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 ?
Given that Missouri explicitly requires its real estate appraisers to follow USPAP and that Missouri's Good Faith Negotiation statute states that appraisals used in the negotiation process between a condemnor and the would-be condemnee must be made "by a state-licensed or state certified appraiser using generally accepted appraisal practices," (127) a question arises as to whether the "generally accepted appraisal practices" requirement should be interpreted to require USPAP compliance.
The good faith negotiations between Revel and Atlantic City are designed to break this cycle, sparing both the City and taxpayer unnecessary expenses and uncertainty in the calculation of revenues.
The US refuses to fulfill its Article VI obligations to begin good faith negotiations to eliminate its nuclear arsenals.
Before a judge will start proceedings, the federal bankruptcy code obliges Detroit to prove that it is not only insolvent, but had also attempted good faith negotiations with creditors.
Sydney, Australia, Jan 17, 2012 - (ABN Newswire) - Padbury Mining Padbury Mining Ltd (ASX:PDY) announced that Padbury and Aurium Resources Ltd (ASX:AGU) had entered into formal, good faith negotiations on a possible merger between the two companies.
Kruger added: "He is affirming a rigidness which is not really in the spirit of good faith negotiations.
Snuneymuxw senior negotiator Michael Rodger declined to released the three page letter to Nault from Chief John Wesley, but insisted in an interview with Windspeaker, "We did not allege the government acted in bad faith but that our interest is in protecting good faith negotiations and a level playing field.
If the broker and tenant cannot after good faith negotiations agree on the commission, the broker must have some type of leverage over the parties to ensure that it will receive its commission if the transaction is indeed consummated.
When it became clear that the Pacific Merchant Shipping Association (PMSA) and other special interest groups did not share our commitment to safety by engaging in good faith negotiations to find a compromise, we decided that it would be best to continue to try and work with the stakeholders to find a solution.
However, Meizu has refused to engage in good faith negotiations with Qualcomm, choosing instead to engage only in delay tactics.
The nine nuclear weapons states have flaunted their refusal to fulfill their Article VI NPT obligation to commence good faith negotiations for the elimination of their nuclear arsenals.