A good faith clause requires contract parties to act honestly and avoid conduct that defeats the agreement's purpose. Its effect depends on the clause, the contract as a whole, governing law, and the conduct at issue.
Key Takeaways
- An express clause can define good faith obligations for performance, cooperation, discretion, negotiation, or dispute resolution.
- An implied covenant may apply even when the contract contains no express good faith language.
- Good faith generally cannot rewrite clear contract terms or create obligations unrelated to the agreement.
- Courts may consider honest intent, objective commercial standards, and the parties' reasonable contractual expectations.
- Evidence of bad faith may include communications, inconsistent explanations, performance records, and attempts to deny an agreed benefit.
- Good faith efforts, best efforts, and commercially reasonable efforts do not have a universal hierarchy.
What Is a Good Faith Clause?
A good faith clause is a contract provision directing one or more parties to act honestly when exercising rights or performing obligations. Depending on its wording, it may also require cooperation, fair dealing, sincere negotiation, or consideration of the agreement's stated purpose. The phrase acting in good faith usually concerns conduct under a specific legal or business relationship, not general kindness or fairness.
A clause should identify where the obligation applies. A broad statement that the parties will act in good faith may offer useful context, but it can leave questions about required conduct. A more focused clause might address approval rights, payment disputes, information sharing, renewal decisions, or efforts to resolve disagreements.
| Term | What It Usually Does | Drafting Consideration |
|---|---|---|
| Express good faith clause | Creates a written obligation tied to specified contract rights or duties. | Define the decisions, conduct, and procedures covered. |
| Good faith statement | Records an assertion of honest purpose or belief. | Determine whether it is a promise, representation, certification, or recital. |
| Implied covenant of good faith and fair dealing | May restrict conduct that deprives a party of the agreement's expected benefits. | Check the governing jurisdiction's statutes and case law. |
There are no universally recognized five principles of good faith for every contract. Honesty, cooperation, consistency, fair dealing, and respect for the agreement's purpose can serve as a practical review framework, but they are not a fixed legal test. The applicable standard comes from the contract and controlling law.
Are Good Faith Clauses Enforceable?
Good faith clauses can be enforceable, but enforceability is not automatic or uniform. A court may examine the provision's wording, the type of contract, the governing law, the right being exercised, and the remedy requested. A specific requirement to exchange information or negotiate a defined issue may be easier to apply than a general promise to behave fairly.
Many contracts are also subject to an implied covenant of good faith and fair dealing. This covenant generally addresses performance and enforcement of an existing agreement. It may prevent a party from using contractual discretion to deprive the other party of an agreed benefit. It ordinarily does not supply a missing bargain, contradict an express term, or require a party to surrender a right that the contract clearly grants.
Good faith is therefore not a universal legal requirement for every interaction. Contract claims usually require an existing agreement and conduct connected to its performance or enforcement. Pre-contract negotiations present different issues. A promise to negotiate in good faith may have legal effect in some circumstances, but the result depends on the language and jurisdiction. Good faith does not necessarily require either party to make concessions or accept proposed terms. For more on negotiation conduct, see bad faith negotiation standards and consequences.
Parties should also review provisions granting sole discretion. Express discretion and good faith obligations can interact differently under different laws. Clear drafting should state the decision maker, relevant factors, procedural steps, and any objective limits rather than relying only on a broad good faith agreement.
How to Draft a Good Faith Clause With Contract Examples
Start by identifying the conduct you want the clause to control. Connect the obligation to a particular decision, duty, or process. State who must act, what that party must do, when performance is due, what information must be exchanged, and how disputes will be handled. Avoid using good faith as a substitute for measurable requirements.
The following good faith contract examples are starting points, not ready-to-sign provisions:
- General performance: "Each party will perform its obligations under this Agreement honestly and in good faith and will not intentionally interfere with the other party's performance." This language addresses performance but should be coordinated with specific duties and remedies.
- Cooperation: "The parties will cooperate in good faith by timely providing the information and approvals reasonably required to complete the Services." Define the information, approval standard, and response period elsewhere in the contract.
- Payment negotiations: "If a party disputes an invoice, it will identify the disputed amount and reasons in writing, pay all undisputed amounts, and make a good faith effort to resolve the dispute." Add notice procedures and consequences for unresolved amounts.
- Contractual discretion: "A party exercising discretion under Section [X] will do so in good faith after considering the factors stated in that section." List those factors and clarify whether the decision is subjective or subject to an objective standard.
- Dispute resolution: "Before beginning formal proceedings, authorized representatives will meet and attempt in good faith to resolve the dispute." Specify how the meeting is requested and how it affects other contractual rights.
Review the clause alongside termination, limitation-of-liability, notice, remedy, and dispute-resolution provisions. Sample language must be adapted to the transaction and governing law. A contract for goods may also require coordination with delivery, inspection, and acceptance terms, as explained in this overview of a contract for delivery of goods.
Good Faith Effort, Best Efforts, and Commercially Reasonable Efforts
A good faith effort generally calls for a sincere attempt rather than a guaranteed result. However, the phrase does not tell the parties exactly how much time, money, or operational disruption the obligated party must accept. Adding concrete steps, reporting requirements, or limits makes the standard easier to administer.
| Efforts Standard | Common Focus | Questions to Address |
|---|---|---|
| Good faith efforts | Honest intent and a genuine attempt to achieve the stated objective. | What actions demonstrate a genuine attempt? |
| Best efforts | A heightened commitment may be intended, but its interpretation varies. | Must the party incur costs, change priorities, or pursue every option? |
| Commercially reasonable efforts | Actions measured against commercial circumstances or practices. | Which industry, market conditions, costs, and business risks matter? |
Do not assume these labels create a fixed ranking. Courts may interpret them according to controlling law, the contract, industry context, and evidence of the parties' intent. If the distinction matters, define the required actions instead of depending on labels alone.
A useful efforts provision can list minimum steps, required personnel, spending limits, documentation duties, excluded actions, and an end date. It can also explain whether changed market conditions excuse further efforts. This approach turns an abstract promise into an operational process while preserving flexibility where the parties need it.
Bad Faith Meaning in Law, Evidence, and Remedies
Bad faith in contract law generally involves dishonest, evasive, or opportunistic conduct connected to the agreement. A party may comply with the literal wording of one provision yet still face a dispute if its conduct was designed to frustrate the agreement's purpose or deny the other party an expected contractual benefit. A poor result, mistake, or reasonable disagreement does not by itself establish bad faith.
Evidence that may matter includes:
- The complete contract, including amendments and incorporated documents.
- Emails, meeting notes, notices, and records of requested approvals.
- Performance data, invoices, delivery records, and internal decision timelines.
- The reasons stated when a decision was made and later changes to those reasons.
- Evidence that similar situations were handled differently.
- Conduct that delayed performance, withheld a benefit, or made compliance impractical.
Available claims and remedies depend on the jurisdiction and facts. A claimant may pursue contract damages or another contract remedy when recognized by governing law. Rescission, specific performance, tort damages, or punitive damages are not automatic and may be unavailable. A party accused of bad faith may rely on express contract rights, documented business reasons, compliance efforts, waiver, or other applicable defenses. See how acting in bad faith may be evaluated and proved.
If you are drafting a high-stakes clause, relying on broad language to control discretion, or alleging bad faith, you can post your legal need on UpCounsel's marketplace. An attorney can review the governing law, tailor the provision, assess the factual record, and identify viable contract claims, defenses, and remedies. Responses typically arrive within a day.
Good Faith in Commercial Sales Under the UCC
The Uniform Commercial Code gives good faith a specific role in commercial transactions. UCC Section 1-304 provides that every contract or duty within the UCC imposes an obligation of good faith in its performance and enforcement. The obligation does not create a separate transaction or replace the parties' express commercial terms.
UCC Section 1-201 generally defines good faith as honesty in fact and observance of reasonable commercial standards of fair dealing. That definition combines a focus on actual honesty with an objective commercial standard. State enactments and applicable revisions should be checked before relying on the uniform text because the controlling language is the law adopted in the relevant state.
Good faith also appears in rules affecting buyers, sellers, merchants, title, and purchasers. For example, a buyer's knowledge, honesty, commercial conduct, and the circumstances of a purchase may matter when ownership rights are disputed. These questions cannot be resolved merely by labeling someone a good faith purchaser. The applicable UCC provision, the type of property, the seller's authority, value given, notice, and state law all require review.
For business owners, the practical lesson is to keep purchase orders, invoices, inspection records, title documents, and communications. If a transaction appears unusual, investigate before proceeding. Good documentation may help establish what you knew, what steps you took, and why the transaction appeared legitimate when completed.
Good Faith Statements and Other Unrelated Uses
A contract clause should not be confused with other documents that use similar words. A statement of faith is usually a religious declaration describing personal or organizational beliefs. Statement of faith examples may appear in churches, religious schools, ministries, or faith-based job applications. They do not create the same obligations as a commercial good faith statement.
A good faith estimate is also different. It is an estimate provided in a regulated or transactional setting, such as an estimate of anticipated charges. The governing rules, required disclosures, and consequences depend on the particular industry and law. The words do not mean that every estimate is a contract guarantee.
An affidavit of good faith is a sworn statement used when a statute, court rule, or procedure requires specified facts to be affirmed. Its required content varies by jurisdiction and proceeding. Do not convert a generic clause sample into an affidavit without checking the applicable instructions.
Other specialized searches require separate legal analysis. A good faith clause involving police may concern employment rules, investigations, immunity, or the criminal-law good faith exception. A constitutional reference may instead concern the Full Faith and Credit Clause, which is a different doctrine. Mandatory-reporting provisions may protect reports made in good faith or impose duties defined by statute. None of these uses should be interpreted through a standard business clause alone. The good faith exception and the Full Faith and Credit Clause address distinct legal subjects.
Frequently Asked Questions
What Is a Good Faith Estimate?
A good faith estimate is a written projection of expected charges or transaction costs provided in a particular legal or commercial setting. It is not necessarily a promise that the final amount will be identical. Applicable disclosure rules, permitted changes, and dispute rights depend on the industry, transaction, and governing law, so review the document's stated assumptions and current official instructions.
How Do You Write a Testimony of Faith?
You write a testimony of faith by describing your beliefs, the experiences that shaped them, and how they affect your life. Keep the account personal, specific, and truthful. If a church, school, employer, or other organization requested it, follow that organization's instructions concerning topics, format, and length. This religious document is not a commercial good faith clause.
What Are Good Faith Exams?
Good faith exams do not have one established meaning in contract law. The phrase may describe examinations conducted honestly, eligibility tests connected to a particular program, or a context-specific requirement established by an employer or agency. Check the policy, statute, collective bargaining agreement, or instructions using the term before assuming it creates a particular legal standard.
What Is Another Term for a Good Faith Deposit?
Earnest money is another term commonly used for a good faith deposit, especially in real estate transactions. The deposit may demonstrate serious intent, but refund rights and forfeiture consequences depend on the agreement, contingencies, and applicable law. Other transactions may use terms such as reservation deposit or security deposit, which can have different legal effects.
What Does It Mean to Do Something in Good Faith?
To do something in good faith means to act with an honest purpose rather than with an intent to deceive or exploit another person. The legal meaning can be more specific because statutes, contracts, and industry standards may add objective requirements. A sincere belief alone may not satisfy a rule that also requires reasonable commercial conduct.
How Do You Use "In Good Faith" in a Sentence?
You can write, "The buyer disputed the invoice in good faith and provided records supporting the objection." The phrase works best when connected to a specific act, decision, belief, or effort. In a contract, avoid leaving it unsupported if the parties need measurable duties. Add procedures, required information, time limits, or decision criteria.
What Is a Statement of Faith for a Job Application?
A statement of faith for a job application is a description of an applicant's religious beliefs requested by some faith-based employers. The requested content may address doctrine, religious practice, or alignment with the organization's mission. Applicants should follow the employer's instructions and seek legal advice if they have questions about applicable employment protections or permissible hiring requirements.
