Hastings Law Journal


The reaches of the California Supreme Court decision in Foley v. Interactive Data Corp. have yet to be explored, but the decision has serious implications for commercial contract claims of tortious breach of the covenant of good faith and fair dealing. Defendants' attorneys argue that the Foley court's refusal to recognize the tort of breach of the covenant in wrongful termination cases precludes the use of that tort in all commercial contracts except insurance contracts. On the other hand, plaintiffs' attorneys point to the unique characteristics of the employer-employee relationship to distinguish that relationship from the relationships formed in certain commercial contract settings. This Note takes a different approach to the Foley decision, incorporating some of the plaintiffs' and defendants' arguments. It suggests that Foley's method of determining whether the tort of breach of the covenant of good faith and fair dealing should exist outside the insurance contract context provides the framework for analyzing whether the tort should exist in other commercial settings. In particular, this Note applies the Foley analysis to lender liability cases. The Note proposes that, under the Foley analysis, certain circumstances exist in which lenders and borrowers are in such unequal bargaining positions that tort damages are warranted for breach of the covenant of good faith and fair dealing. To avoid inequitable and enormous money damages awarded by juries sympathetic to borrowers, however, the Note suggests a cap on the amount of tort damages available. The Note concludes that the allowance of the tort with a cap on damages would be a valuable step toward equalizing the bargaining powers of lenders and borrowers.

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