It is not far-fetched to say that one of the most important episodes in the history of corporate bankruptcy in the United States is the collapse of General Motors and Chrysler in 2009. The auto industry has since recovered, thanks to billions of dollars provided by the government. But thousands of dealerships were not so lucky, as the automakers cut them off from their franchises. These events gave rise to extensive litigation throughout the United States. And though now largely forgotten, one of the claims raised in these cases was quite creative: that the automakers breached their contractual duty of good faith and fair dealing. This claim was emphatically denied by the court. But why? It had previously been argued that the duty of good faith aims to ensure fairness and the ethical behavior of contractual parties. However, the dominant position of the U.S. courts is that the duty does not prohibit self-centered behavior. As Judge Posner remarked, “[i]t would be quixotic as well as presumptuous for judges to [use] contract law to raise the ethical standards of the nation's business people.”
This Article critically reviews the story of one of those dealerships to illustrate that the debate over U.S. good faith needs a fresh perspective. Analyzing hundreds of clauses that sought to delineate the content of good faith in continental Europe, this Article demonstrates that there are clear connections between the common law fiduciary duty of loyalty and the civilian contractual duty of good faith. It illustrates how and when these duties play a similar role in tackling various challenges governed by private law, such as the need to prevent information gaps or deter exploitation. Shedding light on the similarities between these duties provides two notable contributions. First, it clarifies the value of formulating loyalty as an independent legal term and accordingly calls to reimagine civilian contractual relationships from a fiduciary law perspective. But, and importantly, this understanding provides unexplored justifications for also adopting in common law jurisdictions a more comprehensive concept of good faith, one that does not see contracts only as an egocentric, self-regarding legal tool. Revealing these connections therefore has the potential to change how good faith is perceived in the United States and accordingly lead to more coherent and just rulings.
About the Author
Yifat Naftali Ben Zion, Fellow, Harvard Law School, Program on Corporate Governance. Assistant Professor, Faculty of Law, Tel Aviv University (2024). For their very helpful comments, I thank Yehuda Adar, Marija Bartl, Molly Brady, Ignacio Cofone, Klaas Eller, Orit Gan, Andrew Gold, Matan Goldblatt, Claire Hill, Edward Janger, Thilo Kuntz, Arthur Laby, Chantal Mak, Crescente Molina, Ruth Plato-Shinar, Sharon Shakargy, Amitpal Singh, Henry Smith, and Oren Tamir; the participants of the Fifth Annual Conference of the Israeli Forum for Contract Law at the Zefat Academic College; the participants of the Private and Commercial Law Workshop 2021 at the Hebrew University of Jerusalem; the participants of the 6th TAU Workshop for Junior Scholars in Law; the participants of the ACT (Amsterdam Centre for Transformative Private Law) Seminar (March 2022); the participants of the 2022 Annual Fiduciary Law Workshop at Brooklyn Law School and the participants of the 2023 Project on the Foundations of Private Law at Harvard Law School. I am particularly thankful to Alon Jasper, Mirthe Jiwa, Martijn Hesselink, Amir Licht, and Eyal Zamir, who made extremely valuable comments. Lastly, I am grateful to the Sacher Institute for Legislative Research and Comparative Law at the Hebrew University of Jerusalem for its generous financial support.
Citation
98 Tul. L. Rev. 471