In the second amended complaints, plaintiffs included two additional causes of action that had not been included in the prior pleadings: (1) breach of option contract (count 13 in the Carrott action and count 11 in the Careau Group action) and (2) bad faith denial of existence of contract (count 14 in the Carrott action and count 12 in the Careau Group action).

To be precise, as we have already noted, the demurrer was sustained as to 16 of the 22 counts alleged in these consolidated amended complaints. A motion for judgment on the pleadings was granted as to five additional counts and the last remaining count was dismissed pursuant to stipulation in order to permit a final judgment to be entered.

As we explain in greater detail below, we will treat the second amended complaints as the operative pleadings and examine them to determine if a cause of action has been stated under any cognizable legal theory.

Carrott was the founder, president and sole shareholder of the corporate plaintiff, Careau & Co.

An examination of the proposed second amended complaints demonstrates SPEC is the corporate defendant with whom plaintiffs apparently exclusively dealt during this entire matter. Two other corporate defendants are also named, (1) Security Pacific National Bank (SPNB), a national banking association, doing business in California and (2) Security Pacific Corporation (SPC), a Delaware corporation, also doing business in California. However, there are no allegations describing the corporate or contractual relationships, if any, between SPEC on the one hand and these additional corporate defendants. In any event, these two defendants are charged only in counts eight, nine and ten.

Plaintiffs do not allege the specific reason or purpose for the issuance of this new letter, beyond the conclusionary assertion that it was SPBC’s purpose to move from a “letter of intent” to a “commitment letter.” However, in the original complaint filed in the Carrott action, and which was verified by Carrott on November 22, 1983, it is alleged that the August 25 letter “was an amended financing plan which modified the July 19, 1983 letter of intention in such a way so that a commitment and agreement would be made by SPEC in accordance with terms and conditions as expressed in [the August 25 letter] in the manner as alleged herein.” (Italics added.) In addition, this verified pleading also specifically alleged that, by the August 25 letter, SPEC had agreed to provide financing according to “the terms and conditions of [the August 25 letter].” (Italics added.)

Section 8 of the August 25 letter spelled out the conditions:

The 12 common causes of action asserted are, (1) breach of written commitment contract, (2) breach of oral commitment contract, (3) promissory estoppel, (4) tortious breach of implied covenant of good faith and fair dealing, (5) specific performance, (6) fraud, (7) negligent misrepresentation, (8) conspiracy to induce breach of contract, (9) interference with prospective business advantage, (10) interference with business relationship, (11) breach of option contract (count 13 in Carrott action) and (12) bad faith denial of existence of contract (count 14 in Carrott action).

Indeed, it appears that the trial court denied the plaintiffs’ motion for reconsideration because of its perception that Code of Civil Procedure section 1008 required plaintiffs to present new facts and chided them for having “no new factual situation.” The court further stated: “You’re basing [the proposed second amended complaints] on the same set of facts. The facts aren’t going to change. You had all of these facts. All of these facts were there when you filed the complaint.” In addition, at the January 8, 1988, hearing on plaintiffs’ objections to de*1387fendants’ proposed statement of decision for the demurrers, the court stated that the plaintiffs had, in their motion for reconsideration, “alleged no new facts.” The court went on to state: This was not correct. Code of Civil Procedure section 1008, subdivision (a), does not require that the support for a motion to reconsider be based upon “new facts.” It is only necessary that the motion be based upon an “alleged different state of facts” than the original motion. (Rains v. Superior Court, supra, 150 Cal.App.3d at pp. 943-944; Blue Mountain Development Co. v. Carville (1982) 132 Cal.App.3d 1005, 1012-1014 [183 Cal.Rptr. 594]; Graham v. Hansen (1982) 128 Cal.App.3d 965, 970-971 [180 Cal.Rptr. 604].) Thus, the trial court should have specifically examined the proposed pleadings attached to the reconsideration motion to determine whether the added allegations were sufficient to state one or more valid causes of action.

As already noted, defendants’ demurrers disposed of only some of the causes of action in the first amended complaints. The rest (except for the 12th cause of action in the Carrott complaint which was ultimately dismissed without prejudice pursuant to stipulation) were decided by a subsequent motion for judgment on the pleadings. However, given the nature and procedural function of a motion for judgment on the pleadings, our determination to decide the issues based upon the adequacy of the allegations of the second amended complaints will necessarily resolve any questions as to those counts as well.

The letter states that, “If we conclude, for any reason, that we will not make the loan to you, we will return the balance of the [$10,000] deposit after deducting all costs and expenses actually incurred by us in connection with our review of your application.” To emphasize that a commitment to make the loan had not been reached as of the date of this letter, it further stated that in the event “we conclude that we will make the loan” and plaintiffs do not complete the borrowing, then the said deposit may be retained by the defendants.

See footnote, ante, page 1371.

Plaintiffs also alleged, as part of this cause of action, that defendants had denied, “in bad faith and without a reasonable basis therefore,” the existence of the contractual obligation to provide the financing described in the August 25 letter. This claim is really central to another cause of action which plaintiffs have also sought to plead. (See fn. 21 ,post.)

As evidenced by the arguments advanced by plaintiffs there appears to be some confusion with respect to both the use and scope of a cause of action for a breach of the implied covenant of good faith, particularly in the noninsurance contractual context. Therefore, in the hope that it will contribute to both clarity and consistency, we review the history and recent developments of this theory.

The terms “good faith” and “bad faith” have, from time to time, been variously defined. In Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 921-922, fn. 5 [148 Cal.Rptr. 389, 582 P.2d 980], the Supreme Court, in discussing the concepts of “good faith” and “bad faith,” commented: “As stated by the draftsmen of the Restatement of Contracts, ‘[t]he phrase “good faith” is used in a variety of contexts, and its meaning varies somewhat in the context. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes [from consideration] a variety of types of conduct characterized [in other contexts] as involving “bad faith” because they violate community standards of decency, fairness or reasonableness.’ (Rest.2d Contracts (Tent. Draft Nos. 1-7) § 231, com. a.)”

The same conduct does not necessarily result in a breach of both a consensual contract term and the implied covenant of good faith. (See, e.g., Schoolcraft v. Ross, supra, 81 Cal.App.3d at pp. 80-81; Wilkerson v. Wells Fargo Bank (1989) 212 Cal.App.3d 1217, 1230-1231 [261 Cal Rptr. 185]; Sheppard v. Morgan Keegan & Co. (1990) 218 Cal.App.3d 61, 66-67 [266 Cal.Rptr. 784].) In Schoolcraft, the court awarded contract damages to the trustor under a deed of trust upon the theory that the beneficiary’s conduct, in applying fire insurance proceeds to the secured debt rather than to the reconstruction of the insured residence, was a breach of the covenant of good faith implied in the trust deed. While such choice was permitted by the express terms of the trust deed, and thus there was no breach of those terms, the court found that the choice had been made in bad faith and had deprived the trustor of the benefit of the agreement without necessarily enhancing the beneficiary’s security. This result was simply an application of the rule that “ ‘[w]here a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.’ [Citations.]” (Kendall v. Ernest Pestaña, Inc. (1985) 40 Cal.3d 488, 500 [220 Cal.Rptr. 818, 709 P.2d 837], quoting Cal. Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 484 [289 P.2d 785, 49 A.L.R.2d 496].) In such circumstance, a breach of the implied covenant can result from conduct permitted by the express (or implied-in-fact) terms of the contract. (See also, Milstein v. Security Pac. Nat. Bank (1972) 27 Cal.App.3d 482, 487 [103 Cal.Rptr. 16].) In Wilkerson, plaintiff sued on an alleged contract of employment that he would not be terminated except for cause. The court held that even though the employer may have had a good faith belief that such “good cause” existed, such belief would be a defense only to an action for breach of the covenant, but would not provide a defense to breach of contract. In Sheppard, the plaintiff had left his stock analyst position in California to accept a similar job in Tennessee but was terminated before he could begin work. The court held that while there was no agreement not to terminate except for cause, and thus no breach of a consensual contract term, the implied covenant of good faith required that the employer at least give the new employee an opportunity to demonstrate his ability to satisfy the requirements of the job. (See also, Murray v. State Farm Fire & Casualty Co. (1990) 219 Cal.App.3d 58, 65 [268 Cal.Rptr. 33].)

Several California cases have defined the offensive conduct as “bad faith action, extraneous to the contract, with the motive intentionally to frustrate the [other party]’s enjoyment of contract rights.” (Sawyer v. Bank of America (1978) 83 Cal.App.3d 135, 139[145 Cal.Rptr. 623]; Khanna v. Microdata Corp. (1985) 170 Cal.App.3d 250, 262 [215 Cal.Rptr. 860].) Such definition has been recently criticized by the Supreme Court, but only in the context that it was uncritically applied to justify a tort remedy rather than contract damages. (Foley, supra, 47 Cal.3d at p. 689.)

In Tameny, the court sanctioned a tort remedy for the termination of a long-term employee who refused the employer’s direction to engage in activities which were criminal violations of the antitrust law. The court concluded its opinion with a footnote reference to the breach of the covenant implied in the employment agreement: “In light of our conclusion that plaintiif’s complaint states a cause of action in tort under California’s common law wrongful discharge doctrine, we believe it is unnecessary to determine whether a tort recovery would additionally be available under these circumstances on the theory that Arco’s discharge constituted a breach of the implied-in-law covenant of good faith and fair dealing inherent in every contract. We do note in this regard, however, that authorities in other jurisdictions have on occasion found an employer’s discharge of an at-will employee violative of the employer’s ‘good faith and fair dealing’ obligations, [citations], and past California cases have held that a breach of this implied-at-law covenant sounds in tort as well as in contract. (See, e.g., Comunale v. Traders General Ins. Co. (1958) 50 Cal.2d 654, 663 [328 P.2d 198, 68 A.L.R.2d 883]; Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 432-433 [58 Cal.Rptr. 13, 426 P.2d 173]; Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 574. . . .” (Italics added.) (Tameny, supra, 27 Cal.3d at p. 179, fn. 12.)

The precise issue before the court was defined at the outset of the opinion by the question, “May a plaintiff recover in tort for breach of an implied covenant of good faith and fair dealing in a noninsurance, commercial contract?” (Seaman’s, supra, 36 Cal.3d at p. 758.)

The Seaman’s court explained its reluctance by stating that, “When we move from such special relationships [as are recognized as the basis for tort liability in insurance cases] to consideration of the tort remedy in the context of the ordinary commercial contract, we move into largely uncharted and potentially dangerous waters. Here, parties of roughly equal bargaining power are free to shape the contours of their agreement and to include provisions for attorney fees and liquidated damages in the event of breach. They may not be permitted to disclaim the covenant of good faith but they are free, within reasonable limits at least, to agree upon the standards by which application of the covenant is to be measured. In such contracts, it may be difficult to distinguish between breach of the covenant and breach of contract, and there is the risk that interjecting tort remedies will intrude upon the expectations of the parties. This is not to say that tort remedies have no place in such a commercial context, but that it is wise to proceed with caution in determining their scope and application.” (36 Cal.3d at p. 769, fn. omitted.)

As we noted in footnote 13, ante, plaintiffs also seek to sustain a cause of action on this theory and we discuss those efforts below. However, the Supreme Court has twice emphasized that such theory is not, as a matter of law, based upon a breach of the implied covenant of good faith. (Seaman’s, supra, 36 Cal.3d at p. 769; Foley, supra, 47 Cal.3d at pp. 688-689.)

It is arguable that the Seaman’s dicta also suggested that a tortious breach of the implied covenant could result from a defendant’s assertion of a stonewall (“see you in court”) defensive posture (see fn. 26, post). However, apart from a brief reference to this possibility in one opinion (see Multiplex Ins. Agency, Inc. v. California Life Ins. Co. (1987) 189 Cal.App.3d 925, 939 [235 Cal.Rptr. 12]), no court has recognized such a construction of the Seaman’s opinion. While it certainly has contributed to some of the confusion and uncertainty which has trailed in Seaman’s wake (see, e.g., fn. *27,post), it seems more likely that the discussion of a “stonewall defense” (Seaman’s, supra,* 36 Cal.3d at pp. 769-770) was merely a part of the *1398court’s rationale supporting its recognition of the new tort of bad faith denial of contract existence.

The Wallis court set forth the following five characteristics which must be satisfied: “(1) the contract must be such that the parties are in inherently unequal bargaining positions; (2) the motivation for entering the contract must be a nonprofit motivation, i.e., to secure peace of mind, security, future protection; (3) ordinary contract damages are not adequate, because (a) they do not require the party in the superior position to account for its actions, and (b) they do not make the inferior party ‘whole’; (4) one party is especially vulnerable because of the type of harm it may suffer and of necessity places trust in the other party to perform; and (5) the other party is aware of this vulnerability.” (160 Cal.App.3d at p. 1118.)

“If the covenant is implied in every contract, but its breach does not in every contract give rise to tort damages, attempts to define when tort damages are appropriate simply by interjecting a requirement of ‘bad faith’ do nothing to limit the potential reach of tort remedies or to differentiate between those cases properly and traditionally compensable by contract damages and those in which tort damages should flow. Virtually . . . any breach of a contract term . . . could provide the basis for a pleading alleging the discharge was in bad faith under the cited standards.” (Foley, supra, 47 Cal.3d at p. 699.)

A number of cases, including Foley, have concluded that certain relationships are not sufficiently “special” to warrant imposition of a tort remedy for breach of the implied covenant: (1) employer-employee (Foley, supra, 47 Cal.3d at p. 693 and at p. 700, fn. 42, disapproved of Cleary v. American Airlines, Inc., supra, 111 Cal.App.3d 443 “and its progeny”), (2) commercial grower-grain hauler (Quigley v. Pet, Inc. (1984) 162 Cal.App.3d 877, 893 [208 Cal.Rptr. 394]), (3) insurance company-general agent (Multiplex Ins. Agency, Inc. v. California Life Ins. Co., supra, 189 Cal.App.3d at p. 938), (4) distributor-vendor (Premier Wine v. E. & J. Gallo Winery (9th Cir. 1988) 846 F.2d 537, 540), (5) franchisor-franchisee (Martin v. U-Haul Co. of Fresno (1988) 204 Cal.App.3d 396, 412 [251 Cal.Rptr. 17]; Eichman v. Fotomat Corp. (9th Cir. 1989) 871 F.2d 784, 802-803; Little Oil Co. Inc. v. Atlantic Richfield Co. (9th Cir. 1988) 852 F.2d 441, 447), (6) limousine rental company-customer (Rogoff v. Grabowski (1988) 200 Cal.App.3d 624, 632) [246 Cal.Rptr. 185] (7) bank-commercial borrowers and guarantors (Price v. Wells Fargo (1989) 213 Cal.App.3d 465, 476-478 [261 Cal.Rptr. 735]; Mitsui Manufacturers Bank v. Superior Court (1989) 212 Cal.App.3d 726, 730-731 [260 Cal.Rptr. 793]; but see Barrett v. Bank of America (1986) 183 Cal.App.3d 1362, 1369 [229 Cal.Rptr. 16], and Commercial Cotton Co. v. United California Bank (1985) 163 Cal.App.3d 511, 516 [209 Cal.Rptr. 551, 55 A.L.R.4th 1017]) and (8) stockbroker-investor (Trustees of the Capital Wholesale Electric etc. Fund v. Shearson, Lehman Brothers, Inc. (1990) 221 Cal.App.3d 617, 624-625 [270 Cal.Rptr. 566]). One court (Okun v. Morton (1988) 203 Cal.App.3d 805, 826 [250 Cal.Rptr. 220]) has taken a more general view and suggested that no contractual relationship other than insurer-insured would warrant “special relationship” treatment. Only the relationship of bank and depositor has received any endorsement as meeting the criteria for a “ special relationship” (Commercial Cotton Co. v. United California Bank, supra, 163 Cal.App.3d at p. 516) and even that has been strongly criticized. (See Price v. Wells Fargo, supra, 213 Cal.App.3d at p. 476.)

The Seaman’s court explained its rationale for the recognition of tort liability in these circumstances with this comment. “It has been held that a party to a contract may be subject to tort liability, including punitive damages, if he coerces the other party to pay more than is due under the contract terms through the threat of a lawsuit, made ‘ “without probable cause and with no belief in the existence of the cause of action.” ’ (Adams v. Crater Well Drilling, Inc. (1976) 276 Ore. 789 [556 P.2d 679, 681].) There is little difference, in principle, between a contracting party obtaining excess payment in such manner, and a contracting party seeking to avoid all liability on a meritorious contract claim by adopting a ‘stonewall’ position (‘see you in court’) without probable cause and with no belief in the existence of a defense. Such conduct goes beyond the mere breach of contract. It offends accepted notions of business ethics. (See Jones v. Abriani (1976) 169 Ind. 556 [350 N.E.2d 635].) Acceptance of tort remedies in such a situation is not likely to intrude upon the bargaining relationship or upset reasonable expectations of the contracting parties.” (36 Cal.3d at pp. 769-770.) While the Supreme Court in Foley did not directly address this comment in Seaman’s, it is fair to say that it did express considerable skepticism about the viability of a tort recovery which was based upon a defendant’s bad faith conduct in asserting a stonewall (“see you in court”) defense to an ordinary commercial contract. The court acknowledged that while a test of bad faith could be formulated by requiring both objective (no factual basis for an asserted defense) and subjective (no good faith belief that asserted defense was reasonable or justified) elements, it would “not serve to limit initiation and prosecution of litigation based on almost any [breach of contract]” (Foley, supra, 47 Cal.3d at p. 697, fn. 35.) The court made it clear that, at least in the employment context, it did not favor actions which would be based upon the subjective intentions and state of mind of the breaching party. Such actions, it said, “could rarely be disposed of at the demurrer or summary judgment stage.” (Id., at p. 697.)

It is unfortunate that the Seaman’s court neither explained or justified why tort liability could be imposed for a bad faith denial of contract existence but not for the bad faith assertion of any other defense. As Judge Kozinski put it, “It is impossible to draw a principled distinction between a tortious denial of a contract’s existence and a permissible denial of liability under the terms of the contract. The test—if one can call it such—seems to be whether the conduct ‘offends accepted notions of business ethics.’ ” (Oki America, Inc. v. Microtech *1402 Intern., Inc. (9th Cir. 1989) 872 F.2d 312, 315 (conc. opn. of Kozinski, J., quoting Seaman’s, supra, 36 Cal.3d at p. 770).) Such test would seem to be equally applicable to the assertion of any defense in bad faith, as the Seaman’s court may have recognized in its dictum concerning the assertion of the “stonewall defense.” (Seaman’s, supra, 36 Cal.3d at pp. 769-770; see also, fn. 26, ante.)

The standard in Sheldon Appel Co. for probable cause has also been applied in determining the existence of “reasonable cause” to bring an action under the Tort Claims Act for the purpose of making an award of attorney’s fees under Code of Civil Procedure section 1038. (Ramsey v. City of Lake Elsinore (1990) 220 Cal.App.3d 1530, 1540 [270 Cal.Rptr. 198]; Carroll v. State of California (1990) 217 Cal.App.3d 134, 141-142 [265 Cal.Rptr. 753]; see also, BAJI No. 7.87 (1990 new) and related Use Note.)

In our view, this situation is analogous to the complaint which includes allegations indicating the existence of a defense to the claim (e.g., that the statute of limitations has run). In such circumstance, specific facts negating that defense must be alleged. General or conclusionary allegations will not suffice. (Saliter v. Pierce Brothers Mortuary (1978) 81 Cal.App.3d 292, 297 [146 Cal.Rptr. 271].)

See footnote, ante, page 1371.