Webster Bank, N.A. v. Dibello Batista, Index No. 450520/14, 1/13/15 (Ramos, J.)

Contract; standby creditor agreement; notice; condition precedent.

By Caroline Faughnan | Staff Writer

Defendants were shareholders of a corporation. Plaintiff bank financed the purchase of defendant’s shares from borrowers. This stock purchase agreement (“SPA”) was contingent upon the execution of a standby creditor agreement (“SCA”). In the SCA, defendants had agreed, among other things, to subordinate their rights to plaintiff’s rights. This included accepting payment from borrowers and agreeing not to take action to enforce claims against borrowers until the earlier of: (1) satisfaction of plaintiff’s loan; or (2) 180 days after written notice of default is given by defendants to plaintiff.  Additionally, defendants agreed not to compete with borrowers’ business for eight years as consideration for installment payments.

Defendants filed an arbitration demand against borrowers because borrowers were in default of their obligations to plaintiff and defendant.  In response, plaintiff commenced this action against defendants for their breach of the SCA by failing to provide plaintiff with the requisite 180 day written notice of taking action against the borrowers. Plaintiff contended that defendants lacked the right to bring action against the borrowers under the SCA because defendants failed to provide the requisite notice. Specifically, the notice requirement was a condition precedent to defendant’s right to bring action against borrowers for default. Defendants maintained they were not obligated to provide 180 day written notice because plaintiff was already aware borrowers’ default.  Defendants also argued, in the alternative, that they notified borrowers of defaults in a timely manner.

The court looked to the plain meaning of the SCA and held the parties’ language clearly reflected their intent to create a condition precedent to defendants’ right to take action to enforce claims against borrowers in the event of a default. Additionally, the court found defendants’ contention that providing notice was excused here is unavailing, as the notice requirement was a bargained-for-right. Furthermore, the court found it was unclear when, if at all, defendants provided plaintiff notice of termination of the non-compete agreement. Accordingly, the court ordered a traverse hearing to determine whether defendants effectively provided notice to plaintiff of its election to take action against the borrowers; and granted a preliminary injunction.

Webster Bank, N.A. v. Dibello Batista, Index No. 450520/14, 1/13/15 (Ramos, J.)



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