question is whether law needs to take care of business opportunism in the forms of
asymmetric disclosure, strategic manipulation or distorted dealing. Although contract law contemplates a legally enforceable agreement between “competent” parties,
who are individuals adequately guided by their own interests to honour these
agreements, yet the issue is whether unfair or absurd results within the four corners
of the contract should be avoided by the application of good faith.
At the outset, it is interesting to note how various jurisdictions have adopted or
rejected the concept of good faith in contract law. They have dealt with and differed
on the application of the good faith doctrine in contracts. In Argentine law, good
faith is mandatory to all contracts by operation of the Civil Code
11 which requires
contracts to be executed, construed and complied with in accordance to what the
parties truly understood or were able to understand, acting with due care. The
German Civil Code (BGB), entered into force in 1900, establishes the need to act
in good faith. Paragraph 242 of the BGB, due to its jurisprudential importance, has
been classified as the “king” of the German Civil Code.
In French Law, the “obligation de vigilance” (duty to care) is considered to be an
obligation towards honesty and good faith. The commencement, continuation and
breaking-off of pre-contractual negotiations are free from control. They must mandatorily satisfy the requirements of good faith.
12 The freedom to contract is followed
by a specific requirement of good faith contained in it. Any failure in this regard by
the parties will entail liabilities. Article 1134 of the French Civil Code, 1804
stipulates that contracts must be performed in good faith during the pre-contractual
negotiation, formation and termination stages. Furthermore, good faith has been
made prominent in public policy. The scope of good faith stands expanded and
elevated in crystal clear words of the Code that contracts must be negotiated, formed
and performed in good faith.
13 Whereas the French Civil Code, 1804 simply stated
that contracts should be performed in good faith, the reforms in 2016 have codified
case law that had extended the principle to the pre-contractual negotiations and
formation stages.
14 Any action contrary to good faith may not just result in damages
but may also lead to cancellation of the contract. French jurists identified two
independent definitions for good faith; namely, “honesty in legal actions”, and “a
negligible misconception which is supported as a right”. Based on these definitions,
good faith has two separate applications. In the first one, good faith is an enforceable
rule in conclusion, execution, and interpretation of contracts; and in its second
application, good faith is used as a legal basis to justify supporting a person against
the misconception arising from that person’s lack of knowledge or awareness.
15
According to Article 108 of the French Civil Code, 1804, non-provision of information can lead to mistakes being made on the part of the deprived party and thus,
11 Lorrenzo (2014).
12 Art. 1112, French Civil Code.
13 Art. 1104, French Civil Code.
14 Rowan (2017).
15 Ibid.
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S. Choudhury and P. Das
asymmetric disclosure, strategic manipulation or distorted dealing. Although contract law contemplates a legally enforceable agreement between “competent” parties,
who are individuals adequately guided by their own interests to honour these
agreements, yet the issue is whether unfair or absurd results within the four corners
of the contract should be avoided by the application of good faith.
At the outset, it is interesting to note how various jurisdictions have adopted or
rejected the concept of good faith in contract law. They have dealt with and differed
on the application of the good faith doctrine in contracts. In Argentine law, good
faith is mandatory to all contracts by operation of the Civil Code
11 which requires
contracts to be executed, construed and complied with in accordance to what the
parties truly understood or were able to understand, acting with due care. The
German Civil Code (BGB), entered into force in 1900, establishes the need to act
in good faith. Paragraph 242 of the BGB, due to its jurisprudential importance, has
been classified as the “king” of the German Civil Code.
In French Law, the “obligation de vigilance” (duty to care) is considered to be an
obligation towards honesty and good faith. The commencement, continuation and
breaking-off of pre-contractual negotiations are free from control. They must mandatorily satisfy the requirements of good faith.
12 The freedom to contract is followed
by a specific requirement of good faith contained in it. Any failure in this regard by
the parties will entail liabilities. Article 1134 of the French Civil Code, 1804
stipulates that contracts must be performed in good faith during the pre-contractual
negotiation, formation and termination stages. Furthermore, good faith has been
made prominent in public policy. The scope of good faith stands expanded and
elevated in crystal clear words of the Code that contracts must be negotiated, formed
and performed in good faith.
13 Whereas the French Civil Code, 1804 simply stated
that contracts should be performed in good faith, the reforms in 2016 have codified
case law that had extended the principle to the pre-contractual negotiations and
formation stages.
14 Any action contrary to good faith may not just result in damages
but may also lead to cancellation of the contract. French jurists identified two
independent definitions for good faith; namely, “honesty in legal actions”, and “a
negligible misconception which is supported as a right”. Based on these definitions,
good faith has two separate applications. In the first one, good faith is an enforceable
rule in conclusion, execution, and interpretation of contracts; and in its second
application, good faith is used as a legal basis to justify supporting a person against
the misconception arising from that person’s lack of knowledge or awareness.
15
According to Article 108 of the French Civil Code, 1804, non-provision of information can lead to mistakes being made on the part of the deprived party and thus,
11 Lorrenzo (2014).
12 Art. 1112, French Civil Code.
13 Art. 1104, French Civil Code.
14 Rowan (2017).
15 Ibid.
118
S. Choudhury and P. Das