Good Faith & A ; Contract Law

“ the regulating rule… applicable to all contracts and traffics “ .

This statement was made by Lord Mansfield in 1766 and was an ( unsuccessful ) effort to raise good religion to the degree of a general rule, the common jurisprudence as it later developed rejected his enterprise. The traditional jurisprudence of contract, as it became established in England in the 2nd half of the 19th century, did non enforce or recognize a general responsibility of good religion.

The impression of good religion doubtless pervades English jurisprudence, but there is no individual recognised philosophy of general application. The jurisprudence is by and large ready to strike against cases of bad religion: for illustration where prevarications are told in pre-contractual dialogues and where the weak are exploited or pressurised the application of constructs of contract jurisprudence will do such contracts void or rescindable, . However, no liability or redress is to be had against the party who, moving in his ain best involvements, disengages from the dialogues. Furthermore, the traditional position of the jurisprudence is that during the public presentation of a contract one party ‘s motive is non relevant to specify contractual rights, nor may ( “ bad ” ) motives increase the range of express duties. Aside from specific types of contracts, insurance being the noteworthy illustration, there is no recognized extra-contractual responsibility on one party to unwrap facts that may turn out to be of importance to another. This can be contrasted with the place in other states including Australia and Northern Ireland where the impression of good religion is more readily accepted.

Steyn J who foresaw a hereafter for good religion philosophy in English jurisprudence nevertheless such a hereafter has unhappily non developed, or if so it has developed it has so in a bit-by-bit manner. Bingham L.J’s perceptual experience has proven to be closer to world, he stated when talking with mention to the incorporation of conditions in contracts:

“ The inclination of the English governments has… been to look at the nature of the dealing… and the character of the parties to it ; to see what notice the party… was given of the peculiar status… ; and to decide whether in all the fortunes it is just to keep him bound by the status. This may give a consequence non really different from the civil jurisprudence rule of good religion, at any rate so far as the formation of contract is concerned. ”

The classical theory of contract appeared to be hostile to the outgrowth of a general philosophy of good religion. Sir George Jessel M.R. emphasised that their was a strong public involvement in keeping the impression of freedom of contract which would needfully except the impression of good religion:

“ If there is one thing which more than another public policy requires it is that work forces of full and competent understanding shall hold the extreme autonomy of catching, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of justness. Therefore you have this overriding public policy to see that you are non lightly to interfere with this freedom of contract. ”

A party to a contract could therefore anticipate that the contract would be enforced harmonizing to its footings even if the footings were unjust.

Despite these early reluctances to include good religion as portion of contract jurisprudence, it emerged as an of import and necessary function in some facets of contract jurisprudence. The modern jurisprudence of contract topographic points more accent on behavior which takes history of the involvements of the other party to the contract. Some of these specific fortunes will now be considered,

The common jurisprudence imposes a responsibility of good religion in insurance contracts. The demand of extreme good religion in insurance contracts requires revelation by the insured of any fact stuff to the hazard and abstinence from deceit. The justification for the creative activity of the responsibility is that merely the insured knows the material facts and the insurance company has no sensible agencies of detecting them, although this same statement could be advanced in regard of general contract jurisprudence.

Another facet of good religion originating out of insurance contracts is the regulation that an insurance company settling claims under a limited liability policy must move in good religion towards the insured and must hold respect to his or her involvements both in the defense mechanism of actions against the insured and in their colony.

The Supreme Court of Ireland have taken a really different position to the rule of good religion in insurance jurisprudence and this is best highlighted by the instance of Aro Road and Land Vehicles Ltd V Insurance Corporation of Ireland in this instance the assured wished to direct goods by route via a bearer. At the bearer ‘s abetment they effected insurance, the bearers moving as the insurance company ‘s agents for this intent. They were asked merely for the inside informations of the journey and the value of the goods, and did non volunteer any farther information. The lorry transporting the goods was hijacked and set on fire, but the insurance companies refused to pay out on the policy, pleading that the assured had failed to unwrap that their managing manager had, some 20 old ages antecedently, been convicted of a figure of offenses of having stolen motor vehicles, for which he had served a sentence of 21 months imprisonment. The determination in this instance was in summing up that this was non ground adequate for the insurance policy to be invalidated and the logical thinking was that there is no breach of extreme good religion if the suggester has truly forgotten a stuff fact, at least where there is nil ( eg a proposal signifier ) to ramble on his memory. Utmost good religion, they say, requires a echt attempt at truth, but does non necessitate the suggester perfectly to vouch the truth ( and by deduction the completeness ) of his revelation. This shows an built-in flexibleness in the tribunals of Ireland to use and disregard the impression of good religion in a reasonable mode and this is apparent in the general application of good religion in Ireland.

Again in Contracts for the sale of land the seller of land is under a responsibility to unwrap material affairs associating to the rubric which are known to the seller but which the buyer has no agencies of detecting. The responsibility of good religion besides exists in the undermentioned state of affairss, the mortgagee’s exercising of a power of sale, in relation to the rules of equity regulating fiduciaries, undue influence and conscienceless behavior and estoppel, including promissory estoppel and in the responsibility to forbear from doing deceits.

More significantly it is suggested that in certain state of affairss there exists a common jurisprudence responsibility on the parties to a contract to co-operate in accomplishing the objects of the contract. Where the parties have agreed that something shall be done which can non efficaciously be done unless both parties agree in making it, there is an implied duty on each party to make all that is necessary to be done on his or her portion for the transporting out of the thing. This can be seen specifically in the instance of Meehan v. Jones where public presentation of the contract was conditional on the buyer having blessing for finance on satisfactory footings. Wilson J considered that there was an duty on the buyer to do sensible attempts to obtain finance on such footings, though we doubted that the buyer was required to make more than act candidly in make up one’s minding whether to accept or reject an offer of finance. That attack to the state of affairs gave consequence to the outlooks of the parties and achieved a just and reasonable balance of their involvements.

Another of import component of the construct of good religion is that that can be seen in the impression of fiducial relationships. The rules of a fiducial relationship require the revelation of stuff affairs and necessitate the fiducial to subordinate his or her involvements to the legitimate involvements of another by ground of the relationship which subsists between the two parties. It can of class be argued that the fiducial rule is stronger than the good religion philosophy in that it gives primacy to the involvements of the party to whom the fiducial duty is owed. The good religion philosophy is concerned with those who contract and are on an equal terms.

The rule of good religion besides finds land in the philosophy of “unconscionable bargaining” , this is the state of affairs where alleviation is granted when a dealing, is so conscienceless that it can non be allowed to stand. The demand is therefore that there exists an unconscientious taking advantage of the serious disablement or disadvantage of the individual in the inferior bargaining place by securing or retaining the benefit in inquiry in a manner that is both unreasonable and oppressive.

. In Australia, unconscionability has been relied upon as a land in alleviating a buyer from forfeiture of his just involvement under a contract of sale pursuant to a notice doing clip of the kernel of the contract taking to recission of the contract. Once alleviation against forfeiture was available specific public presentation of the contract could be ordered. The buyer had gone into ownership under the contract and erected a house on the land but was unable to pay the balance of the purchase monetary value on the due day of the month. This attack was taken farther in the instance of an episode contract for the sale of land under which the buyers had been let into ownership, though they were non entitled to ownership until completion, and had built a house on the land. Again, the contract had been rescinded, this clip for non-payment of an episode. In this case the bulk likened a footings contract to a mortgage, the forfeiture proviso being by manner of security for the payment of the purchase monetary value so that there was no demand to set up conscienceless behavior of an exceeding sort. In Australia, the outgrowth from the shadows of this land of just alleviation has relegated the philosophy of undue influence to a place of comparative humbleness. Unconscionability and undue influence convergence, the latter being more limited in range, concerned as it is with the exercising by the undertaking party of an independent and voluntary will.

Possibly the most of import impression of good religion can be found in the jurisprudence of damages which transcends the traditional common jurisprudence causes of action and just evidences for alleviation. General rules are being articulated and refined which may use indifferently, whether the footing of the claim has its beginnings at common jurisprudence or in equity. In Lipkin Gorman v. Karpnale Ltd, it was acknowledged that the implicit in rule regulating the recovery of money had and received at common jurisprudence in damages is unfair enrichment. Here once more unconscionability underlies the claim for unfair enrichment and imports into contract jurisprudence the impression of good religion.

Good religion and just covering constructs are already well in topographic point under English jurisprudence, though non in contract dialogue. In that country, the application of specific good religion and just covering responsibilities, based on the sensible outlooks of the parties, might progress the involvements of justness. Furthermore, acknowledgment of good religion and just covering constructs would convey greater coherency and integrity to the varied array of rules which are soon available in the country of contract public presentation. Finally as Mason points out “the unfavorable judgment of those philosophies may be no more than the reluctance to accept unconscionability as a footing for alleviation ; in other words, the reluctance is in truth an expostulation to the application by tribunals of generalized constructs and criterions alternatively of stiff rules” . As to whether or non there exists a hereafter in English Law for the rule of good religion remains to be seen. There are underlying impressions of the rule of good religion and it would look that the reasonable impression would be to codify this rule and do it by and large applicable to all contractual traffics ; it seems improbable nevertheless that English Law is willing to accept such a rule.



Aro Road and Land Vehicles Ltd V Insurance Corporation of Ireland [ 1986 ] IR 403

Bridgewater v. Leahy ( 1998 ) 194 C.L.R. 457

Carlish v. Salt [ 1906 ] 1 Ch. 335

Carter v. Boehm ( 1766 ) 3 Burr. 1905

Devonport Borough Council v. Robbins [ 1979 ] 1 N.Z.L.R. 1

Distillers Co. Bio-Chemicals ( Aust ) Pty. Ltd v. Ajax Insurance Co. Ltd ( 1974 ) 130 C.L.R. 1

Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [ 1989 ] Q.B. 433

Louth v. Diprose ( 1992 ) 175 C.L.R. 621

Mackay v. Dick ( 1881 ) 6 App. Cas. 251

McInerney v. MacDonald ( 1992 ) 93 D.L.R. ( 4th ) 415.

Printing and Numerical Registering Co. v. Sampson ( 1875 ) L.R. 19 Eq. 462

Stern v. McArthur ( 1988 ) 165 C.L.R. 489.

Journal Articles

Denning LJ, ( 1991 ) The Role of Good Faith and Fair Dealing in Contract Law: a Hair-Shirt Philosophy? ”

Finn, “ Legislative acts and the Common Law ” ( 1992 ) 22 U.W.A.L. Rev. 7

Mason A F, ( 2000 ) , “Contract, Good Faith and Equitable Standards in Fair Dealing” , Law Quarterly Review 2000 116 66-94


Beatson J, ( 2002 ) , “Anson’s Law of Contract” , Twenty Eighth Edition, Oxford University Press

Denning LJ, ( 1991 ) The Role of Good Faith and Fair Dealing in Contract Law: a Hair-Shirt Philosophy? ”

Elliot & A ; Quinn, ( 2003 ) “Contract Law” , Fourth Edition

Forte A ( erectile dysfunction ) , ( 2001 ) , “Good Faith in Contract and Property Law” , Sweet and Maxwell

McKendrick E, ( 2003 ) , “Contract Law” , Fifth Edition, Palgrave McMilliam

McKendrick E, ( 2003 ) , Contract – Text and Materials, Oxford University Press

Stone R, ( 2002 ) , “The Law Of Contract” , Fifth Edition, Cavendish Publishing