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Good Faith

“Good faith” is a principle in the Civil Code of Québec (“CCQ”) that applies generally to the exercise of civil rights[1] and universally to contractual relationships.[2] In Quebec civil law, good faith takes two dominant forms:[3] the first is a subjective conception of reality based on what one knows or does not know, and the second is an objective norm of behaviour.[4]

The first conception is based on actual knowledge and intention. It can be contrasted with bad faith, where there is malicious intention.a name="n5" href="#fn5">[5] An example of the first conception would be disbursements made in good faith, meaning that the owner did not know the disbursements were being made on someone else’s property.[6]

The contours of the second conception, “reasonable behaviour”, were drawn by the Supreme Court of Canada in Houle v Canadian National Bank, where the court accepted the theory of abuse of rights based on good faith.[7] The court held that rights are to be exercised in a “reasonable” manner, meaning that a right can be “abused” even if there is no malicious intention.[8] This principle is codified at article 7 CCQ.[9]

Good faith, in the context of contractual obligations, can take an active or passive form. Indeed, the requirement of good faith can impose a positive obligation in the formation, performance and extinction of the contract. Obligations of disclosure in both formation and performance of contracts[10] (which can trigger the rules on mistake),[11] obligations of loyalty[12] and cooperation[13] as well as implicit[14] and explicit[15] obligations associated with certain types of contracts are all examples of what can be an active obligation.[16] It must be noted that the obligation of loyalty is within the larger concept of good faith, and is distinct from the common law notion of fiduciary duty.[17] Good faith also limits contractual rights to what is reasonable in the contractual and social context, as established in Houle. This is reflected at articles 7 and 1375 CCQ. Finally, article 1434 CCQ, which includes in any contractual obligation “what is incident to” the contract “according to its nature and in conformity with usage, equity, or law” clearly illustrates that both positive and negative obligations can be a part of a contract without explicit consent to these obligations.

Civilian good faith must be distinguished from good faith in the common law, which is much more restricted in its application.  As a response to the historical opposition and anxiety from common lawyers towards a general principle of good faith,[18] the common law “has developed piecemeal solutions in response to demonstrated problems of unfairness”.[19] Common law courts, instead of abiding by a general principle such as that found in the CCQ, have introduced various concepts that apply to certain types of contracts. The principle of equity, the doctrines of mistake, misrepresentation, undue influence, duress, unjust enrichment and restitution are some examples, many of which can be found in statutes and regulations.[20]

The key difference between the common law principle of good faith and the civil law version is that the latter applies it to both the formation and performance of a contract, whereas the common law “enunciates the narrower view” that it is only applicable to the performance of the obligation.[21] The civil law sees a contract as a relationship between two parties that must be governed by good faith; therefore, the principle applies without question to the formation of the contract during negotiations, when the relationship begins.[22] In the common law, the contract is based on offer, acceptance and consideration and no contract exists until these elements are met.[23] As a result, the common law does not import good faith obligations in pre-contractual relationships (in the formation of a contract) because, to a common lawyer, no legal relationship exists until there is a contract. The option for one to sue in tort law remains and, as mentioned above, the common law has adopted doctrines such as misrepresentation to achieve the same ends (justice and equity) as the good faith principle in the civil law.[24]

[1] Droit des obligations (Montreal: Éditions Thémis, 2006) at para 1972 [Lluelles & Moore].

[2] Art 1375 CCQ; Jean-Louis Baudouin, Pierre-Gabriel Jobin & Nathalie Vézina, Les obligations, 7th ed (Cowansville, Que: Yvon Blais, 2013) at para 132 [Baudouin & Jobin].

[3]Louise Rolland divides these two forms into the “knowledge-ignorance” conception and the “duty-fault” conception [translated by author]. Louise Rolland, “La bonne foi dans le Code civil du Québec : du général au particulier” (1995-1996) 26 RDUS 377 at 383.

[4] Baudouin & Jobin, supra note 2 at para 132.

[5] Ibid at para 132.

[6] Ibid at para 132. See also arts 958, 959 CCQ.

[7] Houle v Canadian National Bank, [1990] 3 SCR 122, 74 DLR (4th) 577 [Houle].

[8] Ibid at 150-52. Reasonable behaviour is therefore evaluated objectively.

[9] Art 7 CCQ prohibits both malicious intention and the excessive, unreasonable exercise of a right.

[10] In National Bank v Soucisse, [1981] 2 SCR 339 at 355-358 and 363 , the court held that there is a contractual obligation to disclose, failure of which can result in an action not being receivable in a court of law  (fin de non-recevoir). A duty to disclose based on the principle of good faith also emerged from this judgment, as the bank’s “fault” was its failure to disclose the existence of letters of suretyship to the deceased’s heirs and proceeding to extend further loans. See also Lluelles & Moore, supra note 1 at paras 2003, 2005.

[11] Brigitte Lefebvre, “Liberté contractuelle et justice contractuelle: le rôle accru de la bonne foi comme norme de comportement” in Développements récents en droit des contrats, vol 129 (Cowansville, Que: Yvon Blais, 2000) 49 at 68.

[12] Baudouin & Jobin, supra note 2 at para 161 and Lluelles & Moore, supra note 1 at para 1979.

[13] Baudouin & Jobin, supra note 2 at paras 162-163 and Lluelles & Moore, supra note 1 at paras 1997-2003.

[14] Baudouin & Jobin, supra note 2 at paras 434-435. The purpose of implicit obligations (as well as the principle of good faith more generally) is to protect the weaker contracting party from exploitation.

[15] Some obligations have been codified, such as the employee’s obligation to act faithfully and honestly towards his employer (art 2088 CCQ) and the insured’s obligation of utmost good faith disclosure towards the insurer (arts 2408-10 CCQ).

[16] It should be noted that most obligations can take both an active and a passive form. For example, the obligation of loyalty may be a negative obligation to act without malicious intention or a positive obligation of honesty.

[17] An obligation of loyalty is usually imposed in relationships where trust is key, such as the contract for services or contract of mandate.

[18] William Tetley, “Good Faith in Contract Particularly in the Contracts of Arbitration and Chartering” (2004) 35 J Mar L & Com 561 [Tetley] (“[t]he opposition among common lawyers to a general good faith duty is generally rooted in the persistent anxiety that importing such an overriding principle into the common law, particularly as applied to pre-contractual bargaining (as opposed to post-contractual performance), would result in cases being decided on subjective standards of morality and fairness, thus giving rise to uncertainty, the bane of commercial law.” at 570).

[19] Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, [1988] 1 All ER 348 at 353, Bingham LJ (UK (CA)).

[20] Tetley, supra note 1820 at 571-79.

[21] Ibid at 567.

[22] Ibid.

[23] Ibid.

[24] Ibid at 571-79.