Decomposing Bhasin V. Hrynew: Toward an Institutional Understanding of the General Organizing Principle of Good Faith in Contractual Performance

Abstract

In Bhasin v. Hrynew, the Supreme Court of Canada recognizes good faith in contractual performance to be a “general organizing principle” of the common law of contract. The true impact of Bhasin on the future development of the Canadian contract law remains the subject of considerable debate among legal scholars and practitioners. This essay explores Bhasin’s evolutionary impact on the Canadian common law of contract, by providing an institutional understanding of the general organizing principle of good faith in contractual performance. This paper’s central thesis is that Bhasin’s contribution to the common law of contract is institutional rather than substantive: Bhasin fundamentally alters the organization of the sources of contract law by introducing a new lawmaking mechanism (i.e., “lawmaking through good faith”) that is separate from and potentially supersedes the traditional doctrine of precedent.

To support the central claim that Bhasin’s contribution is institutional rather than substantive, I employ three different kinds of arguments that correspond to three distinct, but closely related dimensions of the principle of good faith in contractual performance:

1) semantic structure,

2) historical origins and

3) economic function.

Although these three lines of inquiry rest on quite different methodological premises, they converge in supporting the central idea that good faith performance is best understood as an institutional mechanism to allocate lawmaking power rather than a substantive legal principle.

Keywords: good faith, sources of law, legal reasoning, doctrine of precedent, economics of law-making

JEL Classification: K12