The concept of good faith and the failed negotiations : a comparative study of the rules of the English law, American law and the U.N. Convention on Contracts for the International Sale of Goods.
This thesis deals with the concept of good faith and the failed
negotiations. It is a comparative and analytical study which
comprises of the analysis of the rules of three legal systems namely
English law, American law and the U.J. Convention on International Sale
The notion of good faith is similar to the doctrine of cu2pa-icontra.
bendo in civil law. This means that damages are recoverable
against the party whose 'blameworthy conduct' during negotiations for a
contract has caused it to be invalid or prevented its completion.
It is a general phenomenon that there is no general duty to
negotiate in good faith in English and American law. Relief for bad
faith negotiations is available only after the negotiations have
resulted in a contract, where a party's conduct during negotiations
has caused it to be invalid. This situation provides adequate remedies
under the established concepts e.g. fraud, misrepresentation, duress,
undue influence and unequal bargaining power.
However, this study deals only with the situation where the
negotiations fail to result in a contract, because of the bad faith
behaviour of either of the parties during the negotiations. The
research suggests that in such a situation relief may also be available
through the various notions of good faith applicable during the
negotiating stage, i.e. equitable estoppels, proprietary estoppel,
promissory estoppel, fraud and misrepresentation in the context of the
law of tort, restitution and implied-in-fact contract. Under the
American law it is comparatively easier to persue these goals because of
the acceptability of the notions of contract to contract, contract to
negotiate and the unified theory of estoppel, whereas English law is
still unwilling to accept these ideas.
Under the doctrine of equitable estoppel obligations may be
created on the basis of detrimental reliance which may in certain cases be equal to the expectation interest and in the others to the out-ofpocket-
expenses, depending upon the circumstances of the case. The
rationale behind the doctrine of promissory estoppel is similar to that
of proprietary estoppel. Both are equitable estoppels. Therefore, it
has been argued that there is not any logical or practical reason why
promissory estoppel should not also be capable of creating a cause of
Such a unified concept of estoppel would not cause the demise of
the bargain theory. Consideration will still remain an essential
ingredient in a contract; but alongwith this a new unified theory of
estoppel may be introduced to deal with those cases where bargain
theory does not apply. Thus, the creation of a cause of action
on the basis of promissory estoppel would merely be an addition to the
existing bargain theory. This argument has been accepted by some
American courts and the other common law countries e.g. Australia,
Canada and India. English law, particularly in lower courts, has also
tempted some advances in this direction.
The U.L Convention does not generally obligates the parties to
negotiate in good faith, Article 7(1) states that Nj the
interpretation of this Convention regard is to be had to ... the
observance of good faith .... However, Article 16(2) like the
Restatement (Second) of the Contract incorporates the notion of
promissory estoppel with a wider scope of its application. It seems
that Article 16(2) may be a useful tool in the context of duty to
negotiate in good faith.
This study concludes that although English and American law provide
some notions 1 of good faith, it is advisable for these systems to
introduce either a unified theory of estoppel or a general principle of
good faith negotiations (Culpa-ln-Contrabendo) which would achieve a
higher standard of behaviour from the parties.