Friday, November 14, 2014

The Prosocial Contract

On November 13, 2014, the Supreme Court of Canada substantially changed Canadian contract law.  In Bhasin v. Hrynew, the unanimous Court mandated that parties to contracts play nicely with each other.  Until now, the Court complained,

Canadian common law in relation to good faith performance of contracts is piecemeal, unsettled and unclear.
Writing for the Court, Justice Thomas Cromwell concluded
from this review [of contract law doctrine] that enunciating a general organizing principle of good faith and recognizing a duty to perform contracts honestly will help bring certainty and coherence to this area of the law in a way that is consistent with reasonable commercial expectations.
Cromwell then explained the new legal standard of  Canadian contract law:
I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step.
Dudley Do-Right would approve.