Good Faith in Contractual Exchanges

Abstract

Two ideal views—here labeled “consensual rationality” and “contractual morality”—bracket the various approaches to the contractual doctrine of good faith—the focus of this chapter. Both views grant that good faith entails norms of cooperation. It is where the doctrine locates, ought to locate, these norms that defines the difference between consensual rationality and contractual morality. While elaborating on this essential point, the chapter advances three principal claims. First, consensual rationality and contractual morality may be best seen as extreme points on a common continuum over which courts and most commentators take positions somewhere in the middle. Practical implementation of the doctrine of good faith will always lie between the extremes of these ideal views. Second, the doctrine of good faith exists largely to protect the practice of contracting rather than aggrieved parties themselves. Third, community standards of fair or moral conduct play an inevitable, if unacknowledged, role in the doctrine of good faith, including those interpretations grounded in economics reasoning. Academic efforts to remove conventional morality from good faith are futile. An economic order, the chapters concludes, which is based on efficiency without established standards of fairness is as plausible as a legal order based on law without equity.