Many American attorneys will recall the Wood v. Lucy, Lady Duff Gordon case as an illustration of the "good faith" principle in American contract law. In short, the concept meant simply that there was an implied promise within a contract that a party will use its best efforts to fullfill its terms.The "good faith" concept exists within many other legal systems, but its implications can be much farther reaching. This is particularly true in civil law jurisdictions such as the Netherlands, Germany and Switzerland where the good faith principle may impact a contractual relationship in ways Americans would never think possible. As an example, good faith considerations are used in some European jurisdictions by courts or arbitrators to amend or completely override express contract terms. The good faith concept has also been used in the Netherlands as a basis for extending pre-contractual liability to parties who have engaged in negotiations but have not yet agreed to a deal (this liability is not based on reliance or promissory estoppel).
Good contract drafting and the use of letters of intent or memorandums of understanding can help parties involved in cross-border relationships avoid unexpected results. Nevertheless, the interpretation of the "good faith" concept is a major difference between contract law in many European civil law jurisdictions and the United States.
