Good Faith

From Max-EuP 2012

by Filippo Ranieri

1. Roman law origins

The origin of the doctrine of good faith, a central principle of the continental European legal tradition, can be found in the Roman concept of bona fides. It is a social-normative moral concept, which had already influenced classical Roman law. Translation of the concept into Romanic languages, such as bonne foi, buona fede and buena fe, contain a linguistic ambivalence due to the fact that they also refer to the subjective good faith (eg of the possessor). Bona fides in this subjective sense first appears in the Justinianic legal sources and in writings of the medieval glossators. The purpose and function of the principle of bona fides become clear by examining the procedural structures of classical Roman law.

The historical development of the doctrine of good faith has its starting point in the formulary procedure concerning the obligatio dandi certam rem, ie the duty, based on a stipulation, to hand over a certain object. It was an actio stricti iuris. Already at an early stage, Roman law provided for strict objective liability for debtors in default. The main instrument used to mitigate this strictness was the exceptio doli. On the one hand, the exceptio doli praeteriti constituted a defence for the defendant, whereby he could assert certain circumstances, eg an intentional deceit, in order to request the dismissal of the claim. Thus, the exceptio doli praeteriti referred to the past, ie to the time of the event giving rise to the proceedings. The exceptio doli praesentis, on the other hand, served as a defence against the bringing of the lawsuit itself. Therefore it benefited those defendants who were sued in spite of the fact that the claimant knew that these proceedings were abusive. It was in the latter sense that the exceptio doli found its main application in Roman law. The Roman jurists used it as a procedural means to moderate the severity of the ius civile in verbally binding transactions (eg stipulations) and to correct inequitable legal consequences (eg exceptio pacti seu doli, Ulpian D. 2,14,7,7; Ulpian D. 2,14,16 pr.).

The legal position for consensual contracts (which counted among the iudicia bonae fidei) was different. Here the exact content of the debtor’s obligation first had to be judicially ascertained according to the standard of bona fides (dare facere oportet ex fide bona). Thus, the debtor not only had to render the performance he had promised but he also had to do all that was necessary to achieve the purpose of the contract as well as to refrain from everything that would prejudice this purpose. Thus, the criterion of bona fides became the cornerstone of the procedural implementation of iudicia bonae fidei and, indirectly, therefore also of the law relating to consensual contracts. In the case of consensual contracts, such as contracts for sale, the exceptio doli did not have to be formally raised within the legal proceedings. Instead the exceptiones doli, metus, pacti etc were regarded to be inherent in iudicia bonae fidei (Pomponius D. 19,1,6,9).

With the decline of the formulary procedure, the exceptio doli lost its original function. However, it was preserved in the Roman legal sources as a technical legal term denoting a means of defence (Ulpian D. 44,4,2,5). In the ius commune of the Middle Ages and the early modern period the term exceptio doli praesentis seu generalis was used. The expression (exceptio doli) generalis appears for the first time in the Glossa Magna, written by Accursius (glossa generalis, relating to D. 44.4.4.33). On the basis of this text, the concept was introduced into the legal discourse of the European ius commune. Beginning in the 16th century, the authors of the French ancien droit, in contrast, emphasized that all contracts were to be regarded as bonae fidei. For this reason, as of the 17th century, they no longer understood the ope exceptionis-solutions contained in the Roman sources. These were qualified as subtilitates iuris romani. Unsurprisingly, therefore, the notion of exceptio doli generalis disappeared from the writings of the French lawyers. The German pandectists (Pandektensystem) in the 19th century still mentioned it even though at that time, reference to an exceptio had lost its procedural significance. German courts, therefore, frequently applied the exceptio doli as a device of substantive law during the 19th century.

2. The German case law

The Roman bona fides lives on in the German private law codification of 1900, above all in the judicial application of the blanket clauses § 242 and § 157 Bürgerliches Gesetzbuch (BGB) (Treu und Glauben). In the immediate aftermath of the codification, the Reichsgericht (Imperial Supreme Court; Reichsoberhandelsgericht (with Reichsgericht)) took its cue from the case law relating to the exceptio doli of the 19th century. A typical example of this judge-made development of the law is the legal concept of Verwirkung (estoppel). According to this concept, the holder of a right loses it if he fails to assert it over an extended period of time thereby inducing good faith reliance in the other party that the right will no longer be exercised in the future. Conversely, the creditor may invoke bad faith on the part of the debtor. For example, already the Reichsgericht held that it was abusive to raise the defence of prescription (Verjährung) after having created a reasonable reliance in the person of the creditor that he did not intend to raise it. The courts applied similar legal reasoning in order to avoid the harsh sanction of invalidity (§ 125 BGB) where the parties had failed to observe statutory form requirements. At first, German courts tried to base this use of the exceptio doli on § 826 BGB (intentional damage contrary to public policy (boni mores)). However, at the end of the 1920s, the Reichsgericht started to refer more and more frequently to the general principle of Treu und Glauben, which was regarded as having an independent normative scope and which was taken to be laid down in § 242 BGB. In the 1930s, Wolfgang Siebert (1905–59) categorized this line of cases under the heading of abuse of law (Rechtsmissbrauch). This academic classification is still recognized today. At first, the Reichsgericht made extensive use of this argument. However, in the decades after World War II, the German judiciary exercised increasingly more restraint. Today, the Bundesgerichtshof only applies the doctrine as a corrective device for legal provisions that would, if it were applied in an individual case, lead to a ‘plainly intolerable result’. Contemporary German jurisprudence considers the assertion of a legal position contrary to good faith as a venire contra factum proprium and consequently, following Siebert’s classification, as an abuse of law (Rechtsmissbrauch).

The previously mentioned applications of the good faith doctrine represent merely a few important constellations in which already the Reichsgericht referred to § 242 BGB. Another prominent example is the concept of change of circumstances (Wegfall der Geschäftsgrundlage), developed after World War I. In 1963, Karl Larenz characterized that doctrine as an application of § 242 BGB. In the course of the reform of the German law of obligations in 2002, the case law in this area was codified in § 313 BGB. This demonstrates that, effectively, the doctrine of good faith allows German judges to act as quasi-legislators, creating new legal rules in order to mitigate harsh results following from the application of a statutory or contractual provision. Recourse to the good faith clause of § 242 BGB thus represents an intermediate station on the way towards establishing new and self-contained legal concepts such as change of circumstances (Wegfall der Geschäftsgrundlage) or Verwirkung (estoppel) (Jürgen Schmidt and, later, also Martijn Hesselink).

3. German law as a continental model

It was above all the fear of an overly powerful judiciary which provoked a very sceptical response to such developments by French and Italian scholars and judges of the 20th century. The prohibition of acting contrary to good faith, developed by the German courts as a means to prevent legal inequities, has however served as a model for numerous other continental systems, in particular for Swiss and Dutch law. The Swiss Civil Code (ZGB) of 1912 explicitly states in its Art 2 that a legal right ought to be exercised in accordance with good faith, and that an evident abuse of a legal right does not deserve any legal protection. In applying this provision, the Swiss Federal Supreme Court (Bundesgericht) has long recognized solutions comparable to the above-mentioned German case law. Thus, Swiss case law recognizes the concept of Verwirkung (estoppel). Conversely, it attributes a comparatively restrictive scope of application to the concept of change of circumstances (Wegfall der Geschäftsgrundlage). In Dutch law, a particularly strong influence of German case law was noticeable already under the Burgerlijk Wetboek (BW) of 1838. In 1992, the approach adopted by the Dutch courts was codified in Art 6.2 BW. According to the provision a judge is entitled to disregard contractual or statutory provisions, if their application would produce a result incompatible with equity and fair dealing. Apparently influenced by German and Swiss law, a limit to the exercise of legal rights contrary to good faith is also expressly provided by the Greek Civil Code of 1940/1946 (Art 281) and the Portuguese Código civil of 1966 (Arts 303-334).The same can be said for Art 7 of the new titulo preliminar of the Spanish Código civil and, most recently, for § 6 of the Estonian Law of Obligations of 2002.

In contrast, other continental legal orders have been far more reluctant to implement the principle of good faith. In particular, the French Cour de Cassation only accepts the concept with regard to contractual relations—bonne foi contractuelle (Art 1134 (3) Code civil). The French courts have, so far, applied the provision relatively rarely. French law rejects judicial intervention in cases where the doctrine of change of circumstances (Wegfall der Geschäftsgrundlage) is applied in German law. The idea of prohibiting a venire contra factum proprium is only indirectly used by French courts, often hidden under the cloak of the fictitious assumption that the holder has waived his right. Until a few years ago, a similar restraint could also be seen in Italian law. Yet, the Corte di Cassazione has recently changed its approach under the influence of Italian legal doctrine. Numerous decisions have now taken recourse to the principle of buona fede contrattuale, which is attributed to Art 1375 Codice civile (recently Cass. civ., 18 September 2009, No. 20106, Giurisprudenza it. 2010, 3, cols 556 ff). However, the application of the principle, eg in cases concerning the policing of contract terms, falls far short of the German, Swiss and Dutch case law. Meanwhile, a fundamental change appears to be on the horizon in French law as well: the general rule that ‘each party is held to act in good faith’ (‘Chacune des parties est tenue d’agir en bonne foi’) is contained in Art 8 of the Avant-projet de Réforme du droit des contrats (Avant-projet Catala) that has been presented in the summer of 2008.

4. The principle of good faith in English law

To this day, the English common law does not recognize a general duty of the parties to a contract to act in good faith. It has been stated by Roy Goode: ‘We in England find it difficult to adopt a general concept of good faith … . The predictability of the legal outcome of a case is more important than absolute justice. … The last thing that we want to do is to drive business away by vague concepts of fairness which make judicial decisions unpredictable, and if that means that the outcome of disputes is sometimes hard on a party, we regard that as an acceptable price to pay in the interest of the great majority of business litigants’.

The Roman idea of bona fides appears to have had no influence in the history of the common law. An opportunity to introduce the doctrine existed in the 18th century. Lord Mansfield tried to establish it in contemporary English commercial law. Notably, his opinion in the insurance case Carter v Boehm [1766] 97 ER 1162 became famous. However, the English common law has not developed the suggestions of Lord Mansfield beyond the use of good faith (referred to as uberrima fides) to establish duties of disclosure in insurance contracts.

Nevertheless, English law has, in many cases, reached conclusions similar to those based on the continental doctrine of good faith by using different legal instruments. For example, the legal concept of promissory estoppel and estoppel by acquiescence, according to which a person is bound to a legal position previously adopted, corresponds to Verwirkung (estoppel) and the doctrine of venire contra factum proprium in continental law.

The meaning of good faith in England today remains shaped by subjective and psychological tendencies in terms of individual good faith and, therefore, is rather different from continental buona fede or Treu und Glauben. Essentially, the attitude of English lawyers towards the continental legal developments described above remains sceptical. Above all, they reject the continental idea of giving the judge the power to control and redraft contracts. Therefore a liability for culpa in contrahendo on the basis of a general principle of good faith is not recognized in English law (Lord Ackner in Walford v Miles [1992] 1 All ER 453; 2 AC 128, 138 (HL): ‘A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of the negotiating parties’). This confirms the reservations expressed by those who suspect that ‘when a European contract law including a good faith clause comes into force, British judges will simply dig out their established case law rules and apply them just as before, as long as they are compatible with the letter of the good faith clause, which—as has always been obvious—they clearly are’ (Hein Kötz). The European Directive 93/13 of 1993 on unfair terms in consumer contracts has, in its Art 3, introduced the notion of good faith, or bonne foi, or Treu und Glauben, into English law as a means of controlling standard contract terms and has thus firmly placed the question raised above on the agenda. However, in its fundamental decision Director General of Fair Trading v First National Bank, [2001] 3 WLR 1297, the House of Lords has clearly stated its refusal to allow the continental general concept of good faith to penetrate this field of law through the gateway of European private law.

5. European private law

The express recognition of a general principle of good faith today reflects, at least from a continental point of view, a general conviction. Therefore the concept has been laid down in Art 1:201 Principles of European Contract Law (PECL). However, it remains unclear whether it has been recognized to the same degree by the private law of the European Union (EU private law). The case law of the European Court of Justice (ECJ) has thus far avoided expressly to recognize a general principle of good faith. The term is repeatedly used in European directives (eg in Art 3 of directive on unfair terms in consumer contracts 93/13). But to start with, the language versions of the directive differ considerably. The German version uses the term ‘Gebot von Treu und Glauben’, therefore leaving German lawyers in no doubt that Art 3 of the directive reproduces the same concept as contained in § 242 BGB and the case law relating to it. The English version reads: ‘requirement of Good Faith’, the French ‘exigence de bonne foi’, while the Italian version refers to ‘clausole che, malgrado la buona fede, determinano ...’. These phrases have different meanings in the different national traditions. As just mentioned, German law uses the doctrine of Treu und Glauben, based on § 242 BGB, as a guideline for interpreting and reviewing contractual clauses. In contrast, bonne foi in French law as well as the Italian buona fede and the Dutch goede trouw, contain, in addition to the objective standard, a subjective element relating to the awareness or lack of awareness on the part of a particular person, with regard to certain circumstances. Likewise, English law takes good faith to be primarily concerned with the knowledge of an individual, or lack thereof, whilst refusing to accept it as a means for judges to interfere with the content of a contract. Taking these differences into account, it is understandable why the French legislature, when transposing the provision in question into national legislation (Art L.132-1 Code de la consommation), has deliberately abstained from using the term bonne foi.

The case law of the European Court of Justice (ECJ) to date also is inconsistent. In 2000, the Court considered itself to be the appropriate forum to declare a contractual provision in a consumer contract, containing an agreement on jurisdiction, as abusive and therefore void (ECJ Case C-240/98 – Océano grupo editorial [2000] ECR I – 4941 ff). Four years later, the court surprisingly found that it lacked the competence to decide a question submitted by the German Bundesgerichtshof, holding that it was for the national courts to determine whether a certain contractual provision contravened Art 3(1) of the directive (ECJ Case C–237/02 – Freiburger Kommunalbauten [2004] ECR I-3403). Yet numerous critics of the decision have rightly pointed out that the Court of Justice, after expressly claiming the right to specify the conditions under which the directive is to be applied, should have provided the national courts with certain guidelines concerning the interpretation of the terms ‘good faith’ and ‘abusive’, as they appear in Art 3.

The establishment and scope of a general principle of good faith in European law, ‘la bête noire des juristes anglais’, remain on the political agenda. The Principles of the Existing EC Contract Law (Acquis Principles) which constitute an important basis for the Draft Common Frame of Reference (DCFR), are ambivalent in this regard. According to the editors, who have confined themselves to restate the existing acquis communautaire, the present EU private law does not offer a sufficient foundation for a comprehensive principle of good faith. Therefore, the Acquis Principles do not propose a general provision. Instead, the principle of good faith is referred to in specific contexts, eg concerning pre-contractual duties and as a standard of review for unfair contract terms. In contrast, the third book of the ‘academic’ Draft for a Common Frame of Reference (Art III.-1:103 DCFR) provides for a general good faith clause even if it restricts the clear normative statement contained in Art 1:201 PECL in its third subparagraph.

Literature

Franz Wieacker, Zur rechtstheoretischen Präzisierung von § 242 BGB (1956); Roy Goode, The Concept of ‘Good Faith’ in English Law (1992); Antonio Menezes-Cordeiro, Da boa fé no direito civil, 1984 (2nd edn, 1997); Hein Kötz, ‘Towards a European Civil Code: The Duty of Good Faith’ in Peter Cane and Jane Stapleton (eds), The Law of Obligations. Essays in Celebration of John Fleming (1998) 243 ff; Martin Hesselink, De redelijkheid en billijkheid in het europese privaatrecht. Good Faith in European Private Law (1999); Reinhard Zimmermann and Simon Whittaker (eds), Good Faith in European Contract Law (2000); Béatrice Jaluzot, La bonne foi dans les contrats. Étude comparative des droits français, allemand et japonais (2001); Benedicte Fauvarque-Cosson (ed), La confiance légitime et l’estoppel (2007); Christian Eckl, Treu und Glauben im spanischen Vertragsrecht (2007); Filippo Ranieri, Europäisches Obligationenrecht (3rd edn, 2009) 1801–98.

Retrieved from Good Faith – Max-EuP 2012 on 29 June 2022.

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