What is Good Faith?

Good Faith is, “an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious.” (Black’s Law Dictionary 822. 4th Ed. Rev. 1968). Good faith is a broad term that describes general honesty in dealing and communication.

More specifically, good faith can refer to a party acting with an honest intention not to behave unfairly or fraudulently. In contract law, good faith implies that parties will deal with each other honestly and fairly, and stick to agreed-upon terms. In negotiation, acting in good faith would mean communicating honestly, without ulterior motives. Parties are required to act in good faith in many legal systems. If they do not, they may be penalized. 

Cases such as Waugh v. Prince have simply taken acting in good faith to be acting, “Honestly, without fraud, collusion or deceit; really, actually, without pretense.” There is an assumed trust between negotiators, as well as between insurers and policyholders. Acting in bad faith would be one party taking advantage of that trust, and using it to defraud or cheat another party. Acting in good faith is important not only in business dealings or insurance, but in the legal system as well.