1. Introduction

‘Still, the lesson is there, and the Code's concepts of good faith performance and commercial reasonableness await development, even beyond the bounds of the Code, at the hands of resourceful lawyers and creative judges.’ This quotation from Professor Farnsworth carries with it a great deal of insight into a very complex term.
Upon the birth of the General Principles of Civil Law of the People’s Republic of China [“GPCL”] and the accession into the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) in the late 1980s, there was a heated debate on good faith and relevant issues in China for both the GPCL and the CISG had something to do with good faith.
The globalization of the economy accelerated in the course of the past decade and China was admitted into the WTO in 2001, hence promoting its integration of its three separate contract laws into a uniform contract law embodying the norms of good faith to meet the changed and still changing economic situations. The advent of the Chinese Uniform Contract Law ["UCL] in 1999 brought about a fresh round of deep concern over the concepts and functions of good faith and its institutional safeguard.
Unfortunately, both the CISG and the Chinese law from the GPCL to the UCL have failed to alleviate the ‘deep concern’. In the past fifteen years since the CISG took effect as a working document governing international sales between contracting parties, many questions have arisen concerning the uniformity the CISG sought to build. One concern in particular deals with the requirement of good faith under the CISG. Many commentators have observed the existence of good faith as a principle articulated in the CISG. However, the CISG fails to adequately define what good faith requires. Many have come to believe that the definition of good faith under the CISG should and will be supplied by each country's domestic law. However, this method of defining good faith fails to secure the uniformity desired by the CISG. In drafting the UCL, the Chinese legislators referred extensively to the CISG and for this reason or any other the UCL has not given an express determination to good faith.
All these can demonstrate that the value of good faith has been recognized by international conventions such as the CISG and domestic laws such as the UCL, and they can also show the fact acknowledged by scholars ‘that good faith is an elusive term best left to lawyers and judges to define over a period of time as circumstances require.’
The elusiveness of good faith has given rise to endless controversies and much perplexity among academics, who have been consequently divided into two schools, one of which holds that the ambiguity of good faith functions more efficiently than the certainty of it for at least a vague term is better than an open one in a vacuum, which is where good faith under the CISG currently stands , but the other of which takes the opposite stand.
Whatever favorable effects it might bring, the vagueness of good faith itself is a dually-oriented arrow that may lead its followers to the west or the east, inevitably resulting in the de-functioning of good faith as an ‘imperial principle’ that may mislead parties into a flirting attitude in establishing, changing or terminating civil rights or obligations for any party is supposed to entitled to ‘call off’ his conduct on the basis of an excuse of opponent’s breach of good faith. From this it can be said that ‘it is curious for a notion that is inherently vague and, in many of its applications, not necessarily mandatory. Where it is not mandatory, it is perfectly capable of being overruled or curtailed, at least in its consequences, especially by professional parties among themselves’ . It is obvious that the sound function of good faith calls for a sound determination by the legislature and corresponding institutional safeguard.
This essay attempts to define what is meant by the term good faith from a comparative perspective (part 2), and then make a comparative survey and evaluation of what institutional safeguard to the realization of good faith the CISG and the UCL can provide (part 3). And finally some proposals are put forward for the improvement of the determination and its institutional safeguard in the CISG and the UCL.
2. The Notion of Good Faith
Linguistically, good faith stands for honesty. An act carried out in good faith is one carried out honestly. Indeed, the words good faith, which are so frequently used in common parlance, and in the written text of the law, on the apparent assumption that everybody understands what they mean, prove in fact truly difficult to understand. Perhaps a paraphrased version of a celebrated expression of a justice of the U.S. Supreme Court in a well-known case involving a quite different subject is apropos: Some things can be readily recognized with certainty even though they can't be defined.
A question thus arises whether good faith has one or several meanings - whether it is a single concept of vast generality that shows its various aspects according to the particular piece of legal reality that falls within its purview, and to which it is applied, or whether it is actually a common label for more than one concept.
It has been said that, in a legal context, good faith has both a psychological and an ethical component. The former would consist of a belief that one is acting according to the law, and is designated as good faith-belief. The latter would consist in conducting oneself according to moral standards, and is designated as good faith-probity, or good faith-honesty, and is germane to ideas of loyalty and respect for the pledged word.
In fact, Good faith differs in its scope and application depending on which legal tradition governs the particular commercial transaction. Civil law states tend to use a more expansive approach to the good faith obligation, applying it to both contract formation and performance. Common law states prefer a more narrow good faith duty applicable only to contract performance. The socialist countries of the past also relied on good faith principles in commercial transactions.
2.1. The Notion of Good Faith in Civil Law
The civil law approach to good faith is derived from a general philosophy of contract that focuses mainly on the relationship between the parties. This type of focus promotes a good faith obligation before a contract even exists between the parties.
However, the basis of each countries' good faith obligation varies. Technically, references to good faith may be found in civil law codes, in Germany especially in section 157 and 242 BGB (but reference may also be made in this connection to sections 119,138,157,226,242, 325,812 BGB), in France in Articles 1134 and 1135 CC, in Italy in Articles 1337,1366 and 1375 CC, and in the Netherlands in Articles 6.2 and 6.248 CC. As we already saw, it is increasingly used as a general concept in the interpretation, supplementation and sometimes correction of the parties’ intent or the clear wording of an agreement, More generally, it is often use (also outside contract law) to relate better facts to the norm whilst selecting and reformulating both and then also affects statutory interpretation. In the formation of the contract itself, reliance plays in this approach a most important role. Article 1337 of the Italian CC specially refers here to good faith requirements. Good faith is now also important in the performance of contracts, especially in relation to weaker parties but no less in the formation of excuses when for example force majeure or hardship is invoked or where punctual performance would become unconscionable. Good faith may also play a role in the avoidance of the contracts for reasons of misrepresentation or mistake. It is increasingly used in implying pre-contractual (disclosure and negotiation) duties. It may also lead to pre-contractual re-negotiation duties.
2.2 Good Faith in Common Law
English law does not use the concept of good faith in any general manner, but at best as an implied condition moderating intent and then often wrapped in terms of reasonableness or in what a reasonable man would do, although the concept is more independently acknowledged in insurance contracts (which are uberimae fidei). English law, instead of using the good faith concept, sometimes uses the reliance notion to determine the existence of the contract and the rights or duties of the parties thereunder and it is also well known for its resort (sometimes) to implied terms of reasonableness.
Fortunately one can find ‘the most prominent example of a good faith requirement in a common law state exists in the Uniform Commercial Code of the United States (‘UCC’). As to the volume of norms, good faith requirements are found in some fifty separate provisions of the UCC. Section 1-203 of the UCC imposes an obligation of good faith in the performance and enforcement of every contract. The term good faith is defined as "honesty in fact in the conduct or transaction concerned." The UCC further elaborates on its good faith requirement by explaining what constitutes bad faith: "failure to perform or enforce, in good faith, a specific duty or obligation under the contract, which constitutes a breach of that contract or makes unavailable, under the particular circumstances, a remedial right or power." The UCC also provides a higher standard of good faith for merchants by requiring them to abide by reasonable commercial standards for their trade.’
The United States is not the only common law country to recognize the need for good faith in commercial transactions. Although Australia does not yet have a similar concept of good faith, many Australian commentators have suggested that Australian contract law is headed toward recognizing good faith. In establishing a duty of good faith, Australia is following the good faith model utilized throughout the world.
Canada has also expressed an interest in establishing a doctrine of good faith contract performance. Two studies conducted in Canada concluded that there is a need for a good faith standard for performance in contracts of sale. The reports recommended the adoption of a good faith doctrine very similar to that set forth in the Restatement (Second) of Contracts.
To sum up, good faith surfaces in common law states as a contract performance and contract enforcement doctrine. Although the application may be different under the common law, the meaning is essentially the same as in civil law states. Good faith requires parties to perform their obligations under the contract fairly, honestly, and in a manner acceptable in their trade or business.
The twentieth century has witnessed a dramatic rise in the scholarly and jurisprudential concern with good faith. For this fact there are various reasons, inter alia, the first is simply that the German and Swiss civil codes, which introduced into the legal world a nontraditional and expanded idea of good faith, were enacted, precisely at the dawn of this century. In addition, at the outset of the century the social, political, and economic changes brought about by the First World War challenged Western legal systems, while throughout the century new legal problems constantly arose, brought about by new ways of life and new practices. Moreover, good faith was assigned a leading role in many statutes later enacted in response to those challenges.

Good faith was thus liberated from its confinement within the law of performance of contracts and prompted, or perhaps forced, to cast its shadow, or rather its light, upon other contractual stages - but even within its traditional ambit, contractual performance, the role of good faith was expanded. As expressed by a prominent French writer, well into the twentieth century, the emphasis once placed upon the individual end pursued by each of the parties to a contract has been shifted to the end pursued in common by all of them, as if every contract were a joint venture - almost a partnership - where the idea of opposed interests dividing the parties must yield to the idea of a certain union of interests among them, so that, insofar as the expected performance is concerned, an obligee is no longer a creditor without more, but may also become the obligor of an obligation to cooperate in the attainment of the parties' mutual, or common, ends, which need no longer be accomplished solely through the means originally conceived by the parties, but may also be achieved by other means supplied either by the inferred will of the parties or by judicial fiat, which, in a way, opens a door to the judicial modification of contracts.
Therefore, it can be concluded that the duty of good faith can be defined as an expectation and obligation to act honestly and fairly in the performance of one's civil duties. A certain amount of reasonableness is expected from the dealing parties. This definition is international in character and captures the essence of various domestic definitions embodied in the civil law and common law.
3. Good Faith in the CISG and the UCL
3.1. Good Faith in the CISG and the UCL Principles

Although there are obvious differences between the CISG and the UCL Principles regarding the wording of good faith, the text of both are, in essence, in agreement. The principle of good faith is mentioned in Article 7(1) of the CISG. Article 7(1) emphasizes that the CISG should be interpreted as a uniform international law text. According to article 7, the CISG is to be interpreted as promoting "the observance of good faith in international trade." The CISG, however, does not contain an express provision providing that individual contracts must obey the maxim of good faith. It is common ground that under the CISG the good faith principle, in addition to the parties' contractual relationship, applies to the interpretation of the individual contract.

Unlike the CISG, the UCL Principles address good faith as a principle directed to the parties of domestic and international contracts "[t]he parties must act in accordance with the principle of good faith, whether exercising rights or performing obligations."
3.2. The Contents of the Good Faith Principle

Under the CISG Principles, the applicable concept of good faith is not based on any specific national good faith concept, but rather it is based on an international trade standard. Texts expressly stress this idea. ‘An international standard of good faith may already exist, and may clearly be defined, at least in business branches where there is a long-standing tradition. Should an international standard not exist, it remains to be developed by business circles, arbitrators, and courts, and, for instance, in new and modern trade branches like telesales.’
There are at least five articles regarding the term of good faith under the UCL, but the definite concept of good faith cannot be found. Fortunately article 6of the UCL provides the scope of the good faith: ‘The parties shall abide by the principle of good faith in exercising their rights and performing their obligations.’ That means the good faith principle is applied to every stage of contracting process including the formation, performance, change and termination of a contract.
Under the UCL Principles, the behavior of the contract parties is the object of the maxim of good faith and fair dealing. The parties’ conduct is regulated because they shall act in accordance with the maxim. Under the CISG, the object of good faith is not as clear . Nonetheless, the CISG intends to secure that sales contracts between parties from different countries are governed by the good faith principle. To be specific, while the CISG’s only explicit reference to good faith is directed at those charged with the interpretation of the Convention, many of the provisions directed at parties to CISG contracts would be rendered meaningless without recognizing a general good faith obligation. These "implicit" good faith duties stem from two primary sources: 1) domestic law of individual member states, which can be evidenced by article 4 of the CISG , and 2) provisions of the CISG which inherently require the parties to conduct themselves in good faith.
3.3.Specific Rules of Good Faith

Both the CISG and the UCL Principles provide a number of rules specifying the meaning of good faith in certain situations. Although the CISG constitutes the more specific regulation concentrating on a single type of contract, it is the UCL Principles' general character that contains more provisions and more detailed provisions on good and bad faith.
3.3.1. Pre-Contractual Obligations in the Negotiation Process

The CISG addresses the pre-contractual phase indirectly in article 16(2)(b). Article 16(2)(b) provides that an offer is irrevocable, if the offeror created a situation where the offeree reasonably relied and acted on the offer as irrevocable. Article 19(1)(ii) of the UCL, with identical wording, adopted the same rule. The binding effect of such conduct, that is, where conduct is relied and acted upon, emanates from the good faith principle that no one should take advantage of acts or situations which are irreconcilable with his prior conduct.

Unlike the CISG, the UCL establishes a further duty not to continue or break off pre-contractual negotiations in bad faith. According to article 42 of the UCL, it is bad faith when a party starts or continues negotiations while ‘intentionally concealing a material fact relating to the conclusion of the contract or supplying false information’and ‘any other conduct which violates the principle of good faith.’ The good faith principle thus demands fair negotiations with an intent to reach agreement. Misuse of the negotiation process to the detriment of the other party offends the standard of good faith declared in the UCL.
3.3.2. Contract Formation and Modification

Under both the CISG and the UCL, a contract and its alteration need no form in order to be valid. Unless the written contract contains a 'no oral modification' clause or is required as to the provisions of law, any modification must be in writing or as agreed upon by the parties. To this exception, the CISG, allow an identical sub-exception grounded on the good faith principle: "a party may be precluded by its conduct from asserting such a clause to the extent that the other party has acted in reliance on that conduct." In contrast, there is no such or similar exception precluded by the conducts of parties.
3.3.3. Material Validity

Unlike the UCL, the CISG does not govern the validity of a contract. The UCL does, however, apply the concept of good faith to questions of material validity of a contract.

3.3.4. Contract Interpretation

The UCL expressly provide that contract interpretation must be guided by good faith. Under the CISG, the same solution should prevail. Article 7, speaks not only to the parties but to anyone in a position to interpret the legal effects of the Convention (e.g., a judge or arbitrator).
3.3.5. Express Contractual Obligations

Several provisions of the CISG that deal with the parties' statutory obligations contain good faith elements. The UCL, as a general regulation for all kinds of contracts , contain no comparable specific obligations.

3.3.6. Implied Obligations

The UCL states that contractual obligations may be implied under the maxim of good faith. The CISG does not contain a comparable rule. Nevertheless, it is widely accepted that under the CISG, additional obligations can be implied, and in particular, a general duty to cooperate.
3.3.7. Non-Performance Caused by Creditor

The CISG states that a "party may not rely on a failure of the other party to perform, to the extent that such failure [that] was caused by the first party's act or omission." However, the UCL contains no such provision.?

3.3.8. Mitigation of Damages

An aggrieved party cannot claim damages for losses that could have been avoided. The aggrieved party should not profit from its own omissions. Although worded differently, both the CISG and the UCL contain mitigation rules. Under the UCL, an aggrieved party's damages claim is reduced where the aggrieved party failed to mitigate and that failure was casually connected with the loss. The CISG mitigation formulation is discretionary, allowing damages to be reduced "in the amount by which the loss should have been mitigated."
3.4. Evaluation of the Institutional Safeguard
From the above survey of the institutional norms regarding good faith embodied in the CISG and the UCL, it can be concluded that both the CISG and the UCL have failed to give an applicable determination to the notion of good faith , which has been done, even far from satisfactory, directly or indirectly in laws adopted by civil law states and common law states , and moreover both the CISG and the UCL can not provide adequate institutional safeguard to meet the functional need of good faith as an ‘imperial clause’ to fill up the legal loopholes.
The foregoing conclusion can find good expression in the following:
3.4.1 The absence of conceptualizing good faith
It is true that the greater ambiguity of a term can cover a wider scope of its application but more problems will inevitably arise if a term is too vague to be identified by parties or disputes settlers. It is for this reason together with others that the kernel idea of good faith has been given a workable determination by civil institutions both in civil law jurisdictions and common law jurisdictions. Unfortunately, both the CISG and the UCL contain no definition, of any degree, to good faith.
3.4.2 The Structural defects
It is worthy of appreciation that good faith has been institutionalized as a principle both in the CISG and the UCL. However, the provisions concerning good faith have not been well designed to form a sound structure to safeguard the function of good faith and in this respect the UCL has done better that the CISG. For example, article 6 of the UCL provides that good faith as a basic principle is only applied to the situations where parties exercise their rights and perform their duties while article 7 (1) of the CISG can only be regarded as a principle applied to the interpretation of the convention itself. The notion of good faith has been relatively more emphasized in the General Provisions and has been greatly lower-voiced or silenced in the Specific Provisions by the designers of the CISG and the UCL, to be frank, the latter better done than the former.
4. Some Proposals for the Improvement
4.1 A Proposed Multi-tiered Determination
It has been widely accepted across the jurisdictions of civil law and common law that good faith refers to an expectation and obligation to act honestly and fairly in the performance of one's civil duties , and, to be specific, the notion of good faith embodied in the CISG and the UCL should covers such sub-conceptions as (i). good faith communication, (ii)demanding of parties to refrain from conduct knowingly calculated to frustrate the contract and (iii) good faith effort to save the contract or mitigate damage resulting from breach. That is to say, The implicit obligation to communicate in good faith often centres on the affirmative duty to speak up when remaining silent would put the other party at an unfair disadvantage. Another general principle of good faith — the obligation to refrain from conduct designed to frustrate the purposes of the contract — is better conceptualized as a negative obligation, i.e., a duty not to act in a manner inconsistent with the agreement. As in the previous section, much of the "conduct" described in this section turns on communication between the parties. However, the conduct described here must be distinguished conceptually in that it is tied to a different sort of good faith communication obligation — the obligation to communicate in a manner consistent with one’s actions so as to avoid the purposeful frustration of the contract.
4.2. A More Adequate Better-structured Provisions
First and foremost, in the General Provisions of the CISG and the UCL there should the provisions regarding the definition of good faith should be placed and after that there goes the provisions concerning good faith as a general principle applicable to every stage of civil activities and relevant disputes-settling conducts and the above three major aspects good faith should govern. And most important is that in the Specific Provisions of the CISG and the UCL there should be sufficient rules covering (i) good faith communication, (ii)demanding of parties to refrain from conduct knowingly calculated to frustrate the contract and (iii) good faith effort to save the contract or mitigate damage resulting from breach..
5. Conclusion
The notion of good faith, as it is a elusive term, permeates the laws across the civil law jurisdictions and the common law jurisdictions. Good faith has also taken a prominent position in the CISG and the UCL but an applicable determination of good faith is absent both in the CISG and the UCL and adequate better-structured provisions regarding the definition and application of good faith are greatly needed in the CISG and the UCL.
From the analyses above, it may well be concluded that good faith indicates an expectation and obligation to act honestly and fairly in the performance of one's civil duties and it should be established in the General Provisions as a basic principle that covers (i) good faith communication, (ii) requiring parties to refrain from conduct knowingly calculated to frustrate the contract and (iii) good faith effort to save the contract or mitigate damage resulting from breach, and that can be applied to every stage of civil activities including dispute-settling. Accordingly adequate rules concerning good faith should be set up to safeguard the realization of its function.

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