Good faith in contractual dealings: abstract versus concrete

good-faith

Many legal procedures focus on the question whether or not the contractants have acted in good faith. Long gone are the days that contracts were (just) considered to be the meeting point of antagonistic interests. René Demogue famously introduced the idea that contracts constitute a “petite société”, with the contractual parties having common – not divergent – interests (Traité des obligations en général, 1931, t. VI, 9). This idea has proven to be fertile breeding ground for many (implied) contractual obligations.

Les contractants forment une sorte de microcosme. C’est une petite société où chacun doit travailler dans un but commun qui est la somme des buts individuels poursuivis par chacun, absolument comme la société civile ou commerciale. Alors l’opposition entre le droit du créancier et l’intérêt du débiteur tend à se substituer à une certaine union.

The importance of the principle of good faith increases in so-called relational contracts (read here). These are contracts that go beyond the classical image of a short-term contract. Instead, they organise complex long-term relations. Examples of such contracts are maintenance agreements, franchising agreements, purchase agreements, … On closer inspection, such contracts share many features with the contrat de société. Parties are in it for the long term, they have common goals and shared interests. Frequently such agreements also contain detailed governance provisions. As such, these contracts are sometimes labelled “organizational contracts” (see here) or “contrat-organisation” (see here). The existence of organizational contracts cuts through the binary distinction between contract and company, between market and organization.

The existence of organizational contracts cuts through the binary distinction between contract and company, between market and organization.

The principle of good faith is one of the organizing principles of civil law. In its recent MSC v Cottonex Anstaltdecision, the Court of Appeal, however, set boundaries to principle of good faith in the common law world. Instead of encouraging judges to look for a “general organising principle”, the law should “develop along established lines”. Piecemeal solutions are preferred over general principle.

The recognition of a general principle of good faith in most civil law countries versus the rejection of such a general principle under common law, can be considered to be an illustration of the inherently abstract nature of civil law and the inherently concrete nature of common law.

Author: Arie Van Hoe

Lawyer (NautaDutilh), voluntary scientific collaborator (University of Antwerp)

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