Question

(Business Law)

What does it mean to require parties to act in "good faith" in the performance of a sales contract? Explain and provide an example.

Answer 1

Acting in good faith implies that the parties are under and obligation to observe reasonable standards of fair dealing in the contract involved. This involves acting with honesty and good and clean intentions.

The classic example of acting in good faith is in case of insurance contract. Supposing the insured raises a claim on the Insurance firm for reimbursement of medical expenses for a rare disease. The doctrine of good faith is applied here by which the insured is expected to disclose all relevant information at the time of taking the insurance. So if he already knew about his chances of getting the disease the same should be disclosed to the insurance company before entering into the contract.