The Contractual Duty of Loyalty: Good Faith in the Performance and Enforcement of Contracts

Abstract

In most Western legal systems, contract law, to some extent, requires parties to act in consideration of the counterparty’s interests. This is originally a Roman law idea. In the Latin European law family we find bonne foi and similar concepts laid down in the civil codes. In German law the codified concept Treu und Glauben is considered to be one of the most important pillars of the private law system, and equivalent codified domestic concepts have impetus throughout the Germanic private law family. The standing of good faith within the common law world, however, differs significantly. In some common law countries good faith is fundamental. This is especially true for the United States, where good faith in performance and enforcement of contracts has grown into almost every aspect of contract law in almost every state. It has a statutory basis as a result of the state by state transpositions of the Uniform Commercial Code, and the authority is strengthened by the Restatements (2d) of Contracts. The United Kingdom is at the opposite end of the scale. Good faith, though existing in some types of contracts, is not recognised as a norm with general applicability, not even in the contractual stage. One will find Nordic law, as so often it is, positioned between civil and common law but clearly leaning towards civil law. This requirement is in Nordic legal terminology phrased the duty of loyalty. It has no statutory basis with general scope. Nonetheless, a requirement to consider the other party’s interests does exist. In support, there are some statutory provisions covering certain professions, a growing number of court cases and consensus in the literature.