Good Faith in English and US Contract Law: Divergent Theories, Practical Similarities

It is generally considered that there is a material difference between the treatment of the duty of good faith in the general contract law of the US and England and Wales. When dealing with agreements to negotiate or contracts expressly requiring performance to be in good faith, the treatment of good faith requirements is becoming increasingly similar between the US and England and Wales. For contractual agreements in which performance in good faith is not expressly included, the two jurisdictions continue to treat good faith requirements differently, with the US requiring the performance of such contracts in good faith and England and Wales subsuming the issues in a good faith doctrine within many other contract law areas. Following an important recent case, a general duty of good faith may be implied into certain relational contracts in England and Wales.It has long been acknowledged that English law does not generally require a duty of good faith in the negotiation or performance of contracts (with exceptions for specialised types of contract such as employment contracts) Conversely, the duty of good faith is described from the beginning of a JD student's study of contract law as a per vasive concept within US contract law.1 One could therefore be forgiven for thinking that the two positions are irreconcilable. This conclusion, however, reflects form over substance. Many, if not most, of the concepts subsumed within the broad US construct of good faith have traditionally been reflected in English law on an ad hoc basis. In addition, a number of recent US and English law cases indicate that there may be more similarities in the treatment of good faith than was previously the case. The two systems are, inevitably, divided by a common language, but they are converging in several different ways.It is important to distinguish between the negotiation and performance of contracts when discussing the treatment of good faith in English and US law. This is significant, because much of the criticism of the concept of a good faith doctrine often blurs this critical distinction between pre contractual and post contractual duties. The treatment of good faith varies, in both jurisdictions, with respect to four different types of contract:1. agreements to negotiate in which negotiation in good faith is expressly set out in the document;2. agreements to negotiate in which negotiation in good faith is not expressly required;3. contractual agreements in which performance in good faith is expressly required in the document; and4. contractual agreements in which performance in good faith is not expressly required.Modern US treatment of good faithThe duty of good faith and fair dealing is set out in both the Restatement (Second) of Contracts (the 'Restatement' and the Uniform Commercial Code (UCC).2 This follows its modern reformulation by Robert Summers in 1968.3 The duty of good faith is, however, a relative newcomer to US contract law, as it did not appear in the first Restatement of Contracts, and was not recognised as a general duty in the common law.4 The general duty of good faith first appeared in US contract law on a national level in 1952, when the UCC was first published.5 In its modern formulation, section 1 304 of the UCC states, 'Ever y contract or duty within [the UCC] imposes an obligation of good faith in its performance and enforcement' and section 1 302(b) states: 'The obligations of good faith, diligence, reasonableness and care prescribed by [the UCC] may not be disclaimed by agreement'.6 The Restatement states: 'Ever y contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement'.7Neither the UCC nor the Restatement imposes a duty of good faith in the negotiation of contracts.8 The duty is mandated only in cases of performance and enforcement. There is no general duty in the US requiring good faith in the negotiation of contracts, although agreements to negotiate in good faith are statutorily required in some cases (such as between employers and labour unions) and many scholars have suggested that such a duty ought to exist.