[JURIST] The Supreme Court of Canada [official website] ruled [judgment] Thursday that a term of good faith performance is now an implied requirement in all contractual agreements. The court found that Canadian courts’ resistance to ruling on the issue of good faith performance in contracts has created an “unsettled and incoherent body of law … which is difficult to analyze.” The court laid out two steps to resolving the issue:
The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.
The court determined this outcome was desirable because the common law addressing good faith performance in contracts is uncertain and incoherent, and this ruling brings the law in line with the expectations of parties entering into contracts. This creates a new general duty of honesty, barring misleading information directly related to contractual agreements. In its ruling the court also refuted possible arguments, saying this does not interfere with the freedom of contracts and does not pose any risk to the certainty of commercial contracts.
The court ruled that the defendants breached a duty to perform honestly.The plaintiff in this case, Harish Bhasin, worked as an enrollment director, through his business, for Canadian American Financial Corp. (Can-Am), now Heritage Education Funds Inc. [corporate website], and established a solid sales base over the previous 10 years. Larry Hrynew, another dealer for Can-Am, was interested in taking over Bhasin’s sales base. Bhasin’s 1998 contract with the company contained an automatic three-year renewal, except with a six-month written notice. Can-Am repeatedly misled Bhasin about Hrynew’s position, a possible merger, and the confidentiality of his business records, but there was evidence that before June 2000 Can-Am already had plans in place to restructure the agencies and have Bhasin work under Hrynew. In May 2001 Can-Am gave notice Bhasin to terminate their 1998 contract. As a result, Bhasin lost the value of his business and the workforce he had organized for his agency. Bhasin’s lawsuit was filed against both Hrynew and Can-Am, and damages were awarded to Bhasin for the value of the business in 2001.