Good faith is a broad term that’s used to encompass honest dealing. Depending on the exact setting, good faith may require an honest belief or purpose, faithful performance of duties, observance of fair dealing standards, or an absence of fraudulent intent.
A fiduciary relationship creates a duty of good faith between the agent and the principal. The breach of this duty of good faith can lead to liability. Failure to act in good faith is known as bad faith and is generally considered to be a level of culpability greater than negligence.
[Last updated in January of 2023 by the Wex Definitions Team]