Chapter 8: The principle of good faith and policing unfair contract terms
The principle o It is self-evident to continental lawyers that the principle of good
of good faith faith (bonne foi, Treu und Glauben, redelijkheid en billlijkheid)
has a central role to play in the law of contract
French law
German law
Dutch law
Queen of rules
o good faith plays a role in the entire life of the contract, from the
very first negotiations until the very last part of the performance
o the highest norm of contract law
PECL
o declares good faith the immediate counter principle of the
freedom to contract and dictates that each contracting party
must mandatory respect it across the board
English law
o standing opposite civil law jurisdictions and the PECL does not
recognise a general principle of good faith
,Understandin Interfoto Library Ltd v Stiletto Ltd (1988)
g good faith in English judge Lord Bingham describes what good faith in civil law means
the civil law Objective good faith
Subjective good faith
o a subjective state of mind of a person who does not know nor has
a reason to know of a certain fact, and therefore acts ‘in good
faith’ (‘not in bad faith’), as in the case where he relies on the
apparent intention of the other party to be legally bound
Objective good faith (‘Treu und Glauben’-G, ‘reasonableness and
fairness’- D)
o reasonableness and fairness is a norm for the contracting parties
o it sets a standard of conduct that requires each party to take the
interests of the other party into account
the norm is open-ended
o it depends on the circumstances of the case how the norm is
applied, giving much discretionary power to the courts
o used the good faith provision to ‘break open’ contracts the
enforcement of which they deemed grossly unfair
Developments of new fields of law
o pre-contractual duties to inform the other party (French law)
o rules on hardship (‘unforeseen circumstances’) (German law)
o control of general conditions (German & French law+ other
jurisdictions)
Courts use the good faith provision to keep the law in sync with societal
developments (legislator cannot foresee all situations)
Danger from Einzelfallgerechigkeit (justice in each individual case)
freedom o the freedom that the courts allow themselves can be seen at odds
with the constitutional separation of powers, and therefore as a
threat to legal certainty and predictability
Die Flucht in die Generalklauseln: eine Gefahr fur Recht und Staat (‘the
, escape into general clauses’)
o attack on German §242 BGB
Courts in Central and Eastern Europe are more reluctant to lead the way
in developing private law through open-ended norms, perhaps caused by
the socialist heritage of a strong administration and legislator
Three 1. The supplementing function (function completive,
functions Erganzungsfunktion, aanvullende werking)
o Allows a court to fill gaps in the party agreement (ad hoc gap filling)
o Good faith can give rise to a great variety of supplementary duties
that arise under the contract: duties of information, co-operation,
protection, loyalty, disclosure etc
o These obligations may already exist in the pre-contractual stage and
often extend until after the contract was performed
o More specific statutory provision on which these duties can be based
(§157 BGB) even if such provision is still missing civil law jurisdictions
still accept this function
Rationale
o The parties are in the same boat when they conclude a contract,
calling for reasonable behaviour from them both
o Art. 1:202 PECL ‘each party owes to the other a duty to co-
operate in order to give full effect to the contract’ (microcosm- it
is a small society in which each of them must work towards a
common goal that is the sum of the individual goals pursued by
each)
Example
o If contractor A is to build an office building for B and A is unable
to proceed with the works because B refuses to apply for a
building permit or does not give the information necessary to
obtain this permit, B violates his duty to co-operate
French & Courts have developed extensive systems of collateral duties on the
German law basis of good faith that exist next to the explicit contractual obligations
that follow from the party agreement
o Protective duties (obligations de sécurité, Schutzpflichte), an
obligation to protect the other party (against physical damage
from slipping over a vegetable leaf in a supermarket &
o Duties to inform (obligations d´ information, obligations de
renseignement, Auskunftspflichten, Aufklarungspflichten) that
should allow the other party to carry out the contract (provide a
manual for the sold machine) or to help a party make up its mind
about entering into contract at all
Art. 1112-1 CC (imposing general obligations to give information)
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