The Implied Duty to Perform in Good Faith

• Author: John D. Mccamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 780-809

CHAPTER 21

THE IMPLIED DUTY

TO PERFORM IN

GOOD FAITH

A. INTRODUCTION

The general principles upon which terms can be held to be implicit in

contracts have been considered in a previous chapter.1 Here we con-

sider whether Canadian common law recog nizes the existence of a gen-

eral duty, perhaps in the form of an implied term, requir ing contracting

parties to perform thei r agreements in good faith. Civilian systems ty p-

ically recogniz e the existence of a general duty of this kind. Indeed, the

origins of the concept can be traced to Roman law.2 English common

law, on the other hand, has been resi stant to the idea. In 1989, Bingham

L.J. compared the English and civilian systems in the following terms:

In many civi l law systems, and perhaps in most le gal systems outside

the common law world, the law of obligations recognises and enfor-

ces an overridi ng principle that in making a nd carrying out contracts

parties should act in good faith. … English law has, characteristic-

ally, committed itself to no such overriding principle but has de-

veloped piecemeal solutions in response to demonstrated problems

of unfair ness.3

1 See Chapter 19, section D.

2 See R. Powell, “Good Fait h in Contracts” (1956) 9 Curr. Legal Probs. 16.

3Interfoto Pict ure Library Ltd. v. Stiletto Visual Programmes Ltd ., [1989] Q.B. 433 at

439 (C.A.).

780

The Implied Duty to Per form in Good Faith781

Although English interest in the civilian doctrine of good faith per-

formance has been sharpened by the increasing inf‌l uence of European

law on the English law of contracts,4 a general duty to perform con-

tracts in good faith has not yet emerged in English law.

A very different story un folded in the United St ates. The recognition

of a general duty of good faith performance was given a substantial im-

petus in American law and, indeed, a statutory base, when such a duty

was explicitly provided for in the Uniform Commercial Code,5 a model

law, in the 1950s. The Code, in turn, was enacted as state law across the

country. There are several references to good faith in the Code.6 In due

course, the inf‌l uence of the American Code and the vast body of case

law on good faith that surrounded and, to some extent, preceded it led

to the inclusion of an article on good faith in the Restatement of Con-

tracts 2d,7 published in 1981. Section 205 of the Restatement provides as

follows: “Every contract imposes upon each party a duty of good faith

and fair dealing in its performance and its enforcement.” Alone among

the common law jurisdictions, then, the United States appears to have

adopted a generalized duty of good faith contractual performance.

The interest of Canadian common law lawyers in the duty of good

faith appears to have been stimulated, in part at least, by the work of

the Ontario Law Reform Commission on sale of goods law8 and con-

tract law.9 In its reports on both topics, the commission recommended

that legislation be enacted giving recognition to the doctrine of good

faith. In the latter report, the commission reasoned that “statutory rec-

ognition of the doctrine of good faith would serve to synthesize the

various strand s of good faith analysis in t he case law. Moreover, the lit-

erature reveals th at a generali zed doctrine of good faith would conform

4 See genera lly G. Teubner, “Legal Irritants: Go od Faith in British L aw or How Unify-

ing Law Ends Up i n New Divergences” (1998) 61 Mod. L. Rev. 11; R. Brownsword,

“ ‘Good Fait h in Contracts’ Revis ited” (1996) 49 Curr. Leg al Probs. 111.

5 Ss. 1-203, 2-103. See gener ally R.S. Summers “ ‘Good Fa ith’ in General Contract

Law and in the S ales Provisions of the Un iform Commercial Code” (1968) 54

Va. L. Rev. 195.

6 Article 1-203, for example, provides a s follows: “Every contract or duty with in

this Act impo ses an obligation of good faith i n its performance or enforc ement.”

And see E.A. Fa rnsworth, “Good Faith i n Contract Performance” in J. Be atson

and D. Friedmann, eds., Good Faith and Fault in Contract Law (Oxford: Claren-

don Press, 1995) 153 at 155.

7 (St. Paul: American L aw Institute, 1981).

8 Ontario L aw Reform Commission, Re port on Sale of Goods (Ottawa: Mini stry of

the Attorney Gene ral, 1979).

9 Ontario L aw Reform Commission, Re port on Amendment of the L aw of Contract

(Toronto: Ontario Law Reform Commission, 1987).