Article courtesy of Paige Forcier (Morgan Lewis)
Noonan v. CBW Lending, LLC, 107 Mass. App. Ct. 1104, 282 N.E.3d 1164 (2026)
In 2005, Wonderland Greyhound Park Realty, LLC (the “Borrower”) entered into two mortgage financings secured by property in Revere, Massachusetts. The first financing consisted of an $8.82 million loan secured by a first mortgage. The second financing consisted of a $3.929 million promissory note (the “Note”) in favor of E. Mark Noonan (the “Noteholder”), secured by a second mortgage (the “Mortgage”). The Note included a mandatory prepayment provision requiring the Borrower to make a prepayment upon the occurrence of a “Capital Event,” which included certain debt or equity financing generating proceeds in excess of $8.82 million.
Following disputes concerning additional borrowing, the parties entered into a settlement agreement in 2011 that restructured their respective debt and lien rights but did not eliminate the Capital Event provision. CBW Lending, LLC (“CBW”) subsequently acquired the first mortgage and title to the property and, in 2017, after the City of Revere ordered the demolition of grandstands on the property, borrowed $5 million and granted a new mortgage on the property. CBW did not notify the Noteholder, obtain his consent or make a mandatory prepayment under the Note. The Noteholder asserted that the additional financing constituted a Capital Event requiring prepayment under the Note and that the failure to make such prepayment constituted an Event of Default under the Mortgage. The parties disputed the meaning of the $8.82 million threshold in the Capital Event provision. The lower court accepted the position that the provision permitted an additional $8.82 million of financing before the mandatory prepayment obligation was triggered and granted summary judgment against the Noteholder.
The Massachusetts Appeals Court (the “Court”) reversed, concluding that the Capital Event provision was intended to protect the Noteholder from financing in excess of the $8.82 million first mortgage that existed when the Note was issued, rather than to permit an additional $8.82 million of financing. The Court found the contrary interpretation commercially unreasonable in the context of the transaction (particularly because the threshold corresponded exactly to the amount of the contemporaneous first mortgage) and inconsistent with the relevant extrinsic evidence. Accordingly, the Court held that the additional financing breached the Capital Event provision and triggered the Borrower’s mandatory prepayment obligation.
Importantly, the Court also held that the breach constituted an Event of Default under a provision of the Mortgage, providing that a failure to perform any covenant contained in another “Security Document,” which included the Note, constituted an Event of Default. Unlike a separate Event of Default provision applicable to breaches of covenants contained in the Mortgage itself, this provision did not provide the Borrower with a notice or cure period. The Court enforced this distinction and held that no notice or opportunity to cure was required before the Event of Default occurred. The Court also rejected CBW’s argument that the Noteholder suffered no damages because the Note was subsequently paid in full. The Court reasoned that the 2017 Capital Event had accelerated the debt and entitled the Noteholder to payment at that time; the subsequent payoff therefore did not eliminate damages arising from the delay in payment, including the loss of use of the funds during the intervening period. The Court therefore reversed the judgment below and remanded for entry of judgment in favor of the Noteholder and a determination of damages. The decision was issued pursuant to Massachusetts Appeals Court Rule 23.0 and therefore may be cited for persuasive value but is not binding precedent.
The decision demonstrates that courts may give effect to carefully drafted distinctions among Events of Default, including distinctions as to whether a particular default is subject to notice and cure. It also illustrates the importance of clearly drafting debt-incurrence and mandatory prepayment provisions to reflect the intended relationship between existing indebtedness, permitted additional financing and the threshold at which a prepayment or other creditor protection is triggered.
