Article courtesy of Paige Forcier, Ann Bennett and Kevin Braun (Morgan Lewis)
Grassia v. Dean Bank, 105 Mass. App. Ct. 1134 (2025)
On May 22, 2018, Dean Bank (the “Bank”) issued a commitment letter regarding the terms of a $200,000 mortgage loan note (the “Note”), which the Bank later issued to Janis Spencer, trustee of the Main Street Millis Realty Trust (the “Borrower”), secured by property at 39 Main Street, Millis, Massachusetts. The Note was guaranteed by Beau Grassia, president of the restaurant King Street Café on the Charles (together with the Borrower, the “Obligors”). At the closing, the Bank did not disburse the entire $200,000 loan amount and instead used a portion to pay off a prior mortgage and disbursed $65,000 to the Borrower, leaving $73,273.98 undisbursed.
The Bank claimed that the Note was a construction loan, as described in the commitment letter, that required the Borrower to request disbursements and allowed the Bank certain inspection rights of the project before it was required to make disbursements. The Note called for payments of principal and interest on the entire $200,000 amount despite not being fully funded, and the Bank asserted over the next year and a half that the Obligors did not meet the conditions for further disbursements (other than a $7,000 disbursement for insulation). But the Obligors contended that, to the extent that the disbursements were conditioned on satisfaction of certain project-related conditions, they were unable to meet those conditions as they could not continue to work on and/or complete the project due to depleted resources and needed the Note proceeds to move forward with the project. The Obligors filed various lawsuits against the Bank, alleging breach of contract, fraudulent inducement, and violation of G. L. c. 93A (a Massachusetts consumer protection claim (the “93A Claim”)), all of which were consolidated by the trial court.
Both the Bank and the Obligors moved for summary judgment. The trial court judge granted the Bank’s motions for summary judgment and denied the Obligors’ cross-motion (presumably because, without either a breach of contract or fraudulent inducement to issue the Note, there is no basis for the 93A Claim). The Obligors appealed the trial court’s decisions.
On appeal, the Bank relied on the provisions in the commitment letter for its argument that the Note was subject to disbursement conditions, as the letter included express language indicating that the agreements therein would survive the closing date and be effective after the loan closed. But the Appeals Court of Massachusetts (the “Appeals Court”) noted that, because the Note did not specify any conditions for disbursement, and the commitment letter was not incorporated into the Note, the commitment letter was irrelevant and the Note itself controls. The Appeals Court noted in its reasoning that, even if the commitment letter governed, the language regarding conditional disbursements only applied if the loan was a “construction loan” as described therein and it found no evidence of a construction loan agreement. The Appeals Court specifically mentioned in its reasoning that the Note itself said nothing about this being a construction loan and instead appeared to be an ordinary mortgage loan note. The Appeals Court also highlighted that there was no documentation regarding why only $65,000 was disbursed upon closing, neither the Note nor the commitment letter provided a disbursement schedule indicating what funds are to be withheld and how, and there were no references to plans or specifications, all of which are often features of construction loans.
The Appeals Court reversed the lower court’s grant of summary judgment in favor of the Bank on the Obligors’ breach of contract claims, instead entering judgment in favor of the Obligors on those claims, and vacated the lower court’s dismissal of the 93A Claim.
