Lack of good faith: Overview, definition, and example
What is lack of good faith?
Lack of good faith refers to dishonest, unfair, or deceptive behavior in a contract or business relationship. It happens when one party does not act honestly, fairly, or in a way that respects the spirit of the agreement. This can include misleading the other party, refusing to cooperate, or intentionally trying to avoid obligations.
For example, if a supplier knowingly delivers defective products and refuses to replace them, this could be seen as acting in lack of good faith.
Why is lack of good faith important?
Good faith is a key principle in contracts—it ensures that both parties act fairly and work toward fulfilling their obligations. If one party acts in lack of good faith, it can lead to disputes, financial losses, and even legal action.
For businesses, a contract should include terms that require both parties to act in good faith. This protects against unfair dealings, prevents abuse of contract terms, and encourages cooperation. Without this protection, a party could exploit loopholes or act in a way that technically follows the contract but undermines its purpose.
Understanding lack of good faith through an example
Imagine a company signs a lease for office space, and the landlord promises to make certain repairs before move-in. However, the landlord delays the repairs repeatedly, hoping the tenant will give up and pay for them instead. This lack of good faith could be grounds for legal action because the landlord is avoiding their obligation.
In another example, a business hires a contractor to build a website. The contractor, knowing they lack the skills to complete the project, collects payment and delivers an incomplete product. This deceptive behavior demonstrates lack of good faith because the contractor never intended to fulfill their responsibilities properly.
An example of a good faith clause to prevent lack of good faith
Here’s how a good faith clause might look in a contract to prevent issues:
"Both Parties agree to act in good faith and deal fairly in performing their obligations under this Agreement. Neither Party shall engage in deceptive, misleading, or obstructive conduct that undermines the intent of this Agreement."
Conclusion
Lack of good faith can lead to unfair business practices, disputes, and financial losses. By including a good faith clause in contracts, businesses can help ensure fairness, accountability, and cooperation. Acting in good faith strengthens business relationships and reduces the risk of legal conflicts.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.