Definition and Significance of Bona Fide in Law
The term "bona fide" refers to the general meaning "good faith" in its simplest of terms. However, its interpretation and use is often broader in legal context. Involving archaic Latin roots, it is traditionally translated to "in (or with) good faith". Its standard translation to good faith references its use in commercial contexts, where it is essential for parties to hold honest intentions on behalf of all parties involved. It can also be translated to "without fraud or deceit" which relates to the act of handling property with honesty instead of misuse.
Bona fide has been used in legal proceedings since at least the 14th century, where it has appeared in a variety of contexts. From applying to whether a signatory has the authority to sign a document, to deciding whether a gift should be considered fraudulent, bona fides has a diverse role in a multitude of legal proceedings and doctrines.
Some of the most common ways that bona fides manifests in legal contexts include:
Bona fides plays a crucial role in contract law primarily in relation to intention of parties. The terms "good faith" and "with no intent to deceive" are often used in agreement documentation, even if they may not always be defined explicitly. In some cases, bona fides may be referred to as "fair dealing" or "honesty" .
When it comes to dealing with trade practices, bona fides can be called good faith, fair dealings or objective standard of honesty instead of bona fides. While there is nothing wrong with the use of these phrases, there is a slight difference in interpretations between bona fides and the listed terms, which relates to the manner in which certain factors are interpreted as elements of leading law cases. For example, in relation to bargaining techniques, it is considered to fall in line with the usual application of bona fides, but would not apply if the area of law being discussed was physical injuries.
Similarly, bona fides may be referred to as good faith in regard to trading conditions, which relate to the absolute requirements of trade provisions that require good faith to be maintained. It is important to note in these areas the fact that the legislation is still subject to the definition of bona fides.
When used in insurance law, bona fides is reflected in the principle of utmost good faith, which determines the level of honesty required from both parties in an insurance policy. Indoctrinated into insurance law by the Marine Insurance Act 1906, utmost good faith determines the promises of parties between the insured and insurer. The promises made by the parties are legally binding, even if one of the parties is not aware of the existence of the promised act.
Notable Uses of the Term Bona Fide in Legal Contexts
Several scenarios and legal fields utilize the term "bona fide." Within the sphere of commercial transactions, for instance, the concept is significant, as certain laws provide a shield against claims of infringement based on fair use or other grounds if actors can assert that their actions would have been the same regardless of the allegedly infringing material. The Fair Use Safe Harbor Under the Copyright Act, 34 Yale J. Int’l L. 365 (2009) at 398.
In the realm of intellectual property law, the bona fide buyer is a well-known term in relation to transactions of real property, goods, and services. Good faith is an essential element in establishing a bona fide purchaser defense against prior equitable interests or claims. Annotations, Requisites of "Purchased for Value" or "In Good Faith" or Both as Defense to Claim of Fraudulent Conveyance, 42 A.L.R.3d 138 at § 7 (1972). For example, if a buyer has actual or constructive notice of a defect in the title of the property purchased and fails to disclose that defect to the seller, the buyer may lack the bona fide status required to bring suit. See Trustees of the Calhoun v. Memphis Inv. Prop., 113 S.W.3d 420 (Tenn. Ct. App., 2002).
The concept of good faith is also examined within the framework of employment law, specifically in the context of employment at will. Traditional employment law is governed by the doctrine of employment at will, where an employer has the discretion to terminate an employee for any reason short of discrimination or otherwise protected classes. Employment at Will: Just Cause and the Right to Discharge in Workplace Law, 54 Neb. L. Rev. 455 (1975) at 471. However, the concept of employment at will has recently evolved into a theory that may impose a requirement of good faith in the employment relationship. Id. at 470. Under the good faith standard for employment at will, employers are required to conduct termination for just cause and not arbitrarily. Employers must adhere to the express conditions of employment as well as implied contracts with employees. Id. at 472.
Factors considered by courts for bona fide employment defenses include whether the employer exercised discretion in the decision to terminate and whether the employer genuinely relied on an unlawful, legal excuse. Legal Crystallization of the Law of Employment at Will, 44 Ariz. L. Rev. 797 at 849 (2002). Courts tend to defer to State policies of protecting the economic interest of a citizen over arbitrary termination by employers and over-promises of employers. Id. at 850. Other factors include whether the employer concealed company policies related to employment, such as non-termination policies, and whether a covenant of good faith and fair dealing was implied in the contract. Id. at 851-852.
Differentiating Between Bona Fide and Malafide in Legal Settings
Whereas ‘bona fide’ is a synonym for good faith and fairness, malafide means in bad faith and with dishonest intent. The word bona fide can be quite useful in law, as its antonym may be invoked in order to rebut and disprove malafide claims. In essence, both terms relate to an intention or a motive that is either fair and honest or not. It is this intent or motive that serves as the main differentiator between malafide and bona fide. In court cases, it is very common for bona fide and malafide to be used to explain intent in relation to agreements, such as contracts. For example, if one party to a contract has acted in bad faith towards the other party, their intentions may be labelled as acting in malafide when the contract is challenged in law. A common example of this is when a party has misrepresented material facts about an agreement, often to the financial disadvantage of one of the parties. A real-world example of this is the seller who has sold a piece of land but failed to inform the buyer that there was a proposed new road that would essentially split the property in half. The seller did not disclose all relevant facts, or the full truth, to the buyer (malafide), who only discovered the full story years later (bona fide), putting them in a worse financial position than had they dealt with the issue before the sale. When the matter was taken to court, the court found in the favour of the buyer due to the seller acting in malafide.
Relevance of the Concept of Bona Fide in Contractual Agreements
When applied to contract law, the term bona fide expresses the importance of fair and honest conduct in contractual dealing. Of great importance is that there be not a scintilla of mala fides or bad faith in the dealings between the parties when the contract is made or carried out. Concerning the doctrine of bona fides in contract law is the case of Radha Soami Satsang v. State of Punjab, AIR 1992 SC 263, wherein it was observed that "(n)ot only should the parties act honestly and fairly with each other, but they should also give to each other full room, space and time for his own action and play . . . Even a delay of a day in making payments may mean a breach of covenant." A case that demonstrates the application of the doctrine of bona fides within the context of contract law is that of The Supreme Court of India v. Sant Lal Jain, AIR 1985 SC 1481. In this case, the plaintiffs entered into an agreement with defendant No. 1 , regarding the management of the property of the Supreme Court of India in Simla. The agreement required the plaintiffs to deposit Rs. 3,50,000 with defendant no. 1 and stipulated interest at 9% per annum payable twice during the term of five years. Defendant no. 1, however, did not honour the agreement, and the plaintiffs filed for an order requiring the defendant to make payment to them. The court addressed the issue of bona fides in contract law, citing the case of State of Punjab and Others v. Ghanshyam (Owner), M/s. Radha Krishna Industries & Others, reported in AIR 1975 SC 456, the court stated, "Where we find the debtor committing default despite having financial capacity for making the payment, it is a clear indication of mala fides on his part. Where mala fides are found, the Court is entitled to use its discretion and award penal interest at the rate the Court deems fit." Ultimately the Supreme Court of India found in favour of the plaintiffs and ordered the defendant to pay Rs. 3,50,000 to the plaintiffs.
Legal Repercussions of Absence of Bona Fide
The legal ramifications of lacking bona fide in a transaction can range from the voiding of agreements to instance of litigation and nullification of past agreements. As a fiduciary duty, maxim of benevolence and a standard of conduct to be observed by all, its absence in case of any wrongdoing scenario leads to annulment of such transaction. It is necessary that both the parties observe the doctrine of bona fides, as the absentia of this doctrine, in the case of official documents such as agreement between the two parties, it would lead to the net result of voiding such contract or agreement made. In the case of Pawan Kumar, Supreme Court showed concerns for protection of government undertakings where it identified presence of bona fides when there is no wrongful gain to one party that leads to wrongful loss to other party. High Courts in India seem to have overstepped its jurisdiction as the judgment of the Supreme Court was based on bona fide being absent in the contract, whereby, nullifying the decision of the High Court that called for investigation by the CBI. The observation was further on the agreements where the amount of money involved was colossal. Criminal liability may also be faced by the parties involved. It could lead to annulment of an agreement/contract that forms the basis of fraudulent activities. In the case mentioned below, the doctrine of bona fides was absent where products were sold under the name of a manufactured product from a company that was already registered. Here is a clarification of the case presented by Supreme Court. "In these petitions, the death of the complainant has been alleged in a shoe factory. The petitioners have not brought on record any evidence to show that any of them had met with the complainant before the occurrence either at the factory or anywhere else. In our opinion, in the absence of any evidence showing that the petitioners are other than the persons manufacturing the product by the name of complainant’s company, the courts who had passed the orders for registering the FIR under Section 420 of the IPC have committed an error of law." In the case where alleged fraud was on the part of the respondent (accused) who used Annexure-‘A’ for exhibiting an order from the said respondent, the sanction had been granted by the authority for investigation regarding the alleged commission of an offence punishable under Section 420 of the IPC, without proper application of mind. Supreme Court also pointed that absence of bona fides had misled the sanctioning authority while granting sanction. The court set aside the decision made by the High Court where reference was made to CBI against the manager of the concerned unit and others. Judge in this case stated that "on judicial review, what is acceptable as evidence is the case shown by the enquiry officer to avail the sanction." By analysing the above cases, it can be stated that the legal consequences of lacking bona fide lead to strict results in case of fraudulent activities based on contracts or agreements.
Supreme Court Adjudications Demonstrating Significance of the Term Bona Fide
Numerous cases highlight the importance of bona fide in a legal context. For example, in the case of Maredia v. Dura, L.L.C., Maredia purchased a condominium on which she later discovered a substantial gas leak. Maredia subsequently brought a suit on the grounds of, among other things, breach of fiduciary duty and conspiracy. Citing Bumpas v. Freeport Mem’l Hosp. Found. Bd. of Dirs., 215 Ill. 2d 1 (2005), a case which recognized the "substantial latitude to determine whether the fiduciary acted in good faith", and Fields v. Otto, 124 F.3d 395, 398 (6th Cir. 1997), which stated an "issue of fact exists when there is a question as to ‘whether the defendant was acting in good faith’ with regard to a defendant’s fiduciary duty, the Maredia court determined that an issue of fact existed. The Maredia court stated that, with respect to the plaintiffs fiduciary duty claim, there was a material issue of fact as to the issue of whether the defendants acted in good faith . The court denied the defendant’ motion for summary judgment on the issue of the fiduciary duty claim.
In another example, the defendant in Jacobus v. Trump Canada Hotel Licensing Corp., No. 15-1055 (E.D. Pa. March 2, 2017) defined, and later appeared to take the position that the applicable law was the Uniform Trade Secrets Act (UTSA), 12 Pa. Cons. Stat. § 5302. The plaintiff argued that such characterization of the law was a red herring and that the appropriate governing law was Pennsylvania’s common law, pursuant to 18 Pa. Cons. Stat. § 5303 (b), which expressly extends and clarifies the protections provided by the UTSA. In denying the plaintiff’s Motion for Summary Judgment, the court cited the defendant’s failure to prosecute its breach of fiduciary claims, inter alia, in support of its ruling.
While a complete survey of cases employing and/or discussing the concept of bona fide is beyond the scope of this summary, the above demonstrates the relevance of the concept in a legal context.
