- New Cause of Action from Business Court?
- August 5, 2016 | Author: Ron Jones
- Law Firm: Nexsen Pruet, LLC - Charleston Office
- In a recent case from the Business Court in Brunswick County, a North Carolina Judge held that Defendants could assert a claim for breach of the duty to negotiate in good faith finding that negotiations for a loan modification and renewal gave rise to a genuine issue of material fact as to whether the parties had entered into a “binding preliminary agreement.” RREF BB Acquisitions v. MAS Properties, LLC, No. 13 CVS 193, 2015 NCBC 58, 2015 WL 3646992 (N.C. Super. Ct. June 9, 2015).
The case involved companies who had borrowed a total of $5.3 million from BB&T on two separate loans. The loans had a relatively short maturity, but the parties had routinely agreed to modify, extend or renew the loans on an annual basis for a number of years. The same companies also had loans with Bank of America. During negotiations between the companies and BB&T, Bank of America instituted a foreclosure action and an action for the appointment of a receiver as to its loans with the companies. Once BB&T learned of the filing of the action, it decided not to renew the notes and notified the companies in writing of the decision not to renew just one month prior to the scheduled maturity. When Bank of America’s receivership motion was denied, the companies and BB&T attempted to renegotiate the loans. The parties apparently reached a tentative agreement and “shook hands” after a meeting to discuss the proposed amendment. Thereafter, BB&T sent a “term sheet” intended to be BB&T’s “best and final offer” which specifically disclaimed that the term sheet represented a binding commitment. When the companies responded with a counterproposal, the Bank “went dark” and ceased communication with the companies. BB&T sold the loan to RREF BB Acquisitions who refused to renegotiate the terms and filed suit. The companies counterclaimed asserting several causes of action including the duty to negotiate in good faith. On cross motions for summary judgment, the Court noted that there was an issue of fact as to whether there was “a binding preliminary agreement to continue to negotiate in good faith” and noted a trend in favor of recognizing such claims. The Court also noted that a breach of the duty to negotiate in good faith could also constitute an unfair or deceptive trade practice. Six months later, on a Motion to Reconsider filed by RREF, the Court allowed summary judgment for the Plaintiffs based on other grounds without mention of the duty to negotiate in good faith.
The duty to negotiate in good faith has not been officially recognized as a cause of action in North Carolina in any appellate decision. However, many jurisdictions have recognized this cause of action or others like it and the claim will likely be raised in future cases. When negotiating, Lenders would be well advised to have this case in mind and consider pre-negotiation agreements that clearly indicate that no party is bound unless and until a final written agreement as to all terms is reached and executed by the parties.