Good Faith and Fair Dealing: When the Lender Makes Repayment Impossible

Nearly every contract in the United States carries a term that nobody writes down. Courts call it the implied covenant of good faith and fair dealing, and the Restatement (Second) of Contracts sets it out at §205. Its most quoted formulation is a negative one: neither party may do anything that destroys or injures the other party's right to receive the benefits of the agreement. You are not required to help your counterparty succeed. You are forbidden to make their performance impossible. ^[4]

This archive documents a proceeding in Israel, under Israeli law. But the contract question at its centre is one an American reader will recognise at once, because American law arrives at it by an almost identical route.

What the contract required

The loan agreement was signed in December 2021 with a leasing company, to finance the purchase of a vehicle. According to the borrower, three of its clauses matter here. One obliged the lender to notify him in writing of any material change — including a change of address, of contact channels, and of the means of payment. A second gave him the right to repay the loan early. A third required the lender to give him written notice before it could call in the entire balance. ^[1]

In early 2023 the original lender was absorbed into a larger banking group. The borrower says he was never notified. The original lender's website went offline. The address written into the contract and the address later used in the enforcement filing are not the same address. ^[1]

Told there was no loan

In October 2023, after the outbreak of war, the borrower says his business collapsed and he approached his personal banker to defer payments under the arrangement the Bank of Israel had published for such cases. He says he was told that no loan was registered in his name at all. ^[2]

An affidavit filed by the lender in June 2024 describes its own efforts to reach him, and among them an approach to a member of staff at a particular branch. By the borrower's account, that is the same branch where he held his accounts and where he had been told no loan existed. ^[3]

The prevention doctrine, and the buyer who was waiting

In April 2024 the borrower wrote twice to a support address he had managed to find, asking for the outstanding balance and for the figure needed to close the loan. He says he received no reply. He also says a real buyer had been found for the vehicle — which, under the contract, would have let him sell it and discharge the loan in full. ^[2]

American law has a specific answer to this shape of facts. Under §245 of the Restatement, where one party's own conduct contributes materially to the non-occurrence of a condition, that condition is excused — the party who caused the failure cannot hide behind it. The claimant must show that a condition existed, that the other side prevented it by act or omission, that the interference mattered, that it was not something the contract permitted, and — the element that usually decides these cases — that he was ready, willing and able to perform. ^[4]

That last element is the reason the buyer matters. A borrower who merely says he would have paid is making a claim about his intentions. A borrower who had a buyer, and an unanswered request for a payoff figure, is making a claim about the record.

Good faith is not a technicality

It is tempting to read all of this as procedure — a missed notice, a stale address, an email that went to the wrong inbox. But the covenant of good faith is not a procedural rule, and American courts have never treated it as one. It exists because a contract is not only a list of obligations. It is a relationship in which each side holds part of the other side's ability to perform. A lender holds the account number, the address, the identity of whoever now manages the loan. Hold all of that and say nothing, and the borrower's duty to pay becomes a duty he cannot discharge.

The oldest intuition in the law of contract is also the simplest one: you cannot lock the door and then complain that nobody came in. Whether that is what happened here is for a court to decide. What this publication sets out is the question.

One further point is on the record and remains unresolved. The borrower says the promissory note was given to secure the outstanding balance of the loan, and that the balance was lower than the original principal. The note was filed for enforcement in the amount of the original principal. ^[1]

AI assisted in drafting this text. The content was reviewed and approved before publication. Nothing here is legal advice.