ABSTRACT
The law of contracts is founded upon mutual good faith of the parties. Every transaction is inherently risky, and contracts function as tools in aid of better planning by the contracting parties. In other words, contract law supplies the contracting parties with much-needed clarity of information, enabling them to undertake risky ventures for mutual gain; transactions are efficiently carried out on the basis of the relatively secure knowledge that all rights and obligations are enforceable under the law. It therefore follows that the law demarcates standards of care that must be observed by the parties in the course of any transaction. In this regard, the obligation of ‘good faith’ is taken as a thumb rule, a common minimum, in the process of allocation of risks and costs between the parties. A constant rule of contractual interpretation in the form of good faith obligations acts as a ‘safety net’ for parties of varying levels of sophistry and enables them to deal with one another without undue suspicion. In other words, this legal standard imposed seeks to level the playing field for parties with unequal bargaining strengths. In a recent judgement, the Delhi High Court affirmed
the fiduciary principle of every contract containing an implied covenant of good faith and fair dealing because in every contract each party reposes trust and confidence in the other, that each would refrain from doing anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. 1
