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THE GOOD FAITH PRINCIPLE IN CONTRACT LAW AND THE
PRECONTRACTUAL DUTY TO DISCLOSE: COMPARATIVE ANALYSIS OF
NEW DIFFERENCES IN LEGAL CULTURES.
Alberto M. Musy
Professore Associato Università del Piemonte Orientale
Facoltà di Economia, Novara
December 2000
ABSTRACT
The purpose of this paper is to delineate new similarities and future differences between
legal systems, using pre-contractual liability and good faith. Instead of focusing on the
differences between common law and civil law, we focus our attention on the gap
between Europe, England included, and United States. All over Europe, under the
influence of good faith jurisprudence, duty to inform has been extremely broadened.
Contemporary debate confirms that European Legal Academia overemphasizes the
importance of the quest for central common principles of European private law, like
Good Faith and obligation de renseignement, and ignores questions regarding cost-
benefit effects of disclosure, parties informational rent seeking and general policy
considerations. A stereotyped legal doctrine, concentrating on the influence of EU
directives on national legal system and, in some cases, unification as a forthcoming
national-positive law can create an undesirable effect in the creation of future case law.
The author wish to thank the International Center for Economic Research (Torino), together with McGill University
Faculty of Law (Montreal) to offer substantial economic and scientific assistance in developing this study
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1. Introduction
The recent American debate1 about the limits of pre-contractual reliance provides the
opportunity to recall some European and Comparative Law notes.
Are we dealing here with an area of law where western legal systems substantially differ
from each other as far as both general evaluations and specific results are concerned?
This inquiry appears to be all the more important since both the Principles of European
Contract Law as proposed by the “Lando group”2 and the Principles of International and
Commercial Contracts as published by UNIDROIT3 contain certain general provisions
according to which “each party must act in accordance with good faith and fair
dealing”.
The purpose of this article is to delineate new convergent similarities and future
possible differences between legal systems, using pre-contractual liability and good
faith as a focal point of investigation4.
The first part of the article tries to reframe the ordinary picture of Good Faith in
European contract law.
Western legal systems differ as to the scope of the good faith principle. In the Civil Law
system, the minimalist view is represented by the French courts, who have not relied on
the bonne foi to the same extent that their German and Italian counterparts did. An even
more minimalist approach is represented by the common law of England does not
recognize any general obligation of the parties to a contract to conform to the standard
of good faith.
The second part of the article focuses the prism of the good faith investigation by
concentrating on the pre-contractual duty to inform and by trying to map reciprocal
influences, and differences between Europe and United States.
2. The Principle of Good Faith in Europe
a. French law
“The contract is law between the parties” (art.1134 c.c.).
This seems to be the main concern of French contract law; such a declamatory5
principle forced French legal literature to find creative ways to impose good faith duties
against the party freedom of contract6.
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The alinéa n.3 of art.1134 c.c. then states that “les conventions doivent être executées de
bonne foi”, art.1135 c.c. adds that “la convention oblige à toutes suites que l’equité
donne a l’obligation d’après sa nature”, the Obligation Section of the French civil code
does not contain other explicit references to the good faith principle.
The French scholars, though, starting from the late seventies expanded the number of
situations where the good faith principle applies7:
1) in the Formation of contract the parties must deal in good faith; the freedom of
contract principle, thus, is limited by the good faith principle. French jurisprudence,
anyway, looks for a very substantial deviation from pre-contractual reliance in order to
establish a basis for liability in tort (art.1382 c.c.) or for a classical situation of deceit
(artt.1110, 1116 c.c.);
2) in the Performance of contract there are at least two main applications of the Good
faith principle: the Duty of Loyalty8 and the Duty of Cooperation9.
a) The Duty of Loyalty, according to the Cartesian tradition is divided into two
cathegories: obligation de moyens and obligation de résultat, in the latter case the
débiteur must obtain the exact goal foreseen by the agreement between the parties quite
apart from good faith evaluation, while the créancier must avoid any behavior imposing
the performance difficulties.
In case of an obligation de moyens the débiteur has to accomplish his obligation simply
by acting with due care, as that of a “bon père de famille”.
b) The Duty of Cooperation too is divided into two different applications: the utmost
good faith contracts (contrat de societé, de travail, d’assurance) and the duty to disclose
(obligation précontractuelle de renseignement).
The French bonne foi, even if strengthened by the doctrinal efforts, is still weakened by
the judicial suspicion of introducing valeurs d’équité. The perceived danger is the risk
of too broad judicial discretion in spite of the Positive Law traditional French
approach10.
Moreover both the French doctrine and courts are not making a clear distinction
between subjective and objective good faith (the German Guter glaube and Treu und
Glaube), particularly in the context of cooperation cases, such as réticence dolosive,
erreur sur la substance11.
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b. German Law
The contractual obligations according to German law, are subject to the standard of
“good faith”. This has been read both by doctrine and courts into a seemingly rather
marginal provision (§ 242 BGB), which relates specifically to the manner in which the
obligation is to be performed.
§ 242 BGB has thus, by way of interpretation, been transformed into one of the famous
“general clauses”12 by means of which Germany’s “case law revolution” was effected13.
It has provided a convenient starting point for countless new doctrines and for the
modification of old ones14, and innumerable cases15 as it has been employed to avoid
“harsh or inequitable results”16.
Over the years much criticism has been leveled at the excessive proliferation of
equitable inroads into established legal principles17. On the other hand, however,
consensus has emerged over a whole range of legitimate applications of the principle of
good faith.
The efforts of academic commentators (starting with an influential study by Franz
Wiaecker18) have established much to domesticate legal categories of cases as they are
listed in any modern commentary sub §242 BGB.
Those doctrinal efforts of categorizing have become so firmly established that they are
seen today as forming an indispensable part of the legal landscape.
§242 BGB says that the recipient must perform her/his obligation in good faith
according to trade usage.
Both doctrine and case law implemented the use of the good faith paragraph in order to
devise a remedy for the following code gaps:
1) in spite of the existence of § 24219 there is no provision in the BGB dealing with
culpa in contrahendo;
2) there is no provision protecting the recipient from a partial or incorrect performance;
3) last but not least, there is not a general principle of neminem laedere (general tort of
negligence) in the German civil liability provisions (§§ 823 ff. that protects individuals
against damages to life, body, health, property); there is no room to expand tort liability
to protect some pre-contractual, contractual or post-contractual situations.
In order to protect the parties in those situations and avoid harsh or inequitable results,
scholars have pointed to typical situations where the good faith “general principle” must
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be enforced20. The late development in this trend is to avoid any use of the §242 BGB as
an equitable remedy and lately there seems to be a strong reluctance to admit any new
applications of the doctrine21.
The first group of standard types is listed under the label of contract ancillary duties
(duty to inform, duty to protect, duty of precise performance); then follow the venire
contra factum proprium principle, the “abuse of its own right” and the “tacit
renunciation” (forfeiture of right, especially by laches); and lastly the “rebus sic
stantibus” principle and the “contractual basic assumption” (Voraussenzung) doctrine.
In order to see how those principles work we can take as an example the rules on
Positive Vertragsverletzung (duty of precise performance): the judge must look if the
contractual duties are implicated (Schuldverhaltnis), and then evaluate which required
ancillary duty violated, and finally decide if there is negligence.
c. Italian law
The Italian 1942 Civil Code has been drafted in an epoch when Italian scholars were
fully aware of German case law on paragraph 242 of the BGB22. Therefore the Italian
Code highlights the importance of “good faith” in the contractual relationships in
several code articles: art.1366 “Contract must be interpreted in good faith”, art.1375
“Contract must be executed in good faith”; art.1175 “Debtor and creditor must behave
according to good faith and fair dealing rules” and finally, article 1337 provides that
“parties must behave in good faith during the pre-contractual bargaining and contract
drafting”.
Modern Italian contract law scholarship23, after the 1942 Code, has rejected the concept
that an actual, subjective meeting of the minds is necessary to form a contract, in favor
of a theory protecting parties reasonable expectations in relying on promises and
communications24.
According to the latter approach the buona fede principle has been interpreted by
scholars as a synonym of German Treu und Glaube even if the Italian case law25 seems
still to place a lot of importance on the idea that the parties enter into a bargaining
process under the principle of freedom of contract.
Until the beginning of the seventies the main stream of the Supreme Court of Cassation
held that the good faith provisions did not offer an autonomous ground for a legal
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action26. Those articles were to be used by courts only to strength the protection of a self
standing diritto soggettivo (fully recognized legal title)27.
In the late seventies, under a vehement doctrinal debate28, the case law changed to
recognize the buona fede principle as an autonomous basis for a cause of action. As is
usually the case, the courts chose to develop the doctrine by focusing on certain types of
cases, which include:
1) The right to organize special form of strikes;
2) Labor law contractual relations; and
3) The duty to inform and the duty to protect the other party interest29.
A 1975 decision by the Milan Court of Appeal30 considered the violation of art.1375
c.c. an autonomous ground for action in tort, pursuable by art.2043 c.c. (the Italian
provision for tort liability: the neminem laedere principle).
The Italian scholars are skeptical about the usage made by courts of the good faith
principle in as much as it could be used for redistributive purposes; some of them31 are
worried about the temptation to use it as a general equitable principle, a solution that
might vest too broad discretionary power in the judge hands.
On the one hand the Italian doctrine has not been able to offer the judges a clear
systematic picture of good faith standard situations32; on the other, the Italian doctrine,
until the late seventies was strongly influenced by the German doctrine, and clashed
with Italian judges still influenced by the French doctrine and courts. This cultural
incommensurability33 is now posing a difficult problem of conflicting theories about
good faith and culpa in contrahendo34.
d. English law
There is no general positive duty of good faith imposed on the parties to a contract in
the English law today35. English merchant law, indeed, recognized the principle until
the disappearance in the XVIII century of the Admiralty36.
The utopian idea of the common law is that manners in business are oriented by a
“rough and tough” rule and according to this rule Courts are used to take a fairly
extreme position on the duties of the parties to look after themselves and to stay, so to
say, “on their own feet”37.
The rule of equity, still sound and alive in the English law of remedies, offered
protection against the most harsh and tough situations. It is not by chance that the
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equitable remedy of Promissory Estoppel has turned from being a shield into being a
sword38 and can offer adequate protection against promise revocation or unjust
withdrawal from negotiations.
During the period that one author called the Decline of Freedom of Contract (1870-
1980)39 English law started to stress some pre-contractual duties between the parties,
and to elaborate new doctrines that could be easily brought under a good faith
heading40.
One after the other a certain number of contractual relations has been added by good
faith special duties.
Beside the uberrimae fidei contract (like in French law: insurance, company), that have
always required an utmost duty of good faith, fiduciary relationships in general provide
several instances of duties that in the civil law world would be related to the good faith
principle.
Family and professional-client relations (special relation or good faith relation) require a
duty of good faith and full disclosure.
Like in France, Legal duties may arise between negotiating parties in tort: parties may
owe duties of care to each other41.
The English courts are offering remedies to the party claiming a breach of good faith
duties, indeed they prefer to do it without referring to a general principle, which
apparently seems to create a problem regarding the predictability of the legal outcomes
of cases42.
There are many cases in which English courts are reading “implied terms” into a
contract, adopting a standard of interpretation similar to the anti-formalistic approach
used by continental courts in good faith cases.
The absence of a general duty of good faith, can probably be best described as an
illustration of English attitude to see the law as a self standing domain and a world
distinct from business and politics. Judges do not like to wield the power to determine
whether the parties have acted in good faith or not43.
Jane Stapleton writes that even if English lawyers do not call it good faith they believe
in the need for legal doctrines that seek to temper the deliberate pursuit of self-interest
in situations where the conscience is bound44.
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3. The duty to inform and the Good Faith principle within European legal systems
The French bonne foi, the German Treu und Glaube, the Italian buona fede e correttezza
and the English good faith situations are not synonymous; they are phenotypes of a
broader genotype offering the legal professionals a way out from the harshness of the
strict application of the rules of contrat, Vertrag or contract. They all call for some
judicial discretion in the name of fairness.
A recent contribution about the need of a good faith principle within a future European
civil code suggest there is no need of such an undefined and broad principle45.
Within this general frame and this narrow common core46 of general principles the
inquiry has to proceed by focusing on a narrower list of factual situations.
I choose to investigate factual situations where a duty to disclose is involved for two
reasons: first some systems see the duty to inform as a specific problem of the general
principle of good faith; second it is
The main objective of the second part of this study is to examine one specific problem
related to the Good Faith principle - the duty to inform - from a comparative prospective
and to point out the differences between the common law and the civil law in treating
this problem.
My comparative analysis of the duty to inform covers France, Germany, England and
Italy, as well as the United States47. All these systems impose certain limitation on the
duty to inform.
Consider Cicero’s classic example48 - recalled by Saint Thomas Aquinus49 - of the
starving Rodhians who meet the Egyptian merchant first landing on the island after
passing other triremes full of corn.
This example is still debated. Is the merchant under an obligation to disclose the
information about the arrival of other ships?
There are many modern examples: does a trader have to reveal to a buyer that the
leading tobacco port, now closed because of a naval blockade, is going to open soon?50
Does the owner of a house have to disclose to the buyer that the house is badly infested
with termites?51
Does a franchiser have to disclose to a franchisee his intention to withdraw from
negotiations? When does he have to tell it in order not to be considered liable for
frustrating the franchisee’s expectations?52
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Do I have to tell the buyer of my company shares that the main project of the company
is going to be more expensive than what I have foreseen?53
We can continue with many other possible examples and all of us can think of solutions
our respective legal systems can offer.
It is important to recall some of the possible solutions in all systems:
mistake – erreur;
fraud – dol;
culpa in contrahendo - promissory estoppel;
presupposizione – Voraussetzung.
Legal Theorists all over Europe, under the influence of the German Treu und Glaube
Prinzip, are at the stage of developing new interpretation of those solutions according to
the good faith principle.
Let’s focus our attention on the differences.
Instead of focusing on the differences between common law and civil law, I propose
that we focus our attention on the gap between Europe, England included, and the
United States.
All over Europe, under the influence of good faith jurisprudence the duty to inform has
been extremely broadened:
Following the intuition of de Juglart and the work of Muriel Fabre Magnan and Jacques
Ghestin, French scholars call the duty to disclose obligation d’information54 and French
courts are now applying it as a matter of course55.
Rodolfo Sacco’s56 and Giovanna Visintini’s57 works are gradually influencing the
Italian Courts to pay attention to the reticenza dolosa (misrepresentation) as a possible
trigger of contract voidability and reliance damages recovery58.
Jane Stapleton’s re-mapping of the English law demonstrates that the good faith
principle and the duty to inform are no longer continental institutions59. Significantly,
she criticizes the Gunter Toebner60 idea that good faith is a legal irritant evidencing the
incommensurability between common and civil lawyers.
Even if I consider the Gunter Teubner idea extreme, and even if I do not agree with the
oversimplification of the two conceptions of capitalism: the Anglo-Saxon and the
Continental, Colbert against Adam Smith, I do have to draw your attention to the fact
that the most important and recent differences between American and European
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theoretical approaches to the duty to inform are at the doctrinal level, and this fact, I
predict may generate further differences in the future.
In Europe we are close to a strong assimilation of the ways of solving factual situations
concerning the pre-contractual duty to inform implying the use of good faith as a
general principle61.
I do believe that the European Legal Academia overemphasizes the impor
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