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Published: Fri, 02 Feb 2018
Good Faith in English Contract Dealings
Good Faith in English Contract Dealings
In civil law systems, “good faith” is regarded as a vital criterion in appraising and regulating the act of contracting parties. However, “fair dealing” is used in common law of literature rather than the first one. Considering the standards that control the structure and implementation of contracts, it is said that the standards of good faith favours more on the contracting parties where in both of them are expected to perform and take action in good faith with regard to the negotiation of the two. The level and capacity of use of the “good faith” principle depends from one civil law jurisdiction to another. This may also give way to the perplexities in the sense of figuring out the fundamental nature and what grounds are covered.
Critically, in English law, there is no precise rule that requires the contracting parties to accept the term “good faith”. However, there are cases in civil law systems that are accomplished with good faith and have been gradually accepted in English law through a different approach. Thus, it is generally said that English law, unlike the civil law, does not recognise a general duty of “good faith” in the sense of fair dealing between contracting parties.
The Principle of Good faith
Primarily, good faith originated from the Roman law that contributed to the ‘strict law’ permitting the court to take responsibilities for the situation, fortifications and considerations of being just. In other countries such as Germany, ‘good faith’ is related to the idea of ‘Treu und Glauben’ which basically means ‘fidelity and faith’. According to Whittaker et al (2000), ‘Treue’ depicts faithfulness, loyalty, fidelity, reliability; whilst ‘Glaube’ means conviction in the sense of faith or reliance. These terms are implying loyalty and honestly for each contracting parties. Consequently, it is not a legal rule with particular requirements to act as such that needs to be evaluated.
Moreover, good faith requires a duty on the contracting parties to act accordingly not only in Germany but also in Italian and French civil code. However, the French courts have not given the principle of good faith to have the same value as the German courts do; nevertheless, related results were acquired in France by application of a general theory of abuse of rights, which is formulated accordingly, on good faith at the end of the 19th century (Fabre-Magnan 1995). It means that the right of a party may be restricted or limited to some degree if any cases of abuse of right will be present. A person is considered to abuse the right of a party if he or she intends to harm another person and if the intentions contradict the economic or social purpose of his conditions.
In the context, good faith is viewed in the conception of the obligation of the parties to cooperate with the proceedings of the negotiations, being standards of honesty and integrity and the conformity with the right conduct for the benefit of each party. “Good faith” should be regarded for the most part of loyalty to the negotiation and dissenting the behaviour of bad faith (Furmston et al. 1998).
Three aspects of the principle of good faith
The notion of good faith in contract law normally consists of three aspects, which are the substantive, formal, and the institutional competence aspect (Auer 2002). Substantive aspect depicts ethics on the contract through defining what duties arise in good faith. The formal aspect is more on the arrangement appearing to be a bleary paradigm and the other one, the institutional aspect highlights the idea of legal freedom and restriction in negotiation according to open principles such as good faith (Wooldridge and Jennings 1995).
English law does not agree to the arguments amid a nonconformist idea of freedom of contract and the opposing altruist duty. In addition, dissenting good faith is due to the danger of judicial arbitrariness and the requirement for fair elasticity. There is no argument that the said aspects are not fully valid to explain the role of good faith in European law, though it appears to be clear. Thinking that one party has to be responsible for the interest of the other party acquits the other contracting party from the similar responsibility (Galgano 1985). Therefore, many responsibilities to inform imposed on one party discharge the other party from informing itself on the same point and then shift the burden of evaluation from one party to the other. Thus, doubts about the probability of providing the notion of good faith a substantive meaning.
In common law countries, a significant rule that pervades its law as well as the civil law is the freedom to choose whether to get or not into a contractual relations. This is also known as “the positive freedom of contract” or an optimal way of having freedom over the contract regulations (Cohen 1995). The parties have the option to make a binding contract depending on their own conditions. Alternatively, “negative freedom of contract” reflects the freedom of the parties from the responsibilities as long as a binding contract has not been finalised. However, in the case of the country that practises civil law, the negative freedom contract depends on the principle of good faith and other set of guidelines such as the abuse of right and unjustified. Thus, it contradicts how English law regards the notion of good faith. Civil law views the principle as an essential part of contract dealings and applies it to the standards of legal jurisdiction.
In English law, there is no rule that requires the contracting parties to negotiate with the principle of good faith. However, this does not mean that the contracting parties have the full freedom to do what they want with regard to their contract relations. The conventional regulation includes the ruling out of coercion; too much influence and deception. In addition to, English law allows each party to cancel the negotiation before the contract ends. The legal responsibility for pre-contractual actions is only obligatory with the consideration of particular situations like falsified depiction or careless actions (Lando and Beale 2000).
In the midst of eighteenth century, English common law accepted the principle of good faith in contractual dealings. However, the contemporary views about good faith, it is not important to the English law in the sense of making it as a principle. In legal systems, mostly the law of obligations acknowledges and puts into effect an intervening principle that in creating and execution of contracts, the parties should act with accord to good faith. Although this may appear to be literal, this does not imply that the parties should not betray the trust of each other (Slapper et al. 2008). It profoundly reflects playing fair in order to build just with each contracting parties. It is in perfect example of the principle of fair dealing. English law has despised the term good faith but they have set the rules of playing fair when it comes to the contract dealings. It plays a relevant rule in measuring the honesty of the persons involved in the contract (Zimmermann and Whittaker 2000a).
The term “fair dealing” is used more than the term “good faith” in many English literatures because it is more clear, whilst “good faith” appears unclear to the legal councils. The term “fair dealing” stands for the observance of fairness to common law legal councils in a profound manner. It is vital to emphasise that the definition of “good faith” as an objective test to lawyers is integrated with the principles of civil law. Thus, it is more acceptable in terms of contract dealings if the term “fair dealing” is used as it provides a clearer view of the proper acts that both the contracting parties should make (Steyn 1997).
In United States, the Uniform Commercial Code or the UCC gives a statement that contracts entails an obligation of good faith in its implementation. In the UCC, good faith refers to as the truthfulness in dealing with contracts integrated with the commercial standards of fair dealing. Consequently, American and English law both agree that the obligation of good faith is not applicable to contractual dealings.
Contractual Information in civil law systems
Disclosing information in civil law primarily depends on the negotiation of both parties. In good faith, one party should not disclose any information about the other one without consent (Kessler 1964). The contracting parties are bound to act in the interest of fair dealing and the security of the negotiation because of good faith. Disclosure of information is tolerable only if the other party is incapacitated or ignorant. If such instance is the reason with the consent of the other party, the contract could be changed at any given point in time.
There are cases that contract may or may not pursue anymore. Cite the example of selling a commercial land, but there comes a dilemma when the seller failed to notify that the land is subject to be under the local office and make improvements for better use. This scenario is not valid to cancel the contract because the land is still considered a commercial land. If the transaction is made before the decision of the local office, the transfer then is valid and the contract cannot be void.
Good faith in English law cannot be regarded as a legal justification for contractual dealings considering the grounds discussed earlier. However, it still resides so a progression of principles are still vindicated by the good faith principle even they have ratified in laws or integrated in a conventional way. Other laws are no longer defensible after a short time by good faith even if they are not codified. Good faith somehow reflects the ethical actions of the contracting parties and still considerable to integrate with the legal systems in the negotiation (Zimmermann and Whittaker p.676).
There is really an argument whether to accept or not the principle of good faith in contract dealings. Good faith contains the substantive aspect but is restricted and covers a general idea. The substantive aspect is integrated with the other two aspects and that is why its principles are restrained. As such, in a contract dealing, a conclusion will reflect as an application of the good faith principle in condition of its conformity to the open norm and does not depend on other conventional standard (Harrison 1997). Facts about good faith might seem to be vague and may contradict through the acts of good faith. The three aspects are somehow based on the good faith principle but there arises a conflict in a certain level. Good faith binds people in a way that ethical standards are taken consideration. It is only recognised by the English law as a form of behaviour and not as a legal system to be applied on the contract dealings. It is not legitimate enough to take responsibility on the interests of the contracting parties.
Civil law systems might take the term “good faith” and apply it into contractual dealings but not in a formal way. It is therefore agreeable that the English law does not recognise a general duty of good faith in the sense of fair dealing between contracting parties. It is justified that cases like these have to be supported by more judicial law systems. Since it reflects a wide issue, it may somehow cause to outmode the concept and principles for the solutions that are set to be in a more specific law. Good faith only acts as a guidance for the contract dealings but cannot be integrated with the formal setting as law develops in due time. In using this principle, it should be treated as a historical approach, but still yields importance because disregarding the past cannot give the future a prolific solution. Particularly, this notion gives reference for future use as law continues to expand and are precisely codified. Thus, the use of good faith in contract dealings, specifically in English law, is not acceptable but remains significant in each parties with regard to their actions and negotiations.
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