Good Faith and Contract Law

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Good Faith & Contract Law

“the governing principle … applicable to all contracts and dealings “.

This statement was made by Lord Mansfield in 1766 and was an (unsuccessful) attempt to raise good faith to the level of a general principle, the common law as it subsequently developed rejected his initiative. The traditional law of contract, as it became established in England in the second half of the nineteenth century, did not impose or recognise a general duty of good faith. The notion of good faith undoubtedly pervades English law, but there is no single recognised doctrine of general application.

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The law is generally ready to strike against instances of bad faith: for example where lies are told in pre-contractual negotiations and where the weak are exploited or pressurised the application of concepts of contract law will make such contracts void or voidable,. However, no liability or remedy is to be had against the party who, acting in his own best interests, disengages from the negotiations. Moreover, the traditional view of the law is that during the performance of a contract one party’s motivation is not relevant to define contractual rights, nor may (“bad”) motives increase the scope of express obligations. Aside from specific types of contracts, insurance being the notable example, there is no recognised extra-contractual duty on one party to disclose facts that may turn out to be of importance to another . This can be contrasted with the position in other countries including Australia and Northern Ireland where the notion of good faith is more readily accepted. Steyn J who foresaw a future for good faith doctrine in English law however such a future has sadly not developed, or if indeed it has developed it has so in a piecemeal fashion. Bingham L.J’s perception has proven to be closer to reality, he stated when speaking with reference to the incorporation of conditions in contracts: “The tendency of the English authorities has … been to look at the nature of the transaction … and the character of the parties to it; to consider what notice the party … was given of the particular condition …; and to resolve whether in all the circumstances it is fair to hold him bound by the condition. This may yield a result not very different from the civil law principle of good faith, at any rate so far as the formation of contract is concerned .” The classical theory of contract appeared to be hostile to the emergence of a general doctrine of good faith. Sir George Jessel M.R. emphasised that their was a strong public interest in maintaining the notion of freedom of contract which would necessarily exclude the notion of good faith : “If there is one thing which more than another public policy requires it is that men of full and competent understanding shall have the utmost liberty of contracting,

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