Lenders’ acquiescence to actions inconsistent with terms of Blocked Account Agreement resulted in abandonment and waiver of Lenders’ right to enforce the agreement. Edwards Family Partnership, LP v. Bancorpsouth Bank, ___F. Supp. 3d___, 2017 WL 1732709 (S.D. Miss. February 21, 2017).
A Blocked Account Agreement (“BAA”) among the plaintiff-lenders (“Lenders”), the defendant-bank (“Bank”), and the borrower included provisions requiring the Bank to restrict the manner in which the borrower could transfer deposited funds. Specifically, the BAA required the borrower to transfer money from Blocked Accounts to only the Concentration Account. Nevertheless, the borrower made distributions out of a Blocked Account to accounts other than the Concentration Account. The Lenders alleged in their complaint that the Bank breached the BAA by permitting the borrower to make these unauthorized transfers and failing to notify the Lenders of the borrower’s unauthorized practice under the BAA.
The Bank moved for summary judgment, raising an abandonment/waiver defense (among other defenses the court denied as moot). The Bank presented evidence that the individual who controlled the Lenders aware of the transfers that deviated from the BAA provisions governing transfers of Blocked Accounts. Nevertheless, despite this knowledge, which the court imputed to the Lenders, the Lenders did nothing to stop these deviations, expressly permitted the deviations to continue, and otherwise did not insist that the Bank uphold its obligations under the BAA to monitor and prohibit such transfers or otherwise notify the Lenders.
The district court granted the Bank’s motion for summary judgment against the Lenders. The Court, relying on Mississippi contract law, reasoned that because the Lenders failed to rebut competent evidence that the individual who controlled the Lenders was aware of the borrower’s deviation from the BAA but failed to insist that the Bank uphold its obligations under the BAA and notify the Bank of these deviations, the Bank established the abandonment/waiver defense. The court rejected the Lenders’ argument that the Bank bore the burden of objecting to a “course of dealing” that deviated from the BAA. The court reasoned that because the Lenders enjoyed the right to require the Bank to prevent wrongful transfers, the Lenders had the obligation to insist on that right.
