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IMPLIED COVENANT OF GOOD FAITH DOES NOT APPLY WHERE THE CONTRACT ALLOWS REFUSAL OF LOANS FOR ANY REASON, EVEN THOUGH THE REFUSAL MAY HAVE BEEN INTENTIONALLY AIMED AT PUTTING PLAINTIFF OUT OF BUSINESS.

The First Department, in a full-fledged opinion by Justice Saxe, modifying (reversing) Supreme Court, determined that a contract provision which allowed defendant (Capital One) to deny loans to plaintiff (TFA) for any reason trumped any implied covenant of good faith and fair dealing, even though defendant’s actions GODDput plaintiff out of business:

Although “[i]n New York, all contracts imply a covenant of good faith and fair dealing in the course of performance” … , the existence of the covenant cannot be relied on as grounds for TFA’s action . The covenant of good faith and fair dealing cannot negate express provisions of the agreement … , nor is it violated where the contract terms unambiguously afford Capital One the right to exercise its absolute discretion to withhold the necessary approval … . Where a contract allows one party to terminate the contract in “its sole discretion” and for “any reason whatsoever,” the covenant of good faith and fair dealing cannot serve to negate that provision … . Notably, where the parties intended to limit either party’s rights under the loan agreement so that they could only be exercised “in good faith,” they specifically included such language; for example, section 1.1 of the agreement allows Capital One to establish a valuation methodology “in its sole and absolute discretion exercised in good faith.” In contrast, the provision of section 2.1 authorizing Capital One to decline any request for an advance “in its sole and absolute discretion” lacks any such limitation requiring Capital One to act in good faith when doing so. Because Capital One’s complained-of conduct consists entirely of acts it was authorized to do by the contract, its alleged motivation for doing so is irrelevant. Simply put, an intent to put TFA out of business cannot justify a lawsuit for a claimed breach of the covenant where the express provisions of the agreement allowed Capital One to act as it did. Transit Funding Assoc., LLC v Capital One Equip. Fin. Corp., 2017 NY Slip Op 01525, 1st Dept 2-28-17

CONTRACT LAW (IMPLIED COVENANT OF GOOD FAITH DOES NOT APPLY WHERE THE CONTRACT ALLOWS REFUSAL OF LOANS FOR ANY REASON, EVEN THOUGH THE REFUSAL MAY HAVE BEEN INTENTIONALLY AIMED AT PUTTING PLAINTIFF OUT OF BUSINESS)/GOOD FAITH, IMPLIED COVENANT (IMPLIED COVENANT OF GOOD FAITH DOES NOT APPLY WHERE THE CONTRACT ALLOWS REFUSAL OF LOANS FOR ANY REASON, EVEN THOUGH THE REFUSAL MAY HAVE BEEN INTENTIONALLY AIMED AT PUTTING PLAINTIFF OUT OF BUSINESS)

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