Toward a Framework to Define the Outer Boundaries of Good Faith in Contractual Performance

Abstract

Since Bhasin v. Hyrnew, the application of good faith in contract law has varied and its outer boundaries have been unclear. To understand the variance in judicial applications of good faith, this article offers a framework that both explains judicial tendencies and prescribes a template for judges to justify differing approaches. The proposed framework distils the application of good faith to the interaction between institutional variables (the factors that determine judicial reasoning) and transactional variables (factors that arise from the context in which the contract arises). The article develops a taxonomy of the various alternative ways of approaching the doctrine of good faith resulting from the overlap of two institutional variables, the possible functions that good faith may serve and the criteria that inform the prescriptive content of good faith. The article then demonstrates how transactional variables inform the types of institutional variables a judge employs. Two cases that were recently decided by the Supreme Court of Canada demonstrate that by explicitly adhering to the proposed framework, judges can be more transparent about how and why they employ good faith in differing contexts.