Deals in real estate involve a lot of money and with such a high amount involved, trust between parties is of utmost importance. It is crucial to enter into the contract with honest intentions and in good faith so that either party involved can reap the benefit of the contract. The good faith in the contract ensures that the party must not suffer losses due to any fraudulent act of the other party.
In general use, good faith refers to a sincere act of honesty in interaction with another person, irrespective of the outcome. It means that the people involved shall be open about their intention to the other and not deceive them for their benefit. Similarly, under the contract of law, duty of good faith is an implied covenant i.e. promise made by both the parties to act honestly even if the contract does not expressly mention it. The covenant was derived from the Roman term ‘bona fide’ and is an essential element of any contract.
Since good faith is an integral part of a contract, a breach of good faith under a contract is also seen as a breach of that contract. Some of the key features of good faith concerning real estate are:
● If a seller enters into a contract with a buyer to sell a piece of land, that he legally is not entitled to sell but, the buyer has acted in good faith, the ownership of such land shall legally be transferred to the buyer. However, if it turns out that the buyer was aware that the ownership of the land did not lie with the seller and still closed the deal, he shall not be entitled to the land, even if he paid the entire sum of money.
● If a man transfers a piece of immovable property to his wife, to evade the claims of his creditors, the creditors shall still have the right to it, because the transferor did not act in good faith.
● No party can escape the duty of good faith simply because the contract is verbal and not in writing.
● The covenant of good faith goes hand in hand with the concept of due diligence. According to which, if any party involved does not imply their basic intelligence to find out the material facts of the property, they shall not be entitled to claim any relief under the promise of good faith.
