Trust, good faith and contractual relations

Abstract

Abstract There are three main ways in which good-faith obligations (which require sincerity and loyalty in contractual dealings) have been conceptualized in the past by contract lawyers and theorists. According to agreement-based accounts, these duties are a product of the agreement of the contracting parties. In contrast, redistributive views claim that good faith is an instrument of social policy imposed on contracting parties. Finally, there are status-based accounts of good faith, according to which these duties are an incident of particular kinds of contractual relation, such as employment or marriage, which have an altruistic character requiring both sharing and sacrifice. In this Article, I argue that none of these views explains good faith, the reason being that they all in different ways make good faith a contingent property of contractual relations: depending either on the agreement of the parties or state action, or on whether the contractual relation is located within the sorts of relations that we typically associate with fiduciary obligations, such as those that obtain between friends and family. However, I claim that, properly understood, good faith is a necessary rather than contingent property of contractual relations. To surface this constitutive conception, I go back to Charles Fried’s (often neglected) claim that contractual relations are infused by a spirit of cooperation based on trust. On this view, the roots of contract lie in invocations of trust which generate duties of both sincerity in making contracts and loyalty in keeping to them. It is by making sense of the relationship between contract law and trust that we have the seedlings both of an integrated account of good faith, which explains its twin requirements of sincerity and loyalty, and the moral basis of contractual obligation.