Client Alert - Lender Liability At Forty: Thinking Through “Implied Covenant” Claims
Sign Up for PublicationsLender liability cases invariably invoke the question of whether a lender who exercises a contractual right under a loan agreement can still be liable for breach of the “implied covenant of good faith and fair dealing.” “Broadly stated, the implied covenant embraces a pledge 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.”[1] Whether or not the implied covenant has been breached is a fact-based inquiry and can implicate the borrower’s financial condition, the parties’ course of dealing and the lender’s motivations, among other things. From the lenders’ perspective, resolving implied-covenant claims on the pleadings or at summary judgment vindicates the principle that loan documents should be enforced as written. From the borrowers’ perspective, it offends the notion that there should be some judicial check on lenders whose unilateral actions, often taken without notice, can damage or destroy a borrower’s business.
Two recent decisions from Delaware deciding implied covenant claims illustrate this point. In one of the decisions, the Court determined that applicable state law did not provide an independent cause of action for breach of the implied covenant. In another, the court held that lender actions expressly authorized under a loan agreement cannot be the basis for an implied covenant claim. Even though the court acknowledged the lender’s actions had a perilous impact on the borrowers, the court found the borrower had no remedy as a matter of law.
I. Beskrone v. Kore Capital Corporation and Amerifirst Financial
In a pair of rulings in 2023[2] and 2024[3], Delaware District Judge Maryellen Norieka affirmed the dismissal of a Chapter 7 trustee’s lender liability action by a Delaware Bankruptcy Court.[4] The result was on the narrow grounds that Maryland law (which governed under the loan agreement) does not provide a cause of action for breach of the implied covenant of good faith and fair dealing independent of an action for breach of contract.[5]
Beskrone involved an uncommitted revolving credit facility secured by receivables, under which collections, representing substantially all of the borrower’s cash flow, went to a lockbox account, and to fund the business was available only as advances under the facility.[6] The borrower experienced cash flow issues, and when the lender refused an overadvance, the borrower breached the revolver by diverting a customer payment.[7] When the lender learned of this, it terminated the facility without notice, meaning the borrower had no cash and claimed it was forced into bankruptcy. The facility was amply oversecured at the time, the trustee alleged, and in fact the facility was paid in full with the proceeds of debtor-in-possession financing.[8]
The combination of a lockbox account controlled by a lender and an uncommitted or terminable credit facility is not unusual. The dispute over increasing availability under the facility at a time of tight liquidity will also seem familiar to insolvency practitioners. The Trustee argued that “[u]nique among lending arrangements, these potentially predatory loans endow lenders with the ‘sudden, effective strangulation of [the borrower]'s economic lifeline[.]’"[9] Judge Norieka disposed of breach of contract claims, because the lender had “sole discretion” to make advances, or not make advances, under the loan agreement.[10] With respect to the implied covenant claim, the court cited with favor the 1985 decision in K.M.C. Co. v. Irving Trust,[11] where the Sixth Circuit held that where lender actions, authorized by contract, would deprive a borrower of the financial means to continue in business, the implied covenant required a lender to give sufficient advance notice for the borrower to obtain replacement financing.[12] After reviewing decisions of Maryland courts and federal courts applying Maryland law, however, Judge Norieka dismissed the implied covenant claim on the narrow grounds that Maryland law does not provide an independent cause of action for breach of the implied covenant.
Soon after District Judge Norieka’s affirmed dismissal in Beskrone, Delaware Bankruptcy Judge Thomas Horan denied a creditors committee’s motion to bring a similar implied covenant claim.[13] The committee sought standing to pursue a claim that a lender had breached the implied covenant by refusing to make advances and sweeping cash from a collateral account without notice.[14] Judge Horan rejected the committee’s argument that the lender’s conduct should be “closely scrutinized” under the implied covenant, noting that the ”basic terms” of the loan documentation, governed by New York law, gave the lender the right to withhold advances and sweep the account. For this reason alone, the implied covenant claim was “not colorable” under New York law.[15]
In evaluating the potential risks (for lender) and opportunities (for borrowers) in lender liability litigation, the strategic question is often whether an implied covenant claim will be subject to dismissal or summary judgment based on limited facts before it can make it to trial. The decisions in Beskrone and AmeriFirst dismissed the claims on two different bases: one based on the availability of a legal remedy for breach the implied covenant, and the other on whether the contractual support for the lender’s actions is sufficient to isolate it from implied covenant scrutiny.
II. K.M.C. Co. v. Irving Trust – Lender Liability’s Origin Story
An understating of the origins and evolution of “lender liability” law provides useful context for recent cases.
In 1985, the Sixth Circuit Court of Appeals, applying New York law, affirmed a jury verdict for breach the implied covenant (measured as the entire value of the borrower’s business) against a lender who terminated a discretionary financing facility and swept a blocked cash collateral account.[16] Enforcement of the lender’s contractual rights, the court observed, put the borrower’s “continued existence” to the “whim or mercy” of the lender,[17] and the implied covenant required the lender to provide sufficient notice to allow the borrower to secure alternative financing.[18] The court concluded that it was correct to instruct the jury that notwithstanding that by contract the loan was payable on demand and that the account could be swept at any time, the lender would be liable if it failed to give sufficient notice absent “valid business reasons” preventing it from doing so.[19]
K.M.C.’s holding, coming from a federal Circuit Court applying New York law, drew immediate and widespread attention in the legal community.[20]
Some courts found K.M.C. persuasive in early decisions. A New York appeals court followed K.M.C, in reversing dismissal of a claim that a lender breached the implied duty when it terminated of a line of credit without giving the borrower sufficient notice to arrange other financing, even though the loan agreement provided for advances in the lender’s sole discretion.[21] Another New York appeals court reversed dismissal of an implied covenant claim when a lender terminated a credit agreement and swept a deposit account even though there had been no payment default, holding that whether the lender acted reasonably was a question for a jury.[22]
Two prominent decisions in 1991 questioned K.M.C.’s continued authority. The Southern District of New York, in an opinion affirmed by the Second Circuit, flatly rejected the interpretation of the implied covenant underpinning K.M.C., holding that the “obligation of good faith performance” does not “imply an obligation of good faith upon [a lender] inconsistent with the express terms of its contractual relationship” with the debtor.[23] Judge Easterbrook of the Seventh Circuit wrote a pointed opinion reversing an order confirming a plan that equitably subordinated a lender’s claim based on alleged bad faith conduct and skewering the notion of any equitable check on lender actions that are authorized by contract.[24] Even though breach of the implied covenant was not at issue, Easterbrook called out and sharply criticized the holding in K.M.C.[25]
Numerous other courts declined to follow K.M.C. in the years that followed.[26] In 2017, the Bankruptcy Court for the Southern District of New York characterized K.M.C. as “largely discredited,” citing numerous cases, stating that “given the weight of criticism aimed at the lender liability case law in the past two decades, the Court concludes that New York courts would now either interpret K.M.C. and a New York appellate decision following K.M.C. in Components Direct[27] narrowly or reject their reasoning entirely.”[28]
K.M.C. has likewise been disavowed in a recent decisions within the Sixth Circuit itself. In 2022, the Bankruptcy Court for the Eastern District of Michigan, a court within the Sixth Circuit and there for bound by the holding of K.M.C., granted summary judgment to a lender, holding that the implied covenant was not breached when the lender terminated a financing facility and demanded immediate payment after negotiations over a repayment plan collapsed.[29] The loan documents provided that the a lender could refuse to make advances, and could demand payment at any time without notice and for any reason, and further waived notice generally.[30] The court declined to follow K.M.C. and impose any limitation on the lender under the implied covenant, because (i) K.M.C. because it was decided under New York law, rather than Michigan law, the governing law under the loan documents (though there appeared to be little substantive difference); (ii) there was no blocked account issue, as in K.M.C., (iii) Sixth Circuit decisions after K.M.C. had rejected the idea that the implied covenant can “override express contractual terms”; and (iv) New York courts, including the Southern District of New York in National Westminster, had asserted that the Sixth Circuit applied New York law incorrectly in K.M.C.[31]
III. The Implied Covenant in Lender Liability – Guidelines from the Case Law Today
Implied covenant lender liability claims are governed by state law. The case law, while varied, typically falls into three categories . First, there are cases in certain states holding there is no independent cause of action for breach of the implied covenant available to borrowers. Beskrone is an example. Second, there are state-court decisions that exclude demand notes from the implied covenant categorically. Third, there are cases that hold lenders cannot be liable under the implied covenant where loan agreements make actions subject to the “sole discretion” of the lender.
The following is a non-exhaustive collection of cases of each kind.
A. Cases Holding There is No Remedy Available to Borrowers Under The Implied Covenant
Whether an action under the implied covenant is an available remedy for borrowers is a question of state law. New York law recognized an independent cause of action for breach of the implied covenant as long as it is not duplicative of a breach of contract claim.[32] In affirming dismissal of the lender liability claim in Beskrone, however, Judge Norieka relied on decisions of Maryland courts and federal courts applying Maryland law to conclude, that there is no independent cause of action for breach of the implied covenant under Maryland law.[33] Under Maryland law, "[t]he duty of good faith merely obligates a lender to exercise good faith in performing its contractual obligations; it does not obligate a lender to take affirmative actions that the lender is clearly not required to take under its loan documents."[34] “Moreover, ‘[a]n implied duty of good faith cannot be used to override or modify explicit contractual terms.’"[35] As a result, Judge Norieka, concluded, an aggrieved borrower has no cause of action for a lender’s failing to act in good faith unless the language of the loan agreement expressly requires the lender to act in good faith.[36] Courts in Arkansas, Florida, Texas, and West Virginia have dismissed implied covenant claims or granted summary judgment to lenders finding a lack of an independent cause of action under Texas law.[37]
B. Cases Holding the Implied Covenant Is Inapplicable to Demand Notes
Cases decided under across multiple states have excluded demand notes from the purview of the implied covenant.[38] Many of the decisions reject the application of UCC section 1-309 to demand notes. Section 1-309 creates a limited a statutory obligation to act in good faith when exercising a right to accelerate payment:
A term providing that one party or that party's successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or when the party "deems itself insecure," or words of similar import, means that the party has power to do so only if that party in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against which the power has been exercised.[39]
These courts have noted the official comment to UCC § 1-309 states that “has no application to demand instruments or obligations whose very nature permits call at any time with or without reason."[40]
C. Cases Addressing Whether “Sole Discretion” or Equivalent Language in Loan Agreements Precludes an Implied Covenant Claim
A series of recent New York appeals court decisions have held that dismissal of implied covenant claims is appropriate where loan agreements give lenders “sole” or “sole and absolute” discretion to act.[41] While there is at least one decision so holding under non-New York law,[42] cases in other jurisdictions have found a lender’s exercise of discretion under the authority of such language may still be found to be in breach of the implied covenant.[43]
IV. Conclusion
Several recent decisions have enforced the language of the parties’ agreements without lettering lender-liability claims going to trial. Whether or not a given case will be resolved before trial likely turns on the choice of law in loan documents, the specific contractual language under which the lender has acted, and the nuances of the case law interpreting the implied covenant of good faith and fair dealing under applicable state law.
***
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[1] Singh v. City of New York, 40 N.Y. 3d 138, 145 (2023) (internal quotation marks and citations omitted). Lender liability claims are also made under Section 1-304 of the Uniform Commercial Code, which provides that “[e]very contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement.” UCC § 1-304.
[2] Beskrone v. KORE Cap. Corp. (in re Moon Grp, Inc.), 2022 WL 4658615 (Bankr. D. Del. Sep. 30, 2022) (dismissing implied covenant claim).
[3] Beskrone v. KORE Cap. Corp. (in re Moon Grp, Inc.), 2023 U.S. Dist. LEXIS 98066 (D. Del. 2023 (granting interlocutory review).
[4] Beskrone v. KORE Cap. Corp. (in re Moon Grp, Inc.), 658 B.R. 92 (D. Del 2024) (affirming dismissal of implied covenant claim).
[5] Id. at 103 (citing Marland v. Safeway, Inc., 55 Fed. Appx. 446 (4th Cir. 2003)).
[6] Id. at 95-96.
[7] Id. at 96..
[8] Id. at 96-97.
[9] Id. at 98 (citing the trustee’s papers quoting Canterbury Realty & Equipment Corp. v. Poughkeepsie Sav. Bank,
135 A.D.2d 102, 105, 524 N.Y.S.2d 531 (3d Dep’t. 1988).
[10] Id.. at 99-100.
[11] K.M.C. Co. v. Irving Trust Co., 757 F. 2d 752 (6th Cir. 1985).
[12] Id. at 759.
[13] In re AmeriFirst Fin., Inc., 2024 Bankr. LEXIS 1900.
[14] Id. at *30.
[15] Id.
[16] Id. at 759-760. The panel also held that the jury trial waiver in the loan agreement was not knowing and voluntary, and therefore unenforceable, based on oral statements by an bank officer that it would not be enforced. Id. at 758.
[17] Id. at 759.
[18] Id.
[19] Id.
[20] A non-exhaustive online search identified twenty scholarly articles addressing K.M.C. in the ten years after it was decided. Most were critical, see, e.g., “RECENT DEVELOPMENTS: Implied Covenants of Good Faith and Fair Dealing: Loose Cannons of Liability for Financial Institutions,” 40 Vand. L. Rev. 1197 (1987), while others expressed a more favorable view, see, e.g., “NOTE: K.M.C. Co. v. Irving Trust Co.: Discretionary Financing and the Implied Duty of Good Faith,” 81 Nw. U.L. Rev. 539 (1987) (K.M.G. provides “a new and potentially powerful weapon against overreaching banking practices”).
[21] Components Direct, Inc. v. European American Bank & Trust Co., 572 N.Y.S. 2d 359, 662 (2d Dep’t 1991).
[22] Advanced Safety Sys., Inc. v. Manufacturers and Traders Trust Co., 592 N.Y.S. 2d 159, 160 (4th Dep’t 1992).
[23] Nat’l Westminster Bank, U.S.A. v. Ross, 130 B.R. 656, 680 (S.D.N.Y. 1991), aff’d sub nom. Yaeger v. Nat’l Westminster, 962 F.2d 1 (2d Cir. 1992). The Southern District left a small opening for borrowers, explaining that the lender in that case “did not abruptly terminate its lending relationship,” but instead notified the debtor that it must find a new lender “within a reasonable time.” Id.
[24] Kham & Nate's Shoes No. 2 v. First Bank, 908 F.2d 1351, 1358 (7th Cir. 1990) (lenders are not required to “put the interests of Debtor and Debtors’ other creditors first.”)
[25] Id.
[26] Travel Servs. Network, Inc. v. Presidential Fin. Corp. of Massachusetts, 959 F. Supp. 135, 142 (D. Conn. 1997) (“In light of the weight and persuasiveness of the case law criticizing K.M.C., or questioning its general applicability, the Court concludes that the Massachusetts Supreme Judicial Court would either interpret K.M.C. quite narrowly or reject its reasoning altogether.”) (granting summary judgment); Waller v. Maryland Nat’l Bank, 620 A.2d 381, 391 (Md. Ct. App. 1993) cert. granted, judgment vacated, 631 A.2d 447 (Md. 1993) (“In addition, the weight of authority in other jurisdictions holds that the good faith requirement does not apply to a lender's decision to call a demand note.”) (affirming summary judgment); Gaul v. Olympia Fitness Center, Inc., 623 N.E.2d 1281, 1287 (Ohio Ct. App. 1993) (“In any event, Ohio courts have not uniformly accepted the holding in K.M.C. A lender's decision to enforce its contract rights is not considered an act of ‘bad faith.’”) (affirming summary judgment); Southwest Savings & Loan Ass’n v. SunAmp Systems, Inc., 838 P.2d 1314, 1322 (Az. Ct. App. 1992) (“The K.M.C. decision speaks almost interchangeably of termination without prior notice and denial of an advance without prior notice. The court perhaps glossed over the distinction because there, by denying an advance, the lender precipitated the borrower's demise and effectively terminated the loan.”) (reversing judgment for borrower after trial and directing judgment for lender); Creeger Brick & Building Supply, Inc. v. Mid–State Bank & Trust Co., 560 A.2d 151, 154 (Pa. Super. Ct. 1989) (“Conversely, the Supreme Court of Pennsylvania has refused to impose a duty of good faith which would modify or defeat the legal rights of a creditor.”) (affirming dismissal); Pavco Industries, Inc. v. First Nat’l Bank of Mobile, 534 So.2d 572, 577 (Ala. 1988) (“We decline to follow [K.M.C.’s]construction of the demand provision in the note before us.”) (affirming summary judgment); Flagship Nat’ l Bank v. Gray Distribution Systems, Inc., 485 So.2d 1336, 1341 (Fla. Ct. App. 1986) (“We refrain from following K.M.C. because we find that the court's citation of section 671.208, which is inapplicable to demand notes, renders its holding somewhat suspect.”) (reversing judgment for borrower after trial and directing judgment for lender).
[27] See infra n. n.19.
[28] Lehman Bros. Holdings v. JPM Chase Bank, N.A. (In re Lehman Bros. Holdings), 541 B.R. 561, 569 (S.D.N.Y. 2017) (implied covenant does not create obligation to give notice before terminating discretionary financing facility).
[29] Vining v. Comerica Bank (In re M.T.G., Inc.), 646 B.R. 1 (Bankr. E.D. Mich. 2017),
[30] Id. at 22-24.
[31] Id. at 164-73.
[32] See, e.g., AEA Middle Mkt. Debt Funding LLC v. Marblegate Asset Mgt., LLC, 214 A,D. 3d 111, 132-22 (1st Dep’t 2023) (“[A] good faith claim . . . is not duplicative of a breach of contract claim where the complaint alleges conduct that is separate from the conduct constituting the alleged breach of contract and such conduct deprived the other party of the benefit of its bargain.”)
[33] Beskrone, 658 B.R. at 103.
[34] Id. (quoting Parker v. The Columbia Bank, 604 A. 2d 521, 531 (Md. App. 1992)).
[35] Id. (quoting Riggs Nat. Bank of Washington, DC v. Linch, 36 F.3d 370, 373 (4th Cir. 1994)).
[36] Beskrone, 658 B.R. at 103 (citing, inter alia,
[37] Vulcan Capital Corp. v. Miller Energy Res., Inc., 2015 U.S. Dist. LEXIS 7360 * 25-25 (N.D. Tex. 2015) (Texas law) (dismissing claim). In a 1992 decision, the Fifth Circuit Court of Appeals held that under Texas law, the implied covenant did not apply to the lender-borrower relationship, but only where parties were in a “special relationship,” such as an insurer and insured. Hall v. Resolution Trust, 958 F. 2d 75 (5th Circuit 1992). A later Fifth Circuit limited the holding to the common law implied covenant, bt also held that the coveant Section 1-203 does not give rise to an independent cause of action. Mega Dev. Co. v FSLIC Resolution Trust Corp, 1993 U.S. App. LEXIS 41503 * 4-6 (5th Cir. 1993); Gray v. OneWest Bank, F.S.B, 2014 U.S. Dist. LEXIS 110471 * 27-28 (D. Haw. 2014) (Hawaii law) (granting summary judgment); Ark Research Med. Testing v. Armstrong, 2011 Ark. LEXIS 147 * 7 (Sup. Ct. Ark. 2011) (Arkansas law) (reversing trial court and directing verdict for lender); Doyle v. Fleetwood Homes of Virginia, Inc., 650 F. Supp. 2d 835 (S.D. W. Va 2009) (West Virginia law) (dismissing claim); In re Ditech Holding Corp., 2024 Bankr. LEXIS 616 * 35 (Florida law) (disallowing claim in bankruptcy).
[38] See, e.g., Reger Dec., LLC v. Nat’l City Bank, 592 F. 3d 759, 764 (7th Cir. 2009) (Illinois law) (affirming dismissal); Chapman v. Chase Manhattan Mortg. Corp., 2007 U.S.. Dist. 70655 *33 (N.D. Okla. 2007) (Oklahoma law) (granting summary judgment); European Am. Bank v. Klein, 1990 U.S. Dist. LEXIS 20969 at * 11-12 (E.D.N.Y 1990) (New York law) (dismissing complaint); Vining v. Comerica Bank, 646 B.R. at 174 (Michigan law) (granting summary judgment); Union Bank Co. v. Car Mart Auto Group, Inc., 2012 Ohio App. LEXIS 5137 at * 14 – 15) (Ct. App. 2012 (Ohio law) (affirming summary judgment); GMAC v. Everett Chevrolet, Inc., 2012 Wash. App. LEXIS 2032 at * 18-19 (Washington law) (reversing denial of summary judgment); Larson v. Vermillion State Bank, 677 N.W. 2d 721, 723 (Ct. App. Minn 1997) (Nebraska law) (affirming dismissal); Christie v. First American Bank, 908 S.W. 2d 678, 670 (Ct. App. Ky. 1995) (Kentucky law) (affirming summary judgment); Waller v. Maryland Nat’l Bank, 620 A.2d at 391 (Maryland law) (affirming summary judgment); Check Reporting Services, Inc. v. Michigan Nat'l Bank-Lansing, 181 Mich. App. 614, 623 (Ct. App. Mich. 1990) (Michigan law ) (affirming summary disposition); Pavco Industries, Inc. v. First Nat’l Bank of Mobile, 534 So.2d at 577 (Alabama law) (affirming summary judgment); Flagship Nat’ l Bank., 485 So.2d at 1340 (Florida law) (reversing judgment for borrower after trial and directing judgment for lender).
[39] U.C.C. § 1-309.
[40] See, e.g., Travel Servs. Network, 959 F. Supp. at 142.
[41] Transit Funding Assoc., LLC v. Capital One Equip. Financing Corp., 48 N.Y.S. 3d 110 (1st Dep’t 2017) (“sole and absolute” discretion) (reversing denial of motion to dismiss); Veneto Hotel & Casino, S.A. v. German Amer. Capital Corp., 75 N.Y.S. 3d 4 (1st Dep’t 2018) (“sole and absolute” discretion) (affirming dismissal); 111 W. 57th Inv. LLC v. 111 W57 Mezz Inv. LLC, 198 N.Y.S. 3d 521 (1st Dep’t 2023) (“sole discretion” and “for any reason whatsoever”) (affirming dismissal). But cf. FPG Maiden Lane, LLC v. Bank Leumi USA, 181 N.Y.S. 3d 44 (1st Dep’t 2022) (Where loan agreement required lender to make a “reasonable” determination, “the implied covenant of good faith and fair dealing obligated it ‘to exercise such discretion in good faith, not arbitrarily or irrationally’”) (quoting Maddaloni Jewelers, Inc. v Rolex Watch U.S.A., Inc., 838 N.Y.S. 2d 536 (1st Dep’t 2007)). See also Lehman Bros. Holdings, 541 B.R. at 569) (implied covenant does not create obligation to give notice before terminating discretionary financing facility). Cf. Bank of Baroda v. Harsh Imps., 2023 U.S. Dist. LEXIS 48979 * 18-19) (S.D.N.Y. 2023) (contractual right to accelerate debt not subject to implied covenant) (summary judgment for lender).
[42] Wu v. Capital One, N.A., 2014 U.S. Dist. LEXIS 99782 *18 (D.N.J. 2014) (New Jersey law).
[43] Kinzel v. Bank of Am., 850 F. 3d 275, 283 (6th Cir. 2017) (Utah law) (“[W]here a contract grants one party sole discretion in making a decision ‘but does not provide any express standard for exercising that discretion, the covenant imposes an objective standard of reasonableness’”) (quoting Markham v. Bradley, 173 P.3d 865, 872 (Utah Ct. App. 2007)); Sterling Nat'l Mortg. Co. v. Mortgage Corner, 97 F.3d 39, 44 (3d Cir. 1996) (Connecticut law) (“[W]hen a contract has afforded a party unbounded discretion, it is perfectly proper to impose a duty on that party to exercise its discretion in good faith”); Laffan v. Santander Bank, N.A, 2014 U.S. Dist. LEXIS 79915 * 13-14 (E.D. Pa. 2014) (New Jersey law) (“A party exercising its right to use discretion ...under a contract breaches the duty of good faith and fair dealing if that party exercises its discretionary authority arbitrarily, unreasonably, or capriciously, with the objective of preventing the other party from receiving its reasonably expected fruits under the contract") (quoting Wilson v. Amerada Hess Corp., 773 A.2d 1121, 1126 (N.J. App. 2001)); BA Mortg. & International Realty Corp. v. American Nat'l Bank & Trust Co., 706 F. Supp. 1364, 1373 (N.D. Ill. 1989) (Illinois law) (“[U]nfettered discretion is precisely what the implied covenant of good faith was designed to deal with.”)