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Parke Bank v. Pagco, Inc.

A-5664-04T3 (N.J. Super. App. Div. 2006) (Unpublished)

LOANS; PAYOFFS — A loan payoff letter is an irrevocable offer for the time limit in the offer and acceptance must satisfy every condition of the offer, therefore, absent factual circumstances interfering with a lender’s right, a lender has the right to rescind its offer to release a lien.

A construction company pledged property as collateral for a construction loan. The property was then encumbered by a first lien. After the construction project suffered delays, and as its lender’s condition to continue to finance the project, the construction company hired a manager who would try to reduce the budget. In consideration for the manager’s services, the construction company sold him the property pledged as security for the loan. The lending bank agreed to release its secondary lien on the property in exchange for $50,000. At closing, the manager only provided funds to pay the first lien. Despite this shortage of funds, the construction company provided a fully executed deed to the title company. By the time the lender learned that it never received its payoff, the project had experienced significant cost overruns. Because of these cost overruns, the lender refused to accept the payoff funds to release the lien. The lender filed a foreclosure complaint. The lower court granted summary judgment against the lender and discharged the lender’s mortgage.

The lender argued its initial payoff letter was an offer to enter into a unilateral contract. A unilateral contract contains a promise by one party and consideration that has been performed by the other party. Such an offer is irrevocable for the time limited in the offer. Acceptance must satisfy every condition of the offer. Here, the lender claimed that the delay in transmitting the payoff funds authorized the lender to rescind its offer to release its lien. The Appellate Division found too many outstanding issues of fact to sustain the order granting summary judgment. It could not determine why: the manager failed to bring sufficient funds to the closing; the title company failed to notify the lender of the deficiency; the bank failed to inquire as to the status of the closing or the location of its payoff funds; or the title company accepted a fully executed deed without having enough funds to discharge all the liens. Summary judgment is appropriate only if there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. Because there were numerous outstanding factual issues, the lower court’s order granting summary judgment was reversed and the matter was remanded for a full trial.

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