## Facts

- Plaintiffs sought approximately $13 million in financing from Security Pacific entities to fund a leveraged buyout of Julius Goldman’s Egg City in Moorpark, California.
- Plaintiffs alleged defendants, including a bank representative, made oral and written commitments to provide the buyout financing.
- Plaintiffs claimed they relied on the commitment by proceeding with the acquisition and losing opportunities for more favorable alternative financing.
- Defendants allegedly refused to fund on the promised terms; plaintiffs obtained substitute financing on less favorable terms and alleged resulting economic loss.
- Plaintiffs filed two actions (1983 and 1985) that were consolidated; first amended complaints (1987) asserted contract and tort theories, including breach of oral and written contract, breach of the implied covenant of good faith and fair dealing, “bad faith denial of contract,” fraud, negligent misrepresentation, and interference claims.
- The trial court sustained demurrers to multiple causes of action without leave to amend, denied reconsideration and refused to permit proposed second amended complaints, later granted judgment on the pleadings as to remaining claims, and entered dismissal.

## Issues

1. Whether the trial court erred by sustaining demurrers without leave to amend where proposed amendments showed a reasonable possibility of curing pleading defects.
2. Whether proposed pleadings adequately alleged contract formation and performance, waiver, or excuse of conditions precedent to any financing commitment.
3. Whether the trial court improperly refused reconsideration under Code of Civil Procedure section 1008 when plaintiffs offered a materially different set of facts in proposed amended pleadings.
4. Whether a commercial borrower may recover tort damages for “bad faith denial of contract” or “tortious” breach of the implied covenant of good faith and fair dealing in an arm’s-length lending transaction.
5. Whether fraud and negligent misrepresentation claims were pleaded with sufficient specificity, or could be made sufficient by amendment.

## Decision

- The Court of Appeal affirmed in part and reversed in part the judgment of dismissal.
- The court directed the trial court to overrule demurrers as to two causes of action as pleaded in the proposed second amended complaints.
- The court held the trial court abused its discretion by denying leave to amend certain other causes of action where plaintiffs showed a reasonable possibility of curing defects through amendment.
- The court concluded Code of Civil Procedure section 1008 did not justify refusing reconsideration where plaintiffs presented an alleged different state of facts via proposed amended pleadings.
- The court rejected a tort theory of “bad faith denial of contract” in this commercial lending setting, limiting implied-covenant relief to contract remedies.

## Legal Principles

- Leave to amend after a demurrer should be granted if there is a reasonable possibility the plaintiff can cure the defect; proposed amendments may satisfy the plaintiff’s burden to show curability.
- At the pleading stage, a party may generally allege performance of conditions precedent, and may plead satisfaction, waiver, or excuse of such conditions to support a claimed contractual obligation.
- Code of Civil Procedure section 1008 should not be applied to bar reconsideration when a party offers a materially different factual showing that addresses the basis of the prior ruling.
- The implied covenant of good faith and fair dealing is not independent of the contract; it cannot impose substantive duties beyond the agreement’s terms.
- In arm’s-length commercial lending transactions, alleged “bad faith” ordinarily supports contract damages only; tort remedies associated with insurance bad-faith doctrines do not apply.
- Fraud-based claims must be pleaded with specificity, including the misrepresentation, knowledge, intent to induce reliance, justifiable reliance, and resulting damage; leave to amend is appropriate when additional facts could supply required particularity.

## Conclusion

The appellate court held that the trial court applied an overly restrictive approach to amendment and reconsideration, requiring reinstatement of certain claims and allowing amendment of others, while reaffirming that the implied covenant in commercial lending does not support tort liability and must remain tethered to contractual terms.


Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371 (Ct. App. 1990)