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Legal Memorandum: Covenant of Good Faith and Fair Dealing

Issue: Does California law recognize claims for the breach of the covenant of good faith and fair dealing in the lending context?

Area of Law: Banking & Finance Law, Business Organizations & Contracts
Keywords: Breach of covenant; Covenant of good faith and fair dealing; Lender
Jurisdiction: California
Cited Cases: 183 Cal. App. 3d 1362; 51 Cal. App. 3d 352; 17 Cal. App. 4th 974; 229 Cal. Rptr. 16; 100 Cal. App. 4th 44; 11 Cal. 4th 1; 124 Cal. Rptr. 242
Cited Statutes: None
Date: 05/01/2008

California cases recognize claims for the breach of the covenant of good faith and fair dealing in the lending context.  See, e.g., Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002) 100 Cal. App. 4th 44, 122 Cal. Rptr. 2d 267 (case against lender).  In Storek, the court explained that

[i]t has long been recognized, of course, that every contract imposes upon each party a duty of good faith and fair dealing in the performance of the contract such that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.

 

Id.. 100 Cal. App. 4th at 55 (citing Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal. 4th 1, 36) (emphasis added). 

Moreover, even if a fiduciary relationship were required to substantiate the claim, such a relationship can exist in debtor/creditor cases.  See, e.g., Kim v. Sumitomo Bank (1993) 17 Cal. App. 4th 974, 979-81, 21 Cal. Rptr. 2d 834 (stating that a lender owes a borrower a fiduciary duty if the borrower can demonstrate a special relationship or circumstances that would give the lender/borrower relationship a fiduciary character).  Thus, in Barrett v. Bank of America (1986) 183 Cal. App. 3d 1362, 229 Cal. Rptr. 16, the court […]

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