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Gorca Systems, Inc. v. Commerce Bank, N.A.

A-3339-01T5 (N.J. Super. App. Div. 2003) (Unpublished)

LOAN COMMITMENTS—To be enforceable, a loan commitment must be in writing, and even if there may be a verbal commitment for a series of loans, when a borrower closes on some of the loans and not the others, such partial performance will not serve to bind the lender to make the other “verbal” loans.

Borrowers, intending to purchase commercial property, had discussions with a bank regarding various financing possibilities. The bank presented an oral package proposal for four commercial loans. The borrowers and bank closed two of the four loans. The other two loans were committed for lesser amounts than originally contemplated and did not close. The borrowers sued the bank for breach of its implied duty of good faith and fair dealing. They also claimed that the bank was guilty of fraudulent misrepresentation, breach of fiduciary duty, and breach of contract. The lower court found that in order to be guilty of a breach of an implied duty of good faith there must first be an enforceable contract. The statute of frauds requires that agreements to lend money be in writing. The borrowers failed to show the existence of a written agreement with the bank required to lend the greater amounts. They only showed there were negotiations and a verbal offer, but no formal contract. Therefore, there was no implied duty of good faith. The borrowers appealed. They claimed that the bank could not assert a statute of frauds defense because of the bank’s own fraud. The Appellate Division disagreed and affirmed the lower court’s holding because the borrowers only demonstrated that the bank offered a possibility of loans in greater amounts, but a “possibility” is not an enforceable contract. The Court also rejected the borrowers’ attempt to bypass the statute of frauds. The borrowers claimed that by closing on two of the four loans, the borrowers partially performed an oral contract which then obligated the bank to close all of the loans in the higher amounts. The Court noted that at the time the first two loans closed, the bank had offered the second two loans at lesser amounts. It found that even if there was a verbal agreement to fund all four loans at the higher amounts, it was repudiated by the bank at the time it offered commitments for the other two loans at lesser amounts. The Court also rejected the borrowers’ claim of breach of fiduciary duty, finding that the bank had no duty to prevent a customer from pursuing a course of action, such as purchasing property, in anticipation of a written commitment.


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