Supplementation of Contract and Good Faith

Supplementation of Contract and Good Faith

This topic is crucial in both Europe and the US, focusing on the role of good faith in contractual obligations.

Good Faith: An Overview

• Good faith supplements contracts by adding implicit obligations that aren't explicitly written.
• Example: Purchasing a computer with a delivery clause.
  • The contract states delivery within 3 days, but doesn't specify the condition upon arrival.
  • Delivering a computer in the rain without ensuring the buyer is home technically fulfills the contract but violates good faith.
• Good faith requires extra effort to protect the contract's interests, which cannot be fully predicted.

Civil Law Jurisdiction

• Supplementation of contract (integrazione del contratto): If no gap-fillers are found in codes or statutes, the contract is supplemented.
• Art 1374 (Supplementation of Contract):
  • Parties are bound not only by the contract but also by law, usage, and equity.
  • Equity is synonymous with good faith in this context.
  • Art. 1374: \text{Obligations} = \text{Express Agreement} + \text{Law} + \text{Usage} + \text{Equity}
• B&B PERFORMANCE ACCORDING TO GOOD FAITH:
  • Debtor must perform in a way that complies with good faith requirements settled in usage.
• CODE NAPOLEON, art 1104:
  • Contracts must be negotiated, formed, and performed in good faith.
  • This is a matter of public policy, making it a mandatory rule.

Public Policy and Mandatory Rules

• Rules considered a matter of public policy are mandatory.
• Interpretation of rules is crucial to determine if they are mandatory.

Good Faith in Negotiations

• Example: Lufthansa and Airbus negotiating a plane contract.
  • If Airbus withdraws after months of negotiations, it may be against good faith unless justified.
• Good faith applies to both negotiating and contract performance.
• Sometimes, good faith is overused.

Good Faith in Common Law

• Original common law was skeptical of good faith due to its impact on legal certainty.
• Values behind contract law prioritize legal certainty, which good faith jeopardizes.
• A contract without good faith is considered more certain.
• Traditional common law limits good faith to specific contracts like fiduciary or commercial contracts.

English Common Law

• No general principle of good faith in contract law.
• Parties maintain an adversarial position during negotiations and performance, except in cooperative contracts and fiduciary relationships.
• Lord Hodge's quote emphasizes continuity and stability in contractual interpretation, rejecting good faith for certainty.

American Common Law

• Significant role of good faith, especially in contract performance.
• Similar application in other common law jurisdictions like Australia and Canada.
• American common law aligns more closely with civil law in this aspect.
• UCC SECTION TO 1-203:
  • Imposes an obligation of good faith in the performance or enforcement of every contract.
  • \text{UCC Obligation} = \text{Good Faith in Performance} + \text{Good Faith in Enforcement}
• Restatement of Contract Second:
  • Imposes a duty of good faith and fair dealing on each party's performance and enforcement.
• Restatements are soft laws
• Supplementation of contract means parties are bound by more than just the contract itself; good faith has evolved differently.

Case Study: YAM SENG LTD VS INTERNATIONAL TRADE CORPORATION

• ITC granted Yam Seng exclusive rights to distribute