Good Faith: Definition, Example and Related Terms
What is Good Faith ?
For example, when two companies enter into a negotiation, they are expected to negotiate in good faith. This means that both parties should be honest about their intentions, disclose relevant information, and make genuine efforts to reach a fair agreement.
Good faith is crucial in commercial contracts as it helps to build trust between the parties and can prevent conflicts and misunderstandings. Both parties are expected to maintain openness and fairness throughout the duration of the contractual relationship.
It's important to note that good faith does not mean that mistakes or misjudgments will not occur; rather, it focuses on the intention behind actions. If one party can prove that the other acted with an honest intention, even if errors were made, they are likely to be viewed more favorably in any dispute resolution process.
Example(s)
Scenario Description Two companies are negotiating the terms of a strategic partnership. Both companies are expected to negotiate in good faith, meaning they should honestly disclose their expectations, limitations, and relevant financial information to facilitate fair and open negotiations. They should strive to understand each other's needs and constraints and work collaboratively to establish mutually beneficial terms. A supplier and retailer are entering into a long-term supply agreement. In this case, both parties must act in good faith not only during negotiations but throughout the entire business relationship. The retailer should place orders timely and honestly, and the supplier should ensure quality and punctual delivery. If any issues arise, both parties should communicate openly and work towards an amicable solution rather than finding faults.