Good faith (law)
Contract law |
---|
Formation |
Defences |
Interpretation |
Dispute resolution |
Rights of third parties |
Breach of contract |
Remedies |
Quasi-contractual obligations |
|
Duties of parties |
|
Related areas of law |
By jurisdiction |
Other law areas |
|
Notes |
|
In
A lawsuit (or a
History
In U.S. law, the legal concept of implied covenant of good faith and fair dealing arose in the mid-19th century because contemporary legal interpretations of “the express contract language, interpreted strictly, appeared to grant unbridled discretion to one of the parties”.[1] In 1933, in the case of Kirke La Shelle Company v. The Paul Armstrong Company et al. 263 N.Y. 79; 188 N.E. 163; 1933 N.Y., the New York Court of Appeals said:
In every contract there is an implied covenant that neither party shall do anything, which will have the effect of destroying or injuring the right of the other party, to receive the fruits of the contract. In other words, every contract has an implied covenant of good faith and fair dealing.
Furthermore, the covenant was discussed in the First Restatement of Contracts by the American Law Institute, but before adoption of the Uniform Commercial Code in the 1950s, the common law of most states did not recognize an implied covenant of good faith and fair dealing in contracts.[1] Certain states, such as Massachusetts, have stricter enforcement than others. For example, the Commonwealth of Massachusetts will assess punitive damages under Chapter 93A which governs unfair and deceptive business practices, and a party found to have violated the covenant of good faith and fair dealing under 93A may be liable for punitive damages, legal fees and treble damages.[2]
Contemporary usage in the US
The implied covenant of good faith and fair dealing is especially important in U.S. law. It was incorporated into the Uniform Commercial Code (as part of Section 1–304), and was codified by the American Law Institute as Section 205 of the Restatement (Second) of Contracts.[1]
Most U.S. jurisdictions view the breach of the implied covenant of good faith and fair dealing solely as a variant of breach of contract, in which the implied covenant is merely a "gap-filler" that expresses an unwritten contractual term that the parties would have included in their contract had they thought about it.
In certain jurisdictions, breach of the implied covenant can also give rise to a
Some plaintiffs have attempted to persuade courts to extend tort liability for breach of the implied covenant from insurers to other powerful defendants, like employers and banks. However, most U.S. courts[
Contemporary usage in Canada
In Canadian contract law, there are two distinct duties requiring parties to act in good faith. The first, pertaining to pre-contractual relations, is a duty to negotiate in good faith, while the second is a duty to act honestly in the performance of contractual obligations. The two duties are equally relevant to both Québec's civil law and the other provinces' and territories' common law approaches to contract law, representing an attempt by the Supreme Court of Canada to extend the duties of good faith embedded in Québecois law to the jurisprudence of the country's common law jurisdictions. Additionally, in the common law provinces and territories, the doctrine of estoppel is another way in which the courts restrict the ability of parties in a contract to act in bad faith.
Duty to negotiate in good faith
The duty to negotiate in good faith is enshrined in Québecois contract law by the broader obligation on individual's to exercise their civil rights in good faith and has been recognised in certain circumstances in the common law jurisdictions. In Québec, this right is grounded in section 1375 of the civil code, which provides that parties to a contract must act in good faith not only at the time an obligation is performed but also "at the time the obligation arises".
With regard to invitations to tender, this duty is applied in the form of the Contract A doctrine. A "process contract", referred to as "Contract A",[9] is formed between the owner (person, company or organisation tendering the project) and each bidder when a "request for proposal" is responded to in the form of a compliant bid, sometimes also known as submission of price. The owner must deal fairly and equally with all bidders, and must not show any favouritism or prejudice towards any bidder(s). In essence, this concept boils down to the right of an individual to have equal opportunity to be successful with their bid for work. A breach of Contract A may occur if the owner (or an owner's officer or representative, see vicarious liability), provides information, changes specification during the tendering process to unfairly benefit a particular bidder, enters into closed negotiations with an individual bidder in an effort to obtain more desirable contract conditions, etc. The most common situation in which an owner is accused of having breached Contract A occurs when a bidder is selected who is not the lowest bidder. This contravenes established custom and practice, which would normally dictate that the lowest bid be awarded the subsequent contract to perform the work, Contract B, but is not normally a source of a breach if handled properly. Successful suits for breach typically occur where the lowest bidder is excluded based on a clause or stipulation that is either not clearly outlined in the tender documents (such as preference for local bidders) or is deemed by the courts to be too broadly worded to have any meaning.
Duty of honest contractual performance
The duty of honest contractual performance (referred to in Québec as the doctrine of abuse of rights) is a contractual
Estoppel
Estoppel is an
Contemporary usage in Europe
English private law has traditionally been averse to general clauses and has repeatedly rejected the adoption of good faith as a core concept of private law.[21] Over the past thirty years, EU law has injected the notion of "good faith" into confined areas of English private law.[22] The majority of these EU interventions have concerned the protection of consumers in their interactions with businesses.[23] Only Directive 86/653/EEC on the co-ordination of the laws of the member states relating to self-employed commercial agents has brought "good faith" to English commercial law.[24]
On the European continent, good faith often is strongly rooted in the legal framework. In the German-speaking area, Treu und Glauben has a firm legal value—for instance in Switzerland, where Article 5(3) of the constitution[25] states that the state and private actors must act in good faith. This leads to the assumption, for example in contracts, that all parties have signed in good faith, so that any missing or unclear aspect of a contract is to be interpreted based on an assumption of the good faith of all parties. In the Netherlands, Dutch: redelijkheid en billijkheid (art. 6:248 BW) has significant legal value.
Australia
The concept of good faith was established in the insurance industry following the events of Carter v Boehm (1766), and is enshrined in the Insurance Contracts Act 1984 (ICA).[26] The act stipulates, in Section 13, obligations of all parties within a contract to act with utmost good faith. The New South Wales Court of Appeal case Burger King Corporation v Hungry Jack's Pty Ltd (2001)[27] was also concerned with good faith and referred to an earlier case, Renard Constructions v Minister for Public Works (1992).[28]
India
In the Indian Penal Code, "good faith" is defined under section 52 as "Nothing is said to be done or believed in 'good faith' which is done or believed without due care and attention."[29] The privy council expanded on this meaning in the case of Muhammad Ishaq v The Emperor (1914), in which it held that an action taken by the defendant based on a belief of having a decree passed in his favor was illegal, since he could have found out that he did not enjoy any such favorable decree if he had inquired with a little more care and attention.[30]
United Kingdom
In Walford v Miles (1992), the House of Lords ruled that an agreement to negotiate in good faith for an unspecified period is not enforceable, and a term to that effect cannot be implied into a lock-out agreement (an agreement not to negotiate with anyone except the opposite party) for an unspecified period, since the lock-out agreement did not oblige the vendor to conclude a contract with the intended purchaser.[31]
See also
References
- ^ a b c Dubroff, Harold (2006). "The Implied Covenant of Good Faith in Contract Interpretation and Gap-Filling: Reviling a Revered Relic". St. John's Law Review. 80 (2): 559–619.
- ^ "Chapter 93A".
- ^ "Dieckman v. Regency GP LP, Regency GP LLC". Justia Law. Retrieved 2021-07-02.
- ^ See A.C. Shaw Construction v. Washoe County, 105 Nev. 913, 915, 784 P.2d 9, 10 (1989).
- ^ Foley v. Interactive Data Corp., 47 Cal. 3d 654, 665 (1988).
- ^ Price v. Wells Fargo Bank, 213 Cal. App. 3d 465 (1989).
- ^ a b Book Five, Title One of the Civil Code of Quebec – Section 1375
- ^ a b c d Warren H.O. Mueller, B.A., LL.B., LL.M., Q.C. and D. Morgan, B.A., LL.B, LL.M. "Contracts". Westlaw Canada. Retrieved 28 May 2022.
{{cite web}}
: CS1 maint: multiple names: authors list (link) - Court of Appeal for British Columbia, Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2007 BCCA 592, footnote 1, published 3 December 2007, accessed 29 July 2021
- ^ Book One of the Civil Code of Quebec – Section 6
- ^ Book One of the Civil Code of Quebec – Section 7
- ^ C.M. Callow Inc. v. Zollinger, 2020 SCC 45 paragraph 3
- ^ C.M. Callow Inc. v. Zollinger, 2020 SCC 45 paragraphs 62-63
- ^ C.M. Callow Inc. v. Zollinger, 2020 SCC 45 paragraph 67
- ^ C.M. Callow Inc. v. Zollinger, 2020 SCC 45 paragraph 68
- ^ Simon Dugas and Mark van Zandvoort (31 August 2020). "Estoppel by Convention: The Ontario Court of Appeal's Latest Take on a Relatively Rare Form of Estoppel and the Implications for Contracting Parties". Energy Insider. Retrieved 1 June 2022.
- ^ Grasshopper Solar Corporation v. Independent Electricity System Operator, 2020 ONCA 499
- ^ Ryan v. Moore, 2005 SCC 38 (CanLII), 2005 2 SCR 53
- ^ Fram Elgin Mills 90 Inc. v. Romandale Farms Limited, 2021 ONCA 201 (CanLII)
- ^ Maracle v. Travellers Indemnity Co. of Canada, 1991 CanLII 58 (SCC), 1991 2 SCR 50
- ISBN 9780521771900.
- ISBN 9781855219250.
- ISBN 9781782548317.
- ISSN 0143-6503.
- ^ "Schweizerische Bundesverfassung vom 18. April 1999, Art. 5" (in German). Archived from the original on 25 September 2016. Retrieved 31 March 2019.
- ^ "Insurance Contracts Act 1984". www.legislation.gov.au. Australian Treasury. Retrieved 2019-08-07.
- ^ 69 NSWLR 558
- ^ 26 NSWLR 234
- ^ "Section 52 of the Indian Penal Code". Central Government Act. Retrieved 8 March 2018 – via Indian Kanoon.
- ^ Piggott (2 April 1914). "Muhammad Ishaq vs Emperor". indiankanoon.org. Allahabad High Court. Retrieved 8 March 2018.
- ^ House of Lords, Walford v Miles, [1992] 2 AC 128, accessed 25 May 2021
External links
- Kowalczyk, Ronald B.; Piwowar, Melissa (December 2003). "The Application of the Implied Covenant of Good Faith and Fair Dealing in Contract Cases". Journal of the DuPage County Bar Association. 16.