Good Faith

"If good faith has been taken away, all intercourse among men ceases to exist." This is an instructive quote from Aristotle on the importance of good faith, or bona fides, in all social and business relations.

Good faith can be informally defined as ‘playing fair’ or ‘behaving honestly’, rather than acting as a trickster in bad faith. The phrase has a loose gathering of meanings, and cannot easily be tightly defined.

Good faith has a more specific legal definition regarding contract law, in which context it can be described as where both parties expect the other to honestly and fairly perform their duties under contract in an acceptable way for the business or the international community. A judge can then act ‘in good faith’ to use their discretion to resolve a dispute in line with whatever was intended in the original contract or mutual understanding.

From a legal history point of view, the principle of good faith developed alongside Roman law, and possibly preceded natural law. Bona fides contracts were a more informal contract type, as opposed to stricti juris, and so gave the deciding judge discretion to deal fairly between parties. It wasn’t seen as an add-on to Roman justice; indeed, Cicero labelled good faith as the foundation of justice – ‘keeping promises’ was central to law.

After the Fall of Rome, good faith was revived in merchants’ dealings in the 11th and 12th centuries, and from thereon it was adopted across civil law regimes across Europe and its colonies, being explicitly mentioned in the French and German legal codes, and those of Quebec and Louisiana. The interpretation of good faith in civil law was comprehensive, it encompassed the preparation and negotiation of a contract as well as its performance and operation – good faith bargaining. This means that a party should only offer in negotiations what they would be happy to deliver after the contract; if a party was using negotiation as a means of uncovering trade knowledge or information without any intent to contract, they could be at fault.

Good faith also spread later into the fields of international diplomacy and treaty making, as in business so too in international politics; good faith was required to achieve agreement and cooperation between nations.

Then there is the opposite concept of bad faith. In legal terms, bad faith can be defined as where one party seeks to recapture the advantages that have been offered up in negotiating or contracting. That might be where the buying party refuses to pay the mutually agreed price terms or abide by the payment schedule, or where the seller may postpone, delay, or cancel their service for their own advantage. If this change in behaviour was intended all along, contrary to what was mutually agreed, then the party is said to be ‘acting in bad faith’.