Ohio’s 5th District Court of Appeals upholds a lender’s right to negotiate a loan in good faith without sacrificing its rights under existing loan terms.
In General Electric Capital Corp. v. Tartan Fields Golf Club, Ltd.,
Ohio’s 5th District Court of Appeals affirmed summary judgment in favor of the plaintiff-lender on its lawsuit to foreclose on a $13.3 million note to the defendant golf course. Two years after initially entering into the $13.3 million promissory note, Tartan Fields Golf Club sought to restructure the loan repayments. GE Capital agreed to so negotiate, pursuant to a Pre-Negotiation Agreement. The agreement specifically preserved each party’s rights, claims and defenses. The original loan documents required Tartan Fields to make an installment payment that Tartan Fields failed to make. GE Capital filed a foreclosure lawsuit. Tartan Fields defended on numerous grounds, including breach of good faith and fraudulent inducement – in effect, that GE Capital waived its rights to enforce the original note because it was negotiating a restructuring of that note. The trial court and the 5th District disagreed, holding that the Pre-Negotiation Agreement expressly preserved the lender’s preexisting rights and claims and that nothing in the Pre-Negotiation Agreement required the lender to terminate negotiations before filing the foreclosure lawsuit. Further, the courts concluded the lender did not commit fraud or act in bad faith by merely enforcing its rights under the existing note. The GE Capital Corp.
decision is significant for many reasons: (1) a lender does not act in bad faith by negotiating in good faith the terms of an existing loan agreement while simultaneously protecting its business interests under that existing agreement, and (2) lenders should be careful to include preservation language in any negotiation agreement in order to preserve this defense.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.