Tuesday, April 3, 2012

The Principle of Good Faith in Contract

What does Good Faith mean in contract matter?
We would like to quote the article from Free Market Book that talked  about the definition of Good Faith.

Good Faith Dispute -- If the amount of the debt is in dispute in good faith between the parties, the debt is canceled if the creditor accepts a lesser sum in full settlement of the debt. The basic idea behind this exception is that the law wants to encourage parties to resolve genuine disputes as quickly and easily as possible.

DEFINITION: Good faith is almost impossible to define exactly, but it generally includes a party’s honest belief and conduct, and a lack of malice or intent to seek an unfair advantage. In this situation involving a debt, “good faith” would basically mean that the parties have an honest difference of opinion about the correct amount of the debt. But if one party knows that the other party is correct about the amount of the debt, yet continues to claim otherwise, then there is no good faith dispute. For example, in Case Study 98, suppose Channo and his uncle had a genuine, good faith dispute as to the amount of the debt. In that case, there would be consideration for the uncle's agreement to accept a sum less than he claimed was due as the final amount. The reason is that, in agreements like this, one party (the creditor) gives up the legitimate right to take his claim to court, and often accepts less money than he originally claimed. In return, the other party (the debtor) often gives new consideration, by promising to pay some amount he did not previously admit to owing. Of course, if either party agrees to settle the dispute on exactly the terms the other party wants, there does not appear to be any legal detriment to the party who is getting everything he wants! In that situation, it appears the settlement would generally still be enforceable despite the lack of consideration, presumably because the law simply wishes to promote the settlement of disputes.

This kind of settlement and payment may actually be a "substitute contract" or an "accord and satisfaction," at least in some common law jurisdictions. These are both types of later agreements of the parties which substitute a different duty for one owed under the original contract. They can actually result in the discharge of the prior contract duties. The basic difference between these two is that a substitute contract immediately discharges the duties owed in the contract it replaces, whereas an accord agreement merely suspends the prior duties until it has been performed (the satisfaction). Many jurisdictions say that where it is not clear which of these two types of agreements the parties have made, and the subject of the new agreement is a disputed debt, the court should assume the parties created a substitute contract. These ideas will be discussed in more detail in Chapter 9 ("Performance and Discharge of Duties"), 9.7c and 9.7d.

FACTS Several months ago, Channo borrowed $100 from his uncle. Channo has managed to repay $30 of the debt since then. But Channo is a student, and he is struggling to finish his studies and repay his uncle at the same time. In fact, Channo is thinking of leaving university before he is finished and taking a job, so he can repay his uncle more quickly. But when Channo's uncle finds out that Channo may abandon his
studies, the uncle is very worried. So the uncle goes to see his nephew and tells him that he will accept the $30 Channo has already paid as full payment of the debt. The uncle says that this means that Channo will not have to repay the remaining $70 to his uncle.

QUESTION OF LAW Is Channo still legally obligated to repay the remaining $70 to his uncle?
DECISION Yes. Under the general common law rule, Channo is still obligated to repay the remaining $70 he borrowed from his uncle.
The part payment of a debt is generally not consideration to support the creditor's promise to cancel the balance of the debt. In this case, Channo's uncle has made such a promise to Channo. This is not an enforceable promise.

The reason is that Channo has no new legal detriment, despite his uncle's promise to accept the $30 Channo had already paid as full payment of the $100 debt. In fact, while the uncle promised something new--to accept only $30 instead of the full $100 Channo owed--Channo did not promise anything new. In fact, Channo has provided no new consideration. So in this case, Channo still owes his uncle $70.

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 ព្រឹតិ្តបត្រច្បាប់កម្ពុជា (ព ច ក)គឺជាក្រុមឯករាជ្យ និងមិនមែនជាបក្សនយោបាយទេ ជាក្រុមស្ម័គ្រចិត្តដែល ធ្វើការ​ សម្រាប់ធ្វើ ការផ្សព្វផ្សាយអំពីច្បាប់ និងព័តមាន ដែលទាក់ទងនឹងការអភិវឌ្ឍ និងស្ថានភាព សិទ្ធិមនុស្សនៅកម្ពុជា។ រាល់មតិ យោបល់នៅក្នុងព្រឹត្តនេះមិនអាចយកទៅធើ្វជាអំណះ អំណាង ចំពោះមុខ តុលាការ រឺក្នុងគោលបំណងអ្វីផ្សេងទៀត ឡើយ។ ព​ ច ក​ គ្រាន់ផ្តល់នូ​វ​ចំណេះដឹងច្បាប់ និងចំណេះដឹងផ្សេងៗទៀតដល់ប្រជាពលរដ្ឌប៉ុណ្ណោះ។ ប្រសិនលោក អ្នកចង់ដឹងព័តមានបន្ថែមអំពី ព ច ក សូមផ្ញើអីម៉ែលមកយើងខ្ញុំ។​ យើងខ្ញុំសូមស្វាគមន៌រាល់មតិលំអដល់ ព ច ក៕
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