This chapter discusses the role of good faith in contract law, first analysing the decision in Walford v. Miles [1992] 2 AC 128, where it was held that an obligation to negotiate in good faith is not valid. It then examines the reasons that led to the decision and also explores its limits. Next, the chapter considers the arguments that have been advanced in support of the refusal of English law to recognize the validity of a doctrine of good faith and then turns to the arguments that have been advanced by those who support the recognition of a doctrine of good faith. It concludes by examining the development of a doctrine of good faith in the performance of contracts.
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Chapter
15. Good Faith
Chapter
Midland Bank Trust Co. Ltd v Green [1981] AC 513, House of Lords
Essential Cases: Land Law provides a bridge between course textbooks and key case judgments. This case document summarizes the facts and decision in Midland Bank Trust Co. Ltd v Green [1981] AC 513, House of Lords. The document also includes supporting commentary from author Aruna Nair.
Chapter
15. Good Faith
This chapter discusses the role of good faith in contract law, first analysing the decision in Walford v. Miles [1992] 2 AC 128, where it was held that an obligation to negotiate in good faith is not valid. It then examines the reasons that led to the decision and also explores its limits. Next, the chapter considers the arguments that have been advanced in support of the refusal of English law to recognize the validity of a doctrine of good faith and then turns to the arguments that have been advanced by those who support the recognition of a doctrine of good faith. It concludes by examining the development of a doctrine of good faith in the performance of contracts.
Chapter
1. Introduction to the Study of Contract Law
This introductory chapter provides an overview of contract law and its application. A contract is an agreement made with intention that it will be legally enforceable. Contract law concerns issues regarding the formation of contracts; the sources, interpretation, and regulation of terms; when a breach takes place and the resulting consequences; and ways to escape a contract through vitiating factors, mistake, or frustration. The parties’ intentions are determined using an objective approach based on the standard of the reasonable person. A lot of contract law can be understood as default rules to apply when the parties have not been clear enough about their intentions. The law of contract also concerns foundational principles and mainly consists of common law rules. Many cases still give effect to the values of the classical model, which is based on the freedom and sanctity of contract, and a view that contracting parties are self-interested. The most significant recent development away from the classical model is the recognition of relational contracts and an implied obligation to act in good faith.
Chapter
15. Decision-Making
This chapter explains how an LLP makes decisions, identifying the sorts of decisions that require unanimity and the sorts of decisions that can be decided by a majority. It considers how a decision-making power must be exercised, and the extent to which fetters such as good faith, rationality and natural justice will impact on the decision-making process. Lastly, it considers what the consequences of an unlawful decision are.
Chapter
8. Terms of the contract II: common law and statutory controls on unfair terms
Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter examines potentially unfair terms, including exemption clauses, in a contract. It considers the common law’s response to exemption clauses and other potentially unfair terms, and discusses statutory schemes to regulate them. It covers the Unfair Contract Terms Act 1977 (UCTA) which governs exemption clauses in non-consumer contracts, subjecting them to a requirement of reasonableness where the contract was made on standard terms. It also discusses in detail the Consumer Rights Act 2015 (CRA), which regulates terms in consumer contracts, prohibiting certain exclusion clauses completely and imposing a general test of fairness upon all terms apart from the core terms.
Chapter
14. Unfair Terms in Consumer Contracts
This chapter focuses on Part 2 of the Consumer Rights Act 2015. The Act gives to the courts much broader powers to regulate terms in contracts which have been concluded between traders and consumers. Section 4.2 examines the individual sections of Part 2 of the Act and the leading cases decided under the Regulations which preceded the Act. Particular attention is given to key concepts such as ‘significant imbalance’, ‘good faith’, the exclusion of certain terms from assessment for fairness, the indicative and non-exhaustive list of terms that may be regarded as unfair (often referred to as the ‘grey list’), and the role of regulators in the enforcement of the legislation. Section 4.3 draws on work done by Professor Susan Bright in relation to the role of the Unfair Contract Terms Unit in the early days of the enforcement of the legislation.
Chapter
8. Terms of the contract II: common law and statutory controls on unfair terms
Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter examines potentially unfair terms, including exemption clauses, in a contract. It considers the common law’s response to exemption clauses and other potentially unfair terms, and discusses statutory schemes to regulate them. It covers the Unfair Contract Terms Act 1977 (UCTA) which governs exemption clauses in non-consumer contracts, subjecting them to a requirement of reasonableness where the contract was made on standard terms. It also discusses in detail the Consumer Rights Act 2015 (CRA), which regulates terms in consumer contracts, prohibiting certain exclusion clauses completely and imposing a general test of fairness upon all terms apart from the core terms.
Chapter
20. Good faith
This chapter considers the principle of good faith. English law has traditionally been cautious about wholeheartedly adopting an overriding principle of good faith preferring instead to avoid unfair outcomes through particular doctrines (for example, misrepresentation, duress, and undue influence). However, the law in this area is developing. It appears that agreements to negotiate in good faith are not enforceable where no contract is yet in place, but, where the parties have already made an agreement, a term (whether express or implied) that the contract should be performed in good faith is enforceable. Similarly, there may be (implied) terms that discretionary powers be exercised in a manner that is not irrational or unreasonable.
Chapter
21. Capacity
This chapter discusses the issue of capacity. The general rule is that contracts are valid but unenforceable on minors (persons under 18 years of age). However, they are enforceable against adults, and a minor can ratify a contract upon attaining the age of majority so that the contract is enforceable against both parties. At common law, mental incapacity is not by itself a reason to set aside a contract. But if the other party knows, or ought to know, of the mental incapacity, then the contract can be set aside. The Mental Capacity Act 2005 makes it clear that a person who lacks capacity must still pay a reasonable price for necessary goods and services.
Chapter
10. Duty to promote the success of the company
The Companies Act 2006 (CA 2006) s. 172(1) requires directors to act to promote the success of the company. This chapter separates that duty into its component elements: the duty to act in good faith, promoting the success of the company for the benefit of the members as a whole, having regard to stakeholders (including employees), and considering creditors’ interests. The position of a nominee director in this scheme is considered. The pluralist debate which preceded the enactment of s 172 is addressed as well as the recent addition of further reporting obligations in order to strengthen the provision. The new s 172 statement is considered. The chapter explores in detail the evolving jurisprudence around s 172(3) and the need to have regard to creditors’ interest in certain circumstances.
Chapter
19. Articles 16–18: Other Restrictions upon the Rights Protected
David Harris, Michael O’boyle, Ed Bates, Carla M. Buckley, KreŠimir Kamber, ZoË Bryanston-Cross, Peter Cumper, and Heather Green
This chapter discusses Articles 16–18 of the European Convention on Human Rights. Article 16 allows potentially wide-ranging interference with the political rights of aliens. Article 17 aims to prevent totalitarian or extremist groups from justifying their activities by relying on the Convention. Article 18 concerns misuse of powers or breaches of the principle of good faith, and must be applied in conjunction with another Convention’s Article(s).
Chapter
Armitage v Nurse [1998] Ch 241, Court of Appeal
Essential Cases: Equity & Trusts provides a bridge between course textbooks and key case judgments. This case document summarizes the facts and decision in Armitage v Nurse [1998] Ch 241, Court of Appeal. The document also includes supporting commentary from author Derek Whayman.
Chapter
5. Misrepresentation and non-disclosure
In general, contract parties need not disclose important matters about the transaction to each other. But, those who make false statements to induce the other party’s consent to the contract may find themselves liable for damages for misrepresentation and their contracts set aside. This chapter examines: (1) what must be proved in an action for misrepresentation; (2) what, if any, duty is imposed for non-disclosure; (3) when a contract can be set aside (rescinded) for misrepresentation; (4) the different types of money awards that can be made for misrepresentation; (5) the extent to which the parties can exclude or limit liability for making a misrepresentation; (6) the recourse that consumers have against misleading and aggressive practices; and (7) the justifications underlying the remedies for misrepresentation.
Chapter
15. Good faith
English law does not currently recognise a duty of good faith, but whether it should in the specific context of contractual performance, or in contract generally, has attracted increasing discussion in case law and commentaries. In addition, good faith informs a diverse range of legal doctrines and principles. This chapter discusses: (1) the meaning of good faith; (2) the pros and cons of recognising good faith; (3) three different models of good faith; (4) the nature of good faith; (5) the taxonomy of good faith in current contract law; and (6) the difference that recognition of good faith might make to various aspects of the law.
Chapter
14. Unfair Terms in Consumer Contracts
This chapter focuses on Part 2 of the Consumer Rights Act 2015. The Act gives to the courts much broader powers to regulate terms in contracts which have been concluded between traders and consumers. Section 4.2 examines the individual sections of Part 2 of the Act and the leading cases decided under the Regulations which preceded the Act. Particular attention is given to key concepts such as ‘significant imbalance’, ‘good faith’, the exclusion of certain terms from assessment for fairness, the indicative and non-exhaustive list of terms that may be regarded as unfair (often referred to as the ‘grey list’), and the role of regulators in the enforcement of the legislation. Section 4.3 draws on work done by Professor Susan Bright in relation to the role of the Unfair Contract Terms Unit in the early days of the enforcement of the legislation.
Chapter
22. Breach of Contract and Termination
This chapter begins with a definition of ‘breach of contract’ and then outlines the circumstances in which a breach of contract gives to the innocent party a right to terminate further performance of the contract. These include breach of a condition and breach of an intermediate term where the consequences of the breach are sufficiently serious. The chapter also considers the problems that can arise in deciding the status of a term which has not been classified by the parties as a condition, a warranty, or an intermediate term. It examines termination clauses and the significance attached to the good faith of the party who is alleged to have repudiated the contract. The chapter includes a brief comparison of English law with the Vienna Convention on Contracts for the International Sale of Goods and with the Principles of European Contract Law, and also addresses the question of whether an innocent party is obligated to exercise its right to terminate further performance of the contract, and considers the loss of the right to terminate. It concludes with a discussion of the law of anticipatory breach of contract.
Chapter
7. Terms of the contract I
Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter examines issues related to the terms of the contract. It explains the distinction between terms and mere representations, and analyses the difference between signed and unsigned contracts in relation to the incorporation of express terms, including the L’Estrange v Graucob case. This chapter also considers the parol evidence rule and the modern contextual approaches to contractual interpretation. Finally, it considers implied terms, which can be implied by statute or by the courts, including the difference between implied terms in fact and at law, and introduces the developing concept of a relational contract.
Chapter
7. Terms of the contract I
Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter examines issues related to the terms of the contract. It explains the distinction between terms and mere representations, and analyses the difference between signed and unsigned contracts in relation to the incorporation of express terms, including the L’Estrange v Graucob case. This chapter also considers the parol evidence rule and the modern contextual approach to contractual interpretation. Finally it considers implied terms, which can be implied by statute or by the courts, including the difference between implied terms in fact and at law, and introduces the developing concept of a relational contract.
Chapter
2. Some Factors Affecting Modern Contract Law
M P Furmston
This chapter discusses factors affecting contract law which will be met in the rest of this book. It can usefully be read both at the beginning and the end of the book. These include continental influence in the nineteenth century; the influence of economic theory; inequality of bargaining power; the use of standard form contracts; consumer protection; the relationship between standard form contracts, inequality of bargaining power, and consumer protection; contractual behaviour; the interrelationship of contract and tort; good faith in contract law; the globalization of contract law; and the Human Rights Act 1998.
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