Theory of the Firm and Organisational Contracts: The Remedial Aspects of Good Faith

Abstract

The aim of this paper is to investigate which conceptual place long-term contracts have within the legal system and how the theory on relational contracts fits within a general theory of justice that has an objectification in a doctrine of good faith. We present a definition of commercial long-term contracts and give examples as to understand how, within the wide range of contracts that can fall within this definition, some can have an organisational colour. After this, we examine the good faith doctrine as understood and employed in both common and civil law jurisdictions; the paper provides the analysis of a recent civil law case involving a distributorship agreement and the function of abuse of right. Nevertheless, the focus is mainly on good faith as a generally accepted clause in European jurisdictions, that is paving its way to general acceptance in common law jurisdictions too. Lastly a brief explanation on how law and economics can help us in descriptively understanding the interplay between contract law and trust games is given, so as to have also a normative insight on why granting judges such a discretional power does not only achieve justice and fairness but also efficient outcomes for business players.