A transaction where both parties act independently and without any prior connection or relationship. This ensures that all terms are fair and reflect market value. For instance, consider the sale of a property between two unrelated individuals. The price is determined by comparable sales data and negotiated without any special considerations based on affection, influence, or other non-economic factors.
This type of arrangement is important because it promotes transparency and prevents conflicts of interest. It is often required in legal and financial contexts to ensure equitable dealings and to avoid accusations of favoritism or fraud. Historically, the concept emerged to address concerns about transactions within families or affiliated entities, where preferential treatment could distort market conditions and lead to unfair outcomes.
