Bad Faith

Post updated on: Aug 23, 2025 @ 1:31 am

It is factual and evidentiary. It does not mean bad judgment or negligence because it imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty through some ill motive or interest. It partakes of the nature of fraud. Inability to pay obligation is not synonymous with fraud. – Magaling vs. Peter Ong

Bad faith is a state of mind and conduct that goes beyond mere bad judgment or negligence, importing a dishonest purpose or moral obliquity.

Here’s a breakdown:

1. Definition and Nature of Bad Faith:

It is a dishonest purpose or some moral obliquity and conscious doing of a wrong.
It involves a breach of a known duty through some motive, interest, or ill will that partakes of the nature of fraud.
It is a question of intention, inferred from conduct and/or contemporaneous statements.
It is essentially a state of mind affirmatively operating with furtive design or with some motive of ill-will or self-interest, or for an ulterior purpose.
It implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
It is synonymous with fraud and involves a design to mislead or deceive another, not prompted by an honest mistake as to one’s rights or duties.
It can also be characterized by a flagrant and culpable refusal or unwillingness to perform a duty.
Malice is ill will or spite, implying an intention to do ulterior and unjustifiable harm.
In the context of possession, a possessor is in bad faith if they are aware of a flaw in their title or mode of acquisition that invalidates it.

2. Contrast with Good Faith:

Good faith consists in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another.
Good faith is always presumed, and the burden of proving bad faith rests on the party alleging it.
Gross and inexcusable ignorance of the law may not be the basis of good faith, but excusable ignorance might be.
A mistake upon a doubtful or difficult question of law may be the basis of good faith.

3. Instances/Examples of Bad Faith:

Builders/Planters/Sowers: A farmer building a house on land believed to be public land is a builder in bad faith, as they knew they weren’t the owner.
A builder who continues construction despite being asked by the owner to vacate may become a builder in bad faith.
A landowner is in bad faith if they are aware of building/planting/sowing on their land and do not object.
Purchasers/Mortgagees: A second buyer who registers a sale with knowledge of a prior sale acts in bad faith.
A buyer of land in the actual possession of others who fails to investigate the rights of those possessors is a buyer in bad faith.
A mortgagee in the business of extending loans secured by real estate who fails to exercise higher diligence (e.g., inspecting the property, inquiring beyond the title) can be deemed in bad faith.
Gross inadequacy of price, especially when shocking to the conscience, can be a badge of lack of good faith in a sale.
Transfers made by a debtor after a suit has begun or while it’s pending, or transfer of all property by an insolvent debtor, can be badges of fraud (bad faith).
Contracts/Obligations: Failure to disclose facts when there is a duty to reveal them constitutes fraud (bad faith).
Gross negligence in performance of an obligation can amount to bad faith.
An obligor promising the same thing to two or more persons who do not have the same interest, thus preventing fulfillment of an obligation, indicates bad faith.
A payment made after a debtor has been judicially ordered to retain the debt is considered made in bad faith.
An agent who acts in bad faith or colludes to defraud the principal.
Marital/Family Relations: A spouse contracting marriage in bad faith is disqualified from inheriting and may have donations revoked.
Both spouses in a subsequent marriage who knew the absentee spouse was alive are in bad faith.
Non-disclosure of a previous conviction of a crime involving moral turpitude in marriage can constitute fraud.
Abuse of Rights/Malicious Prosecution: Exercising a legal right in bad faith for the sole intent of prejudicing or injuring another.
Malicious prosecution is initiated without probable cause and with malice/bad faith.

4. Consequences of Bad Faith:

Builders/Planters/Sowers (Bad Faith): Loses what is built, planted, or sown without the right to indemnity. The landowner may demand demolition or compel the builder/planter to pay the price of the land, plus damages. They are only entitled to necessary expenses for preservation.
Builders/Planters/Sowers (Both in Bad Faith): Rights of both parties are the same as though both had acted in good faith, applying Article 448 of the Civil Code. The landowner has the option to appropriate the improvements with indemnity or compel the builder to buy the land (or pay rent if value is considerably more).
Rescission of Contracts in Fraud of Creditors: An acquirer in bad faith must return the property or indemnify the creditor, even if the property is destroyed by a fortuitous event, if the debtor cannot pay.
Payment by Mistake (Solutio Indebiti): If a payee receives undue payment in bad faith, they are liable for legal interest (if money), fruits received or which should have been received, any loss or impairment of the thing, and damages until recovery.
Abuse of Rights: The wrongdoer must be held liable for damages.
Breach of Contract: The obligor acting in bad faith is responsible for all damages reasonably attributed to the non-performance of the obligation.
Co-ownership: A co-owner who makes alterations without consent acts in bad faith and loses what they spent, may be obliged to demolish improvements, and is liable for losses and damages.
Unregistered Land: Good faith or bad faith of a buyer is irrelevant for unregistered land; the buyer purchases at their peril.
Attorney’s Liability: A lawyer violating the prohibition against purchasing property in litigation from their client is liable for breach of professional ethics, and good faith is not a defense.