Opinion ID: 1670011
Heading Depth: 1
Heading Rank: 5

Heading: Counts One and Two

Text: Plaintiffs refer us to an article entitled Banking Malpractice by A. Barry Cappello in the September-October 1986 edition of Case and Comment, and urge us to follow State National Bank of El Paso v. Farah Mfg. Co., 678 S.W.2d 661 (Tex.Ct.App.1984) ( Farah ), and K.M.C. Co. v. Irving Trust Co., 757 F.2d 752 (6th Cir.1985) ( K.M.C. ), which are discussed in that article. We declined to follow K.M.C., supra, in Pavco Industries, Inc. v. First National Bank of Mobile, 534 So.2d 572, 577 (Ala.1988). Alabama Code 1975, § 7-1-203, does not create a substantive cause of action in tort. Brown-Marx Associates, Ltd. v. Emigrant Savings Bank, 527 F.Supp. 277 (N.D.Ala.1981), aff'd, 703 F.2d 1361 (11th Cir.1983) (cited with approval in Harrell v. Reynolds Metals Co., 495 So.2d 1381, 1388 (Ala.1986)); Kennedy Electric Co. v. Moore-Handley, Inc., 437 So.2d 76 (Ala.1983). Brown-Marx, supra, is similar to the case at issue; both arise from a claim that a bank breached a commitment to lend money. This Court stated in Harrell v. Reynolds Metals Co., supra: [w]e are not prepared to extend to the area of general contract law the tort of bad faith that we have recognized in the context of insurance policy cases. 495 So.2d at 1388. There was no error in the trial court's entering the summary judgment as to claims in tort for an alleged breach of the duty of good faith. Neither does § 7-1-203 support a claim in contract. In Chandler v. Hunter, 340 So.2d 818, 821 (Ala.Civ.App.1976), the Court of Civil Appeals addressed the question of whether this Code section created a cause of action: The second count of the complaint appears to allege a cause of action arising from defendants' failure to deal in good faith as required by Title 7A, Section 1-203, supra. That section states: `Every contract or duty within this title [Commercial Code] imposes an obligation of good faith in its performance or enforcement.' Failure to act in good faith in the performance or enforcement of contracts or duties arising under Title 7A does not state a claim for which relief may be granted in Alabama. The reasoning in Chandler v. Hunter, supra, is that § 7-1-203 is directive rather than remedial; and this interpretation, while refuted by Reid v. Key Bank, 821 F.2d 9 (1st Cir.1987), has support from other courts that have interpreted this provision of the Uniform Commercial Code. See Management Assistance, Inc. v. Computer Dimensions, Inc., 546 F.Supp. 666 (N.D.Ga.1982), aff'd 747 F.2d 708 (11th Cir. 1984); State v. DeAnza Corp., 416 So.2d 1173 (Fla.Dist.Ct.App.1982); Washburn v. Union National Bank & Trust Co., 151 Ill.App.3d 21, 104 Ill.Dec. 242, 502 N.E.2d 739 (1986); Super Glue Corp. v. Avis Rent-A-Car System, Inc., 132 A.D.2d 604, 517 N.Y.S.2d 764 (1987). This Court has impliedly adopted this reasoning in Harrell v. Reynolds Metals Co., supra; and Kennedy Electric Co. v. Moore-Handley, Inc., supra. In Pavco Industries, Inc. v. First National Bank, supra, we held that §§ 7-1-203 and 7-1-208 did not support a cause of action for breach of the obligation of good faith in the context of a demand note. In doing so, we declined to follow Reid v. Key Bank, supra (the only case that we have found that has criticized the holding in Chandler v. Hunter, supra), and K.M.C., supra, which are two cases that Lumber Company and Blacksher present in their brief as authority for permitting a cause of action in contract for breach of the obligation of good faith and fair dealing. We expressly adopt the reasoning of the Alabama Court of Civil Appeals in Chandler v. Hunter, supra, that failure to act in good faith in the performance or enforcement of contracts arising out of Title 7A does not state a claim for relief that may be granted in Alabama, since § 7-1-203 is directive rather than remedial. Assuming that we followed the rationale of Reid v. Key Bank, supra, which we do not, even then we could not reverse the summary judgment as to Count One, the count that alleges a contract action for failure to act in good faith, because, for purposes of § 7-1-203, [1] `[g]ood faith' means honesty in fact in the conduct or transaction concerned. Alabama Code 1975, § 7-1-201(19). There is no evidence of dishonesty in fact on the part of AmSouth employees. All those things that the plaintiffs claim AmSouth did that were so egregious were things either specifically permitted or not prohibited under the financing agreement that Lumber Company and its lawyer agreed to in 1983. Under that agreement, AmSouth had a right to monitor Lumber Company's accounts receivable; to require deposits into the blocked account; to disqualify accounts from the lending base; to lend no more than required under the financing agreement; to ask for proceeds from the plywood antitrust litigation on which it had a valid lien; and to dishonor checks drawn on insufficient funds. The obligation to act in good faith does not bar a party from enforcing whatever legal rights he possesses. In the name of good faith, a party cannot be required to forego or surrender a right that he otherwise possesses. Rigby Corp. v. Boatmen's Bank & Trust Co., 713 S.W.2d 517, 535 (Mo.App. 1986). There is not a scintilla of evidence (this action was filed prior to June 11, 1987; see Code 1975, § 12-21-12) that AmSouth acted dishonestly in fact, in the performance, or in the enforcement, of the financing agreement. The trial court did not err in entering AmSouth's summary judgment as to Counts One and Two.