The Value of Working in Good Faith: Some of the Best Relationships Are All about Integrity.

The Value of Working in Good Faith: Some of the Best Relationships Are All about Integrity.

Today’s article is on what I call working in good faith. I bring this up because over the years I have experienced a lot of successful business dealings based on good faith. I also feel that this subject of integrity and working in good faith is one that is not focused on very much in today’s business society, and that’s a shame.

The Meaning of Good Faith and Honesty

We often hear the term “good faith” used in the context of a good faith deposit or a good faith estimate. One describes the intention to pay and the other implies an approximate charge for goods and/or services that will be honored, despite the lack of formal paperwork.

“Good faith” is a somewhat abstract and yet 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.

Honesty refers to the sincere intention to deal fairly with others.

Where a non-merchant 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 non-commercial 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.

I offered this article in an attempt to remind us all that working in good faith is a nice way to build a great reputation. I have done more business dealing over the phone that I can keep track of. Witness Fred Roa, the founder of Tellesis Business Acquisitions NJ and who used to lecture with me about being in the “Trust Business,” as an example. He would make relationships with serious business owners who would provide him with very confidential company information, and he’d always keep his word and his integrity. Fred worked in good faith with hundreds of clients and did over 300 business transfers before his death about 8 years ago. He was a very inspiring person.

Trust in and challenge yourself to become a person of integrity and a person who works in good faith.

Not every deal has to have a contract. Not every order between vendors and sellers, owners and buyers has to be written. Take time to build trusted relationships with people who you deal with, and learn the art of doing business with good faith and integrity.

You won’t regret it.

All the best,

Frank Covich