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Good Faith In The Law Of Contract

3316 words - 14 pages

In the past, in many contractual dealings, has been to the detriment of the weaker party to a contract. This was due to the rigid application of contract law by the courts and its narrow view that all parties entering into a contract are aware of the terms and conditions of the contract that they have entered into. The courts today, have looked to this notion of ?good faith?, a concept that the courts believe is an essential element to be incorporated in all contractual dealings, for fairness and equal bargaining powers. Although, the High Court has never expressly stated, until recently that ?good faith? or ?fairness? is a general principle of Australian contract law, it is suggested that ...view middle of the document...

Ultimately what this imposes on party?s entering into a contract in the future is ?a general duty to act in good faith? Butterworths legal dictionary defines laissez faire as ?a free enterprise economic system devoid of governmental intervention, which allows market forces (such as demand, supply, prices and competition) to determine the operation of business and trading.? What laissez faire essentially meant, was ?to leave alone?. Essentially if a party came to the court to argue something that was not expressly stated in the contract there were no way the courts could imply the party?s intentions or fiduciary obligations to each other.This was due to the individualism or the free market enterprises in contrast to the complete Communist enterprise. Under the ?old view? in contract law using laissez faire a person should have the capacity to enter into a contract knowing what s/he is purchasing/contracting into. Due to the competitiveness of businesses and acting in the ?free market enterprises? it essentially became the survival of the fittest.The intellectual climate incorporating both legal, moral and economic duties allowed for the freedom of contract and the courts to only look at contracts in its expressed terms only, with no inferred terms, conditions or obligations. Essentially what this led to be, that large companies abused their legal positions by exploiting the weaker smaller parties involved.The freedom of contract meant under the ?old view?, a possibility to exempt oneself/company from liabilities and unfair dealings or the ability to take advantage of a weaker party if one existed. This occurred because it was hard for the courts to move away form the common law principles of Laissez Faire. Judges did not like exemption clauses, as there was no rule of law to indicate what to do with unfair exemption clauses. What judges could do if they found that the contract was against the fundamental principles of contract was to ?wind? and ?bend around? and exclude the clause in question, through the wording of ?clause not drafted correctly or ?it was not made aware to the weaker party?. It is important to note that they never used the word ?unfair? in there judgements.As apposed to the 19th century of interpreting contracts in its rawest form (ie. What the contract expressly stated), the Australian High court has shown recently that although the political nature of a free market enterprise is to encourage people to enter into contracts at their own discretion, the courts recently have moved away from the old approached and have introduced the concept of ?fairer dealing? and ?good faith? into contractual dealings.This change is generally characterised as a move away from the strict rules of the laissez-faire model to a model based on broader standards. Examples of these standards having a strong normative content are fair dealing, fulfilling reasonable expectations and unconscionability. An example of this was the incorporation of the...

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