K.M.C. Co. V. Irving Trust Co‪.‬

Kennedy, Circuit Judge. Irving Trust Company (Irving) appeals from a judgment entered against it in this diversity action for breach of a financing agreement. K.M.C. is a Tennessee corporation headquartered in Knoxville and engaged in the wholesale and retail grocery business. In 1979, Irving and K.M.C. entered into a financing agreement, whereby Irving held a security interest in all of K.M.C.'s accounts receivable and inventory and provided K.M.C. a line of credit to a maximum of $3.0 million, increased one year to $3.5 million at a lower rate of interest, subject to a formula based on a percentage of the value of the inventory plus eligible receivables. On March 1, 1982, Irving refused to advance $800,000 requested by K.M.C. This amount would have increased the loan balance to just under the $3.5 million limit. K.M.C. contends that Irving's refusal without prior notice to advance the requested funds breached a duty of good faith performance implied in the agreement and ultimately resulted in the collapse of the company as a viable business entity. Irving's defense is that on March 1, 1982, K.M.C. was already collapsing, and that Irving's decision not to advance funds was made in good faith and in the reasonable exercise of its discretion under the agreement.