Ordinary Good Faith
At common law, most types of contracts are subject to the principle of
good faith, meaning that the parties have to behave with honesty and such
information as they supply must be substantially true. However, it is not their
responsibility to ensure that the other party obtains all vital information which
may affect his decision to enter into the contract, or may affect the terms on which
he would enter into the contract. For example, if only after you have boarded a
double-decker and paid the fare do you find that no seats on it are vacant, you will
have no grounds for complaint. In technical terms, you are not entitled, in such
circumstances, to avoid your contract with the bus company for its failure to
voluntarily disclose to you the fact that all the seats have been taken on the bus.
Utmost Good Faith
Insurance is subject to a more stringent common law principle of good
faith, often called the principle of utmost good faith. It means that each party is
under a duty to reveal all vital information (called material facts) to the other
party, whether or not that other party asks for it. For example, a proposer of fire
insurance is obliged to reveal the relevant loss record to the insurer, even where
there is not a question on this on the application form.