GOOD FAITH AND THE CONTENTS OF CONTRACTS IN EUROPEAN PRIVATE LAW Matthias Storme l Readers are reminded that this work is protected by copyright. While they are free to use the ideas expressed in it, they may not copy, distribute orpublish the work or part of it, in any form, printed, electronic or othenwise, except for reasonable quoting, clearly indicating the urce. Readers are permitted to make copies, electronically orprinted, for personal and In this contribution, I would like to draw first some conclusions from comparative research and legaltheory before dealing with good fa ith in the Principles of European Contract Law. I will not present you a comparative overview ssuch, as there are excellent recent publications, such as Good Faith in European Contract Law, edited by Reinhard Zimmermann and Simon Whittaker. At the end of the second part, I will try to indicate the specific role good faith can play in a multi-level legal system such as the actualor future European contract law L Good faith in our legal systems in general II Three dimensions and three paradoxes 1. In a recent article in the European Review of Private Law, 3 Marietta Auer shows that the debate on the notion of good faith in contract la wty pically has three dimensions: first, a substantive dimension of justification of good faith duties in terms of. for instance. contractualethics. second a formal dimension concerned with its structure as a vague standard; and finally, an institutional competence dimension raising the question of judicial freedom and constraint in adjudication based on open standards such as good faith. The discussion thus consists, according to this essay, of controversies between an individua list ethics of freedom of contract and the opposing altruist value of interpersonal responsibility, between the danger of judicial arbitrariness and the demand forequitable flexibility, and, finally, between the legitimacy of judicial law making and the insistence on judicial restraint Indeed, each of these three dimensions gives only a partial view of the role of good faith in European contract law. Moreover, these three dimensions are not necessarily congruent; in fact, they often are not. Even if most applications of the principle of good faith can be seen as inspired rather by a communitarian than by an individua list ethic, others seem to protect individual positions in order to promote certa inty in legal re lationships, without imposing an altruist logic(e.g. Venwirkung). Further, the fact that one party has to take into account the terests of the other party in a given respect often discharges the other party from a similar duty. Thus, many duties to inform imposed on one party discharge the other party from informing itself on the same point, and thus shift the burden of exam ination from one party to the other. This ra ises doubts about the possibility of giving the notion of good faith a substantive meaning. 2. Different views have been developed as to how we should understand good faith, given the different controversies in wh ich it is used as an argument, and the lack of congruency between them. At first sight, it seems tempting to separate these three dimensions and even give them different names in order to promote clarity in doctrine and debate. One could thus elim inate good faith from the first(substantive)dimension and replace it by a duty to co-operate, eliminate it from the second (formal)dimension and replace it by a notion of reasonableness or reasonable expectations, and fnally eliminate it from the third(institutional) dimension and replace it by a mechanism of equity granting large powers to the judges. a number of theories have been developed where the function of good faith has been restricted to one ofthese dimensions(or to the two last ones) PRofessor by special appointment at the Catholic University of Leuven and Professor at the University of Antwerp; member CECL and SGEC R ZimmeRmann s WHITTAKER (eds ) Good Faith in European Contract La, Cam bridge [etc. I, Cambridge University Press 2000. See also F RANIERI, Europaisches Obligationenrecht, Wien/New York, Springer 1999, ch 9(pp.225ff 3M. AUER, Good Faith: A Sem iotic Approach, ERPL 2002, 279 ff
GOOD FAITH AND THE CONTENTS OF CONTRACTS IN EUROPEAN PRIVATE LAW Matthias E. Storme1 Readers are reminded that this work is protected by copyright. While they are free to use the ideas expressed in it, they may not copy, distribute or publish the work or part of it, in any form, printed, electronic or otherwise, except for reasonable quoting, clearly indicating the source. Readers are permitted to make copies, electronically or printed, for personal an d classroom use. In this contribution, I would like to draw f irst some conclusions from comparative research and legal theory before dealing with good faith in the Principles of European Contract Law. I will not present you a comparative overview as such, as there are excellent recent publications, such as Good Faith in European Contract Law, edited by Reinhard Zimmermann and Simon Whittaker.2 At the end of the second part, I will try to indicate the specific role good faith can play in a multi-level legal system such as the actua l or future European contract law. I. Good faith in our legal systems in general I.1 Three dimensions and three paradoxes 1. In a recent article in the European Review of Private Law, 3 Marietta Auer shows that the debate on the notion of good faith in contract law typically has three dimensions: ‘first, a substantive dimension of justification of good faith duties in terms of, for instance, contractual ethics; second, a formal dimension concerned with its structure as a vague standard; and finally, an institutional competence dimension raising the question of judicial freedom and constraint in adjudication based on open standards such as good faith.’ The discussion thus consists, according to this essay, of ‘controversies between an individualist ethics of freedom of contract and the opposing altruist value of interpersonal responsibility, between the danger of judicial arbitrariness and the demand for equitable flexibility, and, finally, between the legitimacy of judicial law making and the insistence on judicial restraint’. Indeed, each of these three dimensions gives only a partial view of the role of good faith in European contract law. Moreover, these three dimensions are not necessarily congruent; in fact, they often are not. Even if most applications of the principle of good faith can be seen as inspired rather by a communitarian than by an individualist ethic, others seem to protect individual positions in order to promote certainty in legal relationships, without imposing an altruist logic (e.g. Verwirkung). Further, the fact that one party has to take into account the interests of the other party in a given respect often discharges the other party from a similar duty. Thus, many duties to inform imposed on one party discharge the other party from informing itself on the same point, and thus shift the burden of examination from one party to the other. This raises doubts about the possibility of giving the notion of good faith a substantive meaning. 2. Different views have been developed as to how we should understand good faith, given the different controversies in which it is used as an argument, and the lack of congruency between them. At first sight, it seems tempting to separate these three dimensions and even give them different names in order to promote clarity in doctrine and debate. One could thus eliminate good faith from the first (substantive) dimension and replace it b y a duty to co-operate, eliminate it from the second (formal) dimension and replace it by a notion of reasonableness or reasonable expectations, and finally eliminate it from the third (institutional) dimension and replace it by a mechanism of equity granting large powers to the judges. A number of theories have been developed where the function of good faith has been restricted to one of these dimensions (or to the two last ones). 1Professor by special appointment at the Catholic University of Leuven and Professor at the University of Antwerp; member CECL and SGECC. 2R. ZIMMERMANN & S. WHITTAKER (eds.), Good Faith in European Contract Law, Cambridge [etc.], Cambridge University Press 2000. See also F. RANIERI, Europäisches Obligationenrecht, Wien/New York, Springer 1999, ch. 9 (pp. 225 ff.). 3M. AUER, ‘Good Faith: A Semiotic Approach’, ERPL 2002, 279 ff
Thus, in the tradition of Latin countries, there is often a tendency to restrict the function of good faith to the first dimension, and the notion to an ethical concept: good faith expresses a moralrule, more specifically an altruist morality, to the extent that the formalrules of law permit it. The contents of good fa ith may be coloured more subjectively, as in a trad itional French view reducing good faith to the absence of bad faith in a subjective sense; they may be coloured more objectively, as in Demogue's theory of the contract as a microcosm, or in Art 1175 of the Italian Civil Code on the regole della correttezza. What seems to be closing up good faith in the first dimension in reality does not say much about the first dimension, but is rathera statement in favour of a restrictive use of good faith by the judges, and thus rather a position in the formaland/or institutional dimension On the other hand, some authors have developed the theory that good faith has no substantive meaning at all, that there is no inner coherence between so-called good faith rules, and that any rule could be based on it. Good faith is in this view merely the sum of all additions and corrections to the old tradition brought about by judges, whatever their content may be, just as 'equity'in English law consists of the addenda and corrigenda to the old common law, and the ius honorarium in classical Roman law consisted of the addenda and corrigenda created by the praetor: *The only role of a good faith clause in a contract code would therefore consist in reminding us that judges are creating law. But in a systematic overview of the law, it should not be a separate subject. 5 Paradoxically enough, those who only see a formaland/or institutional dimension in good faith do not say much about precisely this dimension: how is the judge going to use the power granted under the name of good faith, reasonableness, equity or any similar principle: by incremental change from precedent to precedent or by try ing to give substance to very general principles? 3. In favour of the latter theory, it can be sa id that the justification of a given solution to a case by good faith, is indeed in most cases lim ited to solutions which are not found in the trad itional rules(either the case law tradition or legislation On the other hand, it rema ins so that a series of doctrines are still justified by the good faith principl even after they have been enacted in statutes or incorporated in tradition. Other new so lutions, however, are not or no longer justified after a while by good faith even if they are not codified. 6 Although I certainly have sympathy for the latter theory-and have defended in the past such ideas to a certain extent from a normative point of view/-from a descriptive point of view I think it is incorrect. In positive law there still is a substantive dimension in good faith, albeit a very broad one(good faith as a very open norm, but still a norm ) a substantive dimension negatively lim ited by the other two dimensions. In positive contract law, a solution will be seen as an application of the good faith principle, if (and only if)1)it posit ively conforms to the open norm(substantive dimension )and 2)does not follow already from another firmly esta blished norm(formal and/or institutional dimension). Once a more specif ic norm is firmly established, good faith is no longer necessary to justify that rule, but this does not mean that the content of the open norm of good faith can ever be exhausted into more specific norms(herunterkonkretisiert) contrac"\part from more restrictive substantive notions of good faith, a classical definition of good faith in law refers to the need to take into account the legit imate interests of the other party. In my opinion, such a definition does indeed cover the field of good faith 4. At first sight, this seems to be contradicted by the fact that good faith acts into opposite directions, and more 4See forthis v iew e.g. M. W. HESSELINK, De redelijkheid en billijkheid in het Europese privaatrecht. Good faith in European private law, Deventer, Kluwer 1999, also summarized as Chapter 18. Good faithin A HARTKAMP et al(eds ) Towards a European Civil Code, 2nd rev. and expanded edn., Nijmegen, Ars Aequi Libri/The Hague [etc ], Kluwer Law International 1998, pp 285 ff 5 Although not theoretically explicit on this point, a practicalapplication is made by H. KOTZ, Europaisches Vertragsrecht, I, Tubingen, Mohr 1996, as good fa ith is not at all a subject in this treatise, but the solutions based on good fa ith are widely dealt with bEg, ZIMMERMANN WHITTAKER, "Coming to Terms with Good Faith, in Good Faith in European Contract Law, pp. 676 ff. TMy PhD thesis, De invloed van de goede trouw op kontraktuele schuldvorderingen Leuven 1989/Antwerpen Kluwer 1990 Cf the conclusion of zimmermann WHITTAKer, Coming to Terms with Good Faith, p 699: Good fa ith is not devoid of meaning, a pious hope or simply a super-technique waiting to be put to whatever legal end a lega system wishes(though it may act as a super-technique if required)
2 Thus, in the tradition of Latin countries, there is often a tendency to restrict the function of good faith to the first dimension, and the notion to an ethical concept: good faith expresses a moral rule, more specifically an altruist morality, to the extent that the formal rules of law permit it. The contents of good faith may b e coloured more subjectively, as in a traditional French view reducing good faith to the absence of bad faith in a subjective sense; they may be coloured more objectively, as in Demogue’s theory of the contract as a microcosm, or in Art. 1175 of the Italian Civil Code on the regole della correttezza. What seems to be closing up good faith in the first dimension in reality does not say much about the first dimension, but is rather a statement in favour of a restrictive use of good faith by the judges, and thus rather a position in the formal and/or institutional dimension. On the other hand, some authors have developed the theory that good faith has no substantive meaning at all, that there is no inner coherence between so-called good faith rules, and that any rule could be based on it. Good faith is in this view merely the sum of all additions and corrections to the old tradition brought about by judges, whatever their content may be, just as ‘equity’ in English law consists of the addenda and corrigenda to the old common law, and the ius honorarium in classical Roman law consisted of the addenda and corrigenda created by the praetor. 4 The only role of a good faith clause in a contract code would therefore consist in reminding us that judges are creating law. But in a systematic overview of the law, it should not be a separate subject. 5 Paradoxically enough, those who only see a formal and/or institutional dimension in good faith do not say much about precisely this dimension: how is the judge going to use the power granted under the name of good faith, reasonableness, equity or any similar principle: by incremental change from precedent to precedent or by trying to give substance to very general principles? 3. In favour of the latter theory, it can be said that the justification of a given solution to a case by good faith, is indeed in most cases limited to solutions which are not found in the traditional rules (either the case law tradition or legislation). On the other hand, it remains so that a series of doctrines are still justified by the good faith principle even after they have been enacted in statutes or incorporated in tradition. Other ‘new’ solutions, however, are not or no longer justified after a while by good faith even if they are not codified.6 Although I certainly have sympathy for the latter theory - and have defended in the past such ideas to a certain extent from a normative point of view7 - from a descriptive point of view I think it is incorrect. In positive law there still is a substantive dimension in good faith,8 albeit a very broad one (good faith as a very open norm, but still a norm), a substantive dimension negatively limited by the other two dimensions. In positive contract law, a solution will be seen as an application of the good faith principle, if (and only if) 1) it positively conforms to the open norm (substantive dimension) and 2) does not follow already from another firmly established norm (formal and/or institutional dimension). Once a more specific norm is firmly established, good faith is no longer necessary to justify that rule, but this does not mean that the content of the open n orm of good faith can ever be exhausted into more specific norms (herunterkonkretisiert). Apart from more restrictive substantive notions of good faith, a classical definition of good faith in contract law refers to the need to take into account the legitimate interests of the other party. In my opinion, such a definition does indeed cover the field of good faith. 4. At first sight, this seems to be contradicted by the fact that good faith acts into opposite directions, and more 4See for this view e.g. M.W. HESSELINK, De redelijkheid en billijkheid in het Europese privaatrecht. Good faith in European private law, Deventer, Kluwer 1999, also summarized as ‘Chapter 18. Good faith’ in A. HARTKAMP et al. (eds.), Towards a European Civil Code, 2nd rev. and expanded edn., Nijmegen, Ars Aequi Libri/The Hague [etc.], Kluwer Law International 1998, pp. 285 ff. 5Although not theoretically explicit on this point, a practical application is made by H. KÖTZ, Europäisches Vertragsrecht, I, Tübingen, Mohr 1996, as good faith is not at all a subject in this treatise, but the solutions based on good faith are widely dealt with. 6E.g., ZIMMERMANN & WHITTAKER, ‘Coming to Terms with Good Faith’, in Good Faith in European Contract Law, pp. 676 ff. 7My PhD thesis, De invloed van de goede trouw op kontraktuele schuldvorderingen Leuven 1989/Antwerpen, Kluwer 1990. 8Cf. the conclusion of ZIMMERMANN & WHITTAKER, ‘Coming to Terms with Good Faith’, p. 699: ‘Good faith is not devoid of meaning, a pious hope or simply a super-technique waiting to be put to whatever legal end a legal system wishes (though it may act as a super-technique if required).’
pecifically often creates exceptions to rules, which are-or were- also based on good faith. But this paradox can be explained. Any rule, which translates the vague norm into a more specific norm tends to become abstracted from good faith(and live its own life). Whenever a spec ific rule is developed on the basis of the good faith principle in order to oblige one party to take into account the legitimate interests of the other party, it becomes a specific role in relation to which that other party must in its turn take into account the legitimate interests of the other party. Thus, any rule based on good faith is at a certain moment itself subject to correction based on the good faith principle In a historical perspective, many examples can be given of such developments. Thus, good faith has successively served to bind people by form less contracts (pacta nuda)even if there was no equivalence, to give priority to the meaningof contractual terms intended by the parties over their literal meaning, and to give preference to substantive fa iness over the intended meaning of the contract. Good fa ith was thus used both to justify the loss of rights even before the expiration of the prescription period (venwirkung )and to prevent a debtor to invoke prescription when he induced his creditor to delay the filing of his claim in court. L2 Rule of construction versus rule of behaviour mechanisms of conta inment 5. Even if the substantive and the other dimensions are not always congruent, there is a large overlap, and the forms of rule taken by the good faith principle in these dimensions are convertible. There is a traditional opposition between good faith as a rule of behaviour on the one hand, and a rule of construction(or development) of the law on the other hand But there is no contradiction here good faith as a rule of behaviour requires the parties to behave according to the requirements of good faith a nd fair dealing, and good faith as a rule of construction/interpretation of the law requires the judge to interpret the law in the way it promotes beha viour according to the requirements of good faith and fair dealing. 6. In order to conta in communitarian values and guarantee party autonomy, good faith in its substantive dimension is often restricted to a num ber of specific criteria. The first and most restrictive one is the purely subjective good faith(bad faith in the sense of dishonesty in mind, animus nocendi, etc. ) But good faith is usually not restricted the absence of bad faith and has also given rise to objective standards, first of all a standard of interest(acting without serious or legitimate interest, or with a disproportionately low interest specify the principle in its institutional and/orformaldimension. The distinction between those functions has indeed only this meaning, and thus no substantive meaning. The precise distinction between these different functions may vary, but we commonly find: 9 a role of concretisation of otherrules, esp concretisation of the way in which performance has to be rendered 2. a supplementary or complementary function, basically creatingadditional duties, burdens, remedies, etc, for situations which are understood as not being covered by the existing rules; 3. a corrective function, setting aside rules or contractual terms contrary to good fa ith. in relation to an older rule favouring literal interpretaton eve, f function of good faith is traditionally seen as'interpretative'(the interpretation of contracts, not of the law, and, more specifically, interpretation according to the common intention of the parties). Paradoxically, however, this function is historically a form of correction Sometimes, a separate function is seen where a contract is modified on the basis of the good faith principles(esp, when circumstances have changed)-a 'modifying function However, the distinction between a supplem entary and a corrective function is in my opinion highly artificial. Any creation of an additional duty not only supplements the contents of a contract, but also corre Any corrective mechanism based on good fa ith can inversely be framed in terms of an add it ional duty. loCts it A much more relevant question concems the method or style imposed on the judges apply ing good faith In this respect, there is a clearopposition between, e. g, Art. 1, Il and lll of the Swiss ZGB/CC on the one hand and the traditional French conception of the role of the judge on the other. Art. 1, Il obliges the judge to do what French ideology forbids him, and forbids him to do what French ideology permits. Indeed, French ideology comment on the ius honorarium(or ius praetorium)as adiwvandi vel supplendi vel corrigendi iuris civilis W a The doctrine of different function was revived by Siebert and wieacker, tracing it back essentally to Pap SIEBERT, Venwirkung und Unzulassigkeit der Rechtsausubung Berlin 1934; F. WIEACKER, Zur rechtstheoretischen Prazisierung des s5 242 BGB, Tubingen 1956 ioA classical example is the conversion of hardship into a duty to renegotiate
3 specifically often creates exceptions to rules, which are - or were - also based on good faith. But this paradox can be explained. Any rule, which translates the vague norm into a more specific norm tends to become abstracted from good faith (and live its own life). Whenever a specific rule is developed on the basis of the good faith principle in order to oblige one party to take into account the legitimate interests of the other party, it becomes a specific role in relation to which that other party must in its turn take into accou nt the legitimate interests of the other party. Thus, any rule based on good faith is at a certain moment itself subject to correction based on the good faith principle. In a historical perspective, many examples can be given of such developments. Thus, good faith has successively served to bind people by formless contracts (pacta nuda) even if there was no equivalence, to give priority to the meaning of contractual terms intended by the parties over their literal meaning, and to give preference to substantive fairness over the intended meaning of the contract. Good faith was thus used both to justify the loss of rights even before the expiration of the prescription period (Verwirkung) and to prevent a debtor to invoke prescription when he induced his creditor to delay the filing of his claim in court. I.2 Rule of construction versus rule of behaviour: Mechanisms of containment 5. Even if the substantive and the other dimensions are not always congruent, there is a large overlap, and the forms of rule taken by the good faith principle in these dimensions are convertible. There is a traditional opposition between good faith as a rule of behaviour on the one hand, and a rule of construction (or development) of the law on the other hand. But there is no contradiction here: - good faith as a rule of behaviour requires the parties to behave according to the requirements of good faith a nd fair dealing, and - good faith as a rule of construction/interpretation of the law requires the judge to interpret the law in the way it promotes behaviour according to the requirements of good faith and fair dealing. 6. In order to contain communitarian values and guarantee party autonomy, good faith in its substantive dimension is often restricted to a number of specific criteria. The first and most restrictive one is the purely subjective good faith (bad faith in the sense of dishonesty in mind, animus nocendi, etc.). But good faith is usually not restricted to the absence of bad faith and has also given rise to objective standards, first of all a standard of interest (acting without serious or legitimate interest, or with a disproportionately low interest). 7. In order to contain judicial activism, a doctrine of different ‘functions’ of good faith was developed, trying to specify the principle in its institutional and/or formal dimension. The distinction between those functions has indeed only this meaning, and thus no substantive meaning. The precise distinction between these different functions may vary, but we commonly find: 9 1. a role of concretisation of other rules, esp. concretisation of the way in which performance has to be rendered; 2. a supplementary or complementary function, basically creating additional duties, burdens, remedies, etc., for situations which are understood as not being covered by the existing rules; 3. a corrective function, setting aside rules or contractual terms contrary to good faith. In the French and Belgian traditions, for example, the primary function of good faith is traditionally seen as ‘interpretative’ (the interpretation of contracts, not of the law, and, more specifically, interpretation according to the common intention of the parties). Paradoxically, however, this function is historically a form of correction in relation to an older rule favouring a literal interpretation. Sometimes, a separate function is seen where a contract is modified on the basis of the good faith principles (esp. when circumstances have changed) - a ‘modifying function’. However, the distinction between a supplementary and a corrective function is in my opinion highly artificial. Any creation of an additional duty not only supplements the contents of a contract, but also corrects it. Any corrective mechanism based on good faith can inversely be framed in terms of an additional duty.10 A much more relevant question concerns the method or style imposed on the judges applying good faith. In this respect, there is a clear opposition between, e.g., Art. 1, II and III of the Swiss ZGB/CC on the one hand and the traditional French conception of the role of the judge on the other. Art. 1, II obliges the judge to do what French ideology forbids him, and forbids him to do what French ideology permits. Indeed, French ideology 9The doctrine of different function was revived by Siebert and Wieacker, tracing it back essentially to Papinianus’ comment on the ius honorarium(or ius praetorium) as adiuvandi vel supplendi vel corrigendi iuris civilis; W. SIEBERT, Verwirkung und Unzulässigkeit der Rechtsausübung, Berlin 1934; F. WIEACKER, Zur rechtstheoretischen Präzisierung des §§ 242 BGB, Tübingen 1956. 10A classical example is the conversion of hardship into a duty to renegotiate
forbids the judge to create law, but exceptiona lly permits him to judge according to what equity requires in the specific case; but whenevera judge formulates a rule not recognised by law or tradition as a legal rule in order to justify his solution, he is seen as transgressing h is authority. The Swiss Civil Code, however, obliges the judge to formulate a rule, namely the rule he would formulate if he were a legislator, and decide according to that rule. In Swiss law, the formal dimension(namely rule-orientation instead of mere equity )thus prevails over arguments from an institutional nature used in France. Maybe the thoroughly democratic character of Swiss institutions compared to the centralistic perspective on the judiciary in, e.g., France explains the difference II Good faith and the contents of contracts in the Principles of European Contract Law(PeCl) Il. 1 The notion of good faith and fair dealing 8. Let us now turn to the PECl, as they were published in 1999-ie. Parts I and ll They contain the principle of good faith (a)asa rule of interpretation of the law, in Art. 1: 106(1): These Princip les should be interpreted and developed in accordance with their purposes. In particular, regard should be had to the need to promote good faith and fair dealing, certa inty in contractual relationships and uniform ity of application, and (b)as a rule of behaviour, in Art. 1: 202(1): Each party must act in accordance with good faith and fair dealing These formulations tend towards congruency between the two dimensions Can we infer some definition or delimitation of the concept of good faith from the Principles? The Comments to Art. 1: 202 are clearly influenced by a primarily substantive notion of good faith. Although th isis only mentioned after a series of more classical specifications, the Comments specifically state that Art. 1: 201 im poses upon each party a duty to observe reasonable standards of fa ir dealing and to show due regard for the interests of the other party. They further explain that good faith is primarily a subjective notion and " fair dealing an objective one, for which reason they are always used together as a hendiadys, just like Treu und Glauben in German and redelijkheid en billijkheid in Dutch law The substantive(rather than fomalinstitutional)approach also follows from the fact that a num ber of specific rules expressly stated in the PECl are still seen as expressions of "good faith and fair dealing,, although they are expressly stated in the blackletter rules. This is, e.g, the case of the duty of a party not to negotiate a contract with no real intention of reaching an agreement with the other party (Article 2: 301); the duty not to disclose confidential information given by the other party in the course of negotiations(Article the duty not to take unfair advantage of the other partys dependence, economic distress or other weakness (Article 4: 109) the right given to a debtor to cure a defective performance before the time for performance(Article 8: 104); the right to refuse to make specific performance of a contractualobligation if this would cause the debtor nreasonable effort and expense(Article 9: 102) In a number of other provisions, the PECL use reasonableness'as a criterion. But according to Art would consider to be reasonable. In particular, in assessing what is reasonable the nature and purpose the es 1: 302, reasonableness is to be judged by what persons acting in good faith and in the same situation as the parti contract, the circumstances of the case and the usages and practices of the trades or professions involved should be taken into account 9. On the other hand, the formal dimension is certainly not absent in the notion of good faith and fair dealing, as it is expressly seen as a means to let justice prevail where the law or an otherwise valid contract term may under the circumstances lead to a manifestly unjust result, whether in such cases the court should let justice prevail will depend, interalia, upon to what extent certa inty and predictability in contractual relationships would suffer by letting justice get the upper hand. Equally, good fa ith and fair dealing are an important factor when implied terms of a contract are to be determined(Article 6: 102) 10. Certainly, the real function of good faith and fair dealing in the PeCl can only be understood when one sees the interplay with the other rules. Such an interplay does not only relate to performance and non-performand contracts, but also to formation of contracts. However, I will lim it my analysis, given the title of this article, to contents of contracts, also leaving the precontractual aspects to othercontributors This brings meto the following paradox on the one hand, good faith is prima facie a superfluous concept for those solutions which are embodied in more specific rules, this follows from the negative delim itation in the formaldimension; on the other hand, this is a purely a-historical approach, which by neglecting the past cannot be fruitful for the
4 forbids the judge to create law, but exceptionally permits him to judge according to what equity requires in the specific case; but whenever a judge formulates a rule not recognised by law or tradition as a legal rule in order t o justify his solution, he is seen as transgressing his authority. The Swiss Civil Code, however, obliges the judge to formulate a rule, namely the rule he would formulate if he were a legislator, and decide according to that rule. In Swiss law, the formal dimension (namely rule-orientation instead of mere equity) thus prevails over arguments from an institutional nature used in France. Maybe the thoroughly democratic character of Swiss institutions compared to the centralistic perspective on the judiciary in, e.g., France explains the difference. II Good faith and the contents of contracts in the Principles of European Contract Law (PECL) II.1 The notion of good faith and fair dealing 8. Let us now turn to the PECL, as they were published in 1999 - i.e. Parts I and II. They contain the principle of good faith: (a) as a rule of interpretation of the law, in Art. 1:106 (1): ‘These Principles should be interpreted and developed in accordance with their purposes. In particular, regard should be had to the need to promote good faith and fair dealing, certainty in contractual relationships and uniformity of application’, and (b) as a rule of behaviour, in Art. 1:202 (1): ‘Each party must act in accordance with good faith and fair dealing’. These formulations tend towards congruency between the two dimensions. Can we infer some definition or delimitation of the concept of good faith from the Principles? The Comments to Art. 1:202 are clearly influenced by a primarily substantive notion of good faith. Although th is is only mentioned after a series of more classical specifications, the Comments specifically state that Art. 1:201 ‘imposes upon each party a duty to observe reasonable standards of fair dealing and to show due regard for the interests of the other party’. They further explain that ‘good faith’ is primarily a subjective notion and ‘fair dealing’ an objective one, for which reason they are always used together as a hendiadys, just like Treu und Glauben in German and redelijkheid en billijkheid in Dutch law. The substantive (rather than formal/institutional) approach also follows from the fact that a number of specific rules expressly stated in the PECL are still seen as expressions of ‘good faith and fair dealing’, although they are expressly stated in the blackletter rules. This is, e.g., the case of: - the duty of a party not to negotiate a contract with no real intention of reaching an agreement with the other party (Article 2:301); - the duty not to disclose confidential information given by the other party in the course of negotiations (Article 2:302); - the duty not to take unfair advantage of the other party’s dependence, economic distress or other weakness (Article 4:109); - the right given to a debtor to cure a defective performance before the time for performance (Article 8:104); - the right to refuse to make specific performance of a contractual obligation if this would cause the debtor unreasonable effort and expense (Article 9:102). In a number of other provisions, the PECL use ‘reasonableness’ as a criterion. But according to Art. 1:302, ‘reasonableness is to be judged by what persons acting in good faith and in the same situation as the parties would consider to be reasonable. In particular, in assessing what is reasonable the nature and purpose o f the contract, the circumstances of the case and the usages and practices of the trades or professions involved should be taken into account’. 9. On the other hand, the formal dimension is certainly not absent in the notion of good faith and fair dealing, as it is expressly seen as a means to let justice prevail where ‘the law or an otherwise valid contract term may under the circumstances lead to a manifestly unjust result’, ‘whether in such cases the court should let justice prevail will depend, inter alia, upon to what extent certainty and predictability in contractual relationships would suffer by letting justice get the upper hand.’ Equally, good faith and fair dealing are an important factor when implied terms of a contract are to be determined (Article 6:102). 10. Certainly, the real function of good faith and fair dealing in the PECL can only be understood when one sees the interplay with the other rules. Such an interplay does not only relate to performance and non -performance of contracts, but also to formation of contracts. However, I will limit my analysis, given the title of this article, to the contents of contracts, also leaving the precontractual aspects to other contributors. This brings me to the following paradox: - on the one hand, good faith is prima facie a superfluous concept for those solutions which are embodied in more specific rules; this follows from the negative delimitation in the formal dimension; - on the other hand, this is a purely a -historical approach, which by neglecting the past cannot be fruitful for the
future: solutions embodied in specific rules and seen- at least historically -as specifications of the good faith principle, give guidance for a future interpretation of the same principle, precisely because law develops from precedent to precedent and because specif ic rules are to a large extent nothing else than codified, petrified precedents. Thus, the solutions formerly based on good faith, but now embodied in specific rules remain relevant to determining the contents of good faith. The formally superfluous often turns out to be the substantively I.2 The contents of contracts under the pecl 11. In order to see the role that good faith can play under the PECl, I would like to present a more extensive overview of the different elements determ ining the contents of contracts. I will take into account not only the PECL, but also the Convention on the International Sale of Goods ( Rome Convention -CISG) and the Directive on consumer guarantees(EC Directive 99/44) 11.2.a General contract law and specific contracts 12. The PECL only constitute the first part of a project for a European Civil Code, which is also to contain chapters on specific contracts. In order to see how the PECl deal with the contents of contracts, this should be taken into account. In different legal systems, the relationship between the two varies. In some jurisdictions, many things are detailed in General contract law, whereas others leave much to the rules on specific contracts. The PECL do the latter, although the Civil Code project tries to build an intermediate level with rules for service contracts in general We will detail below to what extent the contents of contracts are determ ined by the general contract rules in the PECL, and see that the PECl remain rather abstract. Anyway, general contract law must ev identy create a minimal framework, namely rules permitting to determine (a) whether a contract was formed- see Art. 2: 101 ffPECL, esp. Art. 2: 103: (1)There is sufficient a greement if the terms: (a) have been sufficiently defined by the parties so that the contract can be enforced, or(b) can be determ ined under these Principles. (2)However, if one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached (b)what the main obligations are- as they will permit the qualification of a contract as one of a specific type 11.2.b How the contents are determined: Sources ofcontent 13. As in the national legal systems, elements from different sources are 'integratedinto the contents of contracts (to use the current expression in Italian, integrazione del contratto ) I will dwell a bit longer on them, even if this exceeds somewhat the subject of good faith, for the reason mentioned, i.e. that the precise role of good faith can only be seen when one also knows the other rules. But here I only deal with rules on the primary contents of contents, not with pre-contractual rules nor with the modification of the primary contents at a later stage(rules in the case of non-performance) 11. 2. b. 1 Express terms 14. A first source of content are its express terms. The PECl contain a set of rules of interpretation in order to determ ine the effects of express terms(chapter 5) IL.2. b 2 Rules to determine undeterm ined terms 15.As Art. 2: 103 PECL already implies, the Principles also contain a set of rules indicating how the terms of a contract can be determ ined when their definition by the parties is insufficient for the contract to be enforced. More generally, the PECl contain rules to determine undetermined terms of a contract. On the one hand, we find rules enabling the parties to refer the further determination of the terms to a third party or even to one of the parties and at the same time restricting this determination by substituting a reasona ble term when the term determ ined by the party or third party is grossly unreasonable(Arts. 6: 105 and 6: 106 PECL). On the other hand, we find rules to determ ine how an undeterm ined price should be determ ined(Art. 6: 104 PECL: Where the contract does not fix the price or the method of determining it, the parties are to be treated as having agreed on a reasonable price),or an indefinite period can be lim ited by ending the contract(Art. 6: 109 PECL: 'A contract foran indefinite period may be ended by either party by giving of reasonable length). In these articles, good faith d, but reasonableness is, and it indicates an application of the restrictive' function of good faith
5 future: solutions embodied in specific rules and seen - at least historically - as specifications of the good faith principle, give guidance for a future interpretation of the same principle, precisely because law develops from precedent to precedent and because specific rules are to a large extent nothing else than codified, petrified precedents. Thus, the solutions formerly based on good faith, but now embodied in specific rules remain relevant to determining the contents of good faith. The formally superfluous often turns out to be the substantively essential. II.2 The contents of contracts under the PECL 11. In order to see the role that good faith can play under the PECL, I would like to present a more extensive overview of the different elements determining the contents of contracts. I will take into account not only the PECL, but also the Convention on the International Sale of Goods (Rome Convention - CISG) and the Directive on consumer guarantees (EC Directive 99/44). II.2.a General contract law and specific contracts 12. The PECL only constitute the first part of a project for a European Civil Code, which is also to contain chapters on specific contracts. In order to see how the PECL deal with the contents of contracts, this should be taken into account. In different legal systems, the relationship between the two varies. In some jurisdictions, many things are detailed in General contract law, whereas others leave much to the rules on specific contracts. The PECL do the latter, although the Civil Code project tries to build an intermediate level with rules for service contracts in general. We will detail below to what extent the contents of contracts are determined by the general contract rules in the PECL, and see that the PECL remain rather abstract. Anyway, general contract law must evidently create a minimal framework, namely rules permitting to determine: (a) whether a contract was formed - see Art. 2:101 ff PECL, esp. Art. 2:103: ‘(1) There is sufficient a greement if the terms: (a) have been sufficiently defined by the parties so that the contract can be enforced, or (b) can be determined under these Principles. (2) However, if one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached’, and (b) what the main obligations are - as they will permit the qualification of a contract as one of a specific type. II.2.b How the contents are determined: Sources of content 13. As in the national legal systems, elements from different sources are ‘integrated’ into the contents of contracts (to use the current expression in Italian, integrazione del contratto). I will dwell a bit longer on them, even if this exceeds somewhat the subject of good faith, for the reason mentioned, i.e. that the precise role of good faith can only be seen when one also knows the other rules. But here I only deal with rules on the primary contents of contents, not with pre-contractual rules nor with the modification of the primary contents at a later stage (rules in the case of non-performance). II.2.b.1 Express terms 14. A first source of content are its express terms. The PECL contain a set of rules of interpretation in order to determine the effects of express terms (chapter 5). II.2.b.2 Rules to determine undetermined terms 15. As Art. 2:103 PECL already implies, the Principles also contain a set of rules indicating how the terms of a contract can be determined when their definition by the parties is insufficient for the contract to be enforced. More generally, the PECL contain rules to determine undetermined terms of a contract. On the one hand, we find rules enabling the parties to refer the further determination of the terms to a third party or even to one of the parties and at the same time restricting this determination by substituting a reasonable term when the term determined by the party or third party is grossly unreasonable (Arts. 6:105 and 6:106 PECL). On the other hand, we find rules to determine how an undetermined price should be determined (Art. 6:104 PECL: ‘Where the contract does not fix the price or the method of determining it, the parties are to be treated as having agreed on a reasonable price’), or an indefinite period can be limited by ending the contract (Art. 6:109 PECL: ‘A contract for an indefinite period may be ended by either party by giving notice of reasonable length’). In these articles, good faith is not expressly used, but reasonableness is, and it indicates an application of the ‘restrictive’ function of good faith