Bank of America, N.A. v. New England Quality Service, Inc., 790 F. App’x 314 (2d Cir. 2019)
In August of 2012, New England Quality Service, Inc. and affiliates (the “Borrowers”) entered into a loan agreement with Bank of America, N.A. (the “Lender”). Over the next few years, the Borrowers expanded their relationship with the Lender, entering into additional lending agreements while simultaneously beginning work on a loan consolidation program. During this period, the Lender agreed to extend expiration dates of the original credit facilities until ultimately sending various written notices of defaults, demand, and reservation of rights letters due to lack of payment and financial covenant violations of the Borrowers. The Lender filed suit to enforce its rights. The district could granted the summary judgment motion of the Lender and the Borrowers appealed.
The Borrowers argued that the Lender had waived its right to enforce any future events of default by means of its original extension of the maturity dates as well as its waiver of financial covenant violations under a theory of “implied waiver”. Holding otherwise, the court stated that the written notices extending maturity dates in fact stated that the Lender was not committing “to extend the Credit beyond the date specified”, and that any waiver of a covenant breach was in regard to a specific instance for a specific loan. The Lender had even told the Borrowers, “the importance of meeting the requirement in the future”. The court noted that if the Borrowers truly believed that the Lender had waived all of its rights to enforce the terms of these loans, they wouldn’t have complied with submitting compliance certificates as they continued to do.
The Borrowers also argued that the preliminary loan consolidation program was in fact an enforceable agreement, and that the Lender had partially performed under this agreement and therefore should be bound to it. The court analyzed the two factors under Vermont law which determine the existence of an enforceable contract: the parties intention to be bound, and the definiteness of the terms in the communications between the parties. Both factors led the court to conclude no contract existed. Internal documents from the bank used the term “proposed credit facilities” which were never shared with the Borrowers, interest rates and repayment schedules were never determined, and nothing in terms of a preliminary agreement was ever put forth in writing as would be in the case of financing agreements. And while the Lenders did extend additional credit that was discussed as part of a loan consolidation program, the evidence did not indicate this extension was an “inextricable part of any agreement” and therefore was not partial performance. Therefore, the court concluded the preliminary agreement was not binding and was not an enforceable agreement.
The judgement of the district court was affirmed.
Contributed by Kevin Braun of Morgan Lewis & Bockius LLP