good faith

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Good Faith

Honesty; a sincere intention to deal fairly with others.

Good faith is an abstract and comprehensive term that encompasses a sincere belief or motive without any malice or the desire to defraud others. It derives from the translation of the Latin term bona fide, and courts use the two terms interchangeably.

The term good faith is used in many areas of the law but has special significance in Commercial Law. A good faith purchaser for value is protected by the Uniform Commercial Code, which every state has adopted. Under sections 1-201(9) and 2-403 of the code, a merchant may keep possession of goods that were bought from a seller who did not have title to the goods, if the merchant can show he or she was a good faith purchaser for value. To meet this test, the person must be a merchant, must have demonstrated honesty in the conduct of the transaction concerned, and must have observed reasonable commercial standards of fair dealing in the trade. A buyer would likely meet these requirements if the purchase proceeded in the ordinary course of business. If, on the other hand, the purchase took place under unusual or suspicious circumstances, a court might conclude that the buyer lacked good faith.

Where a nonmerchant purchases property that the seller lacks legal title to convey, the issue of good faith is known both as the innocent purchaser doctrine and as the bona fide purchaser doctrine. If the purchaser acquires the property by an honest contract or agreement and without knowledge of any defect in the title of the seller, or means of knowledge sufficient to charge the buyer with such knowledge, the purchaser is deemed innocent.

In both commercial and noncommercial law, persons who in good faith pay a fraudulent seller valuable consideration for property are protected from another person who claims legal title to the property. If a court establishes the purchaser's good faith defense, the person who claims title has recourse only against the fraudulent seller. Strong public policy is behind the good faith defense. Good faith doctrines enhance the flow of goods in commerce, as under them, buyers are not required, in the ordinary course of business, to go to extraordinary efforts to determine whether sellers actually have good title. A purchaser can move quickly to close a deal with the knowledge that a fraudulent seller and a legitimate titleholder will have to sort the issue out in court. Of course, the purchaser will be required to demonstrate to the court evidence of good faith.

Good faith is also central to the Commercial Paper (checks, drafts, promissory notes, certificates of deposit) concept of a holder in due course. A holder is a person who takes an instrument, such as a check, subject to the reasonable belief that it will be paid and that there are no legal reasons why payment will not occur. If the holder has taken the check for value and in good faith believes the check to be good, she or he is a holder in due course, with sole right to recover payment. If, on the other hand, the holder accepts a check that has been dishonored (stamped with terms such as "insufficient funds," "account closed," and "payment stopped"), she or he has knowledge that something is wrong with the check and therefore cannot allege the check was accepted in the good faith belief that it was valid.

In Labor Law, the National Labor Relations Act of 1935 (29 U.S.C.A. § 151 et seq.) mandates good faith bargaining by every union and employer in order to reach agreement. In corporate law, the Business Judgment Rule is based on good faith. This principle makes officers, directors, managers, and other agents of a corporation immune from liability to the corporation for losses incurred in corporate transactions that are within their authority and power to make, when sufficient evidence demonstrates that those transactions were made in good faith. As in commercial law, the use of good faith in this case enhances corporate business practices, as agents of a corporation are free to act quickly, decisively, and sometimes wrongly to advance the interests of the corporation. Good faith insulates corporate officers from disgruntled shareholders.

Further readings

Bristow, David I., and Reva Seth. 2000. "Good Faith in Negotiations." Dispute Resolution Journal 55 (November): 17.

Carter, Roger L. 2002. "Oh, Ye of Little (Good) Faith: Questions, Concerns and Commentary on Efforts to Regulate Participant Conduct in Mediations." Journal of Dispute Resolution 2002 (fall): 367–405.

good faith

n. honest intent to act without taking an unfair advantage over another person or to fulfill a promise to act, even when some legal technicality is not fulfilled. The term is applied to all kinds of transactions.

good faith

noun bona fide, goodness, honest effort, probity, rectitude, sanctity, uprightness
Associated concepts: good faith attempt, good faith estiiate, good faith purchaser, offer in good faith
See also: fidelity, integrity, loyalty, probity

good faith

(bona fides) a requirement in the law, importing an absence of bad faith (mala fides) more than anything, that can be treated as equivalent to ‘honestly and decently’. It is imbedded in civilian legal systems but is of lesser significance in the Anglo-American system.
References in periodicals archive ?
The Missouri Court of Appeals, Western District, examined the legislative relationship between the Good Faith Negotiation statute's (62) requirement that an offer be "made by a state-licensed or state-certified appraiser using generally accepted appraisal practices" and the USPAP-Compliance statute (63)
has urged all parties in Armenia to engage in "good faith negotiations" for a new government in accordance with the Constitution.
to pursue good faith negotiations pursuant to Article VI of the Treaty on the Non-Proliferation of Nuclear Weapons (the "Treaty" or the "Non-Proliferation Treaty") (calling on each party to the Treaty "to pursue negotiations in good faith on effective measures" to end the nuclear arms race and accomplish nuclear disarmament).
The uranium supply contract provides for disputes to be resolved by binding arbitration after a period of good faith negotiations, the company said.
"The decision to terminate the relationship with UniCare was not made lightly, but after nearly two years of good faith negotiations. We sincerely regret the inconvenience caused to our patients, whose well-being is our primary concern.''
The new comment language is: "Lawyers and firms should engage in bona fide, good faith negotiations within a reasonable period of time following their knowledge of either the anticipated change in firm composition or, if the anticipated change is unknown, within a reasonable period of time after the change in firm composition.
For example, in a "carveout" transaction where a large, vertically integrated company sells one of its divisions, the "target" to a buyer in a different industry, the large company may agree to enter into good faith negotiations to continue to buy product from (or sell product to) the target, or the buyer may agree to enter into good faith negotiations to purchase transition services like human resources, information technology and other support functions from the seller until the target or the buyer is able to provide these services on its own.
Is the plan to create a more balanced 21st century workplace where the relationship between employer/employee is fair to both parties, as the minister claims, or will it create an unequal environment where cases such as the Ports of Auckland or Affco are dealt with exediently without good faith negotiations for the employee?
China Hydroelectric said it dismissed the Complaint against the Shareholder Group without prejudice as a precursor to the company and the Shareholder Group entering into good faith negotiations to resolve the current proxy dispute.
"Swip represented by approximately 1,000 professional pilots in India, are calling for immediate reinstatement of our IPG colleagues and good faith negotiations between management, IPG and ICPA in the hope of reaching an agreement which is acceptable to all parties," Mehta said.
With this Timing Agreement in place, we believe that both sets of shareholders will be best served by Vulcan and Martin Marietta commencing active, good faith negotiations with a view toward reaching mutual agreement on a compelling transaction.
For each site that is commercially viable good faith negotiations for a supply agreement will occur.