s action for rent and
tenant is no longer in possession).
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         Beginning with ORS 90.360(2), although this court
has not construed the current version of that statute, we
have construed previous versions. ORS 90.360(2) was orig-
inally codified at ORS 91.800(2). As enacted, former ORS
91.800(2) (1973) provided:
      “Except as provided in ORS 91.700 to 91.895, the tenant
   may recover damages and obtain injunctive relief for any
   noncompliance by the landlord with the rental agreement
   or ORS 91.770.”
In L & M Investment Co., we construed that statutory text
and held that written “fix or I leave” notice was not a pre-
requisite for a tenant to bring an action under former ORS
91.800(2) (1979) for a habitability violation in a forcible entry
and detainer action. 

.
         In 1989, former ORS 91.800 (1973) was renumbered
to ORS 90.360, without substantive change. See ORS ch 91
(1989) (setting out renumbering). In Davis, 

, we
construed ORS 90.360(2) (1991), which had the same word-
ing as the version of former ORS 91.800(2) (1979) at issue
in L & M Investment Co., 

. We concluded that
a tenant was not required to prove that the landlord had
“actual or constructive knowledge” of a habitability viola-
tion to prevail on a statutory claim for damages under ORS
90.360(2) (1991). Davis, 

.
        However, in 1997, the legislature amended ORS
90.360(2) to provide:
       “Except as provided in this chapter, the tenant may
   recover damages and obtain injunctive relief for any non-
   compliance by the landlord with the rental agreement or
   ORS 90.320. The tenant shall not be entitled to recover
   damages for a landlord noncompliance with ORS 90.320
   if the landlord neither knew nor reasonably should have
   known of the condition that constituted the noncompliance
   and:
       “(a) The tenant knew or reasonably should have
   known of the condition and failed to give actual notice to
   the landlord in a reasonable time prior to the occurrence of
   the personal injury, damage to personal property, diminu-
   tion in rental value or other tenant loss resulting from the
   noncompliance; or
192                                             Eddy v. Anderson

      “(b) The condition was caused after the tenancy began
   by the deliberate or negligent act or omission of someone
   other than the landlord or a person acting on behalf of the
   landlord.”

(Emphasis added.) Importantly, the 1997 amendments
added a notice requirement for tenants who were bringing
an action to remedy a landlord’s noncompliance with the
habitability requirements. That notice requirement was an
“actual notice” requirement. And “actual notice” is still what
is required under ORS 90.360(2) today.
        Actual notice is defined by ORS 90.150, which
provides:
      “When [the ORLTA] requires actual notice, service or
   delivery of that notice shall be executed by one or more of
   the following methods:
      “(1) Verbal notice that is given personally to the land-
   lord or tenant or left on the landlord’s or tenant’s telephone
   answering device.
       “(2) Written notice that is personally delivered to the
   landlord or tenant, left at the landlord’s rental office, sent
   by facsimile to the landlord’s residence or rental office or to
   the tenant’s dwelling unit, or attached in a secure manner
   to the main entrance of the landlord’s residence or tenant’s
   dwelling unit.
       “(3) Written notice that is delivered by first class mail
   to the landlord or tenant. If the notice is mailed, the notice
   shall be considered served three days after the date the
   notice was mailed.
      “(4) Any other method reasonably calculated to achieve
   actual receipt of notice, as agreed to and described in a
   written rental agreement.”

         Thus, ORS 90.150 makes clear that “actual notice,”
as required by ORS 90.360(2), does not require written
notice. Rather, actual notice can be given verbally or by
any “other method reasonably calculated to achieve actual
receipt of notice, as agreed to and described in a written
rental agreement.” ORS 90.150(1), (4). Thus, ORS 90.360(2)
does not require written notice.
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         Neither does ORS 90.370(2). That statute provides:
       “In an action for rent when the tenant is not in posses-
   sion, the tenant may counterclaim as provided in subsec-
   tion (1) of this section but is not required to pay any rent
   into court.”
Paragraph (1)(a), in turn, provides:
   “* * * [T]he tenant may counterclaim for any amount * * *
   that the tenant may recover under the rental agreement
   or this chapter, provided that the tenant must prove that
   prior to the filing of the landlord’s action the landlord rea-
   sonably had or should have had knowledge or had received
   actual notice of the facts that constitute the tenant’s
   counterclaim.”
(Emphasis added.) Thus, ORS 90.370(1)(a), like ORS
90.360(2), refers to whether the landlord had “actual notice”
or reasonably “should have” known.
         In sum, neither ORS 90.360(2) nor ORS 90.370
requires written notice as a prerequisite for a tenant’s coun-
terclaim under ORS 90.360(2). The trial court’s contrary
view was erroneous. Moreover, the record from the hearing
demonstrates that the trial court relied heavily on its erro-
neous understanding that written notice was required when
it determined that tenants had not acted in good faith for
purposes of ORS 90.130. Because we cannot conclude that
the trial court would have reached the same conclusion as
to good faith even if it had correctly applied ORS 90.360(2),
we remand to the trial court for further proceedings. See
J. M. v. Oregon Youth Authority, 

,

 (2019) (remanding the case to the trial court to
reconsider its decision under the correct legal standard).
        The decision of the Court of Appeals is reversed.
The judgment of the circuit court is reversed, and the case
is remanded to the circuit court for further proceedings.