The Principle of Good Faith in Contract Law

Abstract

It is a settled principle of contract law that a contracting party must perform her contractual duties in good faith. The meaning of the duty of good faith is complex. At a minimum, to be in good faith an actor must have acted in a way that she believed was proper, which is a subjective test. This subjective test is overlaid with several objective tests. First, it is not enough that an actor actually believed that her conduct was proper; her belief must be honest in the sense that it has some basis in morality. Next, although an actor's belief need not be reasonable to be in good faith, it must at least be rational. Finally, the duty of good faith includes the observance of reasonable standards of fair dealing—another objective test.